Will gas prices stall the economy?

The S&P 500 is up 24 percent from the Oct. 3 lows and closed at its highest level since June 2008; the Dow Jones Industrial Average briefly pierced the 13,000 mark last week; and the NASDAQ closed at its highest level since Dec. 11, 2000. (Not a typo, that's 2000!) With all of this good news, you would think the mood would be better, but in fact, there is a strange whiff of anxiety in the air.

The problem is oil, again. A general pick-up in the economy, rising demand from China and India, and anxiety over Iran have conspired to boost crude from $75 per barrel in October to $109.77 on Friday, just $5 shy of last year's high point of over $114 per barrel.

Crude's ascent is translating into higher prices at the pumps, at a time when American consumers were finally crawling out of their recession-induced stupors. AAA says the average price for a gallon of regular gas is $3.67. Given the lag between oil and gas prices, many expect that number to rise close to $4 in the coming weeks, which is seen as the level that curtails consumer spending and sentiment.

If the price increase is temporary and tensions with Iran settle down, there could be a retreat, but if prices remain elevated, you'll start to hear this scary and oft-quoted statistic: All but one of the 11 post-war recessions were associated with an increase in oil.

Oil is not the only worry, of course. It wouldn't be a "Week Ahead" without a mention of Greece. After finally receiving approval from the troika (the European Union, the European Central Bank and the International Monetary Fund) on the second $172 billion bailout package, Greece must now persuade the owners of 206 billion euros worth of debt to swap their bonds for new, less lucrative ones. In doing so, bondholders may be forced to accept a 75 percent cut in the value of their holdings, which as one wise investor described as "25 percent more than they're probably worth!"

-- DJIA: 12,982, up .3% on week, up 6.2% on year

-- S&P 500: 1,365, up 0.3%, up 8.6% on year (highest close since June 5, 2008)

-- NASDAQ: 2,963, up 0.4%, up 13.7% on year

-- March Crude Oil: $109.77, up 6% on week (3rd consecutive week of gains)

-- April Gold: $1776.40 up 2.9% on the week

FACTOIDS OF THE WEEK: Gas Pains

-- AAA National Average Price for Gallon of Regular Gas: $3.67

-- Month ago gas price: $3.38

-- Year ago gas price: $3.29

-- 2011 high gas price: $3.97 (May 2011)

-- All-time high gas price: $4.11 (July 2008)

-- States where gas is already averaging above $4: California, Alaska, Hawaii (New York, $3.91; D.C., $3.83)

-- Cheapest gas by state: Wyoming ($3.10), Colorado ($3.13) Utah ($3.19)

-- $4 gas amounts to approximately $900 per year in additional energy costs

THE WEEK AHEAD:

Mon 2/27:

Lowe's

-- The lower house of the German parliament (the Bundestag) votes on Greek aid package

-- 10:00 Pending Home Sales

Tues 2/28:

-- 8:30 Durable Goods Orders

-- 9:00 Case Shiller Home Price Index

-- 10:00 Consumer Confidence

Weds 2/29:

Costco

-- The European Central Bank will hold its 2nd, 3-year long-term refinancing operation (LTRO): analysts expect banks to borrow 500 billion - 1 trillion euros, after borrowing 489 billion euros in December.

-- Ben Bernanke delivers his semiannual testimony on monetary policy before the House Finance Committee

-- 7:00 Weekly mortgage applications

-- 8:30 GDP (2nd estimate of Q4)

-- 9:45 Chicago PMI

-- 2:00 Beige Book

Thurs 3/1:

-- Motor Vehicle Sales

-- Chain Store Sales

-- EU leaders begin 2-day meeting in Brussels

-- 8:30 Weekly Claims

-- 10:00 ISM Mfg Index

-- 10:00 Construction Spending

[frenchfrog123]

The US economy is already stalled, so the right question is "Will gas prices stall it even more?" Perhaps the solution lies in no longer relying on gas and seriously using alternative forms of energy, that way the US would stop pouring money into the hands of Arab nations, who then use that cash to finance anti-western terrorism.
Also Saudi Arabia, with the world's largest, most easily accessible, proven oil reserves is the only country on Earth with the power to trully influence prices.
And anyway, US prices are not that high. Go to Europe: 8USD/gallon is normal. So quit whining and adapt: get a fuel efficient car (Renault Clio anyone?), take the bus / train, or better yet, walk or ride a bicycle for trips under 5km, like the Dutch do!

[plusaf]

MarketMinder's View: Correlation does not equal causation. Oil is economically sensitive, so it tends to fall during recession--which makes the prior price point look high on a chart. Yet that doesn't necessarily mean oil had anything to do with causing the recession, which is a separate question altogether.


search MarketMinder.com ... LOL!

[Overruled1]

As long as China gets oil via "contract" and we have to rely on "The Common Market" we're screwed.
The only solutions I see are to either have a Presidential order to "price freeze" gas, or set the cieling price at "$$", or nationalize the industry and take it off the market essentially taking it over in America...which frankly I favor.

[occupy_cbs]

troutfishman2: "Ironically, rising gasoline prices are a sign of increasing demand due to a recovering economy. But of course, the glass is half empty for the GOP, which desperately wants back in power."



At least perceived demand by the OIL SPECULATORS, seeing all the good economic news for a change, and betting on higher consumption as we head into spring with summer driving not too far away!

These republiCONS sure are showing their desperation!

[occupy_cbs]

All you neocons know is aggression and WARmongering for bigger debt!

[occupy_cbs]

louiville12: "I thought you liberals just got naked and then rubbed yourselves with it?"



Maybe so, but it's you conservitards that fill containers with crude OIL and bitumen from the tar sands, to put on your mantle to worship daily!

Just admit that you and your ilk worship the god of BIG OIL daily!

[occupy_cbs]

louiville12: "Obama and democrats proposed a $200 BILLION dollar a year tax on energy in 2009."



LOL! There's lots of proposed legislation and even some that gets passed by the House with a simple majority, but never even comes to a vote in the Senate -- especially with record numbers of filibusters. Just ask speaker boehner how many pieces of legislation he's gotten passed in the House by either a symbolic vote or dealing with social conservative wedge issues, that never had a chance in the Senate.

Besides, the legislation I was referring to would have definitely helped the American people by removing the excessive OIL speculation -- so again as always -- you have apples to kumquats. Go fish!

[erpicferl]

$10,000 says romney could care less about the price of keeping his fleet of luxury cars gassed up.

[thefatcat2]

The Democrat's only Answer is to Spend and Spend More.
That must be the Reason obama now wants us to run our cars on
Pond Scum. Democrats are spending $4 Trillion Dollars a year.
WHAT HAS THIS FIXED -- ? and 15 Million are still out of work.

[occupy_cbs]

TaxJoke: "Palin regularly discusses energy policy on the campaign trail, promoting what the McCain campaign calls its all-of-the-above approach to finding new domestic sources of energy."



LOL!!

The "drill, baby, drill" screecher was merely talking about new domestic sources of OIL -- just like all republiCONS -- certainly not about alternative sources like solar, wind, geothermal and biofuels!

But......that is exactly what President Obama has clearly stated: "we've got to have a sustained, all-of-the-above strategy that develops every available source of American energy -- yes, oil and gas, but also wind, and solar, and nuclear, and biofuels, and more."

[Molly-Pchr]

Of course, gas prices will cripple the economy. Mild winter. Oil companies sell overseas. They raise prices here. The economy takes another dive. Obama is out of office. Mission accomplished. New admin friendly to oil.

[Lerianis4]

That is what I really think this is about and we might want to start investigating overseas oil companies for attempting to interfere in our democracy.

[sirmarion-2009]

Gas prices are not risiing the dollar is falling because we keep printing more and more and more.We still need more drilling here to get us off the foreign oil,and failure to insure our dollar stays strong is the problem, not the oil companies.

[Lerianis4]

We are drilling as much as we can in this country without allowing these companies to ignore environmental protections. In fact, these companies COULD start producing 3 times the oil in this country TOMORROW if they would stop whining about environmental protection laws and simply start drilling while adhering to those NECESSARY laws.