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Four Dollar Gasoline

Rich Galen

Wednesday February 15, 2012


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  • The National Journal's Ron Brownstein reported last night that with Rick Santorum taking a two percentage point lead over Mitt Romney in the latest CNN poll, it marks the sixth lead change this cycle.

  • Like most people I have gotten so caught up in the rising and falling of GOP Presidential candidates' fortunes that I more-or-less forgot about President Obama and what else is going on in the world.

  • What else is going on is that gasoline prices are on the rise.

  • Some people are following the so-called "Doc Fix" issue - that is to forestall a 27 percent cut in Medicare reimbursements to physicians. More people understand an extension of unemployment benefits. A lot of people would recognize whether or not payroll taxes (to pay for Social Security and Medicare) were being withheld from their paycheck.

  • But, everyone understands rising gasoline prices at the pump. You stand there listening to the "ding" watching the numbers change at a blinding rate, trying to calculate (a) how many gallons your car will take given the indicator was just below a quarter of a tank, (b) how much that is going to cost, and (c) whether it will wipe out what little credit limit you still have on the card you swiped to begin the process.

  • There is no market reason for gasoline prices to be increasing. Global oil consumption is directly tied to economic activity. If you aren't manufacturing as much stuff, you don't need as much oil to make it, deliver it, or get it home.

  • If the world is using less oil, and oil producing countries continue to pump it and ship it, then the price of oil should be going down.

  • Supply. And. Demand.

  • The Eurozone economy is lagging. The International Monetary Fund (IMF) reported a couple of weeks ago that economic output for 2012 in Europe would shrink by about a half a percentage point this year. That spells "recession" in just about any language.

  • Not only that, but the IMF also predicted that a recession in Europe would have the effect of halving the rate of economic growth in China - from about 8.2 percent to 4.2 percent.

  • Even with the improved economic data for the US pointing to GDP growth of about two-and-a-quarter percent increased supplies are keeping prices for domestic crude nearly 15 percent below European prices.

  • Still, this morning, oil is selling for $101.94 per barrel (compared to $118.87 per barrel for Brent Crude - the European price).

  • I understand the U.S. stock market is on a roll. My 401(k) which has been underwater as much as 40 percent over the past three years is now only 15 percent behind - it is now my 341(k) plan.

  • So, what's the problem with oil?

  • It's all geopolitical. The Nigerians produce a lot of oil, but militants from the northern part of Nigeria have been attacking oil pipelines in the south. Nigeria produces about 3.3 percent of the world's oil, so a disruption wouldn't bring the global economy to its knees, but the threat adds to upward pressure on prices.

  • The big oil price mover is, of course, Iran.

  • It is expected that Iran will, today, announce it is loading domestically produced nuclear fuel into a reactor for the first time meaning that, despite all the fuel rod rattling from Western nations, Iran has been moving steadily into the nuclear weapons club.

  • Iran has become so certain of having a nuclear capability that its ships are openly mocking the U.S. Fifth Fleet which is guarding the lyrically named Strait of Hormuz (there is a map on today's Secret Decoder Ring page).

  • It is one thing to send bombers into Libya or Syria. Their ability to counterattack are limited. It is something else to rain JDAMs into a nuclear power like Iran - especially a nuclear power run by a maniac - because its Maniac-in-Chief has already publically committed to wipe Israel off the map and would use an attack from the West as the trigger.

  • While our focus on the Presidential election outcome has been predicated on economic growth in the United States, it is possible - trending toward probable - that it will be foreign affairs, not domestic issues, by which President Obama will be judged in November.

  • On the Secret Decoder Ring page today: Lot's o' Links today. In addition to the Strait of Hormuz map, there is a link to Doc Fix, to the IMF predictions, to the Chinese economic outlook and to a look at the U.S. economy.

  • Also a topic-appropriate Mullfoto and a Catchy Caption of the Day.

    -- END

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