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Strategies & Market Trends : Commodities - The Coming Bull Market
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To: David Alon who wrote (93)6/5/2001 1:10:11 AM
From: craig crawford  Read Replies (1) of 1643
 
THE ECONOMY
A Crude Awakening?
A dip in oil prices means we may avoid a recession.
FORTUNE
Monday, May 28, 2001
By Alex Taylor III



Want a clue to the direction of the unpredictable U.S. economy? Check out the price of a barrel of
West Texas Intermediate Crude. Eight of the nine post-World War II recessions have been
preceded by a surge in oil prices (the exception was 1960). It is easy to see why. Higher oil
prices boost costs for business and consumers, and can disrupt financial markets by forcing up
interest rates.

When prices hit $36 a barrel at the end of last year, economists began pushing the panic button.
"We worry about a hard landing if oil prices don't fall," warned Bear Stearns economist David
Malpass. But so far the U.S. seems secure. Oil prices fell to slightly more than $28 per barrel in
May as OPEC increased production and GDP rose 2% during the first three months of 2001.
Forecasters now expect oil prices to drop further. Says David Littman, chief economist of Detroit's
Comerica Bank: "I believe the economic fundamentals of supply and demand call for oil below $20
per barrel, and a good deal below that if counterproductive government regulations are removed."

Cheaper oil, however, won't stop higher gasoline prices. A shortage of refining capacity,
combined with regional pollution standards that mandate some 50 different blends, has kept gas
supplies tight. Rice University's Amy Jaffe says that the wholesale price of gasoline has risen
some 40% this year. With retail prices climbing to $2.50 a gallon in some parts of the country, filling
up a Lincoln Navigator can cost $77. Time to trade in that SUV?
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