The high cost of oil

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How high can oil go? No one’s sure, but there’s no real reason to think it won’t go a lot higher. And how does high oil prices affect the average consumer? They have less money, and spend less on nearly everything. Since consumers are such a big part of the global economy, this affects all businesses at least to some degree. Even George Bush has noticed the skyrocketing fuel costs, which don’t help at the polls.

If gas prices run too high, all manner of calamity can occur. People, forced to limit their gas intake become rabid animals running the streets. Long lines and angry mobs form. All manner of scenario can be envisioned, none of them pleasant. Moreso, continued high oil prices make people uncertain, and uncertainty is the enemy of stock appreciation. The rising fuel prices have to make all investors nervous because the following trends left unabated could be devastating:

1) Higher costs for all products (Travel, transportation, and other obvious industries will be hit hardest, but secondary industries profits are pulled down as well. This causes even more jitters amongst nervous investors
2) People have much less disposable income, and the rate is variable! It kills sales forecasting when people’s incomes can vary widely. Without knowing the correct amount per gallon to be charged in the next 90 days, companies and analysts will have a tough time estimatin earnings.

None of this necessarily means that right now is a bad time to buy stocks. But it pays to be cautious with the extreme volatility of energy pricing. With India and China emerging and demanding more Oil, the influence of the US on pricing will wain. High gas prices might very well become a modern phenomena. Any stock you purchase in the next few months must be weighed carefully as it relates to energy prices. If the company is very dependent on low cost or stable costs, you’ll need to think carefully about buying the stock.

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