The former chief economist at CIBC World Markets, Jeff Rubin, is renewing his calls for $200 a barrel oil. Rubin laid out his reasoning in a recent editorial (“Only A Recession Stands in the Way of $200 Oil”) at FinancialSense. Rubin first predicted skyward-bound oil prices on the back of strong global economic growth in 2008.
“Despite triggering the world’s deepest post-war recession and a rare, albeit temporary decline in global oil consumption, oil prices had already soared back to triple digit levels even before the Arab revolt,” Rubin writes. Now, he believes investor speculation could lead to another extreme run-up in oil prices.
There’s an inherent danger if that happens, though. Namely, that economies can’t support the burden of high oil prices. When oil hit $147 a barrel in the summer of 2008, it ground everything to a halt. Soaring transportation and energy costs forced consumers to hunker down and stop spending money.
Now, Rubin argues, the stage is set for the whole cycle to repeat. Political unrest in oil-rich countries coupled with oil price speculation will push prices up too fast, which, in turn, will lead to a global recession. “The only question,” he writes, “is will we see $200 per barrel oil first?”
Oil prices have risen 15 percent in two weeks as tensions rose in Libya, cutting oil output in the country in half.
That’s got some analysts worried about the cost of commodities like gasoline. “We could see gasoline between $4.00 and $5.00 a gallon by Memorial Day, maybe sooner,” David Kotok, Chief Investment Office of Cumberland Advisors, tells CBN.com.
U.S. Federal Reserve Chairman Ben Bernanke is far less concerned. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” he said during an appearance before the Senate Banking Committee this week.
Bernanke qualified his remarks by adding a disclaimer: “unless it is sustained.” And that’s where the real threat of $200 a barrel for oil lies. If the unrest in Libya devolves or – worse yet – spills into oil-rich Saudi Arabia, oil could climb catastrophically fast. Signs aren’t encouraging. Over the past two days, Saudi Arabia’s Tadawul stock index has fallen 11 percent as investors fear political turmoil in the region.
“Unrest in this region can have fatal consequences for the world,” JBC Energy tells The Telegraph. “The plunge on the Saudi stock exchange can be interpreted as a sign of waning trust.”
If things get any worse, $200 oil may make the headlines, but the effects should be where our focus lies. Soaring energy and consumer goods costs, more layoffs and more home foreclosures could plunge economies around the world back into a recession. That would be a nightmare for debt-addled governments – one that might take years to put behind us.
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Tags: Ben Bernanke, oil
