WTI oil has now traded above $90.00 a barrel since late October 2011. While high energy prices used to signal global economic demand and strength; it is still a direct tax on consumers. These days high oil is affected by geopolitical events, weather, and the obvious action in the U.S. Dollar Index. At this time, oil has a war premium built in due to the Iranian threats and sanctions in the Middle East. Since 2008, whenever oil has traded around the $100.00 level for any considerable amount of time it has caused problems for the economy and this time around should not be any different.
Many traders are now starting to watch the United States Gasoline Fund (NYSEARCA:UGA) very closely. This morning the UGA is trading higher $1.37 to $49.69 a share. The UGA has now rallied higher by nearly $5.00 a share since December 16, 2011. Most consumers that do not follow the stock and commodity markets do follow the price of gasoline. When gasoline surges at the pump the U.S. consumer will cut back their spending. It is important to understand that U.S. consumer spending accounts for roughly 70.0 percent of the gross domestic product (NYSEMKT:GDP) in the United States.
The winter season has just begun and many people will need to start to use more heating oil in order to keep warm. Traders may have noticed that the United States Heating Oil Fund (NYSEARCA:UHN) has begun to trade higher since December 19, 2011 when it traded as low as $31.40 a share. This morning, the UHN is trading lower by 0.08 cents to $32.87 a share. The daily chart on the UHN is forming a sloppy sideways base which could lead to higher prices in the near term for the UHN. Traders should watch the $35.00 level as important daily chart resistance.
High energy prices are a direct tax on all consumers and businesses. This morning, all of the leading energy stocks are rallying sharply higher with oil. While the stock markets are in jubilee mode at the start of the new year it has been high energy prices that ultimately cause the U.S. consumer to pull back on their spending. This economy has been dependent on the U.S. consumer continuing to spend and borrow over the past ten years. Traders and investors must beware that $100.00 oil is problematic for the economy. This morning, WTI oil is trading higher by $3.46 to $102.27 a barrel.