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dKos - New Deal Democrat - Will Rising Oil Prices Strangle the Recovery?

Putting the evidence together, it appears that in order to trigger a recession, there must be a large price spike that swiftly causes Oil consumption to be 4% or more of GDP. On the other hand, a very gradual price move, such as we have had since last June, causes consumers to alter their behavior in a way that results not in a recession, but enough of a slowdown in growth that Oil consumption declines and Oil prices follow, having never risen higher than 4% of GDP. That's what is suggested by Oil futures prices at the Chicago Mercantile Exchange, which remain in "contango" (i.e., prices rising as we go further out into the future), but do not reach $90 until the December 2011 contract, and the 2018 contract sells for $95.08. This suggests to me that the futures market believes that higher prices now would not be sustainable.
Nevertheless, if those other factors do not push the system back into outright deflation, barring a spike in the price of Oil prices, as of now my best guess is that more likely that the economy will slow down its growth later this year enough to cause a gradual decline in Oil prices with renewed economic growth.

Of course, he's ignoring the fact that US consumption is not the only pressure on world oil prices, but it's interesting to note that if prices rapidly rise above $3 a gallon in the US, it will short the "recovery". Nobody has yet grasped that we are going to have to do recovery an entirely new way for it to be sustainable, but right now that's un-serious DFH talk.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Mon Apr 12th, 2010 at 10:15:22 AM EST

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