THE SURGING PRICE OF GASOLINE….
24 February 2012 by Chart of the day
11 Comments
As a result of ongoing geopolitical tensions (e.g. Iran) as well a spotty but generally improving global economy, the price of crude oil continues to trend higher. Since the end of September, the cost of one barrel of crude oil has increased by over $30. With oil prices trending higher, it is not all that surprising to find that gasoline prices are following suit. The average US price for a gallon of unleaded is up $1.87 per gallon since the financial crisis low.
Over the past two months, gasoline prices have resumed their upward trend with an increase of $0.35 per gallon. There a couple points of interest from today’s chart. For one, Middle East crises are often associated with major swings in the price of gasoline. Also, gasoline price spikes have often occurred prior to an economic downturn. In the end, gasoline prices have rarely been higher than current levels and considering the fragility of the current global economy, gasoline/oil prices are something to watch going forward.
Notes:
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In case it has not been posted yet: the ECRI LA renewed recession call this morning in Bloomberg radio:
http://media.bloomberg.com/bb/avfile/News/Surveillance/v3UFCi6Oq.FE.mp3
He will also be on Bloomberg TV at lunch time. Please update on the lunch interview since I will be napping in Argentina at that time.
When discussing the rise in oil/gasoline, why does no one mention the impact of unprecedented global central bank easing in debasing currencies and ramping commodity prices? The economic growth argument is specious, and the Iran angle may be nothing more than a straw man. If you want to know why it costs more to fill up your car, look to the Fed!
Agreed!
Central banks must start taking the liquidity out of the system or risk loosing the consumer………. this is one reason inflation targeting absolutely will not work.
Aim small, miss small Mr. Bernanke.
http://www.youtube.com/watch?v=XbtA0TIyoI8
I heard on public radio yesterday, 2/23, that refiners are exporting more gasoline from US refiners to countries where they can get a better price. Smaller amounts available here, of course, raises prices. I have not seen this mentioned elsewhere.
The latest US Personal Savings rate from Jan2012 is 4%. Last year in Jan2011 it was 5.2%
Last year with rising gas prices, households decided to keep spending and dip in to savings to pay for the increased gas prices. Even so, the higher gas prices had and negative impact on retail sales and the economy slumped over the summer.
S&P profits kept rising because of a low dollar and growth overseas including Europe, China and Japan.
If gas prices remain high, it seems less likely households will eat in to savings as much as they did last year. The impact on PCE will be marginally greater. With slower growth and foreign monetary easing already going on, the dollar will decline less and profit growth from overseas operations will suffer.
Imo, inflation is now the best leading indicator of global growth and surging oil prices certainly pose a big threat to the global economy. However, the ~10% rise in oil is outweighed by the almost 50% drop in nat gas.
Oil is 4.5% of the consumption basket while nat gas is 1.8%. So the move in oil’s impact on inflation metrics is only +0.5% (4.5% * 10%) while the decline in nat gas has a -0.9 % (1.8% * -50%) impact.
No, both oil and gas have a bigger weight in consumption basket if you include all the oil consumed in the whole production cycle and not only final consumption.
Rising oil prices have a pressing deflating effect (paradoxically) in the whole economy as the squeeze margins and rise costs. Maybe nat gas will offset the rise, but again with a risk to the upside due to reflating policies I wouldn’t count on it.
All this playing with fire squeezes an already leveraged household sector which has diminishing purchasing power and consumption capacity, this also affects demand and acts as a drop of economic activity.
The decline in natural gas will actually have an even bigger impact on producer prices in several direct and indirect ways. A couple of examples:
1)The fall in the price of nat gas has caused major coal to gas switching and therefore caused PRB coal prices to fall over -30% and App coal prices -25%. Obviously, forward power prices are falling out of bed right now as a result.
2)The base for all petrochemicals, which are used in almost every consumer product, is ethylene and you can get it two differnt ways…with nat gas to get ethane or oil to get naptha. Now chemical prices have collapsed because everyone is cracking ethane which is down 45% since october.
I completly agree that rising oil prices will presure the consumer but I’m just pointing out that there has been a major decline in almost every other commodity.
For example, since their yearly highs:
Nat gas -50%
Corn -20%
Cotton -60%
Coal -30%
Copper -17%
This will keep a lid on inflation for at least the next 6-9 months and therefore economic growth will most likely continue to accelerate…as can be seen in the PMIs.
Yes I’ve been bearish on commodities for a while (a clear sign of the desinflation going on in the world economy).
IMO eventually the commodity complex which is more speculative in nature will melt down and close the gap with the rest of the commodity market. I include oil, gold & silver, we will see big retracements (25-30% or more) in the next months-year when activity tanks and recession gets worse in Europe (which will probably print mild deflation numbers in 3 quarters or so, and unless policies change will get worse) and the effects of reflating central banks policies dissipate.
I don’t get this oil thing. It’s important to understand what’s in play here.
You don’t get a move in the SPX heading to 30% from October and expect oil to not want to hitch it’s cart to this wagon. Logically silly when you look at everything.
Here’s what I know…Transports are being affected and hitting 30 days lows. From here(pick a number..from 1 day to 250 days) the average of all samples it’s negative for transports AND it’s negative for the SPX from 30 days-180 days. BUT it’s really positve for Crude. SO..I like oil. Even a mild pull back here..I like oil. It’s my way of getting paid to have to read why we need QE and LTRO. Bull on oil Bull on
. Candidly Oil and other commodities is what’s making me money. My short positions on other things are stinking up my pants.