Oil Prices

I just looked at this story: Oil prices rise above $84 helped by strong sales of new homes. What does the sales of homes have to do with oil prices?

Strong sales of new homes suggest the economy is getting better. Demand for oil will generally increase as the economy improves. People are buying oil now with the expectation that its price will be higher in the future due to increased demand.

Check out the book Why Your Word is About To Get A Whole Lot Smaller by Jeff Rubin - he ties the price of oil to worldwide inflation and the last massive recession. He also predicts that when oil gets very high priced again (over $100 per barrel), we’ll see the recession return.

A better economy leads to higher inflation. Oil, and commodities in general, are a good hedge against inflation. To expand on what Absolute pointed out, demand for commodities increases since a better economy implies higher consumption and investment, causing businesses to invest in order to build products, creating competition for commodities. Typically, the ratio of demand for a commodity versus its perceived availability/scarcity, will be the source of volatility in its price.

It says “new homes” so I take it to mean homes just built. If this is true, people are now building new homes in suburban areas, which mean cars. Of course homes are built everywhere but this was my take on it