Interesting article in one of my favorite publications The American on the direction of oil prices. This has become an enormous obsession, in party because, well, as is at $130/barrel, which is awkward, to say the least. From the piece:
In their state of forgetfulness, many pension funds and insurance companies have built up very large open positions in the oil futures market. These positions are now estimated to total over $200 billion, roughly the equivalent of a full year of Chinese oil demand. They have contributed to the recent spectacular run-up in oil prices.
Past experience suggests that if the recent run-up in oil prices is sustained, it alone will subtract more than a full percentage point from U.S. GDP growth in 2008. That experience also suggests that, over the longer haul, the recent doubling in oil prices will subtract another full percentage point from U.S. GDP growth beyond 2008. Since these oil price increases have occurred in the context of a housing bust and a credit crunch, one must assume that the U.S. economy is facing the real risk of a recession that is both deeper and more protracted than the postwar average. And if the recent spike in oil prices threatens to tip the U.S. economy into recession, just imagine what a further run-up in prices—say, to the $150 to $200 a barrel range—would do.