This can't be good...
In a season filled with dancing sugar plums, halls decked with
holly, and forever rising stock prices, rising oil prices play the role
of the Grinch.
Oil popped above $90 per barrel yesterday – its highest price in
over two years (as you can see from the chart above). As a result, an
average gallon of unleaded gasoline topped $3 nationally. If you're
buying the premium stuff in my neck of the woods, you're paying $3.90
per gallon – a 20% increase since September.
It's not the highest price ever. But it's enough to push the cost of filling up an SUV into triple-digits.
Forget about tax cuts and quantitative easing (QE). When it comes to the economy, $100 fill-ups trump everything.
Someone far smarter than I am figured out every $0.01 increase in
gasoline prices extracts $600 million from U.S. consumer disposable
income. The $0.30 rise in gas prices over the past few weeks pretty much
wiped out whatever economic benefit was hoped for with the Fed's QE2
program in December.
Here's something else to keep in mind...
The following is a chart of the Baltic Dry Index. It tracks the
cost of worldwide shipping prices of various dry cargos… So it's a
measure of economic demand.
It's interesting that while oil prices are climbing to their
highest point in two years, economic demand is slipping toward its
Clearly, the rise in oil prices isn't the result of a rise in
economic activity. It's the result of an increase in inflationary
pressures… Pressures that are caused, in part, by the Fed's policy of
printing money in the name of quantitative easing.
Whatever benefit the Fed is trying to create by printing money to buy bonds to keep interest rates low (a failing effort, by the way
) is negated by the rapid rise in oil and gasoline prices – not to mention the rise in wheat, sugar, and corn, too.
There's still six months left in the Fed's QE2 program. Yet they're
already floating trial balloons about the possibility of QE3.
At this rate, we'll see $140 oil by July.
Best regards and good trading,
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