Posted by: Rob | January 9, 2011

How to tell when the recession is over

Just before the big crash of ’08, gas pump prices had been on a meteoric rise.  Crude oil (WTI*) was hitting its all time high just under US $150 per barrel, and we were paying around CAD $1.30 locally for a litre of gas.  We had taken a road trip to Iowa in June/July of ’08 and I remember paying nearly CAD $1.50 per litre in Saskatchewan and over USD $4 per gallon across the Dakotas, Minnesota and in Iowa.

After the crash, fuel prices came back into the range of reasonableness.  The relief was welcome, but there was a residual nagging idea that the whole run up in prices was not based on what are referred to as “market fundamentals”.  I’ve been disgusted with – and ranted about before – the way in which prices are set in places like New York and Chicago for commodities.  There’s just too much opportunity for manipulation and that has attracted the “speculators” who seek to make money from nothing.

With economies around the world in the doldrums and the financial sector under suspicion (at least by some of us), oil prices seemed to stay in the range of reasonableness after recovering from the overshoot down from their record high.

Annie posted this link on her facebook page a few days and I read the piece, which wonders whether or not 2011 will be a repeat of 2008.  Most of the discussion is worthless technically as most of the economist and market analyst types don’t really understand thing one about the exploitation of oil and gas and most assume that supplies are limitless.  The one thing I did find interesting in the piece, though, was this chart:

The resolution is a bit sketchy, but essentially it’s not too hard to see that the sudden run up in crude price and the subsequent crash made very little difference on the volume of crude flowing from the producing wells of OPEC and non-OPEC crude suppliers alike.

A significant amount of this crude was not being used, judging from US crude inventory reports that repeatedly stated the crude oil terminals at Cushing (OK) were all full.  So where did all that crude oil go?  Well, a lot of it went onto crude oil tankers, which were pressed into service as floating storage.  That’s why there were none available to hold sucked up crude oil and sea water after BP’s Macondo well blowout in 2010.

But it looks like this degree of fuel price stability couldn’t last.  As the idea of economic “recovery” takes hold, the speculators, tiring of gold, have returned to oil.  And not to be left behind, the refiner/marketers are re-embracing their gouging ways.

I’ve watched with jaundiced eye as the refiner/marketers have started stepping up the pump prices once again.  I don’t really believe the economic recovery is all that much to write home about and I feel vindicated in that thought every time a pump price hike retreats a bit a few days afterward.

The most recent price hike saw local pump prices break the dollar per litre barrier again, hitting CAD $1.01.9 per litre of regular just before New Year’s Eve.  By the end of last week, the price had slid back to CAD 99.9 cents per litre.

I was fairly sure that historical data were available on-line and sure enough I was able to generate this chart from http://www.edmontongasprices.com/ :

So is the recession over?  I suppose time will tell.  And when it is, I imagine this graph will start to look more like a departing airplane’s trajectory.

* West Texas Intermediate is a “benchmark” indicator of crude quality.  All other crudes are measured and valued, up or down, against this benchmark.  I think I read somewhere once that there really isn’t any more West Texas Intermediate.  It’s been all used up.

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Responses

  1. Oooh, Graphs. And yeah, at the rate the prices are going in SA, I’ll be taking a bicycle to work.

    • Like the graphs, do ya? A bicycle is something we could do here, I suppose. For part of the year anyways. Cross country skis or snowshoes would have to cover the other half of the year. I imagine I would be much fitter, eh?

  2. the ‘spike and retreat’ thing at the pumps is consistent with what i see in my own little hamlet – with spike on a thursday, retreat on monday or tuesday. weird – but it is all clearly being manipulated…

    • Oh, the best ones are the price spikes just before long weekends in the summer. Dirty bastards have impeccable timing. And no collusion either. It’s merely coincidence that pump prices at different stations all rise and fall in lock step.

  3. [...] opined a little bit yesterday about crude oil and gasoline pump prices and the end of the [...]


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