The Oil Drum

Recession fears are being reported as affecting the oil markets. Oil prices tumble over fears of US recession is typical.

Oil prices have dropped to the lowest level in six months, as markets' concerns about geopolitical instability are replaced with worries about an impending US-led economic slowdown The plunge in oil prices has hit mutual funds for $4.5bn (£2.4bn), and there are fears that more investors could fall victim to unexpected falls in energy prices...

Hedge funds and oil traders are selling their crude holdings because of fears that the US economy could slump next year, dragged down by the stalling housing market. Figures released yesterday showed US house prices falling last month for the first time in over a decade, while the inventory of unsold houses was at its highest level for 13 years. Traders are concerned that an American slowdown would drag many other major oil importers down, causing worldwide energy demand to plunge.

"Worries about US growth are an important factor," said HSBC economist John Butler. "We are concerned about the possibility of recession in the US."

Before recently, all the fears were geopolitical in nature. Easing of those concerns—for no good reason at all—has been replaced by the specter of an American recession. Let's examine that possibility. As it turns out, the view here is that a recession—perhaps a severe one—may be more likely than not.

[editor's note, by Prof. Goose] Please folks, don't forget to go rate this story of Dave's at reddit and digg. This is one of his best, and he put a lot of effort into it. He deserves as many eyeballs as he can get!