Oil made a short term bottom on February 5th, 2010 after hitting an intra-day low price of 69.50. Since that time oil has rallied over 10 points to a high of 82.50 on March 9th, 2010. The continuous gasoline contract on the NYMEX was 1.87 on February 5th and it hit a recent high on March 9th at 2.29. These short term rallies for oil and gasoline have been powerful and very sharp. Can the U.S. consumer absorb these prices should they remain at these high levels?

In July of 2008 oil rallied to a high of 147 a barrel. At that time the NYMEX gasoline contract was around 3.40 and the price at the pump it was around 4.00 a gallon depending on your location in the country. A case can be made that this was the straw that broke the camels back and sent oil and the stock market into a virtual free fall.

Today most of talking heads and government figures talk about the so called economic recovery that is taking place in the United States. Meanwhile, unemployment in the U.S. is 9.7 percent according to government standards and nearly 20 percent according to others. The country is still facing a huge foreclosure problem with countless homes in default as we speak. All of this takes place as major global bank stocks continue to surge as the new accounting standards allow them to hide their bad or toxic assets.

The X-factor that many of the economists are overlooking is the high energy prices that plagued the market in 2008 and may certainly do it again in 2010. As many families scramble to keep their head above water the high energy prices will simply act as an automatic tax on the consumer. Regardless if this economy is in a deflationary spiral or an inflationary environment the price of necessary goods are going higher and will hurt consumers.

Oil and gasoline can be traded by using futures contracts or by trading the U.S. Oil Fund LP ETF (NYSE:USO), and for gasoline it can be traded by using the U.S. Gasoline Fund LP ETF (NYSE:UGA).

Nicholas Santiago
Chief Market Strategist
InTheMoneyStocks.com

Can you answer a question for a novice investor? The evidence seems to be clear that oil supplies will not keep up with increasing global demand. I am convinced that the price to the consumer will increase. I am not convinced that the oil extraction business will reap huge profits, since it is becoming more expensive to find and extract oil. So it seems to me that an investor can make money by buying oil (as a commodity) at today's price and selling it tomorrow, but he may not do well by investing in extraction companies. Do you agree with this distinction that I am making?

With regard to the point of your article, remember that Americans consume several times more oil per capita than anyone else. Also, the price of gasoline in the US is still fairly low. In the future, Americans will have to reduce consumption. US consumption will eventually reach the per capita norm of other industrialized nations. Americans will think this is a terrible hardship, but everyone else will laugh at them. Of course, this will negatively impact the US economy and standard of living, which is addicted to oil.

Have you thought about the long term? Global demand for oil is growing fast, with China out in front. Global population is growing fast. In 50-100 years, oil, uranium, natural gas, and coal will be scarce. I believe that the current global population is a "petroleum bubble". It seems to me that we are not just facing an economic collapse; we are facing a population crash. Why do we continue to build petroleum-centric infrastructure when we know the age of petroleum is coming to an end in two generations? Of course, any reduction in growth would have a terrible effect on employment and civil order. But I think humanity is trapped in an unsustainable cycle of consumption.