Tuesday, March 17, 2009

Beware Rising Oil Prices

Oil prices have been trending upwards of late:
Oil prices rose above $48 a barrel and tested the top end of a trading range it has held so far this month, ahead of U.S. inventory data expected to show a build in crude stocks.
You've probably noticed this at the gas pump. There's other "good" data in the article - rising housing starts, strong dollar vs the yen, etc. - but beware: good news isn't always good news. A lot of folks will probably remark that the market rose along with rising oil prices 2003-2008, so why would this be such a harbinger of doom? Will it "cut into consumer spending" or something? No, this argument is mostly bunk anyway. The problem is that prices rose 2003-2008 in response to a market flooded with dollars, just like all the other prices. The market rose and oil rose for the same phony reason. Rising prices now say to me that people have cash to pay and are bidding up prices. In other words, it looks inflationary. I hope that the trend turns back south. $47/barrel is still a historically very high price for oil. And if oil prices start rising again, it'll be off to the slaughterhouse for the dollar. $55-60 would have me scared. Beware!

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