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Prices at the pump are about to go up again.
The cost of a barrel of oil topped $98 for the first time all year today. Oil prices have now risen 25% in the last year, and are threatening to top $100 for the first time since last May.
Not long ago, $100 oil was the norm. Light crude spot prices rose as high as $110 a barrel in March 2012, and stayed above $100 for nearly three months. A year earlier, oil prices vaulted to $115 a barrel. Prior to the recession, in mid-2008, oil hit an all-time high of more than $140 a barrel.
By comparison, $98 oil isn’t that pricey. However, $100 is clearly a psychological threshold that causes people to panic. No one likes paying more at the pump. And that’s what $100 oil signifies – that gas prices have become too expensive.
That’s why escalations in oil prices never bode well for stocks. When gas becomes more expensive, people and companies tighten their belts and the economy suffers, eventually trickling down to the markets.
Here’s what happened to stocks the last three times oil breached the $100 mark:
- February 2012: Oil shot up to almost $110 a barrel. By June, stocks had fallen 10%.
- November 2011: Oil briefly moved past $100. Stocks fell 9% in two weeks.
- February 2011: Oil shoots to $115 a barrel. Stocks fall 6.5% in a month.
If you’re an energy investor, you’re happy that oil is approaching $100 again. For all other investors, however, expensive oil is typically prelude to a sharp decline in stocks.