More coming?

Oil prices raced to all time peaks on Monday, climbing above $58 a barrel as OPEC producers said they had begun discussing a second output rise to try to quell the market's rally.

According to Theo van der Lingen at Alphen Asset Management, Reuters reported that US light crude for May delivery on the New York Mercantile Exchange hit a record $58.18 a barrel, up 91 cents on the day.

London's Brent crude was trading $1.14 higher at $57.65. NYMEX crude oil for September delivery, trading at a premium to the front month reached $60.03, the first time a futures contract has topped $60.

Prices have surged recently on a forecast last week by Goldman Sachs Bank that prices could spike above $100 as global demand growth strains supply capacity.

If we look at the oil price in real terms - that is the oil price adjusted for inflation - the real price is right now still lower than it was in 1984 and 1990. This means oil producers today get less for their product in real dollar terms than they did in those years.

Because oil is priced globally in US dollars, the issuer of dollars is also to blame for the fact that over time successively more dollars have been required to buy a barrel of oil.

There is aninverse relationship of the oil price and growth in the US. It makes one wonder whether there is basis for the belief that a higher oil price signals US recessions. Could this year's oil price spike cause a US recession later this year, or in 2006?

Taking a closer look at the six US recessions since 1968 reveals that in two recessions the oil price actually declined in the prior-year period, while in two other cases the US suffered from recession even though the oil price had risen by less than 10%.

The Treasury yield curve seems to be the better forecaster of US recessions (and expansions). In fact, all six US recessions since 1968 were preceded by an inverted yield curve, a multi-month period when long-term interest rates were below short-term rates.

Unlike oil price shifts, inverted yield curves in the US since 1968 have never failed to accurately predict recession. If, in the coming year, the yield curve would invert that would be a bearish signal for growth. A high oil price will definitely enhance such a negative outlook and will lead to a reduction in global GDP growth.