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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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Fri, 03/02/2012 - 10:50 | 2216659 HungrySeagull
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.

Fri, 03/02/2012 - 11:03 | 2216688 CrashisOptimistic
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.

Fri, 03/02/2012 - 11:08 | 2216706 smb12321
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.

Fri, 03/02/2012 - 11:16 | 2216735 redpill
Fri, 03/02/2012 - 12:56 | 2216989 Pinto Currency
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.

 

 

Fri, 03/02/2012 - 21:26 | 2217739 Pinto Currency
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.

Fri, 03/02/2012 - 12:24 | 2216745 r101958
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!

Fri, 03/02/2012 - 11:16 | 2216734 battle axe
battle axe's picture

And Iranian War has not even started...

Fri, 03/02/2012 - 12:47 | 2216978 SRSrocco
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

Fri, 03/02/2012 - 10:47 | 2216661 RacerX
RacerX's picture

I am shocked.

Fri, 03/02/2012 - 11:04 | 2216697 Tortfeasor
Tortfeasor's picture

Shocked!

Fri, 03/02/2012 - 11:05 | 2216700 tmosley
tmosley's picture

I'm not.

My silver must have formed a Faraday cage.

Fri, 03/02/2012 - 11:16 | 2216733 redpill
redpill's picture

Disclosure: I'm long TSLA

Fri, 03/02/2012 - 11:38 | 2216785 Taterboy
Taterboy's picture

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

Fri, 03/02/2012 - 10:49 | 2216666 Shizzmoney
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

Fri, 03/02/2012 - 11:05 | 2216701 Conrad Murray
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.

Fri, 03/02/2012 - 11:19 | 2216742 Rip van Wrinkle
Rip van Wrinkle's picture

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

Now go away

Fri, 03/02/2012 - 11:24 | 2216754 redpill
redpill's picture

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

Fri, 03/02/2012 - 10:53 | 2216671 The Swedish Chef
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...

Fri, 03/02/2012 - 10:53 | 2216672 Jason T
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.

Fri, 03/02/2012 - 11:11 | 2216712 RobD
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.

Fri, 03/02/2012 - 11:19 | 2216731 Abitdodgie
Abitdodgie's picture

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

Fri, 03/02/2012 - 12:22 | 2216929 roadhazard
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.

Fri, 03/02/2012 - 11:13 | 2216721 Abitdodgie
Abitdodgie's picture

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

Fri, 03/02/2012 - 11:22 | 2216747 chubbar
chubbar's picture

www.sunelec.com cheapest around

Fri, 03/02/2012 - 11:25 | 2216755 Joe Davola
Fri, 03/02/2012 - 14:21 | 2217292 gloogle
gloogle's picture

Now that's just MEAN....

Fri, 03/09/2012 - 02:47 | 2238792 Silver Bug
Silver Bug's picture

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

 

http://www.allthingsluxury.biz/

Fri, 03/02/2012 - 11:35 | 2216760 GoinFawr
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

 

Fri, 03/02/2012 - 11:52 | 2216814 Dapper Dan
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.

 

Fri, 03/02/2012 - 12:02 | 2216851 HungrySeagull
HungrySeagull's picture

Those are good for 8 hours or less.

One by one they will go off line.

Fri, 03/02/2012 - 11:41 | 2216789 RobD
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.

Fri, 03/02/2012 - 13:21 | 2217090 Nobody For President
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...

Fri, 03/02/2012 - 10:56 | 2216674 smb12321
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". 

Fri, 03/02/2012 - 10:56 | 2216677 The Count
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'.

Fri, 03/02/2012 - 10:59 | 2216687 smb12321
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.

Fri, 03/02/2012 - 11:06 | 2216702 Silver Dreamer
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.

Fri, 03/02/2012 - 10:54 | 2216678 surf0766
surf0766's picture

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

Fri, 03/02/2012 - 11:09 | 2216707 Conrad Murray
Conrad Murray's picture

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

Fri, 03/02/2012 - 10:55 | 2216679 Christoph830
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.

 

Fri, 03/02/2012 - 10:58 | 2216685 The Count
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.

Fri, 03/02/2012 - 11:03 | 2216693 smb12321
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.

Fri, 03/02/2012 - 12:27 | 2216942 roadhazard
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.

Fri, 03/02/2012 - 16:52 | 2218091 earleflorida
earleflorida's picture

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

Fri, 03/02/2012 - 10:57 | 2216684 youngman
youngman's picture

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

Fri, 03/02/2012 - 11:08 | 2216708 Silver Dreamer
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.

Fri, 03/02/2012 - 11:00 | 2216689 alex_g
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.

Fri, 03/02/2012 - 11:12 | 2216717 smb12321
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.

Fri, 03/02/2012 - 11:21 | 2216744 alex_g
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.

Fri, 03/02/2012 - 11:05 | 2216703 vote_libertaria...
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.

Fri, 03/02/2012 - 11:05 | 2216704 misterc
misterc's picture

In Berlin / Germany, you can now buy a 6 year old, decent Porsche Cayenne SUV with mileage lower than 100.000 km for less than 18.000,- EUR (by far not the cheapest offer). It makes me wonder why one should buy a two year old Audi A4 or A5 für more than double that money? I'm not that much into cars but it feels very cheap.
In fact, the car dealers are all stuffed with cars. I have some kind of a bad feeling about this..

Fri, 03/02/2012 - 11:07 | 2216705 lunaticfringe
lunaticfringe's picture

Perhaps Alex you are just counting imported barrels. They don't give us a price break on the ones generated here. You now have me pondering the throughput here.

Fri, 03/02/2012 - 11:26 | 2216761 alex_g
alex_g's picture

The extra money paid for fuel that is produced in the US stays here, and is not subtracted from GDP.  Imported oil is a direct deduction to GDP.  Even if all of the product supplied, which I believe is around 18 million barrels per day, it would reduce GDP by maybe .5% per $10 a barrel increase.

Fri, 03/02/2012 - 11:12 | 2216715 CrashisOptimistic
CrashisOptimistic's picture

(this is in reply to alex_g above)

Two things:

1) Your numbers are not pure.  There is All Liquids bullshit scattered around the statistics of oil and you have to dig very deeply to undo it.  Take some time to learn about NGLs energy content and what refinery gain is to see it.

2) GDP is the formula you see on the Wiki but it is also the result of the price index it uses (which is not the CPI) for each of the component parts of that formula.  Gasoline price rise is very powerful in that price index.  So the impact on reported GDP is far beyond just computing how much cash drains out of the US to pay for oil imports.

Fri, 03/02/2012 - 11:40 | 2216787 alex_g
alex_g's picture

Like I said in my first post, help me out here.  The numbers don't make sense to me, for the reasons I stated.  Show me the numbers that back up the claim.

 

I realize that NGL's have less BTU content than oil, somewhere around 91k per gallon, vs 114k for gas and around 130k for diesel.  But it's a fact that more is being used in the refining process, which increases the refining yield.

 

 

Fri, 03/02/2012 - 13:33 | 2217145 Nobody For President
Nobody For President's picture

Alex, your really intelligent questions are begating some really intelligent answers - this running thread on oil prices and consequences is one of the reasons I keep reading ZH - a bunch of thoughtful and smart folks among the smart-ass one-liners (which can be OK too).

Fri, 03/02/2012 - 11:13 | 2216723 Chappy
Chappy's picture

Alex, you forget that the oil price will get marked up.  Oil refineries will mark up their costs.  Oil is used to make products (espeicially plastics) so now those manufactuers will mark those products up and so on.. 

Fri, 03/02/2012 - 11:15 | 2216728 slewie the pi-rat
slewie the pi-rat's picture

the price of oil is going up b/c TPTB want it to go up in their globally-coordinated "2%-healthy" inflation [think lo-fat mammary extract, BiCheZ!] so the banksters and other "related" [fringe pun, BiCheZ!] interests can pretend to "inflate down the DEBT" while actually raising DEBT to ever-new heights and BK-ing any "entity" which can not CTRL+P (including germany)

welcome to the NWO, BiCheZ

until princeCharming artrives and awakens the world from the fiatPowerSpellTM

the US should be especially ashamed when it learns that the Consitution says, unequivocally, that only gold&silver shall be money

the REASON for this, of course, was/IS to protect the Liberty of the individual from exactly what is happening right in front of the goddess and everybody:  TYRANNY

let me spell that out for the hopeless retards:  T-Y-R-A-N-N-Y

Fri, 03/02/2012 - 12:03 | 2216856 Conrad Murray
Conrad Murray's picture

$5/gal gas does seem expensive at first glance. But, when one considers that for $50 an individual, so-inclined, could water the flower beds around any building, that price doesn't seem so harsh.

Fri, 03/02/2012 - 11:28 | 2216763 scatterbrains
scatterbrains's picture

Not to mention what if the peeps on the ground in the M.E. decide they are getting fucked over by their leaders who sell them out for the fancy printed fiat ?  How well do drones work protecting all the pipe lines in Iraq, Libya, S.A.  etc ?  and what effect would this sort of sabotage have on Brent/gasoline ?

Fri, 03/02/2012 - 11:32 | 2216774 vintageyz
vintageyz's picture

I was talking with a customer who has a large farm.  He's been trying to get contracts on fuel since last fall, but the providers would not commit.  Now, he is looking at $4+ diesel.  They use 250,000 gallons a year.  The same thing is happening with fertilizer.  Most of us can guess what will happen to food prices.

Fri, 03/02/2012 - 13:27 | 2217117 MachoMan
MachoMan's picture

Actually, end products have little marginal wiggle room in the biflationary nightmare we live...  so, in essence, your customer is just taking a hit to the bottom line...  because there is no one down the line that has the wherewithal to eat the price increase.

At some point, the producer simply throws his hands in the air and gives up...  factories shut...  et al.

Fri, 03/02/2012 - 11:40 | 2216788 persu
persu's picture

Well, we are much ahead of you. We have had a real fireplace for 30 years. This winter, we turned electroc heating in December and through winterr had only a air pump to supplement fireplace. Firewood costs next nothing as we take it from our own land, and this helps the remaining green stock to grow faster.

This possible in Finland where winter last more than in Midwest, where I lived as a kid.

It is possible to cut heating cost to almost zero, despite rising electricity. My advise to everyone here, aside with our gold stock, to survive.

Fri, 03/02/2012 - 12:09 | 2216874 Implicit simplicit
Implicit simplicit's picture

Put in a non vent natural gas psudo fireplace oven in last year. I have monitor it with 4 co2 and co1(monoxide) detecttors. The alarm has never sounded, and my bills were cut in half  last year (tough winter outside Beantown), and almost 2/3rds this winter.

Prior to that I had a regular wood burning stove, but I got sick of the work to cut and fill all the time, However, if you have a nice supply of weathered wood, i is worth it. 

Fri, 03/02/2012 - 11:45 | 2216804 EyesWise Shut
EyesWise Shut's picture

Tyler forgot to mention the most affected country, Japan

Fri, 03/02/2012 - 12:07 | 2216866 HungrySeagull
HungrySeagull's picture

Japan. *Dismissive Wave....

Wait until we all being to scan the food in walmart for radiation as a large and routine event.

You should have seen the looks I have recieved scanning mine.

"What is that ticking?"

Rad scanner.

"For what.... OH.... (Wide eyes, two steps back)

=)

Fri, 03/02/2012 - 12:17 | 2216910 Implicit simplicit
Implicit simplicit's picture

Ah, the oil conundrum. A bears only friend during these melt-up times. It hurts the  GDP when it goes up, and the stock market when it goes down. It  remains correlated to the stock market. Whats the PTB to do.

Fri, 03/02/2012 - 12:20 | 2216924 Zymurguy
Zymurguy's picture
Who Is Most Exposed To The Oil Price Shock?

 

Me.

Fri, 03/02/2012 - 12:51 | 2216999 riphowardkatz
riphowardkatz's picture

I got the question wrong. I thought that answer was gold miners. 

Fri, 03/02/2012 - 13:05 | 2217028 bugs_
bugs_'s picture

I think the US consumer still has adjustments and optimizations they can make to buffer the shock.  In other countries the "consumers" will be ahead on that.  This means they've already tweaked and optimized.  The shock may be harder for them.  yes Japan takes it the hardest.  This summer will be bad for them with their newkyouler stuff off-line for urgent safety upgrades.

Sat, 03/03/2012 - 11:18 | 2219561 cnhedge
cnhedge's picture

i wonder how much goldman't gdp downgrade comes from the oil reason.

http://www.jinrongbaike.com/
http://www.cnhedge.com/

Mon, 03/05/2012 - 05:47 | 2223404 mrdenis
mrdenis's picture

I live in the NE...New Jersey to be exact I converted to gas last year pulled my underground tank my truck was coming every 5 weeks fuel oil was $4.44 gal my bill was over $1,100 for for every delevery of which i had 6 last year ( record snowfall).....Well this year my monthly bill has beem 150. to 175. for the first 3 mos ....I am very pleased I thought it would take about 3 years to breakeven to pay for a new furnace but it looks like it well be done this year .....Now if i can just bring down my property taxes of $22,500 per year 

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