Crude Oil Prices at $87 Barrel Move into Death Zone

While Wall Street is once again celebrating up ticks in US economic activity, as evidenced by the reaction given to last Friday’s positive unemployment report, crude oil prices have once again quietly moved into the death zone.

What I mean by that is that oil prices above $80 per barrel begin to erode the strength of an improving economy. Today oil prices are near $87 per barrel and the corresponding increase in petroleum based products, such as gasoline, diesel fuel, and aviation jet fuel, will once again stress the happy motorist,commercial airlines, and the farming industry, as well as any industry depending upon petrochemical stocks. Indeed, we are moving into the death zone for these industries. The Dow Jones industrial average is probably near its bear market rally recovery peak as it approaches 11,000.

With spring planting underway the nation’s farmers are going to find it much more expensive to purchase diesel fuel for their 2 to 3 mile per gallon fancy air-conditioned tractors. Our nation’s motorists will once again be spending $60-$80 per fill up as gasoline prices shoot above three dollars per gallon.

Airlines will begin a death spiral right out of the air as jet aviation fuel soars in price. The airlines have already squeezed just about every conceivable fee out of their passengers, such as baggage, blanket, and water fees, and will have few options available to them in an effort to cover increased fuel costs other than increasing air fares on every flight. Increased air ticket prices may be difficult to implement without a sharp drop-off in air travel. The American consumer is still pretty much financially tapped out and increased gasoline costs are going to severely cut into discretionary spending and all travel.

Should even a modest increase in global economic activity continue crude oil prices will probably extend their upward run to $100 per barrel and beyond by year end. This price increase would not reflect additional geo political shocks to the world economy that would be caused by, say an attack upon Iran by Israel or US forces. In the event of a severe geo political shock oil prices would likely double or even triple overnight, perhaps soaring to new all-time highs above $200 per barrel.

There are still many deniers and doubters about the concept of peak oil. As oil prices move further into the death zone above $80 per barrel the belief that the deniers have about the sufficiency of light crude oil supplies will be put to the test. At $87 per barrel unpleasant consequences will soon be felt. Any price movement above $100 per barrel will be tough for the embattled US consumer and economy to withstand.

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