Sunday, December 07, 2014

Did you ever think you'd be thrilled with $3.00/gal gas?

There are so many things to talk about it's hard to chose a subject --

* Stocks surging to more record highs despite global economic contraction

* The Bank of Int'l Settlements comments over the weekend that basically confirm that markets have become so addicted to Central Bank movements that they are no longer functioning normally.

* A Barron's cover comes right out and says "This time it is different" which almost certainly means that this time will not be different.

* A $40 billion valuation for a startup taxi app that most people outside of major cities have never heard of, let alone used.

* Gas prices finally retreating

I'll start with an interesting map that shows just how much it hurts to drive in Upstate NY.

I know we tax gasoline heavily in NYS ($0.68/gallon vs a national average of $0.50/gallon) but it pays for all of those sweet, pothole-free 10 lane superhighwa........ oh, yeah, wait, what do we get for those taxes?  That will have to be a story for another day I guess.

The good: On the margin with the average US driver logging 14,000 miles per year and average car getting 25 mpg means the "average" driver (using very broad generalities) burns about 560 gallons/year.  With gas prices down $0.70/gallon on average around the country that's an extra $400/year in your pocket (or roughly $8/week - don't spend it all on one Mocha Latte).

The bad: The US economy is no longer just impacted on the consumption side of the oil equation.  As a major producer of crude our economy is negatively impacted by falling oil.  This will likely be the first real test of our economy as a major oil producer.

The known unknowns: The oil industry has become one of the most heavily influenced by financial products since the housing boom of 2006-07.  Not only have major producers leveraged themselves to the gills, but every tiny producer with a pulse has worked with two assumptions when building forecasts and borrowing money --- interest rates will never rise and oil will always be over $100/barrel.  Well, at some point in the next 2-3 months the rate of bankruptcies in the oil fields of North America could be staggering.  Most of these companies are private so the extent of this risk is "unknown" but the risk is "known".


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