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Oil: "It's The Economy, Stupid"
The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices... "it's the economy, stupid!"
Correlation is not causation but.. well in this case, it is!
* * *
But while this chart is an inconvenient truth, we are sure the meme of US growth saving the world will continue to be spewed as gospel (oh wait a minute... isn't the entire sell-side now taking a chainsaw to their Q3/Q4 GDP growth estimates after construction spending and trade deficit data?)
Chart: Bloomberg
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Already a seemingly runaway, could you imagine the polls at $4.50 a gallon gas?
Manipulation?
The spice (lube) must flow.
Demand is falling because of all the new fuel efficient green non-pollution electric cars. The economy is Booming!
- CA Progressive Politicians
An ode to our oil deflation
In our mindless excuse for a nation
It`s not the supply
(An MSM lie)
But a world that is facing stagnation
Good to see you're back and your material is funny and fresh.
I feel enlightened.
Are you running somewhere? I don't vote but I would vote for your talent. None of the idiots on the ballots have any talent or quality. It's not even entertaining.
Funny and true...
http://aadivaahan.wordpress.com/2011/02/14/oil-crisis-in-a-thousand-words/
Deflationary collapses are sometimes just deflationary collapses.
Tallyho, into the valley of corporate death they rode....
I'd say a deflationary collapse is ALWAYS a deflationary collapse, nein brother Churchill?
This is more clearly a warrationary corrapse.
Cheap oil needed to fight oily wars.
Cheap oil needed to destroy oil-fed opponents.
Cheap oil to win erections (THEN corrapse).
Cheap oil to reduce aggregate dollar demand globally.
Cheap oil....because WAR.
Cheap oil for transport and mining period. Military transport or food transport. Peace or war.
Deflation is the Ebola to a world of leverage, margin and collateral.
Soon the world will be bleeding red ink from every orifice.
Prices start going back up as soon as elections are over!
Gov Cuomo- "lazy" is "racist" code language:
http://tinyurl.com/kpfhazh
You can build on that. A voter's brain empties faster than a gas tank.
I'll be happy when it's back at $20 a barrel where it should be, thank you...
So how much more will it drop?
$65 a barrel is coming soon
$10 a barrel is coming soon
Election day usually marks the bottom in gasoline prices.
FreeDumb America.
Correlation is not causation but.. well in this case, it is!
Low oil prices are tanking the economy?
You got it backwards, although low oil prices can tank the economy. The fastest growing part of the economy has been shale. Tens of thousands of jobs have been created along with hundreds of billions of dollars due to pulling energy from the ground.
Thanks for clearing up the ambiguity.
Tyler(s) - Check out the EIA petroleum demand data through September and, given today's date, through October (numbers should be close to 'final').
Spot prices are crashing NOT because of demand, which continues to increase on a YoY basis. Even European demand ticked higher recently...
It really is the supply.
So the LIBOR, FX markets, PM markets, OIl, etc are just reflecting economic reality and the Saudi Arabia is just a innocent little country without any involvement in geopolitics? The markets are about supply and demand and it is all about fundamentals? The USD is really a stable and secure currency backed by a prudent country that lives within its means? Sensational news if proven correct, however it needs more than one chart to prove it.
I'll be honest: I have no clue what your point is.
I ll be honest as well, it was quite easy point to get, and I have better things to do.
Debt based fiat expansion at zero cost, aka. Command economy, directed scarce resources into extracting shale oil at below cost. Now, its so below cost, there may be a problem ... or more command economy fiat will go there until nobody will take it any more.
and that's why the saudis are dropping the price. they are trying to bleed out the shale biz.
But the radio told me this morning that the price of oil was down due to Saudis giving US a discount. The same radio said yesterday that Saudis were going to bring oil back to $100/barrel to satisfy margins. The same radio that 2 days before said Saudis wanted to drive the price of oil down to drive Putin out of business. The same radio that 3 days before... you get the picture.
The Saudis figure they can damage the US Shale industry at the same time. While the US says: "Thankyou sir can I have another..."
I don't think anyone has a clue as to what is happening and headline generating algo's are quickly running through their batch of +/- articles.
I keep thinking what effect would oil being traded in other currencies have on the USD price of oil. My latest thought experiment goes along the lines of - when more currencies are avaible for oil purchase, they compete with eachother, trying to offer better bargain to someone contemplating whether to pay dollars, rubles, yen, or euro for delivery. The drop in price could be an indication of competition inside OPEC... or more likely a combination of factors, with real economy crumbling, being one of them.
Rush out of Japanese Yen into USD is a likely culprit considering dollar's short term appreciation.
In the '70s we had an oil embargo. Are we haviing a reverse oil embargo by flooding the markets by the Saudis?
The talking heads rush to conclusions immediately following price movements, even though the real news typically takes 1-2 weeks to surface (that the insiders are aware of 1-2 weeks in advance).
Julia, I had my epiphany moment regarding Reserve Currency Status when I walked into a state bank in a small out of the way, naturally beautiful country and saw they were paying 18% on dollar deposits. Stockpiling FRNs has been, until recently, a strategic necessity. Like, exactly like, stockpiling amunition and other military supplies. In fact, the dollar has been for a long time the ultimate military stockpile because of it's versatility. Your not sure what you're really going to need down the road, but til now, you can turn dollars, with their high demand, into anything you might need. Plenty of infrastructure and precedent in place to make it happen.
As the dollar loses status. All these countries will send them home. Question. What percentage of FRNs, FRN denominated assests exist outside the borders?
Saudi's are trying to capture loss of market share because of ISIS discount going on.
every other commodity is in the tank
oh wait!!! feeder cattle, live cattle and hogs are just off their all time highs. WOW - the masses are starving, but meat prices are going through the roof
these commodities show inflation to consumers even though deflation is picking up momentum.
nicely organized yellen - after barry gets his beating today, you can fuck off and stop playing games - ok?
"oh wait!!! feeder cattle, live cattle and hogs are just off their all time highs. WOW - the masses are starving, but meat prices are going through the roof"
It's because the drought conditions the past couple of years resulted in folks doing hard culls. When you do that it takes a while to build back up: lots of heifers got taken out.
Keep in mind that the high prices were also high due to high feed prices. With feed prices dropping back down supply should come back up, as well as prices staying a bit lower.
Unlike oil, livestock can replicate.
There was starvation during the Depression because farmers couldn't afford to buy seeds and plant crops. Banks shut down the lending facilities due to collapsing commodities.
Cattle herds may pick up in volume now with cheaper grains to feed them. I wouldn't bet on it though. Unless demand is solid, the math doesn't make sense for the farmer.
There was starvation because FDR limited what farmers could plant... look up Wickard V Filburn.
This is why I come to ZH. History I coiuldn't learn in school.
Springsteen should have titled the song: Born in the USSA
It would require a tsunami of turnout just to match the blatant election fraud, let alone oust the dems...
I've noted a nice divergence between the prices of hard commodities and the paper world. Iron, steel, coal, oil. . . all of these prices have dropped sharply. In the paper world, everything is beautiful. Food price inflation is eye-popping. It's like the more necessary an item is for basic survival, the more price inflation it is experiencing. . . Hmm.
"It's like the more necessary an item is for basic survival, the more price inflation it is experiencing."
Yup. We're slowly adjusting away from the world of fiction... The words "finite supply" is going to be made quite apparent. Reality here we come!
bollocks. world oil consumption is poised to set another record in 2014. 5 years running of record petroleum consumption.
Also record oil production. What's the historical average price of oil? It's certainly not $80 or $100.
Also record oil production.
agreed. however zh is hinting that lower world demand (reflected in lower gdp expectations) is a factor in lower prices which is not the case imo.
Could be a factor - especially if recent demand growth (dragged down by developed world GDPs) is less than recent supply growth.
Were oil priced in gold and not dollars, $100.00 a bbl is average... historically. In 1960 for example, a bbl of crude cost 8.2% of an ounce of gold, ($35 an ounce and $2.88 a bbl)... today at $100.00 a bbl and 1200 an ounce it is 8.3% of an ounce of gold.
Inflation is a bastard.
12-1st half 89.68128717
12-2nd half 89.83083083
13-1st half 89.61196729
13-2nd half 90.69364283
14-1st half 91.10622417
Growing around 1% per year. GDP is 1:1 with oil so this would mean we are barely growing. In spite of the trillions of stimulus
Anyone have symbols for triple long oil funds?
GDP growth, yup that's true.
Of course there is that whole "cabal" thing too.
Nah....it's the Saudis poking the shale oil/fracking industry with a stick. They know that below $85 a barrel these industries suffer. Just because they are our "buddies" doesn't mean they are stupid.
Enough joking around. Inflation is death, or rather the risk of death.
The people who are creating inflation are risking your death and that of your family.
Inflation is "growth." And growth (on a finite planet) is death.
Overshoot = death. We're born and then we die; stuff happens in-between (it's the length the the "in-between" that we seek to manage).
what is really driving oil prices... "it's the economy, stupid!"
FINALLY .... someone who gets it
ain't no "grand strategy" by saudia arabia nonsense
haha on the down votes
japan in a recession
europe entering a recession
US?
construction spending ... negative (2 months in row)
durable goods orders ... negative (2 months in row ... core down 2 of last 3)
retail sales ... negative
GET A CLUE
Duh...
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M
It's the New Bolsheviks, stupid. Trying to affect Russia. But it's all backfiring. Funny how gasoline prices are declining nearly as fast as crude.
It's the New Bolsheviks, stupid.
So true, yet no appreciated by most.
wow, who would have thought that crude and gas would have a price relationship. Wonder if the Koke bros know.
when you wage war with Russia you try to crush gold and oil
ennie, meenie, mo,
Catch a friend by the toe.
My very best friend is.....?
USA, RUSSIA, CHINA
with all my love xooxoxox
Prince Saud
"Oversupply" = Funny.
Couldn't possibly be that the economy sucks or that the labor force participation rate is historically low. You don't buy gas if you don't have a job to drive to.
Do you remember the scuttlebutt from '07/'08?
It was all about speculation and manipulation.
"Oversupply" = ‘Coming in off the sidelines’ = ISIS is offering a clearance sale = keep your powder dry = bail-in for you.
seriously, why fuck around with russia, just because we can? There's a lot of better things to do.
If it's 'the economy, stupid', then it's 'demand stupid' because the economy really does not have much effect on jumbo crude oil strikes or the latest technology in sucking oil out of rocks.
But the economy does impact how often you drive your car to the mall for lunch and to buy things you don't need.
And look in the window at houses in the real estate brokers office.
I'm so shocked....http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M
How long can an economy survive with oil below the price of production?
Maybe the Saudis are short term flooding the market. OK that could give us our currenct picture, maybe they have lots left and don't care if they make money (doubtful).
Yes there are some sources that can pump at $75/bl but most areas need far more than that.
Oil IS the economy. Without oil nuttin' happens.
If the oil price does not rise we are going to find our selves in a very different world. Little House on the Prarie kinda place...but with a very small prarie, lots of folks will just have to go.
there's many prices of production.
CRB (basket of commodities) at 4 yr low
Saudia Arabia culprit here, too?
http://www.marketwatch.com/investing/index/CRB?countrycode=XX
It is hard to believe Tyler really thinks the oil price is correlated to demand.
Derivative Gambling is driving oil price up and down
listen, despite what everyone is saying about a manipulated economy the commodities always tell the truth. gold is signalling everything is back to normal and the rest of the commodities' prices are purely driven by demand. there is no growth but the real market appears to be reemerging. if only they were able to do that for the financial markets.lol!!!
There are a number of factors involved, not just one. The forces of supply increasing in some parts of the world like US and decreasing from places like the North Sea. Demand increasing in China, India et al. Demand decreasing from Europe and US. It's one big tug of war between all the forces and the speculative traders are standing in the middle pulling it one way and then the other. I suspect Wallstreet may have a hand in squeezing the small producers like they did with Natural Gas a couple years ago. Probably, billions of M & A conusulting fees to be made off distressed Shale producers...
The Great Depression has been going for long enough now that people have changed their habit patterns. People plan their trips away from home to save fuel; no more Sunday drives or Friday "cruise" nights.
I know I have changed my habits through Great Depression II. This while having a steady paycheck through all of it. I moved as close to work as I could; my entire daily commute, from home -> work -> gym -> home is about 6 miles.
Gold struggling, silver failing to hold $16, dollar index won't stay under 87. Its all pointing to lower oil, lower gold, lower silver, higher $, new ATH in the SM. Deflationary collapse my ass. More like deflationary boom... in the right places.
Fielding, you're right on until the end imho. Fwiw, imo, what happens next is in normal world, production collapses. Supply leaves the market. Supply constraint appears. Price soars because they just can't turn on the supply train like a light switch, it takes time. Next, price of everything chimes in.
In abnormal world, The Fed bails everyone out, directing scarce resources into fuel production in a wartime, or command economy manner.
DOW 20,000 here we come...
no it's because the Saudis are trying to break the US producers...comon ZH you're falling behind
This is just TPTB giving the masses the warm and fuzzy about low energy prices just before elections. Backdoor deal with Saudis to sell us oil at discount, while selling at a premium to the rest of the world. It ain't going to last. Bet oil will be back over $80 by end of month (if not by end of week). Obama is going to drive the domestic fracking industry into the ground (the only glimmer of hope in the economy), but that is of little concern to him.
We are .02% off all-time highs!!! BTFD.
Or maybe "Peak Oil" was wrong?
Most of the oil burned in Europe is not used for basic production / consumption
It is burned to chase scarce money.
Irish traffic flows and jams are much bigger this year.
However this does not add to wealth (wellbeing)
It subtracts from it.
real end use purchasing power continues to erode in ireland because of and not despite activity increasing.
“A prominent advocate of the spending policy is Professor Keynes , a economist of such learning and renown that a ametuer such as me is teriffied at the thought of classhing wits with him , still I must brave and do it.”
Eimar o Duffy 1932.
Keyenes then goes on and gives his classic line : and states the object of saving is to release labour for employment on producing capital goods (houses ,cars etc)but if there is already a large surplus of unemployed then the effect of saving is to add to such surplus.
O Duffy phrases it differently (being not a Sisyphist)
He states if there is already a large surplus of goods over the ability of the community to purchase it .what then ?
Well the effect of saving is merely to add to this surplus – which by the way is only in surplus because those whose work is not needed to produce it are not allowed to consume it.
Saving in fact under present (esp euro conditions) conditions means allowing goods already produced to go to waste so as to create living space for more goods.
This can be seen most starkly in Ireland under the present “housing shortage” which is in fact a purchasing power crisis designed to keep the relative value of land up.
In practice this means allowing existing houses to go to waste so as to built more “social houses”
So to quote a ancient unnamed poverb maker in contrast to the wise professor.
We cannot live by taking in each others washing
or
We do not live by making one and other work but by consuming the produce of one anothers work.
And if we stopped spending altogether then the cause of our starvation that we be not out of work but out of goods.
In that case we would be better off out of work as it would conserve our energies longer.
It is hard to say which is weaker , Mr Keynes economics or his logic
Seeing the community is in distress and also that they are not spending much he has jumped to the latter fact as the cause of the former.
His economic idea (Sisyphist in origin) that the function of consumption is to make work.
The function of consumption is to support life.
Sisyphism compels people to save in self defence.
This act of saving destroys local exchange (see ireland and the destruction of its market towns and central city areas)
A social credit policy in former european nation states could see oil consumption halfing within 5 ~ years and perhaps a quarter within 10~
Meanwhile real wealth would increase.
Villages , market towns and the smaller cites would see a increase in vibrancy but national and financial capitals who earn a yield from oil waste would become dead zones.
The Dieselization of the EU car fleet has become absurd.
The capital costs for this is beyond massive.
The Euro construct should half its car fleet at the very least.
OECD EUROPE DIESEL CONSUMPTION
Y2011 Jul :4,276 KBD
Y2014 jul : 4,454 KBD
So basically Europe smells like a truck stop...nice.
It will be hilarious to watch what happens in Saudi Arabia when oil is back to $20 and 28 million ex-trust-fund-millionaires are running around pissed off and without food or water.
I must eat crow (or fried chicken, I guess). I argued in an earlier post that gasoline prices would not fall below $3. I was very wrong. Anyone going to load up on UGA?
crude near an intermediate bottom? http://goldenopportunitytrading.blogspot.com
Ummm to state the obvious: "Correlation does not necessarily imply causation".
Oil price is set by those who control the markets.
There are not free markets.
There ain't no production glut:
12-1st half 89.68128717
12-2nd half 89.83083083
13-1st half 89.61196729
13-2nd half 90.69364283
14-1st half 91.10622417
Once again, for the slow learners in the crowd, I present:
The Only Two Things You Need To Know About Why The World Is Unraveling
HIGH PRICED OIL DESTROYS GROWTH
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
Anyhow this situation poses golden window for China to fill up its giant SPR storage. Patience and liquidity do pay out handsomely.