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.