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Backseat Driver: Oil prices at ALL-TIME high

Well, it's official folks.

After bouncing through the psychological price barrier of $100 a barrel a couple of weeks ago, crude oil prices have now edged past an even more important barrier - that of around $103.75 a barrel which is the inflation-adjusted equivalent of the previous record set in early 1980.

Prices on the New York Mercantile Exchange hit $103.95 a barrel earlier today. Reasons for the hike include increased global demand, the weak dollar and Wednesday's meeting of the Organization of Petroleum Exporting Countries which sets production quotas for its member states - which produce 40 percent of the world's supply of oil.

This is hardly great news for consumers and, by extension, the economy. It seems everywhere we turn, ominous signs point toward a rocky economic climate in the near future. And while gasoline takes up a fairly small percentage of the average paycheck, it is a purchase that is made week after week after week after week.

Rising gas and diesel prices thus create their own dynamic of more money being spent for the same commodity - in short, a very real perception of inflation. And with more money being spent on fueling up the car or truck, that's not only less money for other purchases but a nagging fear that everything else dependent on oil is going to become more expensive.

And "everything else dependent on oil" basically means everything else - whether it's goods made from oil - chemicals, fertilizers, plastics - or goods and services dependent on the transportation industry.

This combined with a less than vibrant economy and the credit crunch from the sub-prime mortgage debacle, it's a fair bet that large numbers of Americans will be spending their tax rebates on the last place that President Bush et al want them to be spent - on consolidating debt rather than splurging on the next best thing.

- Peter C. T. Elsworth

Posted by Peter C. T. Elsworth  at 12:25 PM to commentary | Permalink | Comments 0