Posts Tagged ‘oil prices’

Stagflation 2011: Why It Is Here And Why It Is Going To Be Very Painful

Courtesy of Michael Snyder at Economic Collapse 

Are you ready for an economy that has high inflation and high unemployment at the same time? Well, welcome to "Stagflation 2011".  Stagflation exists when inflation and unemployment are both at high levels at the same time.  Of course we all know about the high unemployment situation already.  Gallup’s daily tracking poll says that the U.S. unemployment rate has been hovering around 10 percent all year so far.  But now thanks to rapidly rising food prices and the exploding price of oil, rampant inflation is being added to the equation.

Normally inflation is a sign of increased economic activity, but when the basic commodities that we depend on to run our economy (such as oil) go up in price it actually causes a slowdown in economy activity. When the price of oil goes up high enough, it fundamentally changes the behavior of individuals and businesses.  Suddenly certain types of economic activities that were feasible when oil was very cheap are not profitable any longer.  When the price of oil rises to a new level and it stays there, essentially what is happening is that more "blood" is being drained out of our economy.  Our economy will continue to function when there are higher oil prices, it will just be a lot more sluggish.

In some way, shape or form the price of oil factors into the production of most of our goods and services and it also factors into the transportation of most of our goods and services. A significant rise in the price of oil changes the economic equation for almost every business in the United States.

Today, the price of WTI crude soared past 100 dollars a barrel before closing at $98.10.  The price of Brent crude increased 5.3 percent to $111.25.  The protests in Libya are certainly causing a lot of the price activity that we have seen over the past few days, but the truth is that oil has been going up for a number of months.  Right now we are only seeing an acceleration of the long-term trend.

Things are likely to get far worse if the "day of rage" planned for Saudi Arabia next month turns into a full-blown revolution.  Up to this point, the revolutions that have been sweeping the Middle East have been organized largely on Facebook, and now there are calls all over…
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12 Economic Collapse Scenarios That We Could Potentially See In 2011

Courtesy of Michael Snyder at Economic Collapse 

What could cause an economic collapse in 2011? Well, unfortunately there are quite a few "nightmare scenarios" that could plunge the entire globe into another massive financial crisis.  The United States, Japan and most of the nations in Europe are absolutely drowning in debt.  The Federal Reserve continues to play reckless games with the U.S. dollar.  The price of oil is skyrocketing and the global price of food just hit a new record high.  Food riots are already breaking out all over the world.  Meanwhile, the rampant fraud and corruption going on in world financial markets is starting to be exposed and the whole house of cards could come crashing down at any time.  Most Americans have no idea that a horrific economic collapse could happen at literally any time.  There is no way that all of this debt and all of this financial corruption is sustainable.  At some point we are going to reach a moment of "total system failure".

So will it be soon?  Let’s hope not. Let’s certainly hope that it does not happen in 2011. Many of us need more time to prepare. Most of our families and friends need more time to prepare.  Once this thing implodes there isn’t going to be an opportunity to have a "do over".  We simply will not be able to put the toothpaste back into the tube again.

So we had all better be getting prepared for hard times.  The following are 12 economic collapse scenarios that we could potentially see in 2011….

#1 U.S. debt could become a massive crisis at any moment.  China is saying all of the right things at the moment, but many analysts are openly worried about what could happen if China suddenly decides to start dumping all of the U.S. debt that they have accumulated.  Right now about the only thing keeping U.S. government finances going is the ability to borrow gigantic amounts of money at extremely low interest rates.  If anything upsets that paradigm, it could potentially have enormous consequences for the entire world financial system.

#2 Speaking of threats to the global financial system, it turns out that "quantitative easing 2" has had the exact opposite effect that Ben Bernanke planned for it to have.  Bernanke insisted that the main goal of QE2 was to lower interest rates, but instead all it has done is…
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OIL PRICES SAY: 100% CHANCE OF A NEW RECESSION

OIL PRICES SAY: 100% CHANCE OF A NEW RECESSION

Courtesy of The Pragmatic Capitalist 

No, that headline is not a typo.  This interesting fact comes to us courtesy of The Global Macro Investor:

“Oil prices are always a precursor to recessions.  We hit the magic 100% YoY rise in November 2009 and went on to hit the third highest YoY% rise in the history of oil markets…

gmi1 OIL PRICES SAY: 100% CHANCE OF A NEW RECESSION

“The magic 100% level in the YoY change in oil gives us a 100% chance of a recession in the succeeding twelve months.  This indicator suggests that ISM will fall to 40, or even 35, in the coming months before recovering…”

gmi2 OIL PRICES SAY: 100% CHANCE OF A NEW RECESSION

Source: GMI 


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$8 per Gallon Gasoline Is Already Here (for some of us)

$8 per Gallon Gasoline Is Already Here (for some of us) & Two Charts: the Dow and Dow/Oil   

Courtesy of Charles Hugh Smith, Of Two Minds 

$8 per Gallon Gasoline Is Already Here (for some of us) 

I recently wrote about the possibility of $9/gallon gasoline in the U.S. $8/gallon gasoline is already a reality for some global consumers. 

Price Of Gas Rises For First Time In Six Months

Correspondent Bram S. from The Netherlands recently submitted this insightful response to Adaptation, Habituation, Consumption and $9/Gallon Gasoline.

Bram observes that gasoline is already $8/gallon (when converted from liters priced in euros) in The Netherlands, yet auto owners still spend hours every day commuting to work.

And this is a small nation with an extensive (if expensive) pubic transit system.

To the degree that every dollar/euro/quatloo spent on petrol/diesel is a dollar/euro/quatloo which is not available to be saved or spent on other goods/services, it is in effect a tax (notwithstanding the high taxes already tacked onto petrol/diesel in most of the EU nations).

Why would people continue to drive despite massive financial disincentives to do so? Could the high cost of housing be a factor, as Bram suggests? Or is personal transport so addictive that we are like the lab rats who famously starved themselves to death by continually pressing the button which released more cocaine for their "enjoyment"?

That experiment may be apocryphal, and I mention it only to suggest that there are clearly powerful emotional attractors involved in our decisions to own and drive autos. That is, it is not only a financial decision. But could the economy/society be modified structurally to bring work and home closer together, or to at least ease the financial and social decisions to move the two into close proximity?

Here is Bram’s informative commentary:

I read your story about fuel prices today. Here in the Netherlands the fuel prices are skyhigh, but everyone is still driving his metal cubicle and waiting patiently in traffic jams. Talking about the rise of hidden taxes. In 1993 it was 46.1% tax. Now in 2010 it is 72% on gasoline.

Gasoline Excise Tax (Netherlands) 
(If you are using the Google Chrome browser, just click the "translate" button in the top banner to read the entry in English)

The price per liter gasoline today is EUR 1.579 of which EUR 1.14 is tax….. In dollars per gallon: 7.95. Almost your estimation but no


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2008 REDUX? SCHORK SAYS OIL COULD HIT $110 BY JUNE

Stephen Schork’s short oil, but acknowledges that it could go higher. For more, watch the video. – Ilene 

2008 REDUX? SCHORK SAYS OIL COULD HIT $110 BY JUNE

Courtesy of The Pragmatic Capitalist 

Stephen Schork, president of the Schork Group, talks with Bloomberg’s Julie Hyman about the oil market and outlook for prices.

Source: Bloomberg TV


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Can This Economy Handle $80 Plus Oil?

Can This Economy Handle $80 Plus Oil? 

Courtesy of Nicholas Santiago
InTheMoneyStocks.com

Rising Oil Prices Push Gas Prices Up

Oil made a short term bottom on February 5th, 2010 after hitting an intra-day low price of 69.50. Since that time oil has rallied over 10 points to a high of 82.50 on March 9th, 2010. The continuous gasoline contract on the NYMEX was 1.87 on February 5th and it hit a recent high on March 9th at 2.29. These short term rallies for oil and gasoline have been powerful and very sharp. Can the U.S. consumer absorb these prices should they remain at these high levels?

In July of 2008 oil rallied to a high of 147 a barrel. At that time the NYMEX gasoline contract was around 3.40 and the price at the pump it was around 4.00 a gallon depending on your location in the country. A case can be made that this was the straw that broke the camels back and sent oil and the stock market into a virtual free fall. 

Today most of talking heads and government figures talk about the so called economic recovery that is taking place in the United States. Meanwhile, unemployment in the U.S. is 9.7 percent according to government standards and nearly 20 percent according to others. The country is still facing a huge foreclosure problem with countless homes in default as we speak. All of this takes place as major global bank stocks continue to surge as the new accounting standards allow them to hide their bad or toxic assets. 

The X-factor that many of the economists are overlooking is the high energy prices that plagued the market in 2008 and may certainly do it again in 2010. As many families scramble to keep their head above water the high energy prices will simply act as an automatic tax on the consumer. Regardless if this economy is in a deflationary spiral or an inflationary environment the price of necessary goods are going higher and will hurt consumers.

Oil and gasoline can be traded by using futures contracts or by trading the U.S. Oil Fund LP ETF (NYSE:USO), and for gasoline it can be traded by using the U.S. Gasoline Fund LP ETF (NYSE:UGA).

See also: America’s Commodity Crisis – 2010 Edition


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Then All At Once

It’s good to see more focus on this issue of oil prices, which Phil addressed over the weekend.

As dismal as the pictures James Kunstler paints, his writing is so poetic:

     …It’s like the quote oft-repeated these days (because it’s so apt for these times) by surly old Ernest Hemingway about how the man in a story went broke: slowly, and then all at once. In the background of last week’s reassuring torpor, one ominous little signal flashed perhaps dimly in all that sunshine: the price of oil broke above $81-a-barrel. Of course in that range it becomes impossible for the staggering monster of our so-called "consumer" economy to enter the much-wished-for nirvana of "recovery" — where the orgies of spending on houses and cars and electronic entertainment machines will resume like the force of nature it is presumed to be. Over $80-a-barrel and we’re in the zone where what’s left of this economy cracks and crumbles a little bit more each day, lurching forward to that moment when something life-changing occurs all at once.

Then All At Once

Man carrying car on back

By James Howard Kunstler

     I was plying the interstate highways of New England this weekend — there is no sane way to get from Albany, New York, to the vicinity of Middletown, Connecticut, by public transit — marveling at the vistas of normality all around me: the freeway lanes with their orderly streams of happy motorists, the chain stores floating like islands on the gray undulating landscape, the corporate towers of Springfield, Mass, and then Hartford, gleaming in the persistent pre-spring sunshine, as though they physically represented the wished-for dynamism of economies in recovery. "I see dead people…" said the kid in that horror movie. I see dying ways of life.
 
     There was no denying the spectacular weather for us long-suffering northeasterners. A week ago, it was like living in a banana daiquiri around here. Now, it was sixty-two degrees in East Haddam, CT, along a very beautiful stretch of the Connecticut River somehow miraculously unmarred by the usual mutilations of industry or recreation. On a few hillsides facing south, daffodils were already up with blossom heads ready to pop. The mind could go two ways: into the past, when wooden sailing craft were built in yards along the river; or into the future, when it would be easy to imagine wooden sailing craft being


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Forget $100 oil. $80 oil is a problem

As The Reformed Broker noted in the last post, and as Phil has mentioned many times, while oil and stock prices are currently rising together, increased energy prices are not typically good for the consumer. – Ilene

Forget $100 oil. $80 oil is a problem

Energy prices don’t need to rise that much before a fragile consumer-led economy could face another setback.

Oil can and graph with American dollar

By Colin Barr, Fortune

Are cash-strapped American consumers on for another date with energy price misery?

The U.S. economy remains weak and one in six Americans can’t find enough work. Yet oil prices have risen steadily this year. A barrel of crude costs $79 and change, more than double its price at the end of 2008…

That could complicate recovery in an economy that, despite the tumult of the past two years, remains as consumer-driven as ever…

What’s more, the factors behind this spike seem apt to persist for some time. They include a pickup in global economic activity fueled by massive government spending, a decline in the purchasing power of the dollar as the U.S. holds interest rates near zero, and lack of new oil supplies coming online to meet future demand…

"Any time it gets above $3, it’s worth watching," said James D. Hamilton, an economics professor at the University of California at San Diego. "When you get to that level, you start to see a change in behavior as budgets get squeezed."

Hamilton said the $3-a-gallon price is noteworthy because it’s around the level at which consumers are devoting 6% of their budgets to energy costs. Hitting that point in recent years seems to have prompted Americans to pull back…

"The price of oil played a bigger factor in the recession than people seem to be remembering," Hamilton said.

…Kopits warns that every recession since 1972 has been associated with an oil price surge that took U.S. oil consumption past 4% of gross domestic product. Today, he said, the magic number to get there is $80.

Full article here.

 


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Personal correspondence with Phil regarding how oil speculation affects oil prices.

Personal correspondence with Phil regarding how oil speculation affects oil prices.

Man moving drums in warehouse with forklift

Phil to Ilene:

This is a complicated issue as it’s not just the act of creating a contract.

Let’s say there are 100,000 barrels of oil in the world and 10 are sold each day and they are shipped from various places in various amounts but generally there are, at any given time, 30 days of oil at sea (300 barrels).  If I am taking straight delivery, I would contract with the producers to deliver me 1 barrel of oil per day for a year or 5 years or whatever for $50 a barrel.  My interest is to have a steady supply and the producers interest is to have a steady demand.  He wants to charge as much as possible, I want to pay as little as possible.

Enter the speculators.  Rather than me (the actual user) haggling with the producer directly (as is done in most business transactions), the speculator steps in and offers to buy as much oil as the guy can produce for $40.  I can’t do that because I only need one barrel a day but if the guy can make 1.3 or 1.6 barrels a day or he can add a new pump and make 2 barrels a day, knowing he has a buyer at $40, he will be thrilled (assuming the profits work selling 2Bpd at $80 vs 1Bpd at $50).
In a perfect world, the speculator is simply taking on some risk and will make the difference between the $40 they are paying and the $50 I am willing to pay and they will sell the excess for $40-50 and make a nice overall profit.

But then the speculators get greedy.  They know I NEED 1 barrel per day and perhaps there was some seasonality to pricing or natural fluctuation but all the speculator has to do is wait for the price to rise and then hold it there.  If supply is uneven, they can divert some to storage.  They are still buying it, creating demand but they are not delivering it so there is suddenly a “shortage” where none existed before.   As they accumulate more barrels in storage (say 100) they realize that getting the price up to $60 makes them not only $10 a day more per barrel they sell me,…
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Bubbles, Inflation and Overcapacity

Bubbles, Inflation and Overcapacity

Courtesy of Charles Hugh Smith, Of Two Minds  

Bubbles in water

The global central banks have flooded the world economy with hot money for years. Why has this created massive asset bubbles rather than inflation?

In the 1970s, expanding credit triggered a decade-long bout of high inflation as cheap money chased scarce goods. Why hasn’t the massive expansion of credit/hot money of the past decade caused inflation? Short answer: overcapacity.

Let’s look at a few charts to recall the enormity of the current credit bubble: the trillions of dollars of credit created, the trillions borrowed in mortgages and other credit to chase asset prices upward, the trillions created as assets like housing rose in bubblicious euphoria, and the trillions extracted from those skyrocketing assets:

Despite the trillions being created, borrowed and pumped into the economy, inflation remained benign:

With all that money flowing around, jobs were relatively plentiful, setting a floor under consumption and consumer credit:

Even as all this money chased goods, services and assets, interest rates fell, earning savers less and less return:

Meanwhile, the capacity to make stuff like steel exploded:

So here’s the dynamic which enabled low interest rates and low inflation even as credit exploded and bubbles rose in one asset class after another.

1. Massive expansion of credit was paralleled by a massive expansion of industrial capacity in China and indeed the entire world.

2. This expansion of capacity was matched by an expansion of supply in commodities. As the industrialization of China (one of the so-called BRIC nations--China, Russia, India and Brazil) and other developing nations drove demand for commodities, the incentives to exploit new sources drove up supply of almost everything: oil, iron ore, coffee, etc.

3. While prices have fluctuated in an upward bias, at no time did the cost of commodities rise to levels which threatened global growth except for the oil spike in 2008. Adjusted for inflation, oil is well within historical boundaries even at $80/barrel.

4. To feed the giant credit-dependent machine they’d fostered, central banks kept lowering interest rates and increasing liquidity/money supply. This drove the returns on savings and bonds down to absurdly low levels, forcing money managers to chase riskier assets to make a decent return on investments.

5. This need to earn…
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Zero Hedge

First Federal Execution In 17 Years Halted On Coronavirus Fears

Courtesy of ZeroHedge View original post here.

A year ago the Department of Justice announced for the first time in nearly two decades the resumption of capital punishment in federal cases, with Attorney General William Barr announcing the process for the execution of five death-row in mates is set to move forward, marking the first federal executions since 2003

The first federal execution in 17 years was to take place on Monday of this next week prior to a federal judge in Indiana halting it. 47-year old Daniel Lee is to die by lethal injection for the 1996 slaying of a family&n...



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ValueWalk

Proposed Ban on Sugary Soft Drinks Could Save Billions

By JOHN F. BANZHAF. Originally published at ValueWalk.

Simple Low Cost Governmental Actions On Sugary Soft Drinks Can Slash Obesity and Its Huge Costs

A proposed ban on sugar-sweetened beverages for young children, along with a 40% reduction in sugar use for everyone, would be important first steps in reducing the nation’s epidemic of pediatric as well as adult obesity, and slashing the hundreds of billions which obesity annually costs Americans, says public interest law professor John Banzhaf.

Banzhaf, who helped save millions of lives and hundreds of billions of dollars in unnecessary medical costs by prohibiting cigarette commercials and banning smoking in a growing number of workplaces and public plac...



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Phil's Favorites

How to Protect Your Portfolio

 

How to Protect Your Portfolio

Courtesy of 

If there was a way to protect your portfolio from periodic blowups like the one earlier this year, would you want it? Of course you would, but so would everybody else. And because there is such a strong desire for this type of insurance, the eventual payoff might not be worth it if the premiums that you pay along the way are too expensive.

AQR took a closer look at tail risk hedging strategies and showed that:

Over the 35 years or so where we h...



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Chart School

Dow 2020 Crash Watch - Update

Courtesy of Read the Ticker

Like 1929 the markets have bounced. This time it is on the back of the FED $6.5T money printing.

Previous Post: Dow 2020 Crash Watch 

But can the FED blow $6T every time the market rolls down to test support.

Yes, maybe before the US 2020 elections the FED will do 'what it takes'. But post elections not so much, the year 2021 is a long way from the next election (presidential or congress) and defense of the markets may not be so supportive at $6T or $10T per market smash. The FED may hesitate, and that will be window for stocks to break lower.

The 36 month simple moving a...

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Biotech/COVID-19

Coronavirus's painful side effect is deep budget cuts for state and local government services

 

Coronavirus's painful side effect is deep budget cuts for state and local government services

Washington state cut both merit raises and instituted furloughs as it faced a projected $8.8 billion budget deficit because of the coronavirus. Wolfgang Kaehler/LightRocket via Getty Images

Courtesy of Carla Flink, American University

Nationwide, state and local government leaders are warning of major budget cuts as a result of the pandemic. One state – ...



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Kimble Charting Solutions

Red Hot China Attempting Key Breakout, Says Joe Friday

Courtesy of Chris Kimble

China ETF (FXI) has been “Red Hot” of late? Is it about to run out of steam or will it remain on fire going forward?

This chart of FXI comes from Investors Business Daily and Marketsmith.com. It reflects that FXI is above key long-term moving averages and its RS ratings is moving sharply higher of late.

Line (1) has been support and resistance several times over the past 3-years. The rally of late has FXI ...



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The Technical Traders

Retail Traders & Investors Squeezed to Buy High-Risk Assets Again

Courtesy of Technical Traders

Yes, we certainly live in interesting times.  This, the last segment of our multi-part article on the current Q2 and Q3 2020 US and global economic expectations, as well as current data points, referencing very real ongoing concerns, we urge you to continue using common sense to help protect your assets and families from what we believe will be a very volatile end to 2020.  If you missed the first two segments of this research article, please take a moment to review them before continuing.

On May 24th, 2020, we published this ...



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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

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Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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