The only thing worse than a slowing economy is a slowing economy harassed by rising oil prices.
That unpleasant combination seems to threaten at the moment. The U.S. economy shed jobs on a monthly basis in August for the first time in four years while a barrel of crude oil has made a fresh run upward to just under its all time high of $78-plus.
The powers that be at the latest OPEC meeting have just agreed to raise production quotas in a bid to keep crude prices stable, but the effort is expected to be a marginal solution, if that, for containing the ongoing bull market in oil. “The outlook is for the oil market to continue to tighten all the way through the fourth quarter and that’s exactly what you are seeing reflected in the price,” Kevin Norrish of Barclays Capital told Reuters today. “What happened at the OPEC meeting doesn’t alter that perception one bit. The [production] increase was relatively modest.”
The implications of a slowing U.S. economy and oil prices that remain high are many, and not necessarily encouraging. One issue that arises is the prospect of the energy market exacerbating the economic slowdown. The odds of this risk may be rising to the extent that the U.S. economy is decoupling from the global economy.
Exhibit A in the decoupling argument is China’s economy, which continued roaring higher by a real annualized 11.9% in the second quarter vs. 1.9% for the U.S. If China and other “emerging markets” are increasingly driving the price of oil, a bull market in energy may prevail for longer than a U.S.-centric view suggests.