click to enlarge image (graph courtesy of wtrg.com)

Despite the hand wringing about crude prices, there is plenty of evidence to suggest a top forming and prices headed in one direction --- down. The basic economic principle, which has stood the test of time and applies to this day, is that supply rises in response to prices while demand has an inverse relationship to prices.

As oil continues its upward trajectory, so have the costs of transporting goods and materials across oceans. In a globalized world reliant on shipping raw materials to one place to be made into finished goods and sent someplace else, this trend in costs is bound to make the economics of manufacturing in far off places questionable. This is especially true for low value to freight ratio products such as raw materials, furniture, apparel and machinery.

At $200 a barrel, shipping a container from Shanghai to New York will cost $15,000, compared to $8,000 today and a mere $3,000 in 2000, when oil was $20 a barrel. This portends a fundamental realignment of trade which has, to some degree, already been set in motion--a number of US manufacturers have regained their footing and have restarted their production lines in the South East.