High price of oil has benefited some of Texas economy, but will affect cost of almost everything, economist says

Thursday, November 8, 2007

Just in time for the holiday season, the price of a barrel of oil is at all time high levels, with many analysts predicting it could soon surpass $100 a barrel. Bernard Weinstein, the director of University of North Texas' Center for Economic Development and Research and a professor of applied economics, says long-term economic consequences could happen if the high prices stick.

"Oil prices have gone up 40 percent in the past few months, and so far the markets have brushed off those numbers. But when the prices hit the $100-a-barrel level, the economy will feel the effect in the cost of just about everything, because the price of oil is a component in the cost of everything we buy," Weinstein says.

He adds although it's impossible to know how high prices will eventually go, the important thing to note is how long the prices stay at the higher levels. If the oil prices consistently stay above $100 a barrel, he says, "it will clearly be inflationary."

"I would expect the Federal Reserve to stop its series of recent interest rate cuts. It could also mean that a recession would be more likely. It's a brave new world of price increases that has the potential to spook both investors and consumers," he says.

Weinstein says the high oil prices could also impact the value of the U.S. dollar.

"As the dollar loses value against currencies such as the euro, it helps to fuel the increase in oil prices," he says.

In a bit of an odd twist, Weinstein says some parts of the Texas economy have benefited from the recent jump in oil prices.

"There's been a rush of oil drilling activity in the Permian Basin area, and in the Houston metro area, jobs are being created in the energy services industry at levels we haven't seen since the 1970s," he says. "But on the whole, Texas is a net energy importer, so the jump in oil prices has more minuses than pluses for the state."

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