Upturn in oil prices might negatively affects stocks and the economy

Oil pumpIn New York Crude was being traded at over $102 a barrel during Wednesday, which is a high for the year. At the end the last shortened day of trading before the holiday, crude closed at $101.22 a barrel.

 

The recent events in Egypt, which have culminated in the resignation of Present Morsi, are contributing to a sharp rise in the price of crude oil. Egypt is not itself an oil producer but it plays a very significant role in the oil industry, as it controls the Suez Canal. Any uncertainties in this region and especially in Egypt, lead to worries about disruption to the supply of crude through the Suez Canal, and this drives up oil prices. It is estimated that two and half million barrels of crude oil a day pass through either the The Suez Canal or the SUMED pipeline through Egypt, making it critically important to the worlds supply of oil.

 

Analysts state that when the price of crude oil rises above $100, it starts having a detrimental effect on the economy. If prices climbed to $105 this would have a serious affect on consumer spending, as it has a direct effect on the amount of money people have to spend on goods and services. This would affect the stock market as three quarters of all economic activity comes from consumer spending. There is also concern that a continued rise in the cost of crude oil, alongside a rise in interest rates, could cause serious concern for the economy as a whole.

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