Not only did the price of gas drop this week, it will drop next week as well. On Monday, the price of North Sea oil (Brent Crude) fell because of worries about Greece (West Texas Intermediate had fallen earlier, but went up slightly). On Tuesday, the same two things happened, this time because of fears about Spain. West Texas Intermediate then fell on after-hours trading. As I keep repeating, a price drop like this is not entirely good news; it's a response to bad economic news elsewhere. This is true even for what happened yesterday.If that price holds, AAA Michigan and the Detroit Free Press will have another price drop to report next week.I'm sure they will, as the price of oil dropped 4% yesterday.
Reuters: Oil dives to 4-month low as emergency stocks unleashed
By Matthew Robinson
NEW YORK | Thu Jun 23, 2011 7:26pm EDT
Oil tumbled 6 percent on Thursday to a four-month low after the world's top consumers released emergency oil reserves for the third time ever, a surprise intervention to aid the struggling global economy.During the first price drop this year, I observed:
The International Energy Agency announced it would inject 60 million barrels of government-held stocks in the global market, immediately increasing world supply by some 2.5 percent for the next month and sending prices spiraling, with U.S. crude prices erasing all of the year's gains.
Brent crude futures for August plunged by more than $8 after the news, before settling at a four-month low of $107.26 a barrel, down $6.95 for the day.
U.S. crude lagged the decline as traders bet the relaxation of European oil reserve requirements would have a more direct and immediate impact on London Brent.
August U.S. crude dropped $4.39 to settle at $91.02 a barrel, taking prices more than 20 percent below their post-2008 high above $114 in early May.
Oil markets were already down sharply ahead of news of the release, due to worries over global fuel demand following higher-than-expected U.S. jobless claims, forecasts of lower U.S. growth from the Federal Reserve and evidence of a slowdown in Chinese manufacturing. The economic concerns helped push investors out of gold, down 2 percent on the day, while other commodities showed smaller losses.
The sell-off also followed a move by the U.S. Federal Reserve on Wednesday to cut its growth forecasts for the world's biggest economy.
Against that backdrop, analysts said the use of the reserves now -- unlike the previous two releases, which immediately followed the first Gulf War and Hurricane Katrina -- signaled it may have been more concerned with tempering prices to aid a faltering economic recovery.
[H]igh oil prices constitute one of the major threats to the U.S. economy, and that a weak U.S. economy is the number one threat to Obama's re-electionAnd:
The oil markets have been doing this dance for a year now. Just about every time oil's share of U.S. GDP starts to pass 4%, Hamilton's magic number for contraction, the price drops. The traders are acting as if they know what that 4% share (or the 6.5% of personal income spent on energy) means and they sell off.Looks like Obama and other leaders of the countries in the International Energy Agency decided to lead instead of follow in this dance and push already falling prices down even more.
If I were Obama, I'd hope oil prices and the U.S. economy keep doing their dance until November of 2012.
If Obama wanted people to respond positively, the following segment from WXYZ shows that they are.
Drivers react to news that gas prices will be going down.
Of course, not everyone is happy.
Reuters: Obama takes flak for tapping emergency oil reserves
By Ayesha Rascoe and Timothy Gardner
WASHINGTON | Thu Jun 23, 2011 3:27pm EDT
President Barack Obama took withering fire from the oil industry and Republicans for agreeing to release the nation's emergency oil supplies, a decision that senior officials said was prompted by the need to prop up the ailing economy.Yeah, the usual suspects. I have a saying, "sometimes it's more important to have the right enemies than to have the right friends." These guys are "the right enemies" for Obama.
Critics blasted the release of 30 million barrels of oil -- half of a global injection coordinated by the International Energy Agency -- as an ill-timed misuse of reserves at a time when U.S. supplies are relatively high, despite the loss of Libya's exports for the past three months.
Some OPEC officials went further, calling it a political ploy that ignored Saudi Arabia's promise to step up production and the fact that oil prices had already fallen sharply.
But the move fueled questions about the timing and catalyst for releasing the stocks, which in the past have been reserved to address abrupt disruptions like natural disasters.
I'm sure Kunstler, who is not one of "the right enemies," will have something snarky to say about the long-term futility of the action on Monday. In the long run, he'll be right. In the short run, I'll let the following macro speak for me.