Weekly Market Summary Feb 8/08 & Will a US Recession Lower Oil Prices?

Gold
$918.20 close Feb 8/08
+$11.80 Gain/Loss
+1.13% On the week

Silver
$17.11 close Feb 8/08
+$0.37 Gain/Loss
+1.91% On the week

XAU
181.25 close Feb 8/08
+3.64% Gain/Loss
-1.82% On the week

HUI
443.66 close Feb 8/08
+3.55% Gain/Loss
-1.75% On the week

GDM
1339.50 close Feb 8/08
+3.52% Gain/Loss
-1.64% On the week

JSE Gold
2393.65 close Feb 8/08
-58.23 Gain/Loss
-4.19% On the week

USD
76.62 close Feb 8/08
-0.16 Gain/Loss
+1.51% On the week

Euro
145.12 close Feb 8/08
+0.49 Gain/Loss
-2.05% On the week

Yen
93.13 close Feb 8/08
+0.16 Gain/Loss
-0.90% On the week

Oil
$91.77 close Feb 8/08
+$3.66 Gain/Loss
+3.10% On the week

10-Year
3.654% close Feb 8/08
-0.082 Gain/Loss
+1.50% On the week

Bond
118.71875 close Feb 8/08
+0.90625 Gain/Loss
-0.89% On the week

Dow
12182.13 close Feb 8/08
-0.53% Gain/Loss
-4.40% On the week

Nasdaq
2304.85 close Feb 8/08
+0.52% Gain/Loss
-4.50% On the week

S&P
1331.29 close Feb 8/08
-0.42% Gain/Loss
-4.60% On the week

Will a US Recession Lower Oil Prices?:
The U.S. currently comprises only 5% of the total world population, yet consumes over 25% of the total fossil fuel based energy. The country imports the majority of its needed resources, creating a dependency on other world suppliers. This dependency on oil and foreign suppliers creates an economy that is greatly affected by either an increase in price or a decrease in supply. With the current political debates focusing in on the failing U.S. economy, the current mortgage crisis, the widespread debt crisis and the weakening of the U.S. dollar, what is in store for the overall economy in the upcoming months and how will this affect the price of oil?

The value of oil is measured over several different indexes and is based on multiple factors. Crude Oil prices measure the spot prices of oil barrels, typically from the West Texas area. The Brent Blend is a combination of oil from 15 different oil fields from the North Sea. The OPEC basket price is an average of oil prices from Algeria, Indonesia, Nigeria, Saudi Arabia, Dubai, Venezuela and Mexico. OPEC prices are most commonly considered when evaluating the health of the world’s oil economy.

Recent crude oil prices have tumbled about 12% from an all time high in January 2008, with the fear that the U.S. economy is slipping into a recession. NYMEX petroleum prices closed February 7th at 88.66 and Crude futures closed February 7th at 89.250. While oil prices have taken a temporary decline in value from their $100 per barrel price at the first of the year, U.S. citizens are more concerned about a potential repeat spike in oil prices would affect them at home. With many American families struggling financially, specifically the middle class, changes in oil prices have become a large concern for many.

Consumers feel the spike in oil prices mostly in the prices of their gasoline, and since U.S. consumers are largely dependent on their personal vehicles, a sharp rise in oil prices is often devastating to their disposable income. While natural gas and other heating sources utilize oil to provide homes with heat throughout the winter, the rising prices don’t have nearly the effect on the consumer pocketbooks as that of gasoline.

The Fed has made 2 recent attempts to cut interest rates in hopes to stimulate the U.S economy, and there is current legislation being discussed within Congress about passing a short term economic stimulus package. Americans are hoping that this trend will last until they receive assistance from the government’s potential financial relief later this spring or early this summer.

While consumers are hoping that oil prices remain steady or even decrease, oil companies are hoping for a different scenario. The other factor for the economy to take into consideration is how the value of the USD will affect oil prices and the overall economy. The U.S. dollar has been experiencing sharp declines over the past year and most economists are not predicting a rise in the near future. There is often much speculation and debate about how the dollar value and the price of oil affect one another. One economic question to ask is whether the weakening dollar will drive oil prices up or whether rising oil prices create the weakening of the dollar?

Economists are wondering about whether these recent oil price dips are temporary or an indication of the expected recession. In a recession, there is the possibility of a decrease in the demand for oil. Consumers would potentially cut back on their gasoline consumption and businesses could cut down on all un-necessary air travel. While these could lead to a short term decrease in the demand for oil, many economists are arguing that it may not cause a decrease in overall energy prices for consumers. Energy prices are expected to hold steady and even increase throughout the end of the year. It is expected that oil prices will average $80 a barrel for the year which would be $8 ahead of last year, and nearly double the value from 2004.