After the difference in the spot market prices of Brent crude and WTI crude peaked in 2011, another slightly lower peak formed in late 2012, and now it appears the differential is widening again at the end of 2013. You can see on the chart below that in matter of only 68 days, the price differential has expanded by 1873%, from a mere $0.86/barrel to $16.97/barrel. As you can see on the next chart. Prices for WTI started diverging from the internationally used Brent benchmark in 2011, whereas beforehand the prices had tracked each other quite closely. A glut of new oil production in the … [Read more...]
The Energy Evolution
The "Estimated Energy Costs per Million BTUs" chart from Young Research & Publishing gives you a quick comparison of oil, natural gas, coal, and uranium. As you can see, natural gas offers good value compared to oil. Over time good ideas will find their way in the marketplace at the right price and tend to evolve over time rather than an overnight revolution. Cheap natural gas will find a home. Kinder Morgan is expanding its pipelines into Mexico. Don't speculate on short-term natural gas prices but do understand the unique long-term value it offers today to companies that move it. … [Read more...]
Coal Consumption Plummeting in America
Coal consumption in America is plummeting. During the recent recession the volume of coal consumption fell from a peak of 94.7 million tons in July 2008, to 83.1 million in December 2009. Then, after rebounding briefly, new regulations and low natural gas prices served to crush demand for coal. The trailing twelve month average monthly consumption of coal fell to 74 million tons in October. That’s the lowest volume of consumption since October of 1989. The striking drop is driven by environmental regulations and more importantly by inexpensive supplies of natural gas. With new regs for such … [Read more...]
Dr. Copper’s Diagnosis
The red metal is often called Dr. Copper, because it has a Ph.D. in economics. Copper seemingly knows before anyone else that the economy is headed into a recession. If that’s true, copper isn’t signaling a rosy forecast today. Take a look at our chart of the price of copper. Futures for the 1-month contract have been declining since a peak in February of 2011. The price has oscillated, but its peaks keep getting lower. Investors have been content to put a bottom on the price near $3.30/lb., but now prices are edging down once again. A drop below $3.30 could signal a coming recession. … [Read more...]
The Great Gold Bull Market
In the last five years the price of an ounce of gold has increased 131%. Easy monetary policies and the downgrade of many sovereign debt ratings, including that of the U.S., have contributed to the high demand for the safe-haven precious metal. Since May 16, in the lead up to September’s Federal Reserve announcement of QE infinity, the market pushed the price of gold up by 12.6%. The price of the yellow metal is consolidating and could break out at any moment. Gold should be a component of all investment portfolios today as a hedge against profligate fiscal and monetary policy. … [Read more...]
High Gasoline Prices are Hurting the Economy: We Can Help
The chart below illustrates quite well how a Federal Reserve policy of easy money meant to “bring down unemployment” is hurting most those it intends to help. The black line is the average retail price of gasoline in the United States. As you can see, the price is hovering around $4.00/gallon. The blue line represents the percentage of consumer spending used to buy gasoline and other energy goods. This percentage has increased dramatically since bottoming out in December of 2008. What this means, is that Americans, with high unemployment and real wages that are shrinking, are spending a … [Read more...]
The Commodities Whale
In a recent IMF working paper, author Shaun K. Roache provides readers with some valuable insight on China’s role in world commodity markets. It is no secret that China is a whale in the commodities space, but Mr. Roache helps readers understand just how much of an outlier China’s commodities consumption is when compared to the historical record. The title of the paper is China’s Impact on World Commodity Markets. 2.1. Long-term structural trends China is a large consumer of a broad range of primary commodities. As a percent of global production, China’s consumption during 2010 accounted … [Read more...]
Gas Prices Threaten the Economy
Tight global oil supplies and tensions with Iran (among other factors) have pushed retail gasoline prices back above $4 per gallon. When gasoline prices surged to near $4 per gallon last year, economic growth slowed as purchases cut into consumers’ discretionary spending power. Should we expect another downturn in consumer spending now that gas is near $4 per gallon again? Gasoline prices have only been near $4/gallon for a few weeks, but the evidence suggests lower gasoline consumption (see chart below) and falling utility bills are offsetting the higher cost of gasoline. Over the last … [Read more...]
The Quiet Bull Market in Oil
While the world’s attention has been focused on Europe, the price of oil has risen more than 33% from its October low. West Texas Intermediate Crude is now trading above $100 per barrel. Much of the rally in West Texas crude is due to technical factors as Brent crude, which is more of a global benchmark is only up 14% from its October low. But oil’s resilience in the face of a euro-area economy that is either in recession or about to enter recession is impressive nonetheless. Imagine where oil could be trading in a more robust global economic environment. Scary wouldn’t you agree? … [Read more...]
Copper Signals Trouble
Copper is said to have a PhD in economics for its ability to forecast the economy. Copper is used in everything from construction to autos to electronics. What do copper prices signal about the economy today? Global economic momentum is slowing. Copper prices are rolling over. The red metal has broken through a two and half year uptrend with further losses signaled. Stay tuned. … [Read more...]
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