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Oil, homes and the tipping point
OPEC's moves aside, the long term bet is on higher oil prices. And watch those rates.
March 16, 2005: 8:33 AM EST

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NEW YORK (CNN/Money) - OPEC's decision to boost output by a half a million barrels so far is not having a big impact on the oil market, in part no doubt because it will take something more surprising, like a bigger shift in the supply and demand balance, to convince speculators who have piled into the market that the tides are turning and it's time to get out.

More fundamentally investors in this market may be making the long-term bet that any pullback in price is temporary and crude oil really is heading for sixty bucks a barrel this year due mainly to strong demand in the U.S. and China.

In a parallel universe, the home mortgage market, it's interesting to see that a big jump in the 30-year fixed rate, up to 5.91% last week, actually spurred a jump in applications to purchase and refinance. Are more and more consumers and more and more traders getting the idea that high oil prices are here to stay and that instead of causing the economy to slow down that may help inflation to speed up?


For many households there's no doubt that higher gas prices will have little if any impact on their ability to drive and spend. But there are a significant number of homes where rising gas prices make the cost of their commute more onerous by the day and where the loss of disposable income pinches. Who tips the scales in the economy, and in the oil market, remains to be seen.


-- Kathleen Hays is economics correspondent for CNN and contributes to Lou Dobbs Tonight.  Top of page


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