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How crude oil affects your walletPosted Friday, March 4, 2011, at 2:38 PM
Most Americans are all too aware that rising crude oil prices hit their wallets every time they fill up at the pump. This week, rising tensions in North Africa and the Middle East pushed oil prices higher yet, with crude rising $6 per barrel and gasoline shooting up another 14 cents per gallon.
The effects of higher crude prices ripple through other areas of the economy, including the cost of your food, the value of your investments, and even the price of your home.
Crude & food
Rising commodity prices over the last six months have done little to raise prices at the grocery store, but crude oil is posing a new threat to your weekly food bill. Crude oil is an integral part of the entire food supply chain, from the petroleum-based pesticides and fertilizers, to the fuel burned to plant, harvest and transport food, and even in the packaging for store-bought goods.
Stocks and crude break up?
Over the last two and a half years, stock prices and oil have been moving seemingly in lockstep. Both dropped in value in 2008 as the financial crisis worsened and bottomed in early 2009. Crude oil hit a low of $33.20 per barrel in January 2009, while the Dow Jones Industrial Average had plunged under 6500 points. Since then, as the global economy recovered and investors grew more optimistic, crude oil has more than tripled to $103 per barrel and the stock market has nearly doubled to 12,300.
Over the last few weeks, however, stocks and crude have parted ways, with rising crude oil threatening to send stocks lower. Some analysts worry that high energy prices will soak up consumers' income, thereby slashing their spending and hurting the stock market. This idea was reinforced on Friday, as crude oil rose 2.2 percent, making new 2.5 year highs, while the stock market dropped 1.3 percent.
Sliding real estate
As high energy prices force consumers to reevaluate their spending, they may look to move closer to their job or to buy smaller homes. Some economists are warning that sustained high gasoline prices could pull people back into cities and apartments, which could further damage home values in the suburbs, especially large homes built far away from city centers.
As of midday Friday, crude oil for April delivery was near $104 per barrel, corn for March delivery was at $7.22 per bushel, and the Dow Jones Industrial Average was hovering at 12,200.
Opinions are solely the writer's. Alex Breitinger is commodities broker with Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He can be reached at (800) 411-3888 or indianafutures.com. This is not a solicitation of any order to buy or sell any market.
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Alex Breitinger, a 2009 graduate of DePauw University, is a commodity futures broker with Breitinger & Sons, LLC in Valparaiso. He can be reached at 800-411-FUTURES (3888) or online at www.indianafutures.com.