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Can This Economy Handle $80 Plus Oil? (NYSE:USO), (NYSE:UGA)
Oil made a short term bottom on February 5th, 2010 after hitting an
intra-day low price of 69.50. Since that time oil has rallied over 10
points to a high of 82.50 on March 9th, 2010. The continuous gasoline
contract on the NYMEX was 1.87 on February 5th and it hit a recent high
on March 9th at 2.29. These short term rallies for oil and gasoline
have been powerful and very sharp. Can the U.S. consumer absorb these
prices should they remain at these high levels?
In July of 2008 oil rallied to a high of 147 a barrel. At that time the
NYMEX gasoline contract was around 3.40 and the price at the pump it
was around 4.00 a gallon depending on your location in the country. A
case can be made that this was the straw that broke the camels back and
sent oil and the stock market into a virtual free fall.
Today most of talking heads and government figures talk about the so
called economic recovery that is taking place in the United States.
Meanwhile, unemployment in the U.S. is 9.7 percent according to
government standards and nearly 20 percent according to others. The
country is still facing a huge foreclosure problem with countless homes
in default as we speak. All of this takes place as major global bank
stocks continue to surge as the new accounting standards allow them to
hide their bad or toxic assets.
The X-factor that many of the economists are overlooking is the high
energy prices that plagued the market in 2008 and may certainly do it
again in 2010. As many families scramble to keep their head above water
the high energy prices will simply act as an automatic tax on the
consumer. Regardless if this economy is in a deflationary spiral or an
inflationary environment the price of necessary goods are going higher
and will hurt consumers.
Oil and gasoline can be traded by using futures contracts or by trading
the U.S. Oil Fund LP ETF (NYSE:USO), and for gasoline it can be traded
by using the U.S. Gasoline Fund LP ETF (NYSE:UGA).
Nicholas Santiago
Chief Market Strategist
InTheMoneyStocks.com
intra-day low price of 69.50. Since that time oil has rallied over 10
points to a high of 82.50 on March 9th, 2010. The continuous gasoline
contract on the NYMEX was 1.87 on February 5th and it hit a recent high
on March 9th at 2.29. These short term rallies for oil and gasoline
have been powerful and very sharp. Can the U.S. consumer absorb these
prices should they remain at these high levels?
In July of 2008 oil rallied to a high of 147 a barrel. At that time the
NYMEX gasoline contract was around 3.40 and the price at the pump it
was around 4.00 a gallon depending on your location in the country. A
case can be made that this was the straw that broke the camels back and
sent oil and the stock market into a virtual free fall.
Today most of talking heads and government figures talk about the so
called economic recovery that is taking place in the United States.
Meanwhile, unemployment in the U.S. is 9.7 percent according to
government standards and nearly 20 percent according to others. The
country is still facing a huge foreclosure problem with countless homes
in default as we speak. All of this takes place as major global bank
stocks continue to surge as the new accounting standards allow them to
hide their bad or toxic assets.
The X-factor that many of the economists are overlooking is the high
energy prices that plagued the market in 2008 and may certainly do it
again in 2010. As many families scramble to keep their head above water
the high energy prices will simply act as an automatic tax on the
consumer. Regardless if this economy is in a deflationary spiral or an
inflationary environment the price of necessary goods are going higher
and will hurt consumers.
Oil and gasoline can be traded by using futures contracts or by trading
the U.S. Oil Fund LP ETF (NYSE:USO), and for gasoline it can be traded
by using the U.S. Gasoline Fund LP ETF (NYSE:UGA).
Nicholas Santiago
Chief Market Strategist
InTheMoneyStocks.com
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