Saturday, May 12, 2018

U.S. leaving Iran nuclear agreement pushes U.S. oil price above $70 plus driving update for May 2018: Pearl

"I'm not done with the effects of Trump pulling the U.S. out of the agreement.  Look for news about the high price of oil when I post my next driving update for Pearl."  That's what I wrote to conclude Vox on U.S. withdrawing from Iran nuclear agreement helps update doom and risk for the seventh year of Crazy Eddie's Motie News.  Since Pearl just passed another thousand miles yesterday, it's time for me to follow through.

Even before the announcement, oil prices were going up.  CNNMoney explains Why oil prices are rising from May 7, 2018.

Oil prices have been climbing, reaching the highest level since 2014. CNN's John Defterios explains what's driving the rise.
That was the environment in which the withdrawal of the U.S. from the Iran nuclear agreement was made. CNNMoney didn't even consider the possible effects of the announcment.  On the other hand, CNBC did in Oil Surges But President Donald Trump’s Iran Deal Announcement Looms.

Jeff Kilburg of KKM Financial and Brenda Shaffer of Atlantic Council discuss the rise in the price of oil how President Trump's announcement on the Iran deal may effect the price which crossed $70 a barrel for the first time since 2014.
After the announcement, WXYZ looked at the effects on consumers at greater detail in US pulling out of Iran nuclear deal raises concerns about rising gas prices.

By pulling out of the Iran nuclear deal, many are worried about rising gas prices.
As predicted, oil prices shot up.  On Thursday, Reuters reported that West Texas Intermediate (WTI), the main U.S. oil future, reached $71.89 and Brent Crude, the main European oil future, hit the $78 level.  Both were three-and-one-half-year highs.  On Friday, Bloomberg reported slightly lower prices.
West Texas Intermediate crude for June delivery fell 66 cents to settle at $70.70 a barrel on the New York Mercantile Exchange. Total volume traded was about 2.3 percent below the 100-day average.

Brent for July settlement slipped 35 cents to $77.12 a barrel on the London-based ICE Futures Europe exchange. Prices gained 3 percent this week. The global benchmark crude traded at a $6.44 premium to July WTI.
Despite the prices settling lower on Friday, the long-term perspective looks grim, as Bloomberg reported Oil at $100 Is a Possibility Next Year, Bank of America Says.
Oil prices could rally to $100 a barrel next year, a level not seen since 2014, as supply risks in Venezuela and Iran strain global markets, according to Bank of America Corp.

Brent futures, trading near $77 on Thursday, are set to reach $90 in the second quarter of 2019 as world inventories shrink, the bank said. As that view hinges on OPEC reviving output and a limited impact on Iran from U.S. sanctions, prices could go even higher, it said, becoming the first Wall Street bank to suggest a return to $100.
Eep.  Remember what I wrote about oil prices in The tax bill and the U.S. economy in 2018 and beyond?  "Three things could trigger the next recession...The second is a rapid rise in oil prices, which has occurred either slightly in advance or concurrently with every recession since 1973."  Here's how I thought that would play out.
[T]he extra disposable income runs the risk of overheating an already booming economy, never mind that the fruits of that economy are very inequitably distributed.  That will increase demand for oil and other energy sources, making their prices go up.  That will cause inflation to rise again as energy costs become distributed throughout the economy.  Higher inflation will prompt the Federal Reserve to raise short term rates, eventually inverting the yield curve.  Viola, recession!
I didn't consider a supply shock caused by Trump's action, but that has now been added to the mix, causing the price of oil to rise above a critical threshold.  The U.S. withdrawal from the agreement has now made a recession more likely, as it has pulled one of the triggers of the next economic downturn.  Therefore, I am not ready to delay my call for a recession beginning by this coming December.  Conditions look riper for it all the time.

Follow over the jump for the driving update that prompted today's entry.

Trump's announcement and the subsequent action on the commodities markets coincided with another reason for posting this entry today.  My car Pearl the Prius passed 40,000 miles yesterday, May 11.  That means it has been 53 days since March, 19 2017, when Pearl reached 39,000 miles.  That translates to 18.87 miles per day and 575.5 miles per standard month of 30.5 days.  On the one hand, that's exactly the same as I drove her between January and March.  Nothing like consistency!  On the other hand, it's slightly more than the equivalent period last year, which ended on April 13, 2017, when I drove an average of 17.86 miles per day or 544.64 miles per standard month.  I find that a bit surprising, as I had two fewer meetings per week this year than last year, so I should have driven less.  However, half of the equivalent driving period a year ago overlaps with April to June 2017, when I drove an average of 20.00 miles per day and 601.00 miles per standard month, so maybe I'm using the wrong period for comparison, as it seems my driving increases during the summer, even as I have fewer obligations and work closer to home.

Fortunately, I have another way to examine the data.  Pearl passed 33,000 miles on April 13, 2017 (Happy Apophis Day!), so it took me 393 days to drive her 7,000 miles.  That's an average of 17.81 miles per day, 543.3 miles per standard month, and 6501.3 miles per year.  That's only slightly more than the 6468.4 miles per year I drove from March 2017 to March 2017, so I'm still at my goal of driving 6,500 miles per year I set for myself last September.  Let's see how long that lasts.  At this rate, the next update for Pearl should be in July.  By that time, I should be ready to re-assess my recession call.  Stay tuned.

*I usually include news about electric and hybrid cars in these updates.  Maybe next time.  Today belongs to oil prices.

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