Crude oil becomes economy's friend
Whether it was the speculators or the specter of demand that pushed oil well over $70 last month, the rise in crude prices began to cause concern that the recovery could be knocked off course by higher energy costs. Gas rising above $3, spiking jet fuel prices, and expensive petrochemicals could all have damaged consumer spending and a recovery in business earnings.
Now, oil is dropping fast just as concern over a prolonged recession is emerging again. The two are linked, of course. A shrinking economy needs less fuel. Nonetheless, if crude keeps falling, it is a boon for the recovery.
Because consumer spending is the primary engine of U.S. gross domestic product, lower gas prices are a critical component of the recovery. A two-income family with both parents commuting 50 miles a day can have its budget busted by a $1 increase in the price of gas. The domino effect from that can be mortgage and credit card defaults, especially if someone in the household loses a job.
What is left to hope for is that OPEC does not cut production in an attempt to raise the price of crude.
Douglas A. McIntyre is an editor at 24/7 Wall St.