by Calculated Risk on 5/21/2018 11:08:00 AM

First, an excerpt from a research note by Merrill Lynch economists today:

If bad luck intersects with bad policy, a recession becomes a real risk. We would keep a particularly close eye on two traditional business-cycle killers-the Fed response to stronger-than-expected inflation in the US and a growing shortage of oil, pushing prices to new heights.

So far the increase in oil prices isn't a concern for the economy, but it is something to watch.

Click on graph for larger image

The first graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $71.40 per barrel today, and Brent is at $78.30.

Prices collapsed in 2008 due to the financial crisis, and then increased as the economy recovered.   Oil prices collapsed again in 2014 and 2015, mostly due to oversupply.

Now oil prices are rising sharply again.

The second graph shows the year-over-year change in WTI based on data from the EIA.

Six times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.   Oil prices are volatile!

Currently WTI is up about 50% year-over-year.