Climbing Oil Prices Could Threaten Fragile Economic Recovery

Oil prices are on their way up, and that means higher gasoline, airfare and chemical prices could be coming.Light crude oil prices have been climbing in the last few days, closing the week at $88.94 per barrel on the NYMEX. In spite of the bad U.S. jobs report, the declining value of the dollar and concerns that global oil supplies may be tightening helped drive prices up, as well as reports of strong growth in China.

But could high oil prices further weaken the economy? In mid-2008, when oil prices peaked above $140 per barrel, those prices certainly seemed to help slow the economy, but it's hard to say at exactly what point prices began to have that chilling effect. Crude breached $90 a barrel in early spring on its way up to its record high, then fell sharply below $90 in the fall when it became clear that the economy was softening.

Fallout from High Crude Prices

The 2008 crude increase resulted in high prices for gasoline, jet fuel and all petroleum-based chemicals. Airlines and other transportation companies saw their margins fall, and consumers cut back on driving -- but didn't stop driving because they still needed to go to work, take children to school, and make trips to stores and shopping centers. Household budgets were upended.

The farm economy also was hit hard because of its use of tractors and other farm vehicles. The only companies that made out like bandits were the large oil firms. Exxon-Mobil's (XOM) stock hit a record above $90 in the spring of 2008. Now, it rarely trades above $70.

The recovery of the American economy is still tentative. The recent jobs report shows unemployment is increasing instead of decreasing, and most data on U.S. factory activity shows it is tepid. Consumer confidence also remains spotty. And the housing market is still in deep trouble, which continues to rob Americans of the one critical equity pool that they could previously tap to cover expenses.

If oil continues to rise, at some point, the cascade effect that it has on people's budgets -- and on the large industries that rely on oil and petroleum-based products -- will begin to slow economic activity, putting another set of brakes on a fragile recovery.

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estein4124

The banks & investment bankers that obama bailed out, control oil price with your money - Right now they are loving the news in oil rich areas - This allows speculation - Right now there are no production interruptions, & there is so much oil around they can't get it into our harbors fast enough - Oil is high because governments still allows speculation which means the governments are playing banker with the bankers, that is why the banks got bailed out in the first place - Empty your savings accounts & stuff it in a mattress - How much is it making for You anyway - If enough Americans do this the price of everything will come down.

February 22 2011 at 6:41 AM Report abuse rate up rate down Reply
Iron Empress

Is it mere coincidence that on the heels of the Republican victories in November the plundering of the American people starts anew? Remember it was eight years of the economic policies under the stewardship of these rapacious guys and the 'Great Decider' Bush that brought us the Great Recession of 2008 that does not want to go away. The only solution they offer is to make the super-rich mega-rich while gutting government programs to the needy. Capitalism was never about democracy or social justice it's Darwinian theory applied to economics which results in banana republic government.

December 08 2010 at 4:25 PM Report abuse rate up rate down Reply
Gumby

The truth about oil is still out of reach of many of us. We dont understand that oil is a limited commodity. We cant do much about oil prices.. it will go up and up and up ! !

December 06 2010 at 3:44 AM Report abuse rate up rate down Reply
Gumby

When we are done with hiring workers in a few years or sooner, oil prices will be far higher than now. This is probably why we are hesistant about hiring workers after all we will be working for oil companies..

December 06 2010 at 3:42 AM Report abuse rate up rate down Reply
Sam Das

Freedom from oil based economy is coming nearer but before the light goes out on expensive oil it will bite a few more times. Give or take a few more years alternative source of energies will put a sinificant bite on oil consumption.

December 05 2010 at 9:08 PM Report abuse -1 rate up rate down Reply
Big John

At the end of October gas in our area was selling for $2.49 a gallon. I told anyone who would listen if the GOP took the House that gas would be at $3.00 or more by Christmas. It is now at $2.89 a gallon and climbing. The oil companies know they have their buddies in control of the House and they can start the shafting process of America again. To Bad!

December 05 2010 at 4:23 PM Report abuse +1 rate up rate down Reply
AL CONFER

Why is anyone srprised that the price of oil is going up? We have devalued the dollar and the dollar is vertually worthless, so the Arabs drive up the price because the buck has little value. Bernanke has allowed the interest rates to stay so low that it drives up inflation. Get prepared, for huge inflation, and then this economy goes into stagflation. Prices going up and no jobs. It happened before. Prime interest rate went to 22%.

December 05 2010 at 3:40 PM Report abuse +1 rate up rate down Reply
imme534333

While the markets continued to rally — the Dow rocketing above 11,350 by the end of the week — one bit of news crossed my desk... It was bound to happen, whether or not you wanted to believe it. This week, Secretary of the Interior Ken Salazar laid out the government's plans for offshore lease sales. Out of the mix are areas in the Atlantic and Pacific regions, as well as the Eastern Gulf of Mexico. In other words, don't expect to see a drop of oil from those areas for at least another decade, if that. Drilling in the waters of the Beaufort Sea, off the coast of Alaska, is also up in the air. The government is still awaiting studies and meetings to take place before it makes a final decision. Imagine our lack of surprise after hearing that Obama pulled the plug on these lease areas...

December 05 2010 at 9:07 AM Report abuse rate up rate down Reply
dsquires40

Capitalism at its finest! When do we get our cake?

December 05 2010 at 8:17 AM Report abuse rate up rate down Reply
pnkrckfan76

I read some article in USA Today a year or so ago that stated "peak oil" is past and that Americans should brace themsselves for $5.00 a gallon gasoline because Euopeans already pay this amount!

December 05 2010 at 6:11 AM Report abuse +1 rate up rate down Reply