Impact of $100 Oil: Identifying the Winners and Losers

Jan. 12, 2011 5:23 AM ETUAL, DD, SD, DVN, PBW, LDK, AMSC, AAL9 Comments
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by David Sterman

As we move into 2011, economists increasingly believe that the United States and Europe will start to see an economic rebound, joining China, Brazil, India and other emerging economies in a full-fledged global economic upturn. A closer look at recent price action in the crude oil markets underscores a risk that rising economic activity brings -- and an opportunity for investors...

Just as when oil prices moved below $40 a barrel when the economy hit the skids a few years ago, the price reflected a sense that demand for oil would collapse in the face of an even deeper economic meltdown. But it also created some clear winners and losers.

When it became apparent that no such cataclysm would emerge, oil prices rebounded back to the $50-75 range, reflecting a global economy that was lukewarm. That set the stage for a reversal of winners and losers as oil approaches $100 a barrel (more on that in a bit).

Like the proverbial frog in the boiling pot of water, rising oil prices are already starting to impact the economy in various subtle ways.

For example:

  • Consumers are paying more to fill up at the pump, and that leaves fewer dollars to spend at retailers. Consumers that use oil to heat their homes are also being hit.
  • Airlines are boosting ticket prices to maintain profit spreads, increasing the cost of business travel.
  • Cash-strapped state and local governments are spending more to fuel up their vehicle fleets.
  • Industrial firms that make various forms of plastic are seeing rising input prices.
  • Global shipping costs are rising as it becomes more expensive to operate freighters.

In the last six months, economists have regularly suggested that rising oil prices should be no cause for concern. When oil was at $50, they figured that $70 oil was tolerable. And

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