Aug 21, 2011

NASDAQ - will gas be $5 soon, causing next great depression?

NASDAQ - No one knows precisely at what point oil begins to substantially hinder consumer spending and slow commercial activity - but this much is known: every $1 per barrel rise in oil decreases U.S. GDP by about $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year.

....psychological levels and outlook are important factors in the oil-GDP equation.

If the average U.S. price of gasoline, currently about $3.69 per gallon for regular unleaded as measured by , rises and stays above $4 per gallon, that would cause consumers to forecast that 'higher gasoline prices here to stay,' and they'll likely adjust their discretionary spending. Similarly, an oil price that rises and stays above $100 per barrel has a similar psychological effect.

Now here's the sobering news: there are scenarios that could push U.S. gasoline prices above $5 per gallon in 2011:

a) a U.S. Government default that causes institutional investors to dump U.S. Government bonds, triggering a plunge in the dollar, pushing up oil's price

b) any sustained unrest in another oil producing nation in the Middle East; or

c) stronger growth in Asia/Latin America emerging market economies, most of which are registering large annual percentage increases in oil consumption.

Energy/Economic Analysis: Again, the U.S. economy can still grow with oil at $100 per barrel and gasoline at $3.70 per gallon, but the chance for strong GDP growth above 4% with those energy prices is slim. Further, if Brent oil ventures toward $120, then $130, with gasoline trending toward $4.50 per gallon, oil enters the danger zone -- compelling wide-spread consumer and commercial cutbacks - Read on at NASDAQ