Tags: us | economy | Soaring | Oil | Trigger | Double-Dip | Recession

WSJ: $120 US Oil May Trigger Double-Dip Recession

By Dan Weil   |   Thursday, 24 Feb 2011 12:30 PM

Oil prices have surged above $100 a barrel to an almost three-year high, and if prices climb much further, experts say the economy could fall back into recession, The Wall Street Journal reports. Most economists tell the Journal that a sustained increase of U.S. oil prices to $120 could do the trick in sparking a double dip.

Rising oil prices, of course, mean rising inflation, which means bad news for the economy. Consumer prices rose only 1.6 percent in the year through January.

Continued unrest in the Mideast and Northern Africa could put a crimp on oil production and delivery, sending oil prices higher. Remember that oil supply shrinkage may have been the most important driver of our stagflation in the 1970s.

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Traders in the crude-oil options pit at New York Mercantile Exchange.
The recent 10 percent increase in gasoline prices that has resulted from oil’s jump creates great hardship for average Americans. "That's a significant drain on consumer budgets that could put a drag on the recovery," James Hamilton, an economist at the University of California-San Diego, tells the Journal.

And that’s significant as consumers account for about 70 percent of economic activity.

But it’s not just consumers that are affected. The Mideast turmoil will make “both consumers and businesses look on with concern and begin to reconsider their spending plans,” Bernard Baumohl, chief global economist at the Economic Outlook Group writes in a note obtained by The New York Times.

Thursday in the U.S., benchmark West Texas Intermediate crude rose $1.67 to $99.77 per barrel on the New York Mercantile Exchange after touching $103.41. Prices have jumped 18 percent since Friday.

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Oil prices have surged above $100 a barrel to an almost three-year high, and if prices climb much further, experts say the economy could fall back into recession, The Wall Street Journal reports. Most economists tell the Journal that a sustained increase of U.S. oil...
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