Do higher oil prices indicate a stronger recovery?

Tanks of heating oil


JEREMY HOBSON: Now to those high oil prices. In overseas trading, a barrel of crude is going for more than $94. That's a two year high.

Julia Coronado is chief economist at the investment bank BNP Paribas, and she's with us live now from snowy New York. Good morning, Julia.

JULIA CORONADO: Good morning.

HOBSON: So, first the good -- higher oil prices I guess that means stronger demand a for oil, which means stronger recovery -- am I right?

CORONADO: Certainly that's one of the things driving oil prices higher are indications that the American economy and other places around the world, economic activity is picking up and that means stronger energy demand and higher oil prices.

HOBSON: So that's the good side of things. But, obviously we saw some very high oil prices -- much higher than what we're seeing right now, right before the economy collapsed back in 2008. How much risk is there that high prices in oil which then lead to high prices at the gas pump could stifle the recovery?

CORONADO: That's exactly right. Right now the recovery still is in a fairly fragile state, and of course higher oil prices means that consumers have to spend more of their money on gasoline and less money on other goods and services that could actually stimulate the economy. We're at a delicate stage and it could be that these higher oil prices act as attacks and undo some of these stimulative affects of, for example, the fiscal package that was passed recently. That's trying to put more money in consumers pockets. The higher gas prices will tax some of that benefit away.

HOBSON: Now Julia we're around $94 a barrel right now. Is there a good balance, is there a good price that we should be looking for, for oil?

CORONADO: Right now I'd say there is certainly going to be somewhat of a drag on consumer spending from the higher oil prices but it's not necessarily devastating. If we continue to see better economic signs in particular we need to see stronger job creation. If job creation really picks up and we see income growth picking up , then of course that can more than offset higher gasoline prices. So that's what we're going to be looking for in the next few weeks.

HOBSON: Julia Coronado, chief economist at the investment bank BNP Paribas. Thanks and enjoy the snow.

CORONADO: I will. Thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.


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