Posted in: Default,
by Patrick DeHaan on Oct 15, 2009 12:43 PM
Ouch! In a sort of crude way (that was funny, wasn't it?), consumers are watching the DOW flirt with the 10k level, but they're also seeing oil prices begin to rise to prices not seen in over a year.
It's a painful event for me to see- the economy is showing signs of recovery, the stock market is rebounding, but we're missing some key ingredients for a sustained rally in everyone's investments- a healthy U.S. dollar and affordable energy. While many would say gasoline prices are "affordable", one should remember how many people are still jobless- how is someone with no income supposed to be able to offset rising gasoline prices?
In more bad news for consumers, we also received a terrible report from the Department of Energy this morning, who provided fuel for the bulls on the NYMEX today. Their report showed gasoline stockpiles taking a beating while crude stocks advanced slightly. The report virtually told investors that there is higher demand for gasoline... after all, we burned 218 million gallons of gasoline more than we produced. What many fail to remember is that even after the tumble in supply, gasoline stocks remain over 9% higher than last year!
It would seem that this market is getting over bought- setting the stage up again for a correction in gasoline prices like I forecasted in the Spring of 2008 to happen in the Fall of 2008, when prices collapsed from over $4 to under $2. While money is pouring into commodities, the average American is still having trouble finding work that pays enough.
Perhaps the larger issue is refinery utilization which dropped nearly 5% as more refineries chose to perform maintenance. Margins have been quite poor for the refining industry as of late, so many chose to do early maintenance, or in a few isolated cases, shut down units all together!
To stop oil prices from a sustained rally we need a few things:
1) A stronger U.S. dollar
2) An acceptable profit margin for refiners to encourage production
3) Goldman Sachs to refrain from "investing" billions of dollars into oil
4) Traders who look at numbers vs. last year. Oil inventories are still extremely healthy and things aren't improving as fast as some believe
If that happens, and soon, we might see oil prices again stabilize. For now it seems that won't happen any time soon. I guess I'll just have to continue to wake up, sip my coffee, and watch oil prices rise.