If Diane Swonk is Right About Oil Prices, We’re in for a Hell of A Recession in 2009

Submitted by EnergyTechStocks.com

Just before the Wall Street meltdown, when oil prices looked ready to break below $90 a barrel, Diane Swonk, the noted economist, said that for the U.S. economy to head up in the fourth quarter of 2008, oil prices needed to drop to around $75 a barrel and stay there through the remainder of the year.

If Swonk, chief economist and senior managing director at Mesirow Financial, is correct, then it looks like the economy won’t be recovering any time soon, because oil prices appear locked in to a range of about $100 to $115 a barrel. And since this is the time of year when oil prices are generally at their lowest, the fact that the price of oil on the spot market is now roughly 40% higher than it was this time last year suggests that when pump prices begin their seasonal climb next spring, the result could be one mean recession.

Yes, the price of oil appears artificially high, driven up by nervous investors who, ironically, are seeking a safe haven in the notoriously volatile world of commodities. But with Wall Street’s problems unlikely to disappear anytime soon, neither is the high price of crude.

To be sure, Americans likely will respond by driving even less next summer than they did this past summer, when record pump prices caused the biggest year-over-year drop in gasoline consumption in more than 25 years. But while that may keep pump prices from rising even higher than they rose in 2008, because of the continuing increase in the number of vehicles on global highways, it’s unlikely to prevent a repeat of last summer’s $4-a-gallon calamity.

Faced with mind-numbing economic uncertainty caused by the Wall Street panic and the extraordinarily expensive Washington bailout plan, it’s hard seeing many Americans buying more than the bare essentials. As EnergyTechStocks.com reported in 2007, and as events in 2008 bore out, even wealthy Americans tend to freak out when gas hits $4 a gallon.

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