Oil: Poor Leading Indicator For (Recent) Recessions
Dr. Duru | Oct 29, 2014 06:04AM ET
Every time oil drops these days, I notice hand-wringing about whether the fall indicates a recession is somewhere close on the horizon. There is an intuitive appeal to this assumption. Oil is still an engine of economic activity, so declining prices must indicate falling demand.
What seems to be “different” this time is a true supply glut that has now been exacerbated by Saudi Arabia’s refusal to cut supply to put a floor under prices. No matter what dynamics are underway now, the recent history shows that changes in oil prices are a very poor leading indicator for recent recessions. In fact, if anything, a period of sharply RISING prices seems to be a better alarm bell for a recession.
Oil is falling but remains at relatively “elevated” levels from the post-recession recovery
Year-over-year changes in oil’s price do not provide a discernible pattern relative to recent recessions
So, enjoy this early Christmas present of lower oil and gasoline prices. The average consumer is.
Is it almost time to BUY PowerShares DB Oil ETF (NYSE:DBO) as it approaches a major point of support?!
Full disclosure: No positions.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.