Rising oil = head wind

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The crude oil price has been scaling new recovery highs over the past few days, with Brent crude now less than $2 away from the roundophobia $100 number.

Although oil is marching higher as a result of increased demand, an increasing price also represents a head wind for the economy – almost like an additional tax. Here is why:

“Every $1 per barrel rise in oil decreases U.S. GDP by about $100 billion per year, and every one cent increase in the gasoline price decreases U.S. consumer disposable income by about $600 million per year,” said Joseph Lazzaro of Daily Finance.

Fundamental indications are that the trend is solidly up, as also reported in a guest post by Dian Chu yesterday (see “Crude oil to bust through on supply concern”).

Considering the technical picture of oil, Adam Hewison (INO.com) provides a video analysis, arguing that the price is still in a multi-month trading range. (Although subsequent to producing the video, it would seem that the price looks set to break out.) Click here to access Adam’s presentation. The rather bullish-looking price chart of West Texas Intermediate crude is below.

Source: StockCharts.com

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