Oh dear Lord, how I do love being right; even if it's only so often or for so long.

What you see in this chart, is a drop in oil price from it's high around $146, to today's close at $124. I know it's a little geeky looking, but basically each vertical bar represents the trading range for a given day; with the left pointing hashes representing opening prices, the right pointing ones the close. The columns across the bottom show trading volume.

This represents roughly a 13% loss from its high - on July 11th. Some of the more optimistic folks are calling this the ol' bubble popping.

I call it a response to the changing regulatory environment , obvious demand destruction, the long term possibility of the expansion of drilling operations in the U.S.; AND the bubble popping. The latest inventory report showed 2.9 million barrels of gasoline inventories; when only 500,000 were expected. Guess it got a little to expensive and people quit buying it, hm? Maybe? Yeah?

Yee haw.

"Why is cheap oil so important, when there are so many other financial problems?" you might ask. Well, as the price of oil decreases, it does two things that make you and I (as people with dollars in our wallets) richer. Firstly, it tends to shore up strength in our currency, since oil is bought and sold in dollars. Although it's not neccesarily a two-way street, there's a bit of cyclical action that ties them very closely. That action is the second thing that cheap oil does - it puts spending money in our pockets. Not just in the form of cheaper oil or gas; but in the trickle down effects of cheaper petroleum products in general, fertilizers, plastics, and every item that is brought to your home by anything (a plane, a train, a truck) that runs on petroleum based products. As Americans find they've got more spending money, they can pay back debts, make new purchases, and maintain a healthy economy. Healthy economy = strong dollar.

In all honesty, I'd be surprised if it continued to drop so precipitously. I'm still expecting it to drop in value, but there's a lot of dust left to settle; so I think it'll take some time. It'll be interesting to see how things take shape in the coming weeks.

Linkish Update: Ed Morrissey puts together a nice little aggregation of the facts on what increased production could do to global supply and, more importantly, U.S. dependance on unstable and unfriendly regimes.

Posted by: shank at 02:05 PM | Comments (5) | Add Comment
Post contains 433 words, total size 3 kb.

Yes, I'm still ruminating on a long term deflation of oil prices. I know, it seems a ridiculous perspective on the issue at this point, but I find it entertaining.

Yesterday, while The Dub was speakalating from his podiator oil tanked. Ended the day with the biggest drop in 17 years, to be exact. Of course, if you're a dark pool kind of person, this drop in price could be due to large investment banks selling off to cover losses in other sectors, or Fed manipulation through something akin to their oft rumored Plunge Protection Team. YMMV.

But anyways, back to my theory here. I always assumed it would be baby steps over the course of a few years that would get us to a drop in oil prices, but Kudlow caught something I hadn't been anticipating:

A new report from Wall Street research house Sanford C. Bernstein says that California actually could start producing new oil within one year if the moratorium were lifted. The California oil is under shallow water and already has been explored. Drilling platforms have been in place since before the moratorium. TheyÂ’re talking about 10 billion barrels worth off the coast of California.

Yowza. Domestic demand is decreasing, and we could be on the verge of increasing domestic supply. Of course, we still have a few kinks in the supply chain to unwind; and those will take time too.

But let's do some imaginatin' here. If talk of ramping up production in the US was responsible for even half of yesterday's decrease in the price of oil; what do we think actual increase of production will do?

Update:
Related? Mini nuclear reactors.

Updated Again:
Crude, Gas, Distillate inventories show unexpeceted increases, oil prices drop another $6 in trading. Invisbile hand, consumer response to (possibly manipulated) high prices both unavailable for comment. It'll be interesting to see how the crude price ends today. Most times, these initial reactions backpedal over the course of the day.

Posted by: shank at 07:37 AM | Comments (5) | Add Comment
Post contains 340 words, total size 3 kb.