Brent Crude Decline Should Help the Consumer
By Walter Kurtz, Sober Look
The recent sharp decline in Brent crude should have a positive knock-on effect on the US consumer. That’s because it is likely to give a small boost to disposable income by bringing down retail gasoline price (gasoline and US crack spreads are tightly correlated with Brent.)
CS: – The latest declines in Brent futures should provide light relief to stretched US consumers. If sustained gasoline prices could fall to around $3.10 a gallon, 20% lower than their late March peak and a level last seen in January 2011.
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| Brent futures and retail gasoline |
9 Comments
Plenty more where that came from. As I have been saying for some considerable time.
In my view we are seeing the tail end of perhaps the greatest market manipulation in the history of commodity trading, which makes Hamanaka’s copper antics at Sumitomo look like a car boot sale.
Nice to read you here. I avidly read all your posts in the past; I’ve asked for confirmation to a close friend of mine, a top manager at ENI. He confirmed any words and much more (real production costs, real amount of reserves…) I’ve also read the book by Dan Dicker “Oil endless bid”. It seems clear to me that this business is too big and gone to far. I’m curious to know your opinion about the possibility of an Iran war in short time. Mine is that the Saudis and big oil want it and we’re going to see an alliance between them, Israel and the old cartel (Ike told us about them 50 years ago) with US people ready to be manipulated again.
Anyone who thinks oil prices are because of ‘manipulation’ does not know very much.
http://crudeoilpeak.info/wikileaks-cable-from-riyadh-implied-saudis-could-pump-only-9-8-mbd-in-2011
There’s a lot more there.
Without growth there won’t be higher oil prices. But growth is necessary to get more employment. Even if you only have 1 % real GDP growth then that is still slowly increasing unemployment so even stagnation is dangerous.
And because of very tight supply, and because of the fact that demand is now rising faster than supply, that puts a lid on growth. It is why oil prices advanced as much as they did last year as well as this year before demand destruction set in, high oil prices choked off consumer demand and thus slowed the economy, allowing for oil prices to fall.
This happened last year and it is happening now. If growth picks up, oil prices will shoot right back up, and gasoline prices will follow. And, that will once more become demand destruction as oil prices rise too high, setting off a slowdown.
Rinse, repeat. This is what happens when Peak Oil is slowly starting to creep in. Even very slow, moderate growth is difficult without immediately getting high oil prices. And stagnation is probably the best we can get as of now.
Those who talk of ‘evil speculators’(OPEC’s favourite strawman) delude themselves.
Oh, and one more thing. There are geopolitical reasons why oil prices won’t come down too. Russia’s budget is one of them.
http://soberlook.com/2012/06/russia-is-not-interested-in-iran.html
David the chart you refer is totally misleading. Wrong numbers. Source is DB, one of the top 3 market manipulators in the world. So you are manipulated but you will never accept it. My sources tell me something quite different.
But of course on one thing you are right. Russians, Saudis… DO WANT high oil prices. There is nothing in Russia except basic resources, they are not able to produce nothing else except weapons and vodcka. The Saudis are sit on a huge time bomb. They need a lot of money to keep their people quiet, and the saudi population is growing too fast, so they are also burning a growing percentage of the pumped oil. This is the reason because these two countries WANT continous tension in middle east.
Russia assumes an oil price of about $ 40 in their budget. So, anything over $ 40 is a boon for them.
Buy WTIC oil in the US, ship it to Europe and sell it for the price of Brent. Can be a profitable trade. No wonder US gasoline prices are that high.
The idea that falling oil prices are going to “help” the consumer is idiotic, and confuses the chicken for the egg. Oil prices are falling because the economy (consumer) is hurting.