Keep an eye on oil. The price is more than creeping up. It closed above $65 today, demand is up and inventories are down. 

From Reuters:

U.S. crude oil for July delivery settled up $1.63 to $65.08 a barrel, the highest settlement since November 5, after hitting an intraday high of $65.44. London Brent crude rose $1.89 to settle at $64.39 a barrel.

U.S. crude stocks fell by 5.4 million barrels in the week to May 22, the U.S. Energy Administration said, above analyst expectations for a 700,000-barrel decline, as refiners ramped up output ahead of the summer.

Analysts said while the data showed gasoline demand still trailing year-ago levels, it was looking stronger during the seven days leading into the May 23-25 Memorial Day holiday weekend, which traditionally kicks off summer holiday travel.

“What we are seeing here is the demand side start to improve,” said analyst Phil Flynn at Alaron Trading in Chicago.

“Gasoline demand over the Memorial Day weekend is a critical point in judging the health of the U.S. economy. I don’t think the increased demand over the holiday was a fluke.”

It won’t take much more of a spike to start cutting into the recovery. The political question is what will the Obama administration do. On the one hand they need energy prices to stay low for the sake of the economy while on the other, their alternative energy agenda works better as prices rise. Tough call.