Following the earlier news from the DOE of a crude drawdown 4 times greater than expected, which happened to be the biggest weekly drawdown in 9 years, WTI has exploded by over $2 in the last two hours, and is once again threatening to take out the important $90 psychological barrier. What is the impact of this on the US economy? Oh just $200 billion in GDP. With a minus sign in front. And so, a substantial portion of the "benefit" from middle class tax cut extension has been eliminated almost entirely in just under 2 hours.
Investors -- certainly U.S. stock investors -- would be wise to keep one eye on the price of oil, currently pushing $90 per barrel. Oil traded up 10 cents to $89.29 on Monday at mid-day.
And the reason is obvious enough: once again, oil is approaching the danger zone, from a U.S. GDP growth standpoint.
No one knows precisely at what point oil begins to substantially hinder consumer spending and slow commercial activity -- but this much is known: every $1 per barrel rise in oil decreases U.S. GDP by $100 billion per year and every 1 cent increase in gasoline decreases U.S. consumer disposable income by about $600 million per year.
This is all good though: it merely means the administration will battle future deficits by providing a $200 billion gasoline consumption subsidy. After all as democrats and republicans now agree, the only way to battle deficits is to spend much more.