Have rising oil prices just put the final coffin nail in the entire 2009-2011 economic recovery?
Given the slowdown in China, the new recession in Europe, and the rocky bottom in the US economy, it certainly seems that way.
Oil's Relentless March Higher
Oil prices emerged from their spider hole over two and half years ago. Having fallen from the towering heights of $148 a barrel in the summer of 2008, the early months of 2009 saw a return to prices in the $30s. Interestingly, during that great oil crash, the price of West Texas Intermediate Crude Oil (WTIC) spent only 20 trading sessions below $40. That is the exact price that most analysts only three years prior believed oil could never sustain as the world would pump “like crazy” should prices ever reach such “impossibly high levels.”
Given the enormous debt troubles the West is currently facing and the fact that oil has averaged over $100 during several months this year, it does seem reasonable to suggest that, once again, the economy has been pushed off a ledge by oil. Let’s take a look at oil prices over the past several years.
Although they won’t admit to it, many economists and older energy analysts have been simply blown away by the persistence of oil prices, especially in the weak economic environment post the 2008 crisis and financial market crash. How did oil prices manage to recover to $80 (let alone to $40 or $60), and make their way back all the way to $100? (And this is just a chart of WTIC oil. Brent oil has been even stronger the past year). Why, for example, has a 12% reduction in US demand and weak economies elsewhere in the OECD not translated to much cheaper oil prices? Why did oil not simply flatten out in price, post 2008? After all, many claimed oil was nothing but another in a series of 'Made in America' financial bubbles. With “no shortage of global supply” (as many said), and with a market “awash in oil” (as others said), why didn't oil prices simply go to sleep at, say, $50 per barrel?
