Oil Price And The Real Economy

I accepted the end of the end of the decline in the oil price in early 2016. The steady bull run in oil
has been obvious for all to see since then. However, I did not think that oil would approach $70 bl.
until some time over the second half of 2019. So, by my lights, the price is well ahead of schedule.
Sharp, extended run ups in the price of oil are rarely good for the real economy or the stock market.
Net oil consuming countries such as the US experience net income and wealth transfers to net
producers during such periods with a sharply rising oil price acting as an inflationary tax on
consumption. Too, fast oil price appreciation can lead the Fed to punish the economy with
tighter liquidity and higher short term interest rates.

These developments can punish both business earnings and p/e ratios and flatten the yield curve.

I would not hazard a guess as what the negative tipping point for the US will be if the oil price
continues to march substantially higher. Moreover, the US is now in a position to export higher
levels of hydrocarbons which will be a positive offset to its continuing dependency on imported
crude. Suffice it to say, that at some point before too long, the rising price of crude will begin
to cast a shadow on the economy and Fed monetary policy as well.

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