While the cheerleaders on the cable financial news networks are shaking their pom-poms and jumping out of their seats about the recent stock market rally oil prices have surged higher over the past month. The price of WTI crude futures (CL) has soared higher by nearly $20.00 since the October 4, 2011 low when oil was trading at $74.95 a barrel. Can the U.S. consumer afford high energy prices ahead of the winter heating season?
It is important to note that the U.S. consumer accounts for 70.0 percent of the gross domestic product (GDP) in the United States. Therefore, if the U.S. consumer cuts back on spending the economy should slow down. High gasoline and energy prices are a direct tax on the consumer. Then when you add in a very weak U.S. Dollar it becomes a double tax on the consumer as other goods will become more expensive to buy. The weak U.S. Dollar is very good news for the energy stocks such as Exxon Mobil Corp (NYSE:XOM), ConocoPhillips (NYSE:COP), and Chevron Corp (NYSE:CVX), however, it is not so good for the people that are trying to just get by.
If you look at the oil rallies in 2011 you will see that the stock markets seem to run out of steam anytime oil trades above $90.00 a barrel. Just look at a daily chart of crude and you will see that that the economy starts to stall out about a month or two after the price of WTI oil crosses above $90.00. The winter heating season is also coming upon us and the U.S. consumer will not only have to fill up their gas tanks in their cars, but they will also have to heat their homes. This is certainly going to be problematic for the U.S. consumer. It is good for GDP that the U.S. consumer will be spending a lot of money on energy this year because they will likely be cutting back on spending elsewhere.