Gas prices - California

I had to buy some gas this morning and I thought I was going to pay much more for gas than I did last week. That was not the case. It was a little bit higher, but not substantially. So either the switch to the new formulation and has not affect the price of gas in California yet, or the change in formula is not going to have much of an effect on price at all. It is possible that the demand for gasoline here in California has diminished enough so that changing over to the new formula won't make a difference. That's great news for me at the gas pump, but not very good news for our economy. I am not sure which one I should root for. Do I want to lower prices? Or do I want a better economy? It really does not matter because what is going to happen is going to happen.

What do you think?

Gasoline - California style

I got lucky today in that I was able to buy gas at $2.05 a gallon. Unfortunately it will be the last time I will be able to do so for a while. It turns out that here in California we are so brilliant that we mess everything up. The price of gasoline is going to shoot up as high as $.30 more over the next few days. Why? Because the state of California is requiring refiners to change their formula of gas for the summer. Now they have done this every year at this time for quite a few years, but right now it feels so wrong. Just when we are about to pay less than two dollars a gallon, we are going to have to now pay more. Do you want to know how to mess things up in your state? Just do exactly what California is doing and you will get the same results. It is frustrating to live someplace where people think they are brilliant, but they are actually dumb rocks. Oh well, I will just enjoy the low price for now till I fill up once again next week.

What do you think?

Algorithms and the price of oil

I have noticed of the past few months that whenever oil was higher stocks are higher. I've also noticed that when oil was lower stocks were lower. My suspicion that there was a correlation has actually been confirmed a little bit. I was reading today that since much of the trading on Wall Street is done by algorithms, most of it is automatic. In other words, it is a computer driven market. It also turns out that one of the components in the algorithms that are used is the price of oil. So when the price of oil goes up the algorithms kick in and they buy stock. When the price of oil goes down the algorithms kick in and they sell stocks. That clearly explains the correlation I've been seeing in the stock market. That might be an interesting trade. I wish I had some money to actually do the same thing the algorithms are doing. To bad I don't. Plus, I know that as soon as I made the trade the algorithms would be changed and I would lose my shirt. By the way, stocks closed higher today. I wonder what oil did?

What do you think?

Gasoline update

I wrote a few days ago about the price of gasoline, so I will not rehash what I wrote. I just want to add that the price keeps falling here in California. I paid $2.08 a gallon yesterday. Prices have not been this low since the great recession in 2008-2009. If the price continues to fall it might go below $2, which would be awesome for me. Unfortunately it is more bad news for the energy sector. If this is not an indicator that we are in a recession, I have no idea what else it could mean. How else could we have gas so low unless demand has dropped of as a result of an economic slow down? In the mean time, I will enjoy the savings at the pump.

What do you think?

The price of gasoline

I just filled my gas tank and was pleasantly surprised. Gasoline here in Southern California is now $2.15 a gallon. we have not had gasoline this low since the great recession. In other words, it has not been this low in 7 or 8 years. I actually filled my gas tank for a little over $15. How awesome is that? So the price of oil dropping like a rock is fantastic for me at the gas pump. But what does it say about the economy? I think gasoline and oil are telling us that things are not healthy in the economy. If the economy was healthy, then why is gasoline dropping so much? Why is oil dropping so much? Yes there is a case to be made about overproduction in oil. But does that account for the drastic drop in prices? I don't think so. The only thing that would account for prices dropping this dramatically is a slowdown in the economy. In other words, there has been a drop in demand which has forced prices to follow. I look at gas and oil as a canary in the coal mine. And the canary has just died. It's great for me at the gas pump, but I think things are not going to turn out so well overall.

What do you think?

Oil production news

It was announced today that Russia Saudi Arabia will be freezing oil production. I am not sure exactly what that means, but at least it sounds like some good news for oil. The price of oil has been in a free fall for a while. Though this has been good news at the gas pump, it is been horrible news for the oil industry as a whole. With oil hovering around $30 a barrel, the oil industry has been decimated. This is especially true hear in the United States. Thousands of workers have been laid off, and we are just beginning to see a wave of bankruptcies throughout the industry. With this announcement from Russia and Saudi Arabia maybe we have seen the bottom in oil prices. Unfortunately for the economy here in the United States it is too late to keep us from what I believe will be a severe recession. Though this is positive news, and we will see a rally in the stock markets today, it is too late for the oil sector.

What do you think?

Oil disaster

The price of oil dropped to $26 a barrel today. I remember predicting a few months ago that the price of oil would drop below $40 a barrel and that would be horrible for the economy. Here we are at $26 a barrel and it is a total disaster. Oil related businesses are starting to lay off well paid workers by the thousands. Many of the businesses are in financial crisis and I'm sure we will see a whole slew of bankruptcies and the near future. Unfortunately oil may go even lower. There are reports that storage facilities are just about full and they might have to turn any new oil from their facilities. If and when that happens oil will drop even further. Are we ready for oil to be lower than $20 a barrel? I personally like paying less for gasoline. But, I do not like seeing the destruction of one of the most productive sectors of our economy. This drop in price is going to have negative ramifications for many years to come. if you are in any way involved in the oil industry buckle up it's going to be a bumpy ride. Actually I think that is the wrong analogy. I actually think the oil industry is like the Titanic on a collision course with an iceberg.

What do you think?

A war over oil is brewing

I think there will be war in the middle east, and soon. Yes, it will be over oil, but not in the way most would think. I believe there will be war in the middle east to push the price of oil higher. Why? Because if oil stays as low as it is, most middle east countries will go broke and have massive civil unrest as a result. Oil is the life blood to the middle east (and several other oil producers like Venezuela and Nigeria). Without substantial revenues, most oil producing countries can’t provide all the subsidies, services, transfer payments they give their citizens. When that happens the citizens will revolt and riot threatening the ruling elites. That will not be allowed and war is the only option left to the elites to safe their positions. So war is brewing and will boil over. And that will probably be sooner rather than later.

What do you think?

Is oil the next sub-prime mortgage debacle?

As I look over all the stories about the price of oil I was surprised to find out how leveraged the industry is. What happens if most of the loans to oil related companies are defaulted on? What happens if many of the oil related companies file for bankruptcy protection? What kind of exposure do banks have to these loans that were once “risk free” and are now basically “junk”? I think this all could turn out to have a major impact on our economy just as the debacle with sub-prime mortgages had in the last financial crisis. As the price of oil stays low (or goes lower) we can expect a wave of defaults and bankruptcies across the oil industry that will have a serious negative impact on banks and other financial institutions. I think we can see another “Lehman” event occurring in the near future all because the price of oil has fallen so low. How would have ever thought that this could happen? Oil was supposed to be risk free. Maybe nothing is risk free.
What do you think?

Our economy is in serious trouble

I just discovered an important truth. Supper low oil prices are a disaster for our economy. Let me explain. The energy sector is one of the most important parts of our economy. If the energy sector is healthy (making a good profit), then our economy is doing fine. Oil and natural gas account for about 8% of the U.S. economy. It is over a $1 trillion-dollar industry. Not only is oil and gas one of the largest sectors of the economy, it is one of the largest employers and one of the largest tax and fee paying segments. So when oil and gas are hurting, it has a direct impact on our economy. Yes, high oil prices hurt the economy, but supper low prices are even worse. With oil under $40, the oil and gas sector is going to get hit hard. With it will come a huge hit to our overall economy that very few seem to notice.

I like lower gas pieces (though they have not been all that low in California), but not when it starts costing profits, jobs, and tax revenue. I oil and gas remain this low, buckle your seat belts, this is going to get ugly.

The Economy

On 12-12-14 I wrote: "In 2008 oil fell by $100 a barrel in 6 months (a 75% drop)! If oil follows the same path we could see oil at close to $30 before it stops falling. Now that sounds unlikely, but it has happened before, so why would this be different? What is also interesting is that stock prices eventually followed the price of oil. The S&P 500 fell from 1560 to 666, a fall of about 60%. So we could see stocks fall by as much as 50%. That would put the S&P 500 easily below 1000. So here is what I am predicting. Oil will fall below $40 and the S&P 500 will fall below 1000. Unfortunately I can’t put a date on it, but I would think that within six to nine months to be reasonable. Wow, things are going to get ugly."

That was over a year ago and maybe my prediction is finally coming to pass. Oil is well below $40 and the S&P 500 has had it's worst first week of trading of the the year ever. With the S&P 500 closing at around 1900 today, there is a long way to go. It could get very ugly this year.

What do you think?

The Economy - Stocks

Stocks were down considerably yesterday. So far stocks have been down for the first two trading days of 2015 (and are down thus far today). The big news though has been oil, which is still falling. Oil is now bellow $50 and still falling! Lower oil prices is good news for those of us who do a lot of driving (and anyone else who needs a break in gas prices), but the sudden collapse is not good for the rest of the economy. Just today US steel announced that it is idling two steel plants and might be laying off hundreds of workers all because of the fall in oil prices. Yes, oil was too high, but the high prices were driving a boom in everything related to the oil business (and many other sectors of our economy as well), which included a lot of great paying jobs. Now the layoffs and idling will begin, which will spread across the economy and cause a recession. The last thing we need right now is a recession. If the price of oil stays below $50 for any prolonged period of time (six or more months) things will get ugly. I think these down days on the stock markets will not be our last.

Economy - Oil!!!

Oil was down even more today. It looks like it ended the day at about $58 a barrel. Oil was as high as $107 earlier in the year. So the price has collapsed by about 50%. It is interesting to note that in 2008 oil fell from $140 to $35 by the end of the year. Could we be seeing a similar occurrence? In 2008 oil fell by $100 a barrel in 6 months (a 75% drop)! If oil follows the same path we could see oil at close to $30 before it stops falling. Now that sounds unlikely, but it has happened before, so why would this be different? What is also interesting is that stock prices eventually followed the price of oil. The S$P 500 fell from 1560 to 666, a fall of about 60%. So we could see stocks fall by as much as 50%. That would put the S&P 500 easily bellow 1000. So here is what I am predicting. Oil will fall below $40 and the S&P 500 will fall below 1000. Unfortunately I can’t put a date on it, but I would think that within six to nine months to be reasonable. Wow, things are going to get ugly.

The Economy - Price of Oil

I love going to get gas. The price just keeps falling and it is so nice to have a few more dollars left in my pocket. Unfortunately, as I have pointed out before, falling oil prices are good for consumers, but not so good for producers. As I write, domestic oil producers are announcing job cuts, reduction in production, and a curtailing of future oil projects. This is especially the case for shale oil producers who need oil to be above $70 to make a profit. Now I am not a fan of the oil companies (as many others), but they have become the driving factor in the current economic recovery (if you even believe we ever had one). If you take away the jobs and money infused into the economy by the oil producers, you can kiss any hopes of a sustained recovery away. If the price of oil stays below $70 for any length of time (six months or longer) we will have serious repercussions in our economy. Hopefully oil prices will settle at about $75 a barrel and we will have some stability. If not, hold on because things can get ugly.