Oil prices & the economy

Paul Pollets

I haven't seen it this busy since 1999. While fuel costs are on everyone's mind, most of the renovation is driven by the powerful real estate market and lower interest rates...for the moment. There is strong interest in efficient systems.

I suspect on Mon 8/29, the price of oil will top $70-72./gal, pushed up by the hurricane, speculators and gulf refining capacity, after the storm. I hope the NorthEast is prepared for heating oil at $3-4/gal this winter. Seems very likely.

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Rodney Summers

I thought this very enlightenin.

Don't Count the U.S. Consumer Out
By Joseph Lisanti, Editor, "The Outlook"

Despite higher energy prices, we expect consumers to continue spending and the U.S. economy to grow

Traders make money in the stock market by quickly jumping on a trend. Sometimes they jump on the illusion of a trend, as we suspect happened recently.

As the price of a barrel of crude approached $70, traders sold stocks. They were worried that higher energy prices would choke off economic growth by causing a slowdown in consumer spending.

Oil supplies continue to be tight, because demand has been boosted by strong economic growth in both the U.S. and China. We believe that worries about supply disruption, precipitated by refinery outages and a leadership change in Saudi Arabia, have pushed up oil prices.

The worries appear overblown to us, and oil, though pricey, is far from its all-time peak in inflation-adjusted dollars. Crude sold for $39 a barrel in 1981, but that translates into more than $87 a barrel in today's dollars. David Wyss, Standard & Poor's chief economist, believes that oil would have to reach $100 a barrel to tip the U.S. economy into recession.

Higher energy prices have started to seep into the costs paid by manufacturers. The producer price index climbed 1% in July as energy prices surged 4.4%. But it's consumer prices that concern most people. The core CPI, which excludes food and energy, rose only 0.1% in July and was up only 2.1% on an annual basis, indicating that high fuel prices haven't yet materially affected most consumer items.

The more volatile headline CPI, including food and energy, was up 0.5% last month and 3.2% year over year. That annualized CPI figure has some traders worried that consumer spending will take a hit in coming months. We don't expect that to be a major problem. During the 19-year bull market that began in 1982, the average annual CPI change was 3.3%.

We expect oil prices to moderate a bit, which should be reflected in a reduced CPI number. And we would not bet against the American consumer.



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Mike T., Swampeast MO

And we would not bet against the American consumer.

Problem is that to be a true consumer you must also be an American worker. Large companies are betting against the American worker as they continue to move both manufacturing and service jobs overseas.

Our cherished "middle class" is shrinking.

Perhaps modern unions are are just as corrupt and greedy as those who profit handsomly by bypassing or eliminating them...

J.C.A._3

Ken,

GEEZE, I hope you (and you're anaylist) are right....but I'm more curious as to the "petroleum based products" market getting hit hard, as opposed to "Fuel markets".Conspiracy theorist that I am...I just feel that they're getting us used to spending this much for fuels, but there are many more considerations....

Plastic, rubber compounds, and mounds of man-made products ALSO depend on petroleum as their base.If the price of the base is going through the roof, wouldn't they just follow suit? That would be a far bigger drain on the CPI in the long term, than an "anomily" in fuel prices.

Like I said...I'm thinking long term and this doesn't look too good to me at this point. The ducks will fall if the pond is being controlled by speculation. Capise? JMHO... Chris

Jason_15

Correct

J.C.A. you are absolutely right. I am a pipefitter/steamfitter at a plant that makes polymers. our raw materials are all petrochemicals. 5 years ago we were making profit at a fantastic rate. Today we are struggling.

Joe Brix

The downturn will come much sooner

With this years heating season costing 35-50% more then last year, I think you'll a major economic slow down this winter.

Bob Sweet

If we dont get our border problem solved

big business wont have to ship jobs overseas, they'll have all the cheap labor they need fromm illegal immigration.

Problem is that to be a true consumer, you dont have to be a legal citizen. FACT!!!

Rodney Summers

Yeah but...

The jobs we sent overseas are the lower paying grunt jobs we won't take anyhow. Our unemployment rate is down again and closer to 5 than 6%. Somebody's doing something right.

Europe's unemployement rate on the other hand...





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Constantin

Good Points, but...

...it will also be interesting to see which sectors are going to get affected the most.

For example, the rash of employee discounts, cash rebates, and other incentives I've seen this year for pickups, SUVs, etc. seems to indicate that the big-car craze may have slowed. My bet is that people who have to commute long distances will begin to downsize their vehicles and/or switch to hybrids, car-pooling, or public transportation.

It is my belief that heating businesses will see an increase in energy efficiency-related upgrades and/or up-sells. Hopefully, the general population will also do more to weatherize and insulate their homes before the cold hits.

Inflation may also yet rear its ugly head, particularly if manufacturers, employees, etc. can pass on the higher costs of production/commuting, etc. The trend by the Fed to keep ratcheting up the short-term interest rate is unlikely to stop anytime soon, yet the current trade account and federal deficit may yet cause the dollars currency exchange rate to tumble further.

In other words, if you don't have a fixed-rate home mortatge by now, you'll miss out on the party if the inflation-genie pops out of the bottle...

Steve Ebels_3

Fuel will never come back down ............

The reason it will never again be at what we were used to is very simple. The kind gentlemen in the turbans have figured out that the world will not come to a screeching halt at $65.00+ per barrel. They are probably downright giddy watching most of the world's economy expand while their oil hovers at the altitude it has been at for the last couple months.

You can talk about lack of refining capacity or lack of exploration all you want but as of now they control to large a percentage to let the price drop unless they want to.

Joe Brix

I read in the NY TImes

were Saudia Arabia would probably prefer oil at around $55 a barrel. Too high a price will set off a global ression which lowers consumption and simulates too much alternative energy exploration (bad for them too in the long run).

I think oil got down to around $10/ barrel in the late 80's as there was a glut of oil on the market as Russia started pumping full blast. A burp in the global economy could quickly create an oversupply if everyone is pumping full tilt.

Of course, China and India where just farming countries then. So while we keep buying cheap Chinese goods from Wal-Mart, it's un-likely we'll ever se it drop below $50 again. NYT also reported that we're probably at the point of peak global production as the Middle East reserve is probbaly half gone by now. It's all down hill from here.

Gordy

Interesting site

http://www.cia.gov/cia/publications/factbook/geos/us.html

Lots of Data on every countries Oil supply,reserves,production,usage. Same for NG. Some data lags 2 years. With the CIA's data of proven world oil reserves, and world oil usage. We equate out to about 36 years of oil left. Thats at present consumption. If you click on the sort graph it will list in decending order producers,users. Lots of other cool data about countries.

Think about it once some of these oil producing countries reserves are gone. There is nothing left to export but sand. Higher oil prices are a feable way of trying to preserve their reserves.

Constantin is right lock in those interest rates. The fuel surcharge will be a permanent fixture to our goods and services. Inflation is going to rear its ugly head. Oil is in just about everything you want to purchase in one way or another!

Pat K

Just wait till the Nov. credit card bills come due!

Folks who carry a balance will find that their minimum payment has doubled.

Chuck Shaw_4

An over simple solution

I found an alternate path to work. Dropped my commute from 27 miles each way, to 17 each way. I also, out of desire and somewhat out of need purchased a new car. That car gets 25 miles to a gallon, my pick-up truck got 15. Between the two, I figure I am saving almost 5 gallons of gas a week. If everyone, who owned a car, could figure out a way to save one gallon a week, where would that put us?

Just some thinking....


Chuck

THP_6

Come on Steve you gotta have a little faith!!!

Tony_23

I disagree

It seems to me that every time a factory here closes and moves overseas, jobs are lost by the hundreds. Those "grunt jobs" were done by someone here until they were taken away.

The big problem I see is the illegal immigrants working for peanuts so that a legal resident can't make enough to pay the rent, and do it legal. There's always going to be a need for low and unskilled labor. Shouldn't legal residents have an advantage ?

The other thing is, as far as the unemployment rate, it doesn't count the ones who's benefits have run out or are a part of the sub-economy. I know a bunch of these types of people. They survive and that's it.

So, I don't think it's as much a matter of "won't take" as "can't take".

Bob Sweet

Yup

WE can all turn our heads and make excuses that the illegals are doing the jobs Americans really dont want to do, BULL.

Lets just say it's true, ya think it's asking to much to channel them through the proper procedures? Rather than turning a blind eye.

I dont know about everyone else, here where I live, English is considered a second language in my daughters public school system, better known as ESL, English as a Second Language.

I dont think this is the path we need to be going down.

J.C.A._3

Doesn't directly affect this post.....

But when the guy that's been making all the decisions for the last 18 years speaks...I think we should listen.

Things have been going "our way" for quite a while now but the bubble is on the verge. Unless the price of the "now" most speculated on commodity comes into a realistic and true fold, the entire worlds econemy is going into the slippery slope called recession. The warnings are real and the guys who have the gold will rule.

I've read the posts about the oil producers preference, as to oil prices. The truth is.... that as long as it has the ability to go higher, it will. IT'S A BUSINESS!!! The top priority is to make money...Anyone think it's going to change?

http://money.excite.com/ht/nw/bus/20050826/hle_bus-n26425904.html

Chris.

Steve Ebels_3

Couldn't be more true Bob

On of the greatest strengths of this country, and one that often goes unrecognized is that we all share a common language. When my forefathers came over from Europe, there was a period of time that they held on to their native tongue. This was especially true in church services which were held in Dutch until well into the 1930's. (Eventually they figured out that if He's really an all knowing God, He understands whatever language you speak to Him.) But I digress; they eventually gave up their language and accepted the fact that they were Americans and not Netherlanders anymore. I feel that it's a huge mistake to facilitate the continuation of an immigrant's old language by spending public funds to teach it. I for one don't want my tax dollars spent on instruction in anything but good ole' Americaneze. If a 16 year old kid can't speak english let him go back to first grade and learn how. The dimwits in Washington and the various states that condone this practice are merely bowing to easy political correctness. If we wind up with a whole area or segment of our country that speaks a different language it will soon drive a wedge between that area and the rest of the country. We have only to look at our Northern neighbor and observe the situation with Quebec to see the results of such a policy.

Steve Ebels_3

I have a lot of faith..............

That the afore mentioned gentlemen know exactly what they are doing.

Constantin

Valid Point

... integration is the name of the game... and learning one common language is part of it.

However, if memory serves me correctly, the USA is obligated to teach Spanish in all SW states as a result of the US-Mexican peace treaty from way back when Texas, CA, etc. were annexed into the US. That the US allegedly didn't follow its own obligations for over a century in these areas is a matter for a different debate.

Constantin

Yup...

It's pretty funny to hear the energy companies wringing their hands in public crying about the darn shame that the prices are so high. What they don't do is point to the fact that their profits are super-high as well. If there were high prices and low profits, this kind of behavior would be OK... yet no one is calling them on it.

Not to worry, the Europeans are feeling it also, even if 80%+ of their highway fuel price is based on taxes, not the underlying juice. In countries were the prices are subsized by the government, (Yemen, China, etc.) fuel riots have already broken out as prices are raised. Considering how much people in developing countries earn on a daily basis, these price hikes hurt "them" a lot harder than "us".

singh

The Long Emergency

I started reading this book.
The Long Emergency by James Howard Kuntsler.
It is mostly speculation about the decline in oil production,the economic impacts that may happen(which seem to be coming true)the geo-political positioning among countries to acquire what's left and the wars that may and are a result of the remaining supply.Also,why everything is oil based and why proposed alternatives won't work. The author also speculates the collapse of surburbia and small cities built and currently sustain by "cheap" oil.I have not read the end yet.
A good read, but very sobering.And remember it is the author's view,I can't predict the future, but it should be read,pick up a copy.

Tony_23

Hawaii

Have you heard what they've done ?

The state gov't has capped the wholesale price, $ 2.16/gal IIRC. Just what is needed, more gov't intervention and control. (sarcasm)

Just wait until the oil companies cut the delivery amounts to Hawaii because of reduced profits ! I'm betting the uproar over NO fuel will be greater than the uproar over expensive fuel :0

Isn't it funny how the gov't is willing to cut a business's throat to look good, but they won't cut the taxes ?

Steve Ebels_3

Looks good in the papers but..............

Who's picking up the difference? I'll bet it's coming from some general ledger line item in the state's budget. Hence, taxpayer funded price cuts. Don't be stupid and assume that the oil companies are just giving Hawaii a break because their state capitol says so. The money to pay for the oil is coming from somewhere and we all know where government gets operating funds from.

Bob Sweet

I couldnt tell you one way or the other if thats true,

and dont see how it corrilates to teaching the English language as a " Second Language".

On the other side of the living up to ones obligations, sure would like to Mr Vincente Fox live up to his own country's obligations.

Just another opportunity for the world to lay the misdeeds of the past in the laps of Americans, and feed off the guilt.

Its a weak and disingenuous argument.

Unknown

We are a democratic country without an official language. We have a de facto standard that is used, but it is not an official language. 27 states have adopted english as an official language, and 3 have 2 official languages (the second being spanish).

Basically, america speaks what its people speak. If at some point a majority speak spanish, then we will be a spanish speaking country. That's what democratic-type government is about, responding to the people it governs, not imposing its will on them... in theory, at least.

Bob Sweet

Well right now the majority speak English

and if the demographics change, Fine.

A Democratic society is also based on laws, which the illegal immigration is trampling on.

Unknown

absolutely, I don't understand how people can defend illegal immigration. Fight to make more immigration legal, or don't, but don't stand there and try to justify illegal immigrants, I think.

However, just because a majority do something, that doesn't mean you ignore the minority of legal citizens who speak other languages. That's called the "tyranny of the majority", and that's why we have things like 2/3rds majorities for consitutional amendments, a supreme court, and other things; because our forefathers recognized that a simple majority is not always right.. even a 2/3rds majority is not always right. And it doesn't take a majority to start a revolution.

Bob Sweet

\"Hyphenated Americanism\" Speech

Take a peak at what President Theodore Roosevelt spoke of nearly 100 yrs ago.

October 12 1915

Unknown

so it's been going on since day one and here we are the strongest nation in the world. Not so scary then, is it?

Bob Sweet

The only thing scary

is the watering down of American principles and ideals. To accomodate individuals not willing to live up to them. Under the guize of tolerance.

Unknown

which ideals were those? "Give us your poor, your unwashed, huddled masses" perhaps? Perhaps the non-stop stream of immigration that the entire country is founded upon in the first place and which has given us everything we are today? Or maybe you were thinking something more like slavery. hard to tell I guess. Really, I think you should just relax and accept that while the country was founded by white christian males, it was not built to remain that way forever, in fact it was *specifically* built to be responsive to a changing populace and to prevent the tyranny of the majority as well as tyranny of a few in power (though how successful its been is certainly open to debate). That is THE american ideal. everything else is YOUR ideal.

Every wave of immigration this country has ever seen has had the same whining about jobs. Irish, Chinese, Italian, you name it. Every time there is a period of change, and things level out as the new group becomes americanized. And we get stronger still, every time.

Stasis is death.

singh

Well said Rob.

Bob Sweet

True to form NRT Rob

Typical, pull out the race card and avoid the issue of it being illegal.

Those same immigrants that came across Ellis Island did it legally, not across the border in a midnight run ILLEGAllY.

Darin Cook_3

I seem to recall a earlier post

where some names I see posted here were wishing for fuel to go up 2,3,4,5 dollars a gallon. With the intent that people would start buying high end systems with the highest efficiency boilers. Sales would skyrocket and you would be able to make the profits you should be making. Well now that that time has started to come upon us, How is it going? Careful what you wish for.








Darin

J.C.A._3

Here's the latest report....

The countries sending and providing oil know the score.....and are pumping as fast as they can. The blame for the price debacle rests solely on the speculators.

http://money.excite.com/ht/nw/bus/20050828/hle_bus-n28156080.html

When has the downfall of a refinery ever affected the price of oil like this? The speculators and investors are making mountains out of molehills and scaring the bejesus out of everyone to get their bottom line fattened up. The bubble will burst soon and they are going to be eating crow for a while, but in the meantime....we will all be expecting and becoming accustomed to pricing as it is.(when the price falls, it will seem like a bargain and no one will be bitching)

I'd like to have the oil Co.'s PR firm working for me right now. I figure they could sell icecream to Eskimo's. JMHO. Chris

Unknown

I've already addressed illegal immigration; we agree it's a problem that should be rectified. You moved this into territory well beyond just illegal immigration. Which makes me think it's not just about *illegal immigration* for you, it's about maintaining the status quo.

Bob Sweet

Wish I had the insight you posess to make judgement calls

on peoples intent, impressive. I think you should just relax and except that not every comment made with respect to immigration or social issues is generated from ill will towards others or racism.

Nice glass house you live in!

Unknown

Your ESL comments go well beyond just illegal immigration in their scope. It's not much of a leap. Many southern states have substantial spanish speaking populations, and not *just* because of illegals. Your Hyphenated Americanism comment is also quite telling, as was the speech you refer to.

Wayco Wayne_2

Singh

Thanks for the lead. I picked up "The Long Emergency" yesterday and started reading. Finished the first chapter, "Sleep Walking toward the Future." Sobering indeed. I thought I was dealing with it OK and then last night I dreamt I was in a large building downtown and it was falling down around me. The symbolism was very clear to me. I can't wait to reach the end of the book and see his possible solutions. I do some things like buy high efficeincy cars, appliances and even light bulbs, but I'm still a consumer in an oil driven economy, doing my part in contributing to the problem. I love his use of the term "recreational shopping." What are people thinking??? WW

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