Rising Oil Prices and a Weak Dollar
could Shatter the Global Economy

From the London Guardian via legendary Texas progressive activist Jim Hightower's blog:

How will the weaker dollar affect oil prices? Philip K Verleger, the dean of US oil market analysts and a visiting fellow at the Institute for International Economics, suggests that "oil-exporting countries may decide to adjust their price band to reflect the falling value of the dollar". If the dollar continues to slide, he warns, we could see oil prices rising from the current $38.18 a barrel to a record high of $40 by midsummer.

There are other dark clouds on the horizon. US crude oil inventories are at the lowest point since the mid 70s, and the retail gasoline market is operating with little reserve margin as we move into the summer months, where more travel will increase demand. The dwindling oil reserves are made worse by the White House decision to replenish the strategic petroleum reserve, further reducing the amount of gasoline available.

Verleger says gasoline could climb as high as $3.50 a gallon before leveling off at $2 by the autumn. How high prices eventually soar could depend on still other factors, including potential oil disruptions in Venezuela and the Middle East. There is also the prospect that one or two major refineries might fail during peak demand this summer - not that unusual when increased consumer pressure forces refineries to produce at peak capacity without taking the time for proper maintenance.

Here is where events potentially begin to feed off each other, creating the conditions for the perfect storm for the economy. If the price of oil increases to $40 a barrel with an accompanying rise in gasoline prices, the already weak economic recovery could stall.

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Oil, of course, courses through almost every aspect of the economy, like blood. High oil prices can stall a strong economy, but they can devastate a weak economy such as the one we are experiencing now. Just ask anybody who dealt with the infamous OPEC embargo of the early 1970s. They'll tell you.

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