Crude oil is set to take a beating, nay, is already taking a beating, as traders get jittery looking at Spain's debt issues. A few weeks ago we might have cited Greece's outlook for the lapse in prices, but today, and in recent days, Spain is becoming the target of new concern.
Increasing economic activity promotes higher crude oil and gasoline prices. Why? We use more of the stuff when the economy is good. With the situation in the European Union, the massive debt, the insanely low retirement age with massive pensions, the shorter work week- the debt is mounting. And it certainly could impact the United States, especially as this country continues to increase its debt burden by doing many of the same things- overspending. And while the citizens may have benefited in years past, things are about to get ugly there, and that's what is so concerning- a drop in economic growth, and with it, less crude consumption, less demand.
Traders are selling crude like its going out of style. So far to start the week we're looking at over a $3/bbl drop. Don't even think of looking at the stock market. What does it mean at the pump? If the situation in Europe continues to weigh on the market, it'll mean that the recent uptick in gasoline prices will likely slow, and perhaps in the next week or two, gasoline prices could start to drop once again. But again, for those who aren't wearing their glasses (I don't have mine on either at the moment), I'll reiterate: only if the situation doesn't get better should we expect the recent uptick to end.
The ramifications of Europe are far reaching. It could shake financial markets. Greece already may be facing an exit from the EU, what about Spain? What about the rest of Europe where the retirement age is lower and where big pensions are commonplace? And what about the continuous improvement in fuel economy- meaning less gasoline demand? Even China is hopping on board- pushing electric cars. What could this all mean for crude? Well obviously, this is years away, but if the rest of the world experiences what Japan has dealt with for seemingly years (no or slow growth, aging population), it could be that crude prices won't ever be pushed to previous highs. That'll have to wait for another day. But for the next few days, we'll be seeing the national average continue to march higher. A week from now, we could see the uptick stop, and perhaps prices will decline again, just in time for Labor Day.