Tuesday, November 21, 2017

Oil: uh-oh?

 - by New Deal democrat

I'm away this week, so while I'm not commenting on the few bits of incoming data, here's an item to ponder.....

With respect to commodities, it is said that "the cure for high/low prices, is high/low prices."  Thus $4/gallon gas a decade ago brought forth renewed exploration, greater efficiency, and increased use of alternate fuels.

Almost two years ago gas bottomed out at about $1.65/gallon. I would expect new exploration to slow down or stall, less of a drive for efficiency and for alternate fuels.  The SUV seems to be king again, and hybrids like the Toyota Prius have not increased their market share.

So is the beginning of another secular increase in the price of gas in the works?

Here's what prices look like since the big secular low at the beginning of 1999, showing the bottom in January 2016 and a slow upward trend since:

Here's the YoY% change in prices:

Typically gas prices decline in the autumn into winter, as vehicle mileage declines -- but this autumn prices have increased.

I don't claim any special knowledge about the oil and gas industry. Still, given that the 1974, 1979, 1990, and 2008 recessions were caused in part by or at least included gas price spikes, it's something to keep an eye on.  Should gas prices continue to rise, and inflation with them, the Fed is likely to raise rates enough to invert the yield curve.