Crude oil is the life blood of all commerce and production. Crude oil and its derivatives are used to make plastic, rubber, and all kinds of products, then crude is used to ship those products to store shelves where people drive to the store to purchase these products to be consumed. A high crude price which translates into high gas prices puts a damper on all economic activity, and consumers feel the pinch. With gas prices approaching $4.00 a gallon consumers will begin to drive less, take fewer vacations, and cut back on discretionary spending.
Oil companies make up large parts of both the Dow Jones and the S&P 500, so overall a rising oil price is good for drillers, producers, and explorers. However there is a threshold on oil prices that when passed becomes a negative for the markets. Oil too high means demand destruction, and margin compression which will negatively affect companies earnings.
The chart below is from http://www.livewithoscar.com ,
As you can see above when crude oil get above $110 a barrel it becomes negative for the markets and above $120 MAYDAY MAYDAY!!!!
Where we stand as of today:
We are quickly approaching danger levels in the oil market, the higher we go the worse it will get for the slow global “recovery”, the cash strapped consumer, and fortune 500 margins.
Ace The Trade 