This is most recently seen when in 2008 the price of Crude Oil reached a monthly high above $147.00 per barrel in July of 2008. Now unless you were living under a rock and some how skipped the economy and the stock markets cliff dive then you are still living through the effects of “unending recession” that remains.
Also, after Crude Oil recovered and bounced from $36 a barrel in late December 2012. Came back to bite the Stock market and economy as it climbed back to over $126 per barrel in May 2011. This strongly linked as source to the Stock Market correction in 2011 that cause the SP500 to drop from 1363 down to 1123 in the fall of 2011.
A similar correction was triggered in 2012 when Crude Oil reached over $128 per barrel.
Now, Crude Oil, depending on which futures contract or current spot market you watch is now holding between The high $107 or $109’s. Today the October Crude Oil Contract is trading at $108.42, which is above the highs of July for the same futures contract.
What matters is that traders are looking at several technical factors in both the Oil and Currency, US T-Bond, as well as inflation. All of these is a negative for Stocks and also for the US Economy. Currently national average for prices of gasoline at the pump are trying to push through the $4 per gallon level. The July national record high of $4.11 per gallon of July 2008, will very likely be tested before the end of this year.
Every time gas prices go above the $3.85 to $3.95 level per gallon, areas like retail sales and consumer demand make a sharp decline and stocks experience a correction of about 10%. The greater issue is that now Crude Oil is in process of testing the same highs that are positioned at the $120 and $140 levels. These price of crude oil will create extremely high prices at the gas pumps all across the USA.
US Treasury Bond yields are screaming higher a clear sign that while inflation was somewhat delayed now it is clearly accelerating. Crude Oil prices and high gas prices will create another accelerating of inflation to consumers. As fuel prices affect the cost of a product faster than high prices for raw materials or interest rates. As a jump in fuel prices will be seen in everything from airline tickets, to transportation every product.
So these price spikes will also cause more reduction in new jobs and strip away take home income.....and that will be seen in sharp down turns in retail sales and consumer demand. Jumps in Gasoline prices will also have strong negative impact on Auto Sales.
Crude Oil may end up being one of the excuses for a major stock market decline. In reality the US Treasury market has already assured stock inability retain any gains seen in recent months on the speculation of more QE. Stagflation is here and so sharp increases in inflation related problems are already baked into the pie.
Crude and Gasoline price are only the latest examples of troubles ahead.