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Here Are The Winners In An Oil Price Shock
On Friday, we quantified the biggest losers in the case of a sustained oil price shock, and were not surprised to find that the US leads the way with about a 0.9% hit to GDP for every $10 rise in crude prices (compared to about 0.4% for the entire world). Today, via Goldman we look at the flipside and while acknowledging that in absolute terms the world will suffer should crude prices sustain their move higher, there will be relative winners. From GS' David Kostin: "Our oil convergence monitor tracks the relative performance of the Energy sector vs. S&P 500 against the price of oil (measured by the 2-year oil swap). Currently, Energy equities are about 1.5 standard deviations cheaper then the oil price would suggest (based the relationship over the past three years (see Exhibit 4). The divergence has remained stable during the last two weeks although the Energy sector outpaced the S&P 500 by 160 bp during February (5.9% vs. 4.3%). Outside Energy, the Metals & Mining and Engineering & Construction industries show the highest sensitivity to oil prices." What is strange is that the biggest loser by far to an oil shock is the Consumer Discretionary sector, which continues to plough on, completely oblivious of absolutely everything, even as the Dow Transports have decoupled from the broader market, purely in hope that the iRally will continue and lift all boats with it, when in reality every incremental dollar spent for iTrinkets saps the already tapped out US iConsumer even more, with less marginal purchasing power left for other discretionary purchases. Then again, good luck trying to talk any sense into the central bank playground known as the stock market, which will do whatever it wants for as long as it wants, until it doesn't.
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But consumer discretionary is where all the hopium is!
They're running out of HOPIUM to print!
time for some dopium
More like nopeium.
just say no
Can I get my Hopium with a side of toast?
Yeah toast! http://www.youtube.com/watch?v=Wrkzkqyyb9I
ha ha, good one!
Powdered Toast Man Saves The Pope
http://www.youtube.com/watch?v=s4e2boN_rBU
Oil is going to go much much higher. It looks like a strike against Iran is inevitable at this point.
http://ericsprott.blogspot.com/
Yes sir rebob, bomb hell out of them an that'll sure as shootin bring us new oil. Then we can wait and see what our friends with the six pointed star wants our step n' fetchit president and congress to do for them next. They'se all true patriots--our leaders. reech! Milestones
Oil going up, duh! Thats what happens when you keep printing!!!!!!!
It's demand from China and India, silly. And the multimillenial fued in the middle east. Nigeria pops in once in a while too. June - November, you can blame it on hurricanes. What else ....hmm...hmmm.. Ah SUV owners.
So has demand from India and China increased by 300% since 2009?
Why does it have to increase 300%?
Since ~2008 Chindian demand is up ~2.7 mmbpd while the US is down ~1.8 mmbpd...
Oil price inelasticity is about 16% or 1% shortfall -> 16% increase...
evil speculators bitchez!
and here I thought it was all those "Speculators" driving up the price of crude.
I'd offer Pelosi some salt, to flavor her foot, but she thinks that's toxic as well.
Sodium Chloride? That's almost as dangerous as Dihydrogen Monoxide!
You really do play the clown well, don't you...
Consumer discretionary is unchanged because it runs on credit. It would be interesting to see the same chart but for interest rate shocks.
Consolidating post:
Speaking of interest rate spikes: http://www.tradingeconomics.com/united-states/interest-rate
78-82 was, er, interesting.
Ya know, but we were still building back then, unlike today.
I had a $10,000 TIGR that paid 16% APR.
Consumer discretionary runs on credit....until it doesn't.
BBC: Rally in Moscow as polls suggest Vladimir Putin wins Russian electionhttp://www.bbc.co.uk/news/world-europe-17251094
Interesting decade coming up.....
"clarification moment" for Uncle Salami. That's your winner. Should it happen...should be interesting. Especially with interest rates at pretty much zero.
The people aren't the winners!
Cash-strapped Britain: Millions of shoppers borrow just to stay alive as they use credit for grocerieshttp://www.dailymail.co.uk/news/article-2109983/Cash-strapped-Britain-Mi...
Aesop's Fable: The Ant and the Grasshopper
http://www.youtube.com/watch?v=UkF-h9cctIs&feature=related
Grasshopper would be getting SNAP and a free cell phone today:
http://obamaphone.net/
And the Ant will find that the more it brings in to cover the seemingly insufficient storage pile, it may just learn that it's labors are being skimmed off the top.
Interesting to note that cartoon is copyright 1934, well into the previous depression...
now it is time for all the 3rd worlders they imported to roll up their sleeves and pitch in and carry the UK. Sure it'll work great
The rising price of gasoline put me out of business a couple of days ago. I now plan on consuming even less than before, ex. for continuing to stockpile ammunition. And why do I only see porn and gun ads at ZH? Oh.....
A cookie tells the server what you surfed lately and sends ads to match your interest.
Are there really still people out there who don't clear cookies, flash cookies (LSOs) and history regularly?
Sorry to hear that, guy. I can't believe we are going to bomb Iran given that people are going out of business due to the gas spike. Our leaders are brilliant.
My father went out of business. To his credit he became a fireman at 43. Best wishes CF.
Speaking of interest rate spikes: http://www.tradingeconomics.com/united-states/interest-rate
78-82 was, er, interesting.
It took years for that ass rash to stop burning.
"This is the Wynter of our discontent"
Summer Benson Group
This stuff doesn't work.
Oil price going up doesn't translate 1:1 for company revs anymore because PRIVATE OIL COMPANY OIL PRODUCTION IS FALLING. It's really hard to make money selling a product for higher price if you don't have any product to sell. This is the analagous situation of the hot Christmas toy that the manufacturer knows will lose its pizazz in just a few months, but is helpless to capture the popularity because it just can't get more product to market in time.
In the case of this topic, every day is Christmas.
Only a handful of national oil companies can hold their production (usually by buying someone else's production). The privates just can't do it anymore.
The exception is Suncor.
Analysing the reserves of XOM, taking into account acquisitions like EOG, and noticing that the term BOE (barrel of oil equivalent, on a BTU basis I might add) is the new norm, one concludes that XOM is becoming a nat. gas company and that even with reclassification of the Alberta bitumen deposits that their proven *oil* reserves are in terminal decline...
Here is somthing related that I came across over at peakoil.com...
Flakguy, this stuff is rampant. Serial obfuscation as far as the eye can . . . not see.
In retrospect, it is fucking amazing that the USGS was allowed to release that report in 2010 announcing that the NPR-A (National Petroleum Reserve - Alaska) had completed its exploratory drilling program and reserves there were reduced by 90%. What they had thought was oil was nat gas.
That's Nine Oh %. That month the US lost 8 billion barrels in national oil reserves.
It is utterly mind boggling that report got out.
No, it did not lose 8 billion barrels... The probability density function for the amount of oil and NG up there got
"renormalized".....
Hell, the NPRA report would not be believed by those that think the US is conspiring to suppress production anyway..
Look, you have freemarket asshats saying that Keystone XL will lower the price of oil by taking a smallish glut of oil at a landlocked price and making it available to Gulf Coast...
How is that for doublethink?
Like a greed-stricken ouroboros, they've seized on the idea of rehypothecating sweet crude.
It's the loaves and the fishes all over again!
you mean ANWR isn't going to save us and "drill, baby, drill" is a slogan of morons?
Maybe ionic liquids will just save us all...or unicorn piss.
Yeah... there is a technology "expert" here at ZH that tells me that Ionic liquids can be used to dissolve oil trapped in dead wells...
It is sad, isn't it....
ORLY?
You mean I haven't been talking shit for like 5 years when I verbally bitchslap people who think "the oil companies" (like XOM) are in control of the world oil markets!??! People bleat about XOM's profits, but they don't even bother to look at the utterly STAGGERING amount of sales required to generate these numbers. WTF other company pushes out half a trillion in sales? oil companies are decidedly below average in profitability. The only other companies that can get onto the biggest revenues list are WMT and major car companies.
Reserves have been vanishing for some time now. Depletion and nationalization are a bitch.
1. apart or detached from others; separate; distinct: six discrete parts.
dis·crete discretionary
1. apart from all other discretionary.
2. appears whenever the FED gets caught covertly manipulating markets.
Supply? Demand? Do those realities really set the price of things in the Amerikan Empire? They don't seem to for stocks and bonds .Countries can even default now without "defaulting" if it's not convenient. Perhaps making oil prices high today is just a modern mechanism to impoverish the Amerikan masses without directly taxing them or cutting their benefits or printing even more money. "Surprise. You all are now poor and we have no idea how it happened. Must be the Muslims." Less blame. More confusion.
I've got it! : We'll buy oil with stocks!
Eureka, baby! Hey, Uncle Warren!
Buy oil with worthless paper? Are you kidding? Oops... nevermind.
Olive Garden-Appleby's type resturants should get slammed.
Higher inputs plus their customer base staying home or going cheaper.
Changed the oil in my truck. Oil was over $5qt. It takes 8qts and the filter so about $47 or so with tax. And that's doing it myself. Insane. BTW I bought this truck years ago when things weren't as fkd up as they are now im about ready to trade it in on freakin KIA but I figure I may need it for hauling stuff in the collapse. Of course ill have to steal gas for it.
get a trailer for the KIA. Yes, I am being serious.
Keep the goddamn truck.
I am. It is good to hand over 100 dollars for a fillup while everyone else is scrambling for loose change for gas and then charge thier smokes, junk and lotto.
I realized I wanted to never sell my rig when I saw a very small Eco car. The damn thing is small enough to fit into my bed.
Ergo, throw a set of ramps in the back and tool around... watching for those toy cars to dry up and sit on the side of the road.
"G-day! Need a lift?"
Ka-Ching baby.
Every other oil change, just change the filter and top off. We change oil way too much...
We did not have any trouble with Rotella T in our CAT until we worked hard enough to run up 30,000 miles and require TWO oil changes in 30 days....
DERP! Hours of Service anyone?
Hell, thinking back on 30 years, the old non computerized air breathers never really gave much trouble. Half the shop time I had was in the last decade or so because the goddamn computer says it's time for a oil change.
BAH.
We ran the old air breathers until the oil got into the air tank and we had to drain out 3 gallons of the shit every night.
Then we do the maintenance yah?
Oil was around this same price last year, and they've printed a lot more since then. How does ZH explain this?
I'm not saying printing is unrelated to price. I'm saying speculation likely is part of it, because I paid 4.25 last year, and I'm paying 4.25 this year. That deserves an explanation.
I am but a ignoble speculator. I suspect that with no velocity of money, supply, the increase of, is by itself not enough. I think that the point of increasing the money supply and low interest rates is to spur consumer spending. One velocity picks up, it, inflation, becomes a runaway freight train considering just how much money has been printed in all sorts of various denominations and iterations.
The fact that oil, gold, silver et al, are where they are WITHOUT the ever promised recovery is in fact the point.
But what do I know?
How about because Ben is on the phone every day calling in favours and begging his bankster buddies "please use my free money for the Dow, the Russel, even the GLD anything but WTI!"
What know one is paying attention to is global oil exports. They peaked in 2005 and have been falling ever since. Why? Because countries that export oil have been using more internally. And because crude oil production has been flatlined at around 74mbd since 2005.
Sure, we can try to transition to natural gas. But oil is denser in energy and the transition will be bumpy to say the least. In five years, all of the big trucks and fleets (UPS, Fedx, US Mail, etc.) will be using natgas in the US. The supply of gasoline and diesel is going to begin shrinking soon. That is a fact that cannot be denied.
Personally, I don't see how energy prices can be contained with oil supplies shrinking. The ramifications seem dire. We talk mostly about economics at ZH and ignore energy, but I would submit they are closely related. If oil was at $25, we probably wouldn't have slow global economic growth.
The oil situation should be front page news and everyone should know the oil supply and export situation. Right now less than 1% of Americans could tell you the amount of global oil exports (approximately 41 mbd). This number is perhaps the most important one for our well being and standard of living.
Everyone is expecting their local gas stations to always be full of gas. But come 2015, that is no longer going to be the case. We can be like ostriches for a few more years, but the countdown is here. We are literally heading towards the demise of our way of life, and yet nearly everyone is oblivious to this fact -- or are ignoring it.
We talk about debt nearly incessantly. But finances can be revitalized (check history). However, energy is the key to everything. Without cheap energy you don't have affordable food; affordable transportation; nor economic growth.
In 2006, I thought we would be screwed by 2012. It turned out that 2008-2009, created an economic decline that delayed the energy crisis. I figure it was delayed for three years. So, expect TSTHTF in 2015.
For gold & silver stock investors (www.goldsilverdata.com)
Newager
An honest question to all - You guys & gals are the sharpest posters here, after Tyler, Banzai, and several others.
Is your (the posters here) primary interest to promote / sell / push for an ideology, often an idealistic viewpoint (as I read it), or to make money trading with the hand that is dealt to you. I myself, want to make money trading - if financials are going up, I will milk them gladly for whatever is available tomorrow, regardless of my feelings about the solvency of the banks - similarly for PM's or anything else. But I feel that my idology has no place in my interactions with the market - I cannot fight the market, the Fed, the CB's, and the herd mentality. So while taking an ideological position and sticking with it may prove to be intellectually "right" eventually (even in Q2 2012, by which time I may have declared bankruptcy many times had I been investing or trading with my ideals instead of pragmatically), my goal isn't to promote an ideology - it is to make lemonade out of lemons, and sell it at the maximum price I can on a hot scorching day, and at lower prices on cold wintry days - rather than to base it upon my views of Global Warming. Regards and wishing y'all happier times!
Sometimes your 'ideology' helps you recognize rigged markets and disinetermediate yourself from involvement in their excessive risk-concentrating shenanigans.
Lack of an ideology leaves one more susceptible to trading today's mistaken nominal gains for sublimated faux wealth tomorrow.
(wouldn't moving to high-priced cocoa in the winter be a better business plan...just sayin)
rguptatx, wow, thats a mouthfull.
You post an excellent question. Here is how I view it and I think there may be a few others with the same paradigm. I of course enjoy enhancing my wealth in the markets when I can. Having said that there is not so much an ideology, but a line that I will not cross. There are many sectors that work from "time to time" and I would just move with the flow and follow the wave. I have limits as to where I will try to catch the next wave. For instance, I missed the entire bank rally from December. Does not bother me a bit. I refuse to invest in this sector for the obvious reasons stated on Zero Hedge 1,000 times. At the same time I had a few dollars in tech, which did OK> I never put any money in housing, missed that ramp also. Again not upset. I do not day trade the markets any more and have not for a long time. Tough to beat something that is broken. My main focus is on physical gold, silver and miners. And I have lost money on miners also but I feel "comfortable" in that space and it works well, most of the time.
So, you can have convictions, beliefs and avoid certain sectors but at the same time attempt to increase your worth in other sectors. Energy is one I work with a lot. But my conscious and beliefs keep me away from many stocks. Never a problem for me. I feel at some point trying to get out of "certain companies" might be more than challenging on a Sunday night after Tokyo opens.
The only suggestion I can offer is that you mix honey and Wild Turkey Rare Breed with your lemonade on the cold wintry days. Promote it as cold medicine(discreetly of course) and you'll be rich in no time flat.
Just curious for some thoughts...if I buy gasoline or oil futures and there is a war in the middle east, will I get screwed by someone declaring force majeure and not paying me on the contracts?
Sounds like you've been reading about the cds crap lately. LOL. The insecurity is spreading.
OY! WOT?!
Buy some actual gasoline by delivery into your newly installed storage tank. 50 gallons or so oughta keep.
Stabil is your friend.
In our current environment of "Peak Corruption", you can be screwed by any number of infinite reasons dreamt up by bankers... So long as you pass your assets into their hands.
Russell 2000 and Transports definitely the ones to watch this week. That headline "mostly sunny with a few clouds" has turned into severe thunderstorms on rare occasions.
The answer will come: drill more so we can burn it faster
I don't think Israel is going to attack Iran which means they probably will. (I am the worse market timer in human history. If I could just get outside my own body and mind, I would make a fortune shorting myself).
"Then again, good luck trying to talk any sense into the central bank playground known as the stock market, which will do whatever it wants for as long as it wants, until it doesn't."
You just case-closed it right there.