Who Is Most Exposed To The Oil Price Shock?

Tyler Durden's picture

Over the past 5 months, the only reason the US market, and this economy has outperformed the world (or "decoupled" in the case of so-called US fundamentals) is because the trillions in incremental liquidity from generous central planners have homed in on US equities like a heat seeker, in the process boosting confidence, and in a reflexive fashion, making consumers believe that things are getting better (for producers of printer cartridge maybe, everyone else just keeps getting worse off in real, not nominal, terms). Paradoxically, the trillion plus injected into the system from the ECB, ended up helping not Europe, but the US. However, as every action ultimately has an equal an opposite reaction, the recent US "renaissance" has also sown the seeds of its own destruction, because one of the side effects of a massive liquidity reflation is what has happened in the energy markets where the crude complex trades at all or near all time highs. However, as the following chart from UBS shows, it is the US which has the most exposure to that other side effect of soaring liquidity: surging prices. While the number is fluid (economist humor), every $10 increase in crude prices, cuts US GDP by 1%, and less than that in Europe and the ROW. As noted yesterday and today, "strategists" have already started trimming their GDP forecasts. How long before we end up seeing already weak growth turn negative as a result of the most recent central planning reliquification experiment? Because it will - central intervention always leads to adverse consequences in due course. Only this time, corporate profits will not allow the economy (read the markets) to pull itself up by the bootstrap, as they have topped and are now sliding lower.

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HungrySeagull's picture

This is not shock.

And nothing is permanent until a long enough time line has passed. Or statue of Limitations expired....

Filled vehicle the other day with 21 gallons all done... a bit stiff but I usually fill at about 10 gallons down anyway...

Double or triple it and then we will see who has the balls to fuel that pig.

Really want shock? Ok, I will play Devil's Advocate.

Jack the Oil to 500 dollars a barrel in a nice hot shooting war.

Then see that rush hour commute trickle down to next to nothing in the morning within a week or two eventually leading to a total shock to the entire Economy from bottom up.

CrashisOptimistic's picture

You don't understand.

It's not about every day life.  It's about budget projections.

The debt requirements are dependent on GDP baseline presumptions.  Gasoline drives up the price adjustment on the GDP calculation.  You can make a strong case for price adjustment now, at such low economic activity levels, being MORE important than even consumer spending (on a unit sales basis) in that GDP calculation.

The gasoline price increase thereby destroys the government's fiscal budget projection.  With so very many in the US now drawing government benefits, this is lethal.

smb12321's picture

Thanks!!  Too few realize the unstated (not hidden) consequences of higher gas.  It's hard to see how debt can rise any faster but with falling GDP I suppose it's possible.

Pinto Currency's picture

 

 

Check out Westport.com (WPRT - nas; WPT - tsx)

 

Partners Ford, Volvo, Cummins, CAT, etc. running Westport systems to operate diesel engines with natural gas.

 

Savings $50,000 per year for heavy trucks running nat gas.

 

 

Pinto Currency's picture

 

 

 

See also Calfrac.com (CFW - tsx)

Frac drilling services firm for the shale nat gas wells.  Calfrac will be running flat out as oil keeps running this year.

 

Goodbye middle eastern oil.

r101958's picture

It is also about 'everyday life'. There are millions that commute to work 30 or more miles (one way) each day. This is because these folks bought houses way out in the burbs back when gas was only $1-2 a gallon. At that time these houses were an attractive alternative to living closer to the city and work. Now, with gas prices going up, these houses will continue to lose their attractiveness and hence their value. Higher gas prices will also manifest in higher food prices (again, everyday stuff). Of course none of this is considered in the government fudged CPI which is used to determine cost of living increases for SS recipients and other retirees. Wonderful stealth BOHICA for those on fixed income!

battle axe's picture

And Iranian War has not even started...

SRSrocco's picture

SCOTIA CAPTIAL SAYS $35 SILVER FOR THE NEXT 3 YEARS....PURE RUBBISH

Scotia Captial is bullish on gold, but says the increased supply of silver from 2011 onwards will keep the price of silver capped.  The price of oil and the peaking of diesel supplies will create havoc in the global mining industry.  There are no metal analysts that understand this princible.

I discuss that when open-pit mines age, their diesel consumption increases as their metal production remains flat.  You can read why Scotia Capital's newest forecast on silver is rubbish in TURDS BLOG HERE:

http://www.tfmetalsreport.com/comment/137034#comment-137034

tmosley's picture

I'm not.

My silver must have formed a Faraday cage.

redpill's picture

Disclosure: I'm long TSLA

Taterboy's picture

My neighbor got a fuel oil delivery the other day and was shocked when she was "exposed" to the bill.

Shizzmoney's picture

Finally, the bailouts are rearing their head.

Maybe all of my parrot right wing (and some of the left) friends who get their info from Fox News can stop saying that "We" made money off the bailouts.....because all of that great profit they defend is going to be washed away by rising permanent oil costs.

When the fuck are people gonna wake up? Seriously.

http://www.youtube.com/watch?v=_fzYlNtrV0s&feature=fvst

Conrad Murray's picture

"When the fuck are people gonna wake up? Seriously."

Only when(if) they can be made to realize their life, and the lives of their children, depend on it.

Rip van Wrinkle's picture

But not while your Mum's watching X-factor or your dad's watching the Giants.

Now go away

redpill's picture

Oh they'll wake up...but by the time they do it will be way way way too late.

The Swedish Chef's picture

"Paradoxically, the trillion plus injected into the system from the ECB, ended up helping not Europe, but the US"

 

O RLY? 

 

Have you seen the threemonth Footsie chart? DAX? LTRO helped holders of European stocks, don´t you worry...

Jason T's picture

I"m now convinced we are beyond peak oil.  I already installed a wood burning stove and plan to install solar water heater and solar panels too.  Burned very little oil this year.. very little.  Had a fear  for my daughter about the future without oil.  Got to "invest" in getting ready for it.

RobD's picture

I'm a little ahead of you. Installed a wood/cook stove in my cabin(replaced a pellet stove) and added a battery/solar system to go along with my propane back up generator. Here is  a link to the stove:

http://www.woodstoves.net/soapstone/vermontbunbaker.htm

It is small but heats my 835sqft cabin nicely and has a nice cook area on top plus an oven.

Abitdodgie's picture

I got a Blaze King it heats 2400 sqft in North Dakota and is mega efficient I have no other heating.

roadhazard's picture

I'm a little ahead of you, I've been burning wood for thirty five years. Just bought a small Franklin cook stove (circa 1920) for $100. that I can take outside and cook on in the summer when there is no electricity.

Abitdodgie's picture

I have been trying to find solar panels cannot find them any where , do you know some place ?

gloogle's picture

Now that's just MEAN....

Silver Bug's picture

We are most definitely ALL exposed to the price shocks of oil.

 

http://www.allthingsluxury.biz/

GoinFawr's picture

You can find these arrays along railway lines in quiet backwaters everywhere. Though, you'd have to be a bit dodgy to try and take 'em.

http://www.railgeelong.com/gallery/gheringhap-maroona/maroona/image/500/D754_5477.jpg

 

Dapper Dan's picture

Please note:

When TSHTF you will note that all rural cell towers have a 2000KW propane generator next to building, behind a small chain link fence. With 8 - ¾” nuts holding them down, no tracking device.

 

HungrySeagull's picture

Those are good for 8 hours or less.

One by one they will go off line.

RobD's picture

This is where I got mine:

http://www.wholesalesolar.com/

Shipping cost really sucks on panels so if you can find a local manufacture you may save quite a bit. What I found is solar per watt is hella expensive and I did all the work myself. I ended up with a 3000watt system that cost about $1.76 per watt. My propane backup generator system was only about $0.29 per watt(not counting propane usage). That is a huge difference and the main reason solar is still a looser overall.

Nobody For President's picture

I've been off grid for 40 years now, and solar IS still expensive.

Best cost-benefit ratio is solar water heaters. Set a panel a bit lower than the input/output storage, and you don't need electric pumps (passive system). Remember to drain the system before freezing weather comes, and you are set for years. Mine runs from April through October, propane rest of year.

Solar electric still high per watt,  but I'm far enough away from power lines the up-front cost in the mid 20Ks was about the same for power line extention or panels. I dicked around for 25 years with individual systems on different buildings, finally went with 12 panels and a honking Outback system:

http://www.outbackpower.com/resources/documents/

Works well - backup propane powered generator. Have to remember to add battery water every month. Costs more than local power company would, but I make it up with no mortgage payments...

smb12321's picture

Bigger shocker - this view was also broadcast on CNBC, home of endless growth. Of course it was Santelli but still, that's an improvement.  Shizzmoney is right - we don't notice the relentless decrease in discretionary spending.

The irony is that almost all families can survive high gas prices but only at the expense of hurting the economy by being more frugal.   Of course our politicians will plead with us to spend and build debt to "help America". 

The Count's picture

Well all that is happening is that we are being set up for the next conflict...with...bingo...Iran. What a coincidence that Iran would have oil? Who knew? 

Of course, as oil goes up in price so would gold, but that is not what the central planners like, so every once in a while like when then Benster spoke the other day, they make sure there are some sizeable 'corrections'.

smb12321's picture

I beg to differ but exactly the same thing was said by ZH posters about Iraq.  It matched a government claim that oil would "pay" for the war. Obviously, both were wrong.  We did not "get" a break on Iraqi oil and it did not pay for the war.  I'm no sure why a war against Iran would secure more oil for the US.  Their contracts are set for years.

Silver Dreamer's picture

Technically, the oil did pay for the war.  From what I understand, most of Iraq's oil contracts went to China.  Pay or pay off?  You decide.

surf0766's picture

this morning they told me $5 gas is the new $4 gas. Be happy.. $4 gas is good for you

Conrad Murray's picture

Wouldn't it be something to see housewives furiously submitting /RB buy orders as part of managing the household budget.

Christoph830's picture

Call me crazy but it seems to me the Obama administration wants oil to "shock" our economy so that he has the political capital to push forth an ambitious alternative energy plan in his second term (he did give a special shout-out to natural gas at the last SOTU speech).  By making Iran the boogeyman responsible for the rise in oil, he will be able to withstand the effects of a slumping economy at the polls and play the "War-time President" card during the campaign, ultimately winning re-election.

 

The Count's picture

Obama is but a pawn, a minor league pawn, for the string pullers in the dark. They will let him have the off victory once in a while but he is not allowed to mess with the status quo of the really important shit.

smb12321's picture

In one way it demonstrates the incredible naivety of the Prez.   He actually thinks that breakthroughs come by government manipulation of market forces.  With nearly every energy company in the world working desperately for a substitute it is ludicrous to purposely send gas shooting up.  But alas this is the mindest of BO and his team of reality-absent professors and czars.

roadhazard's picture

Big Oil does not want alternative energy as long as there is a barrel of oil left. Don't let the Ad's fool you.

earleflorida's picture

On the contrary, national security trumps big-oil - says, "Blue Gold", NOW!!!

youngman's picture

The average Joe...airlines...Cruise lines...truckers...delivery companies...plastics manufacturers..anyone who uses a petroleum product....that is who...

Silver Dreamer's picture

We should not forget the massive amount of oil used to deliver food to our grocery stores either.  Food is already expensive enough.  Now imagine what it will be once diesel costs $10/gallon.

alex_g's picture

Someone help me out here, the numbers don't make sense to me.  Net oil and product imports are about 8,000,000 barrels a day, about 3bln in total for the year.  A $10 price increase would be $30bln, or about .2% of GDP.  Unless there is a 5x multiplier on that, the 1% reduction in GDP per $10 of price increase is greatly exaggerated.

smb12321's picture

Read CrashIsOptimist's post about the "real" consequences of higher gas.  It doesn't exactly answer your question but it does explain the real catastrophe that gas prices have on the economy.  Very succinct.

alex_g's picture

I get that higher gas prices reduce Govt revenue.  I am questioning the impact to GDP claimed by the article.  To me, the numbers don't add up.

vote_libertarian_party's picture

That graph is upside down.  The US is BETTER off with higher oil...errr...uhhhh..well that's what the guys on CNBC keep saying...and they wouldn't fib.