The simplest notion is that higher oil=higher petroleum at the pump= less money for the consumer. Right now, consumer spending is an important part of the domestic economy.
A big questions is what the reaction from government bankers will be. Those at the European Central Bank have hinted that they will raise interest rates in the short term. Bernanke and the Fed have indicated they will keep the status quo for now. This is a real balancing act as inflation worries hang in the balance.
If production does decline due to a protracted unrest in Libya or “contagion” across the Middle East, some have suggested dipping into the country’s oil reserves to ease prices at the tank. It is unclear what real affect this would have on price, because of the emotional affect of using up reserves. If price is already up on a 1% drop in production, what would lowering reserves do to the attitudes toward oil?
