Tags: Kotok | crisis | gasoline | 5

Cumberland’s Kotok Fears Crisis Could Send Gasoline to $5

By    |   Tuesday, 18 Sep 2012 08:48 AM

The biggest risk financial markets now face is geopolitical, says David Kotok, chief investment officer of Cumberland Advisors.

Nigeria, the world’s most important oil producer, is particularly in danger — from Islamic extremists, he writes on Business Insider.

“The scenario that worries me is a geopolitical shock that spikes oil and does so now, such as to remind people of what happened in 1973/1974, with the Yom Kippur War, when oil went from $3 to $12.”

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

That could push Brent crude prices to $160 a barrel, more than 40 percent above the recent level of $113.80, Kotok says.

“[A]nd that takes gasoline to the high $4s or $5.00,” he writes. The latter figure represents a 30 percent increase from the average U.S. price of $3.86 a gallon Monday.

The Federal Reserve’s latest easing program wouldn’t mix well with an oil price spike, Kotok says. "The position of the Fed is: we'll deal with inflation later. And that's fine — when there is no shock," he writes.

"In a shock, when policy is very stretched, it means the system has no resilience. It's like jumping on a trampoline of cement."

U.S. gasoline prices usually fall after Labor Day, but not this year, thanks to Mideast turmoil and Hurricane Isaac.

"We expect prices will go down, but we always have to be mindful of ongoing geopolitical events …," Ragina Averella, public affairs manager for AAA MidAtlantic, tells The Baltimore Sun.

Editor's Note: Sept. 18 Cover-Up Is a Final Turning for America

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The biggest risk financial markets now face is geopolitical, says David Kotok, chief investment officer of Cumberland Advisors.
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