Oil prices have broken out of the tight $US10 trading range of the northern summer and are now trading above 2008 levels for the first time in a year.
Oil has now joined gold in regaining 2008 pricing levels.
Prices had bounced between $US65 and $US75 a barrel for the past three to four months, but this week surged 9%-10% as the US dollar fell and risk aversion continued to fall and expectations of growth jumped.
Oil prices have surged 13%, or nearly $US9 a barrel, in the seven consecutive trading days since October 7.
If oil prices continue on their current track they will spend the rest of 2009 trading above 2008 levels.
For countries like Australia that doesn’t matter.
Oil prices in Australian dollars are trading well under what they were a year ago.
Reserve Bank figures show the Aussie dollar was trading around 80 US cents a year ago last week and oil prices were around $US75 a barrel, or around $A94 a barrel.
Last Friday oil traded above $78 US a barrel in New York and the Aussie dollar was trading at just under 92 US cents, or around $A82 a barrel.
So no inflationary impact here and indeed petrol prices in Australia are now lower than they have been for well over a year.
There’s no inflationary pressures in the US and Europe either, not for currency reasons, but the still low level of demand from business and consumers.
Consumer inflation in both areas is running around 1%-1.5% annually with oil taken out.
When oil is included consumer inflation is negative, but that will change in the US if the market price continues to rise and the US dollar weakens.
Unlike 2007 and 2008 when soaring oil and petrol prices crunched consumer demand, especially for cars, the still sluggish economies won’t see a repeat of the inflationary pressures.
But some economists wonder if a petrol price surge in the US won’t be a further blow to consumer confidence, which has now fallen in three of the past four months, despite the market surge and the obvious improvement in the economy.
The greenback touched 14-month lows both on a trade-weighted basis and against the euro.
The euro rose to within a whisker of the important $US1.50 level.
It firmed a touch on Friday to close under that mark, but oil and other commodities finished with gains: but not gold.
Nymex November West Texas Intermediate settled at $US78.53 a barrel, up 95 cents on the day, and up 9.4% over the week.
In London ICE December Brent had been down but closed at $US76.99 a barrel, up 76 cents on the day and up 10% for the week.
Figures showing US industrial production expanded in September, boosting optimism for an economic recovery, but then an unexpected downturn in consumer confidence and the poor earnings figures for GE hit confidence levels.
US industrial production rose in September for a third consecutive month, up by 0.7%, according to the US Federal Reserve. That was better than the 0.2% market forecast.
August’s rise was revised up to 1.2% from the originally reported 0.8%. Economists said that was the impact of the boost to car production from the cash for clunkers scheme that continued into September.
For the third quarter as a whole, the Fed said output advanced at a 5.2% annual rate, the first quarterly gain since the first quarter of 2008 and the largest rise since the first quarter of 2005.
Industrial production though is still more than 6% below where it was a year ago and capacity utilisation is well down on the average since 2002, meaning there is nothing happening in industry to generate more demand for labour and stop the rise in jobless numbers.
But economists say the figures will add to the belief that the longest recession since the Great Depression ended in the third quarter.
Reuters said economists in a poll put the third-quarter growth rate at an annual 3.1%, up from the second quarter’s minus 0.7%.
The only worry was the fall in the latest consumer confidence poll.
The Reuters/University of Michigan Surveys of Consumers preliminary index of sentiment for October fell sharply to a reading of 69.4 from September’s 73.5, below and well below market expectations of no change.
"While consumers still anticipated gains in the general economy and now think that the unemployment rate is close to its cyclical peak, there has been no improvement in consumers’ dismal assessments of their personal financial situation," the report said.
"Indeed, personal finances have undergone the longest and deepest decline in the 60-year history of the surveys, and few consumers expect their finances to improve any time soon."
And that’s the biggest question about the US economy and market: the market is telling us a rebound is happening, most of the data tells us that the economy is doing better; not all that well, but no longer slumping.
Consumers remain hesitant to spend and are not big players in the rally. In fact many mutual funds report net redemptions off and on for the last two months as small investors cash out profits or smaller losses and save.
US consumers are not confident at all, unlike in Australia where consumer confidence and business sentiment turned up from May onwards, around three months after the March rebound started and as it became increasingly clear that Australia had not slumped into recession.
Not helping consumer sentiment in the US will be the confirmation that America’s budget deficit was an unwanted record, $US1.4 trillion in the US Government financial year that ended September 30.
