US Gas Prices Fall Below $4 per Gallon; First Time Since March
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I don't have enough information to give my opinion either way, but if indeed inflation is going back down, this wasn't luck, this was what they many were banking on.
The SF Fed looked at this:
* https://www.frbsf.org/economic-research/publications/economi...
About one-third seems to be demand-driven:
* https://www.reuters.com/markets/us/demand-issues-account-one...
if inflation were 1/3 of its current level, would that be considered an unusual or concerning level?
It doesn't seem like it, I think that would be an acceptable level, but hey, not an economist (not that it's a hard science field or anything).
For "money printing" to have an effect on inflation, the money has to actually be circulating in the system. Most of the money printing people talk about, with the exception of the big fiscal policy responses(stimulus, ppp) is just number shuffling between balance sheets. It doesn't really mean much to the real world.
Weren't the high gas prices specifically fallout from the Ukraine-war? Is this an indication that the sanctions against Russia aren't working (e.g. they've had enough time to adjust to exporting to China/India, and their previous customers have had time to start importing more from the places China/India stopped importing from).
Is inflation falling in other areas?
There were many thousands of existing leases not being developed[1], and now a record number of permits--both in percentage terms and as raw numbers--have been issued under Biden.
Turn off the political info and look at the reality: this is not, and has not been, a domestic leasing issue. The Russian invasion of Ukraine has really been as catastrophic for oil prices as people have been saying, which is why this is a worldwide problem, not just a US problem.
0. https://news.yahoo.com/us-oil-and-gas-permitting-has-increas...
1. https://news.yahoo.com/fact-checking-biden-claim-9-170008791...
> Like I said, this signaling is more powerful than the actual policy because it prevents investment as the ROI is too risky.
What 'new oil production' was stopped?
There is no slowing of inflation in measured data, aside from leading indicators, like commodities, but speculation and US reserve releases have been a big driver in the downward move in oil prices. Structural oil price equilibrium is likely to be over $100/barrel once US reserve releases stop on November 1st
All market moves have just been anticipation at this point. Wage trends imply that core inflation is likely to average 4%+ as a steady state, even if headline CPI has peaked. If this bears out, the 10y treasury could easily run to 4-5%
There is almost certainly a coming whiplash effect from consumers reaching max tapping out of credit, that's the only thing that could realistically solve inflation at this point, aside from stronger Fed action.
https://fred.stlouisfed.org/series/CCLACBW027SBOG
Keep in mind markets greatly overestimated forward inflation through the 80s-90s, it's equally likely they may perpetually underestimate inflation in the 2020's. Market forward measures are not a strong source of accuracy if you reference history. Just look at what the market expectations of inflation were for most of 2021 (far below realized inflation in 2022)
That said, I cannot see any circumstance that exists that would result in bringing inflation to our target rates without a recession and much higher rates. From what I have read on fintwit, we have never brought inflation down without raising our interbank lending rate above the inflation rate.
What is worst is that wages are increasing too - "wage-price spiral". Except due to war, the only way we have broken a wage price spiral before is via a deep recession.
So in our future, we have either a large increase in the interbank lending that would result in zombie companies going out of business, and investment liquidity drying up leading to a recession - or we accept high inflation and the wage->price spiral which will naturally (at extremes) lead to a recession.
Look, I'm asking for your insight here - I can't see a soft landing because its historically not happened. I can't see a path without recession due to the choices we have to make. How is a soft landing here possible?
Hitting the Fed's target would require deflation. We would need to average -0.5% month over month inflation for every month from now until the end of the year. (N.b., that's for the Fed's target, not the 5% mark in the comment you are responding to. 5% would be significantly easier, at the obvious cost of it being 5% YoY inflation.)
> What is worst is that wages are increasing too
My understanding from what I have read is that this is largely on the lower end. E.g., Amazon offering $15/h is driving those earning minimum wage up … but this is just pushing real minimum wage closer to its historic highs — which it is well beneath, so I don't think this should necessarily drive inflation. Price would go up not so much because labor costs, but because corporate greed wouldn't want labor capturing their fair share of the profit.
Tech in particular has been article after article about layoffs, or how the VC money is stopping. (And this matches my experience as an "normal" IC eng: I've lost >10% of my salary since the start of the pandemic.)
Even should inflation recover, then there is the problem of the higher interest rates for anyone in my age bracket who might like a mortgage some day. Housing market when.
From my perspective the root cause of inflation is a lack of housing (near where people need / really want it). Compared to my parents it is a herculean task for someone younger than 40-50 to get a starter house, near a stable job, that actually has a career path where settling down makes sense. Particularly where I grew up / currently live (near Seattle, WA).
Maybe houses are cheap in some places in the country, but those places are not where I am or need to be.
We need an overhaul on building policies. I'd like to see tougher building CODE (better built houses) and much simpler zoning with less red tape. Sustainable, tax base vs maintenance expenditure positive, already environmentally impact ready interface packages on the shelf for areas that can be built to provide the features an area needs. More like simulated city planner games.
As a deflationary measure, tax the rich for real. Instead of handing out more stimulus that will be priced into the inflation of goods; a hidden tax on the non land-owning middle class; increase buying power and quality of live for all by decreasing the wealthy's advantage and increasing the commons and public works.
A soft-landing was possible post-WW2 US economy, where the US both inflated away large debts and maintained high GDP growth rates. We'll see how things shake out.
https://fred.stlouisfed.org/graph/?g=SCT4 - Across the same time period there are less people with multiple jobs (as reported to the FED)
You can see more specific data breakdowns here: https://fred.stlouisfed.org/release/tables?rid=50&eid=2698#s...
I think your point is "many poor people still need two jobs to make a living" and while that's probably true, we have many people who are now back to work, and many of them are not working two jobs. Is it because their second job went out of business? Unclear.
it could affect the job hires rate, of course, but, the measure hasn't changed, people are just looking for reasons to nitpick it
I know that, I didn't say otherwise, but having to have two jobs in order to make ends meet makes stats like the employment rate almost orthogonal to the economical and social "welfare" of the population.
Of course having no jobs at all it's worse, but hiding behind the mantra of "people are employed" without looking at how good or bad their socio-economic condition really is kind of misses the point.
Core CPI is also running over 5% and wages are increasing at over 5%. The only way to really change the labor market is by destroying jobs and making people who lose their jobs desperate enough to take whatever they can find. That'll only happen through increasing unemployment via a recession.
The Fed is going to have its eyes focused on Core CPI which won't change until employment numbers change. We haven't seen wage inflation like this before, but this time there actually are some important differences. Boomers are retiring, immigration was reduced by Trump and those low levels maintained by Biden, COVID killed and disabled quite a lot of people, and a good chunk of people are just fed up with the way employees get treated and unionization is rising. That isn't gong to go away because oil prices drop.
And oil is dropping due to fears of a recession and demand destruction, so the markets are displaying "backwardation" where the further you go out the more the futures prices drop.
The 5-year and 10-year inflation expecations are likely pricing in a recession which will cause the demand destruction to cap inflation (and note that the effect of these policies to cap inflation also lower long term interest rates).
It is interesting how many Millennials are about to get an economics lesson. Surprisingly there's more to economics than just the "money printer go brrrr...." meme.
The US is becoming the equivalent of the startup meme of losing money on every sale and making it up with volume
SoftBank, Tiger, crypto. Bad Capital allocations. Likely unfeasible in a high cost-of-capital world. (On the other hand: Uber, SpaceX and TSMC.)
Maybe the people with a vested interest in making things look bad are driving the dialog.
if you've been to a grocery store you don't need anybody trying to make things look bad, you can look at your receipt. Record levels of credit card debt and the rate of auto loan defaults tells you all you need to know
The thing about the Fed and both parties is their only tool for tackling inflation is to suppress worker wages by spiking unemployment. That's what monetary policy is designed to do. But it's not the only way to tackle demand.
But you can do the same thing with taxation (eg Spain's windfall tax [1]). Why is it no one in US politics talking about that? The answer should be obvious: both parties exist to protect the capital-owning class and won't do anything that migh thurt profits.
[1]: https://www.euractiv.com/section/energy-environment/news/spa...
This is nonsense. Unemployment is down.
Raising rates reduces aggregate demand in fairly direct ways, e.g. through home construction and renovation. To the degree workers are getting screwed it’s by real incomes being squeezed by inflation.
Anyway, full time jobs are dropping out of the economy, but it's being offset by people taking more than one job to make ends meet. I don't know about you, but this hardly seems like a healthy situation.
Unemployment is at a 50-year low.
What am I missing?
Full-time employment is at a record high [1]. Multiple job holders are about 1mm over the pre-pandemic peak, but below trend and not cannibalising FTE [2].
Thanks much for filling in the gaps in the explanation.
IIRC, so are real wages:
America's inflation problem gets worse (https://www.axios.com/2022/07/13/inflation-cpi-biden-prices):
> High inflation is causing the sharpest decline in real wages in decades. Even in a robust jobs market, the typical worker ends up financially worse off with every month that passes.
With Surge in July, U.S. Recovers the Jobs Lost in the Pandemic (https://www.nytimes.com/2022/08/05/business/economy/july-job...):
> The Fed has raised interest rates four times in its battle to curb the steepest inflation in four decades, and policymakers have signaled that more increases are in store. That strategy is likely to lead to a slowdown in hiring later in the year as companies cut payrolls to match expected lower demand.
> Already, surveys of restaurateurs, home builders and manufacturers have reflected concern that current spending will not continue. Initial claims for unemployment insurance have been creeping up, and job openings have fallen for three consecutive months.
In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later (https://www.nytimes.com/2022/08/08/business/economy/inflatio...)
> In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow....
> America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.
Listen to Powell [1] himself (emphasis added):
> So in principle, it seems as though, by moderating demand, we could see vacancies come down, and as a result—and they could come down fairly significantly and I think put supply and demand at least closer together than they are, and that that would give us a chance to have lower—to get inflation—to get wages down and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially. So there’s a path to that.
Back to you:
> Raising rates reduces aggregate demand in fairly direct ways, e.g. through home construction and renovation
Because if there's one thing we need it's less home construction.
[1]: https://www.wsj.com/articles/transcript-fed-chief-powells-po...
Higher capital yields mean a higher income share for capital. That means companies have less money to spend on wages and as far as I know, employers prefer firing entire humans over reducing pay or working hours over the entire staff, hence the unemployment problem and the need for inflation to quietly negotiate wages downward to avoid excessive unemployment that deflation would cause.
Markets barely priced it in on the way up. I doubt they’ll react going down. What those reserves may have done is keep supply steady.
1. Most oil and gas production is on private land within the United States 2. Oil and Gas firms have leases to drill on public land that they are choosing not to produce. In short, they make more money with the price oil is high. Just look up their old profits and compare those to oil prices. 3. The Federal Government has many tax breaks and handouts for oil and gas firms. its in the billions per year : https://www.eesi.org/papers/view/fact-sheet-fossil-fuel-subs...
Might as well take your profits and run elsewhere since the prospects of long term oil usage is currently up in political turmoil. Political turmoil makes people think twice about investing in anything that could be taken away in a moments notice.
If I had invested 2 million in the day Biden was elected 11/20/2022 in Chevron Stock:
November 9, 2020 $79.40 per share. Today the stock is trading at $155 per share.
So if I bought those 25,316 shares for two million the day Biden was elected. And sold today I for $155 per share. I would net $1,924,050 million $!
It looks like the president is failing at his mission to destruct the oil and gas industry.
See: https://www.reuters.com/article/us-global-oil-usa-reserves/d...
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Oil transport barges were making bank around that time (I made a decent rip selling calls on co's in that industry) selling tank space on ships at a premium to handle the overflow.
It wouldn’t have been negative, but closer to $25/barrel. Still quite a bit smarter than buying it $100/barrel now.
The reserve holds about 714 million barrels.
The USA uses about 19 million barres per day.
714/19 = 36 day supply of oil the US.
Further more the oil in the reserve needs to be pumped out, refined and moved to fueling stations.
Perhaps is fair to say the the strategic oil reserve helped keep gas below $10 per gallon but not below $7
So now imagine what's going to happen when that is turned off, and even worse when the oil market sees pressure from the US buying millions and millions of barrels to take them off the market and throw them back into the reserve...
Additionally, the US did not stop the exports of oil though any federal trade policy when prices went from ~2 - $7 per gallon. Exports continued at a in the ~3,500 barrels per day.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=w...
In 2021 imports were slightly higher the exports: https://www.eia.gov/tools/faqs/faq.php?id=727&t=6#:~:text=Cr....
In short, another tool the fed could use to lower prices would be to ban or reduce exports of US oil when prices are high.
28% since the 2011 peak: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...
Oil tends to be transported by tanker so it can be moved where needed. Europe's gas tends to come in via pipeline. Although it is now transported as LNG.
Here in the UK petrol prices are dropping while gas prices are still predicted to increase.
Also the govt here hasn't been warning about loss of power and heating. We were already importing gas via LNG. And are currently exporting that to the mainland via pipeline aswell as exporting electricity. Short term contracts for gas are (were?) Incredibly cheap because we're receiving more LNG than we can actually pump to the rest of Europe. Unfortunately retail rates depend on longer term contracts.
efficient markets != perfect foresight.
> efficient markets != perfect foresight
“Efficient market” refers to the speed and proportion of the reaction to new information as it is discovered.
Obviously that can’t be true because not all risks can be anticipated accurately in advance, but that includes things like government strategic reserve changes that may or may not happen depending on all sorts of other factors.
I stumbled across a creator on Tiktok who knows a lot about the oil and gas industry [1] who has been illuminating (to me at least) about what's been going on here.
Here's my summary: we haven't had a shortage of oil production although that was off its peak. The real problem was a lack of refining capacity that was caught off-guard by this year's massive increase in demand. There are a bunch of reasons for this. Some capacity was lost due to a hurricane. Other capacity was offline as certain plants were being transitioned to a renewables future when the demand was lower and it wasn't anticipated it would return so strongly and quickly.
Have Exxon, Chevron, etc made bank with the spike in prices? Absolutely. If you want to propose something like what Spain has done with a windfall tax to fight inflation (something no politician in the US talks about) then I'm on board.
But you can't just turn on an oil well or a refining plant. It takes time. Oil companies, for all the heinous crap they have done, antiticpated this demand spike was temporary better than any politican has.
On the political side you see Democrats desperate for prices to go down so they get slaughtered less in the midterms and Republicans desperate for this not to happen for the inverse reason (eg Republicans wanted to stop selling oil from the SPR).
But the warning signs of this price drop coming were evident months ago as inventory levels of gasoline started to go up.
There were absolutely talks about a windfall tax.
https://www.congress.gov/bill/117th-congress/house-bill/7061
https://thehill.com/opinion/energy-environment/3527261-biden...
https://www.bloomberg.com/news/articles/2022-06-15/progressi...
There's literally been a bill in Congress since March that's been referred to the Ways and Means Committee about imposing a windfall tax.
So it's not only something that US politicians talk about, it's something some have even proposed in Congress.
It's not that they necessarily anticipated the spike and subsequent fall; it's more to do with investor dynamics. Oil is a traditionally huge boom and bust field and is incredibly capital intensive. After the bust in the mid 2010s, coupled with huge investor outflows due to ESG reasons, the message that oil companies got from investors was to minimize capital spending (because they had little) and focus on profitability. So when this cycle came around, few were looking to do commit the capital to lift supply up. And now that demand is swinging back down, I suspect the bust cycle will look less dramatic then it has in the past.
I've seen people who seem to know a lot about this industry make this point. We probably won't see $1.50-2/g prices but next year we'll probably see ~$2.50/g and that's probably a good thing, better than a more extreme boom and bust cycle.
"Why It's So Hard to Get the Oil Taps Turned Back On"
* https://play.acast.com/s/oddlots/e1ad7bcd-9c53-4ebc-b0fa-aeb...
* https://podcasts.apple.com/us/podcast/why-its-so-hard-to-get...
"A Concrete Plan to Bring the Price of Oil Down Right Now"
* https://play.acast.com/s/oddlots/896a08ad-4cbc-4041-8c01-aeb...
* https://podcasts.apple.com/us/podcast/a-concrete-plan-to-bri...
You would be removing the incentive to produce more oil. Why would an energy company invest enormous amounts of time and capital to increase production and refining capacity if the government seizes their profits?
Nobody enjoys producing oil. Profit is the only motivation to perform such a difficult/unpleasant task.
Because a lot of price hikes haven't been because of inflation. They've exceeded inflation. Another word for that is "profiteering" (or "price gouging"). It's the reason why it's typically iellgal to profiteer off of a natural disaster, for example.
Put another way: Exxon, Chevron, etc are raising prices not because costs have increased but because they can. The record profits they've all recently announce bear that out.
So a windfall tax does a similar thing to increasing interest rates: it's a form of wealth redistribution. Raising interest rates diverts money to banks and investors. Taxation diverts money from corporate profits to the government who can then use that money for the people who are most vulnerable because of, say, the skyrocketing cost of gas and rent.
> Put another way: Exxon, Chevron, etc are raising prices not because costs have increased but because they can. The record profits they've all recently announce bear that out.
This doesn't make any sense. It's purely a supply/demand issue. Oil is potentially the most liquid commodity in the world. If someone wants to price gauge, your competitors will sell for less. We haven't built a new refinery in the US since ~1979. The oil producers are basically maxed out on refining capacity and trust me, those guys want to sell as much oil as possible. They made record profits because there's a shortage of a critical resource and tons of demand.
The way to fix this is by increasing production capacity. If you've made it more expensive to expand production, it should be obvious that you cannot expand.
> Taxation diverts money from corporate profits to the government who can then use that money for the people who are most vulnerable because of, say, the skyrocketing cost of gas and rent.
The ~30T deficit says otherwise. Our interest payments on that debt alone is ~$400B annually and will only grow. That's over HALF our military budget in interest payments. The government has done a terrible job of managing money.
Inflation comes from government spending. Look at the Fed's balance sheet! If you double the amount of dollars, but there's the same number of goods/services...you would think dollars would be worth less.
I assume the UK is the same as the US though where all Imperial units are now just derived from metric equivalents anyway. It's all deranged, welcome to the world.
At least I think ton and tonne are spelled differently. I'm American so can't say for sure.
The tonne is a metric measurement for 1000kg. American and UK tons are different amounts, but spelled the same way. They're known as short ton and long ton respectively. America also uses the long ton and the metric tonne for some applications without differentiating the names at all.
I don't know why we don't just switch over, I know engineers hate it.
Thanks for the info!
Regardless, this site has prices in various countries in various volumetric units and currencies:
In my opinion the UK is extremely well positioned geographically for renewables. The main problem right now isn't the technology or the theoretical capacity, it is government policy wherein the UK subsidies fossil fuels heavily, while actually slowing renewable projects and or electric transport[0].
What I find frustrating is that renewables are often only framed around climate change, whereas they are really a national security imperative (as is climate change too, by the way). The UK is too reliant on foreign countries for fossil fuels. The UK could very easily manufacturer wind turbines, but choose not to, then are surprised when international fuel instability and unstable demand wrecks havoc on the country.
You'd think they would have learned something from the current chaos, but the messaging coming out of Whitehall suggests that they're just waiting for the current storm to blow over while not looking over the horizon at how to stop the next time.
[0] https://www.forbes.com/sites/davidrvetter/2020/10/29/uk-spen...
The civil service are utterly incapable of responding to any crisis. In fact, I’d argue that “Yes, Minister” was more documentary than satire.
Dominic Cummings’s breakdowns of COVID behind the scenes paint the picture of chaotic dysfunction back then. Hard to believe anything will have changed since.
gasbuddy has been great for collecting this data for all the time it's been around.
*$4.39 was on the turnpike. Everywhere else was below $4
Is there a technical term for the lack of sensible long term planning in large groups?
Civilization.
Until there's more supply than demand you aren't going to see much price movement.
Various news articles are reporting people flipping new Tesla's to used car dealers for more than they paid.
However used prices don't seem to be spiking as much as they were.
Electricity is the only energy that removes quality from the equation (electrons are all the same).
https://fred.stlouisfed.org/series/APU000072610
Electricity is not an energy source, so you have to burn dead trees to get it.
Solar, wind, nuclear and hydro are NOT going to solve anything.
Stop driving and flying now.
Work from home.
Bicycle and train for the rest.
Interestingly, total net extraction of available oil peaked around 2019 - I'm not sure we'll ever see numbers like that again.
Highly recommend looking into the academic work / podcasts of Nate Hagens. His social theory is flawed in my opinion, but his reasoning on energy is impeccable.
Without a qualifier for time, I can't take this seriously.
I live in BC Canada. The province is at about 95% non-fossil fuels for electricity (a large part of that remaining 5% is remote communities where hooking into the grid is prohibitive.) We have also cut our CO2 per KWH by 65% since 2010.
Perhaps tis just coincidence that our carbon tax was introduced in 2008, and has increased yearly.
> Electricity is not an energy source, so you have to burn dead trees to get it.
Or from nuclear, renewables, etc. They definately can solve the problem when it comes to electricity. The problem is not everything is electrified. There's also a question of how long it would take at an investment rate we're willing to make.
Also you cannot make food with electricity at scale; tractors, trucks and fertilizers (500C + 200 Bar) need hydrocarbons.
It will be difficult but there’s nothing fundamental that prevents us from making concrete, steel tractors and trucks without fossil fuels.
https://www.reuters.com/article/us-global-oil-trump-saudi-sp...
Source: Lived in a Vacation Shore town for a few years
Look into the Strategic Petroleum Reserve.
It would seem that part of the problem is that we use such massive quantities of oil that it isn't easy enough to store enough to make much of a difference.
Next up to the front page: a weather report from your favorite major city.