As crude moves above $78, another risk for recession

An unknown group has blown up several oil pipelines in Mexico. They must use bicycles, because soon they will not be able to afford gasoline. OPEC members have indicated that if they raise oil production it will be by a very small amount.

Oil prices eventually affect prices for gas, jet fuel, and a number of petrochemicals used to make commodities as widely used as plastic. And, there is increasing evidence that oil prices are not only getting higher, but could stay high.

Part of the increase in oil is based on panic, fear that an event could cause a spike in price. But sustained high prices are based on several geopolitical realities that may not go away.

The oil industry in Venezuela has been nationalized. Whether the country can support the infrastructure to keep its oil production high is an open question. Other oil producing countries like Nigeria face considerable unrest and civil war. An OPEC decision to keep production at current levels would only add to these.

The mortgage crisis and future reset of variable rate home loans will almost certainly continue to drive down home prices and increase defaults. High oil prices will hurt car sales, retail sales, and airlines. And that list grows the higher fuel prices move.

Eighty dollar oil may make the OPEC members better off, for now. But, they could tip the US into recession.

Douglas A. McIntyre is a partner at 24/7 Wall St.