Now that I have your attention, I would not break out the champagne yet, nor would I wait to fill up until the cost of gas drops further.
We are witnessing first hand, at our very own expense, the mother of all recessions.
To put it into perspective, a year ago Crude Oil had hit $154 a barrel, while the price of a gallon of Gasoline in Georgia was approaching $4. By September, Crude had retreated to about $110, but with the triple hit "perfect storm" of hurricanes, gasoline supplies all but disappeared for three weeks.
Meanwhile, the recession hanging over our heads dropped like a rock, the stock market fell out of bed, the real estate market crumbled and we saw banks and the economy succumb like out of a horror movie.
By winter, Crude was at $33, a nearly 500% retrenchment and gasoline was about $1.50.
Three weeks ago, crude was back at $73 and going higher, gas selling for $2.50.
Today, Crude closed at $60 and gas is somewhere around $2.20.
If that doesn't leave you seasick, likely very little will, but for most businesses, and the consumer, you and me, it has been a virtual hell.
The obvious question is why, and there are so many reasons, it is tough to be short and at the same time concise.
The world economy has ground to all but a screeching halt. Most industrialized countries have seen fuel consumption drop over 20%. Look around and you will understand. There is less traffic on the road, there are fewer trucks crisscrossing the highways, fewer trains and flights, factories are producing less. If you have not lost your job, likely your neighbor has, more are car pooling.
Fuel production has been cutback worldwide, many refineries significantly scaling back production, although not nearly enough, because we have on hand inventories of fuel oils around the world higher than they have been in decades.
To put this into perspective, there is a glut of VLCC Super Tankers worldwide, at anchor, filled to the top with fuel, part to store it because of no other facilities and part because traders are betting on a huge price run up so they can sell it and make fortunes. Well, they have a problem.....they are losing money, Billion$$....they paid more than it is worth today.
There is but one way to increase demand for fuel, and that will be economic growth, and it will have to be world wide. And that is the key to the dramatic rise of prices this spring, and now the perceptive fall off.
Stock markets have risen expecting the worldwide business climate to improving, thus consumer demand, thus increased demand for fuel. Well, as much as the stock market is at new highs for the year, the price of fuel is telling you we are not out of the woods, and the economy continues melancholic at best, as more recent indications show.
And with fuel at these low prices, there becomes another web of complications.
At today's prices, refineries lose money producing fuel, even the cost of exploration becomes expensive. So in turn they abandon oil wells, reduce production of gasoline, lay off workers and generally decrease the availability of refined fuels.
1 | 2
