Tag: oil prices

Dr. Roubini says rising oil prices will stifle any possible recovery

You have to follow CNBC to get the straight talk from the master seer:

“Oil could be closer to $100 a barrel towards the end of this year, this could be a negative shock to the economy.”

Or you could have gotten the much less publicized version of the relatively same opinion almost two months ago:

No matter – if oil continues its march, consumers won’t be joining the summer of love. And any chance of the recovery the powers that be are trying to convince them is well in hand will be swirling in a tanker parked off the Gulf Coast.

How this all plays out is anyone’s guess, but with interest rates also on the rise it seems unlikely that we are going to see burgeoning demand for goods in the near future. There’s just too much out there, and given the choice between a widescreen TV and filling up the tank, the latter is going to win hands down. Heck, even yard sales are hurting for business.

Peter Schiff: Americans bought too much, with money they didn’t have

I don’t lend much credibility to information garnered from Comedy Central, but this one was good…

The Daily Show With Jon StewartMon – Thurs 11p / 10c
Peter Schiff
thedailyshow.com

I can’t say I agree with Mr. Schiff on hyper-inflation being right around the corner. I believe he is vastly underestimating how far Americans can and will go to reduce their standard of living. You need not concern yourself with how much credit is being poured into the system if there is no actual demand.

He’s certainly hit the bullseye on this though: stimulus, on credit, is having the opposite effect from what was intended. Look no further than the recent spike in oil prices to understand why. That alone could be the recovery’s undoing.

(h/t The Big Picture)

UPDATE: Arthur Laffer says get ready for inflation and higher interest rates. The latter isn’t going to do much for housing – driven by market expectation (i.e. the selling off of Treasuries we’ve seen as of late), it is leaving Bernanke & Co. in one hell of a quandary.

Oil Watch – 05/07/08

After hitting a low of $40.85 on February 17th, the contract for June delivery (now the near term) has rallied to a 65 day high of $58.07 as of this morning.

crudeoilweekly

Of course, we’re supposedly heading into the summer (read: prime time) driving season, so some jump is to be expected. But what’s strange about this 40%+ rally is that crude oil inventories are rising dramatically:

Yesterday’s EIA inventory data did not warrant the price developments seen in the futures markets. It is an odd situation indeed when a 605,000-barrel build in crude stocks is interpreted as bullish by a market already awash with 375 million barrels of crude in storage and another 40 million barrels or so anchored out in the Gulf of Mexico.

We’ll note that some folks are worried about inflation hitting en masse as a result of the arbitrary printing of US dollars to fund fanciful (and unaccounted for) government spending. The Theater O’ Greenback hasn’t yet heard the call to exit stage left, but maybe traders should be looking at this oil stockpiling as an expectation signal.

No matter – if oil continues its march, consumers won’t be joining the summer of love. And any chance of the recovery the powers that be are trying to convince them is well in hand will be swirling in a tanker parked off the Gulf Coast.

Oil? Economy? No, it’s Maxine Waters Watch! – 02/13/09 (UPDATED)

A new low amongst lows, but who gives a crap

Yesterday the March ’09 contract hit a new low of $33.55, besting the pre-Christmas low of $35.18 for February delivery.

March '09 Crude Oil

Few words from the media on this – they are too busy making hay of some easily misinterpreted somewhat odd batshit crazy questions fired at bank CEOs the other day.

While prices at the pump are a little slow to reflect the ever downward slide, it’s smart to keep in mind that this one component of cost of living touches virtually everything. And it’s my view that this ‘chapter 2’ of the summer rally is the sole reason why Americans don’t quite see the economy falling headfirst into the abyss (at least just yet). If the wholesale printing of monopoly money by ‘our saviors’ forces oil producing countries to turn off the pumps, it’s watch out below.

Editor’s note: As oil rallied over the summer, Congresswoman Maxine Waters was screaming for the nationalization of energy companies. No word from Ms. Waters on how that move is progressing, but Congress has crammed billions down the throats of more than a few banks that probably didn’t need it, and Ms. Waters is off her lithium once again.

Would someone please make a run on ‘meet your mate locally’ dating service lawn signs and ‘my kid is an honor roll student’ bumper stickers? Maxine Waters can hold a few quick hearings with those entrepreneurs, and subsequently nationalize those industries. Then, whomever is left in charge at Congressional Kiddie Club while Nancy Pelosi is sitting on the beach with the pope can maybe get a few issues addressed, and we can be on our way to recovery.

UPDATE: The media finally catches wind of the issue. The fact that gas isn’t plummeting too is pricing disparity between the quotes above and Brent Sea, combined with the fact that refineries have taken a break. But I wouldn’t hold my breath on gas hitting $2.50 – gasoline futures are catching on to the crude mentality.

The fine print wasn’t worth reading on this credit card offer

This is an advertisement for a new gas rebate card from ConocoPhillips:

At $4.00 a gallon, you’d get a 40 cent rebate on each gallon. So far, so good. Unfortunately, your rebates are capped at $35, so there’s no rebate for you after you’ve pumped roughly 88 gallons into your tank. For the average SUV driving American, that means you’ll fill up your tank three, maybe four, times before your rebate disappeared. And if you decide to ride your bike to work four days a week to conserve gas, you’re out of luck – the rebate period only lasts 90 days.

But yeehaw – you’ll have a new credit card you can jack to the limit before you file bankruptcy!

NOTE: This offer is made especially for you by the fine folks at Citibank, who I hear are getting some sort of bailout.

$200 oil gets farther away (UPDATED)

When the price of a barrel of crude hit $150 during the summer, every bank on the Street (which after this weekend’s events can now be alternatively referred to as “the Pothole”) was touting the idea that we’d see $200 any moment.

Meanwhile, US consumers starting cutting back on fuel consumption – and their staying away from the shopping malls meant our fine and friendly trading partners were spending less time counting their spare change as well. That, or there are a whole lot of evil budding oil speculators kicking themselves right now…

october-crude

It appears the bubble has burst. Or was that global demand hitting a wall?

UPDATE: Barry Ritholtz believes it’s pure and simple demand destruction. And now that oil is ‘barreling’ into the low 90s, it is a signal that there is further economic erosion head.

Brace yourself (be)for(e) “Nozzle Rage”

Nobody Loves a Three-Year-Old SUV?

Unless you’re Toyota, I guess…

What Business Week is plowing onto the American public here is garbage, at least as far as this SUV owner is concerned.

Just as this article was coming out, I got a call from Toyota. It seems my “contract is running out” ( i.e. I’m close to paying off my FourRunner). Toyota is contacting me, wondering whether I’d be willing to trade in this vehicle (now worth a bit more that Kelly Blue Book, according to them) for a new Toyota vehicle of equal or greater value than the one I now own. They are willing to give me several thousand dollar, as a “coupon” on a new vehicle. My vehicle is in excellent shape and probably has a good ten years of useful life left in it. I of course declined.

If gas prices fall off their spike, I can only think that the rush to dump SUVs, perpetuated in good part by the media, will retrospectively be the next, closest, convenient way to jam more indebtedness down the throat of US consumers. “Trade in that gas hog now! It’s worthless! Get a small car before it’s too late! By the way, we’ve got a financing deal for ya!”

PS: My SUV – the one the media says is a dog – is now exactly three years old.

UPDATE: Forbes thinks the swan song of the SUV is overblown too.

UPDATE 2: Five reasons to keep that machine.

Airlines have nobody to blame but themselves

Southwest AirlinesIn the midst of oil-mania, Southwest significantly hedged their fuel consumption. Delta and American did not.

Guess who’s winning?

This is a management problem. Hedging is NOT speculation – you shouldn’t “lose” because you hedge, as the cost of fuel should wind up fixed if the hedge is managed appropriately. You determine your need for fuel, and figure out how that flows through to ticket price. Then you purchase forward contracts for that fuel and fix your ticket price appropriately. If fuel prices go up you take your gains on the contracts, which in turn offset your rising costs at consumption time. If fuel prices go down, you lose on the contracts but your fuel price has fallen as you’re buying it. Margin on your service stays the same, as you set your prices in advance.

Not hedging your fuel costs in this environment is the real speculation. And I’ll add that those who do cover their butts have the addition perk of being able to raise their ticket prices (even if slightly) on the back’s of their competitors’ misfortune without significantly effecting volume.

UPDATE: Forbes says: “The sky may not be falling for airlines just yet, but darker clouds could be just around the corner.”

Agreed (particularly if they don’t update their financial management tools to at least late 20th century levels).

UPDATE 2: Southwest turns its 69th consecutive profitable quarter.

Are We in the Peak of an Oil Bubble?

[singlepic id=403 w=240 h=178 float=left]PhysOrg does a good job of convincing, at least for the short to intermediate term.

Since 2003, worldwide oil prices have quadrupled. According to a new study, the price of oil is rising at a faster-than-exponential rate, and cannot be sustained. In other words, we’re in the midst of an oil bubble, say researchers Didier Sornette and Ryan Woodard of ETH Zurich in Switzerland and Wei-Xing Zhou of the East China University of Science and Technology in Shanghai, China.

Certainly goes against the previous note on the subject.

UPDATE: Gas consumption is dropping rapidly – high prices are the cure for high prices. When will the commodities markets come unhinged?