About a month ago, I told one of my favorite TV producers that gas prices would drop as soon as "all the idiots who piled into the oil futures market got shaken out." That time may now be upon us.
Last week, crude oil was down nearly 15 percent, closing under $100 dollars a barrel. While there was a good bounce yesterday, after the close, the CME Group announced a third round of new margin rules that are designed to limit speculation in the oil market, so those gains might be short-lived.
I'm now hopeful that crude oil will remain near $100 per barrel and accordingly, gas prices are likely to drop in the next few weeks. I discussed the dynamics of the oil and gas markets this morning on CBS TV affiliates:
Although the recent run-up in oil and gas prices was due mostly to speculation, that doesn't mean that the economic impact isn't real. According to James Hamilton of Econbrowser and UCSD, 10 of the 11 recessions in the United States since World War II have been preceded by an increase in oil prices.
Yesterday two big banks lowered their outlooks on US economic growth in 2011. Goldman Sachs dropped its GDP forecast to 3-3.5 percent from 3.5-4 percent and Morgan Stanley cut to 3.3 percent from its 3.6 percent estimate a month ago. Both cited rising energy prices as the culprit for reduced growth.
Still, a slow down in growth is not the same thing as a recession, so my fingers are crossed that the recent oil price drop translates into lower prices at the pump and allows the US economy to continue its slow, forward progress.
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