And if there’s any economic event that could surely torpedo an already near-flat-lined US economy into a death spiral, it will come from a massive price hike in that most critical commodity to any economy—oil. According to the charts, oil has again breached the $105 resistance price level, leaving only $115 as the last point of resistance before traders begin eying $150, $200 or higher for a barrel of West Texas Intermediate Crude. Get my next ALERT 100% FREE
And at $6 per gallon, US consumers will not only experience a touch of Europe without leaving the comforts of their own homes, the drain on another flat-lined metric—household income—could inject additional life to the anti-Obama tide of disenchantment this election cycle.
“March is now on the way, and we are seeing very high prices for gasoline at the pump,” Leeb told King World News. “ . . . we are continuing to see higher prices for gasoline and it may even hit record highs. In fact, I think they will hit record highs and we will see a minimum of $6 per gallon gasoline in the United States this summer.”
As geopolitical tensions between the West and Iran reach fresh highs, some in the business of managing money reckon that soon the oil price (NYSEArca:USO) could reach fresh highs as well, with the added help of a runaway printing press operator at the helm of the Fed, Ben Bernanke.
One 40-year money manager veteran Robert Fitzwilson, founder of Portola Group, anticipates the possibility of oil trading up from the present $80 to $100 range, to a new range, above the record price of $147 per barrel, set during the summer of 2008.
Along with Leeb, Fitzwilson believes the proverbial ‘perfect storm’ between two reliable catalysts for higher oil prices are about to clash hard this year. Those catalysts include a Middle East war (this time with Iran) and the Fed’s unofficial policy of encouraging sidelined money to take on risk at near-zero borrowing costs.
“Regardless, the secular forces almost ensure that the price of energy is going higher,” Fitzwilson told Eric King of KWN. “With this [ultra-loose monetary policy] as a backdrop, we have the Fed mandating that they are going to try to get the stock market higher and improve the economy by printing money. You can’t have that happen without demand for oil increasing.
“So, both from a monetary perspective and a supply/demand perspective, the price of oil has to go higher and has to go higher in a substantial way. $170 to $250 a barrel oil would not surprise me.”
Under a Leeb scenario, $6 gas at the pump translates to as much as a two percent chop to US GDP, undermining the Fed’s efforts to break from the three-year-long liquidity trap following the collapse of Lehman Brothers in 2008.
Instead, a near-double in gasoline (NYSEArca:UGA) costs surely will push consumer spend off a cliff, destroying any hope of a true economic recovery, reducing $1.5 trillion deficits, raising employment levels, as well as ushering in the potential of record lows in the US dollar against all commodities, not just against oil.
The Fed, as the ‘buyer’ of last resort in the US Treasury market, will most likely step on the money accelerator that much harder to replace lost consumer spending and buyers of US Treasuries. That’s when inflation really takes off, according to Leeb.
“This could turn into really tough times . . . Because the economy will be struggling in that environment, we could see QE3 in the midst of already record high gasoline prices,” he speculates. “Now that will be wildly inflationary.”
Related: United States Gasoline ETF (NYSEArca:UGA), United States Oil Fund (NYSEArca:USO), SPDR Select Sector Fund (NYSEArca:XLE), Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), ConocoPhillips (NYSE:COP), BP p.l.c. (NYSE:BP).
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