Oil prices...

[SLCPUNK]

So you scrapped your costly European vacation on account of the weak dollar. You did so to pay for your ever-increasing energy bills. Did you ever consider that the two might be related?

Conventional wisdom tells us that the trends of a falling greenback and soaring oil prices developed separately over time, driven by distinct economic and monetary factors. The rise in oil prices is a result of growing global demand, geopolitical tensions and supply constraints. In the case of the shrinking dollar, comparatively low interest rates, swelling budget and current account deficits are often to blame.

The big picture, however, suggests otherwise.

?With the dollar falling against a basket of currencies, some of which are commodity driven, what is taking place is not just a negative correlation between the dollar and crude oil, but with commodity prices in general,? says Steven Ricchiuto, Fixed Income, FX and Commodities Strategist at Handelsbanken. And that is inherently inflationary.

Others say the dollar?s devaluation is creating problems specific to the oil industry. Dr. A.F. Alhajji, an energy economist and professor, says a weak dollar limits supply by reducing drilling activities?especially in the North Sea where companies pay their costs in euros and sell their oil in dollars.

On the demand side, a weak dollar makes oil less expensive because it is increasing the purchasing power of currencies that have been gaining in value against the dollar, offsetting some of the rise in prices and boosting consumption.

The result is a Catch-22 dynamic. ?The lower dollar reduces supply and increases demand, thus raising oil prices,? explains Alhaji, who is an Associate Professor of Economics at the College of Business Administration, Ohio Northern University. ?As a result, the value of US oil imports increases, which in turn widens the trade deficit, which weakens the dollar further.?

The dollar/oil correlation may also be magnified by market speculation and the tendency of markets to drive trends to extremes.

When oil prices reached record highs on new Iranian sanctions and heightened military tensions on the Iraq/Turkey border, the dollar ? which traditionally benefits from geopolitical crises as a safe-haven trade ? collapsed to record lows against the Euro.

There?s now some concern that the dollar/oil trade could reach such speculative proportions that its negative effects may be amplified beyond economic fundamentals.

There?s little chance the fundamentals will change anytime soon.

?As long as significant downward pressure on the dollar and supply constraints remain, the current negative correlation will continue,? says Ricchiuto.

Given the US government?s currency stance ? a vaguely defined strong dollar policy combined with a laissez-faire attitude ? and the current low interest rate environment, chances for a major dollar reversal seem very slim.

http://www.cnbc.com/id/21541741

[SLCPUNK]

I can't think of anything that sums it up better than that.

Had a couple other things in there that contributed to price point, also an effect of  a weak dollar, that I didn't even think of.

[Smoking Guns]

I can't think of anything that sums it up better than that.

Had a couple other things in there that contributed to price point, also an effect of  a weak dollar, that I didn't even think of.

That was a good article!  You know what is weird is how when they came out with Euro countries like Italy really benifited because their currancy wasn't worth shit compared to the dollar.  There were some winner and losers in Europe, but over all I assume it balance itself out.

[SLCPUNK]

That's what I've been trying to explain. Just because we are paying 130/barrel, does not mean the rest of the world is. In fact they are paying less. Although it didn't occur to me this would cause demand to go up and cut supplies, all while expanding our trade deficit. Talk about a vicious cycle. To me, that leaves us with an extremely gloomy forecast.

It also backs what I've been saying for years now, that we consume more than we manufacture, and that has come back to bite us in the ass, and in this case, our pocketbook at the pump.

[Smoking Guns]

That's what I've been trying to explain. Just because we are paying 130/barrel, does not mean the rest of the world is. In fact they are paying less. Although it didn't occur to me this would cause demand to go up and cut supplies, all while expanding our trade deficit. Talk about a vicious cycle. To me, that leaves us with an extremely gloomy forecast.

It also backs what I've been saying for years now, that we consume more than we manufacture, and that has come back to bite us in the ass, and in this case, our pocketbook at the pump.

Damn right, I wish some times we were a little more protectionist.....  I love free trade, but not when we are the only ones doing it.

[Howard2k]

So the US is paying $130 a barrel but everyone else is paying less?

So THAT's why gas is so cheap outside the US.

[AxlsMainMan]

1.30.9/L here in Napanee, Ontario.

Stock futures down after GDP, jobless claims data

By MADLEN READ ? 31 minutes ago

NEW YORK (AP) ? Wall Street headed for a modestly lower opening Thursday with investors unassuaged by the government's estimate of first-quarter economic growth and an uptick in last week's unemployment claims.

The Commerce Department revised its reading of first-quarter gross domestic product to an annual rate of 0.9 percent ? above the department's previous estimate of 0.6 percent, and above fourth-quarter growth of 0.6 percent. Though the data suggests the economy may avoid a technical recession ? defined by two straight quarters of decreasing GDP ? the upward revision was not as big as many investors had hoped.

The Labor Department, meanwhile, said initial jobless claims rose by 4,000 to 372,000. The rise was a bit milder than expected, but continuing unemployment claims remained above 3 million for the fifth consecutive week, a poor sign for the job market.

A day after the stock market rose moderately in response to a better-than-expected report on durable goods orders, stock futures contracts traded slightly lower. Dow Jones industrial average futures slipped 24, or 0.19 percent, to 12,575, and Standard & Poor's 500 index futures fell 2.20, or 0.16 percent, to 1,389.30. Nasdaq 100 index futures fell 3.25, or 0.16 percent, to 2,001.75.

Treasurys fell but pared losses after the economic data. The 10-year Treasury note's yield, which moves opposite its price, was at 4.04 percent, up from 4.03 percent late Wednesday.

Wall Street will be paying attention to a speech from Federal Reserve Chairman Ben Bernanke in Basel, Switzerland, on transferring risk and financial stability.

And traders kept a close eye on crude oil, which along with gasoline prices poses a threat to consumer spending, and in turn, the overall economy. Light, sweet crude fell $1.10 to $129.93 per barrel in premarket electronic trading on the New York Mercantile Exchange. At 10:30 a.m. EDT, the Energy Department is scheduled to release its weekly report on U.S. oil supply; analysts predict that crude inventories rose last week and gasoline inventories fell.

The dollar rose against other major currencies, while gold prices fell.

In corporate news, Costco Wholesale Corp. said its fiscal third-quarter profit rose 32 percent, above analyst expectations, as customers flocked to its warehouse clubs to find bargains on food and toiletries.

However, retailer Sears Holdings Corp. posted a $56 million first-quarter loss that was worse than Wall Street forecasts, with its customers allocating more of their budgets to gasoline and food.

Meanwhile, Bear Stearns Cos. shareholders are scheduled to meet at 10 a.m. EDT to vote on JPMorgan Chase & Co.'s acquisition of the investment bank for about $10 a share.

Overseas, Japan's Nikkei stock average closed up 3.03 percent. In afternoon trading, Britain's FTSE 100 rose 0.42 percent, Germany's DAX index advanced 0.35 percent, and France's CAC-40 rose 0.43 percent.

http://ap.google.com/article/ALeqM5gHs5OM3gFG_DytQQZFbWfgPT08MAD90VAOF80

[pilferk]

I know the cartel's home countries pay less, but most of Europe pays way more.

Our goverment has kept the cost of gas artifically low.  Here's a list of the top tier:

Norway $8.73
United Kingdom $8.38
Netherlands $8.37
Monaco $8.31
Iceland $8.28
Belgium $8.22
France $8.04
Germany $7.86
Portugal $7.84
Italy $7.73

Deja vu...

I swear we've had this discussion before.

When looking at other countries gas prices......one must be VERY careful to compare apples to apples.  Because a good portion of their price for gas covers taxes.  And those taxes cover things the government does NOT pay for over here in the good ole US of A.

Now, I'm not sure, ultimately, how the comparison will bear out once you strip out taxes...it may very well be that we are paying less.  I don't know.  But if we're going to discuss this, we need to make sure we're looking at comparable numbers.

Edit: In looking around at some UK sites, it sounds like the tax and duty on gas comprises roughly half the price....

Also remember that a UK gallon is about 1.2 US gallons....I'm not sure if the original numbers took that into account or not.

So the UK is paying around 4.19 a gallon, if the numbers above DID take into account the US gallon is smaller than a UK gallon (which is about what we pay here in CT right now WITH taxes..which equates to about 3.76 "tax stripped ).

OR

The UK is paying around 3.49 per US gallon, which would equate to our "tax stripped" price of 3.76.

Keep in mind, the above is using rough numbers....I'm sure we could get much more exact if we wanted to.

[pilferk]

Howard, I don't think its individual demand going up, its more people driving that makes demand go up.  I used to think like you did.  But we have so many more people driving each year, so we can all cut back, the demand will likely still rise anyway as more 15 year olds turn 16.  Also these damn hybrids cost a shit load.  In my car I get 34 mpg at 80 mph with the AC on high and I have a sports car.  I bought a k and n air filter and a borla exhaust and a chip for my turbo engine.  I think I did all I could for the time being.  I have to drive my work truck, but its not a real gas guzzler.

Wasn't there just an article/study out that said US drving had decreased by the largest amount in something like 30 years?  I coulda sworn I read/heard that last week....

Anyone remember it?

[pilferk]

AP
Oil prices fall below $127 a barrel
Wednesday May 28, 7:55 am ET
By George Jahn, Associated Press Writer


The Schork Report, edited by Stephen Schork, cited the latest statistics from the Federal Highway Administration, noting that "estimated vehicle miles traveled ... on all U.S. public roads for March 2008 fell 4.3 percent, or 11 billion miles, compared with March 2007.

"In fact, this is the first time estimated March travel fell since 1979 and the largest year-on-year drop in the history of the report, which dates back to 1942," said the newsletter.

Shoulda read just a bit further...that's what I was talking about!

[pilferk]

http://www.msnbc.msn.com/id/24877586/

Might be interesting to those following the thread.

[Thorned Rose]

Oh no!

Oil Prices fell... damn that sucks for the tycoons who gobble it up when oil is high...

[TAP]

Edit: In looking around at some UK sites, it sounds like the tax and duty on gas comprises roughly half the price....

Duty is 50p/litre but VAT (sales tax at 17.5%) is charged on the price AND the duty, so the actual tax is around 60% right now I think. But you also have to take into account that the dollar is so weak that the exchange rate it doesn't really reflect equivalence in terms of cost of living. It's not clear whose side of the argument that supports But as far as I can see, the cost of gasoline (without taxes) in the UK is a little more than in the US with the current exchange rate but would be less with a more reasonable exchange rate.

Anyway, it's obviously taxes which make the big difference - and as you say, we've been here before with where taxes go in the different countries.

[Perfect Criminal]

Thanks for the correction.  So the price of oil is about the same here and in Europe, right?  $0.27/gallon difference?  Does anyone know what programs are being paid for by the taxes on European gas (I know it's different depending on the Country)?

[Howard2k]

Thanks for the correction.  So the price of oil is about the same here and in Europe, right?  $0.27/gallon difference?  Does anyone know what programs are being paid for by the taxes on European gas (I know it's different depending on the Country)?

No, the price of oil <> the price of gas.  They are different. 

There are close to 50 countries in Europe.   I hope you're not expecting someone to list the programs that each country contributes too from their tax revenues?

[Smoking Guns]

Thanks for the correction.  So the price of oil is about the same here and in Europe, right?  $0.27/gallon difference?  Does anyone know what programs are being paid for by the taxes on European gas (I know it's different depending on the Country)?

No, the price of oil <> the price of gas.  They are different. 

There are close to 50 countries in Europe.   I hope you're not expecting someone to list the programs that each country contributes too from their tax revenues?

50 countries in Europe? I thought it was more like 15....  I never really think of Eastern Europe as Europe, silly me. 

[Grouse]

50 countries in Europe? I thought it was more like 15....  I never really think of Eastern Europe as Europe, silly me. 

I believe it's even more than that, thought it was 62 or something...

[Smoking Guns]

50 countries in Europe? I thought it was more like 15....  I never really think of Eastern Europe as Europe, silly me. 

I believe it's even more than that, thought it was 62 or something...

All those countries that were under Russian control I don't think of as Europe because I never considered Russia to be part of Europe for some reason.  When I think Europe, I think Italy, Spain, France, Portugal, Germany, UK, Austria, Switzerland, etc.... 

According to this map its 47 countries....

http://www.worldatlas.com/webimage/countrys/eu.htm

[pilferk]

Thanks for the correction.  So the price of oil is about the same here and in Europe, right?  $0.27/gallon difference?  Does anyone know what programs are being paid for by the taxes on European gas (I know it's different depending on the Country)?

Looks like, in the UK at least, they're paying somewhere around 7% to 12% less (figuring tax rate is 50% to 60% of the price), dollar to dollar, gallon to gallon.

With exchange rate and cost of living differences, that gap may get a little wider or a little narrower, but I'm not sure how much or in which direction.

It's tough to do things like "compare what the taxes are paying for" strictly looking at gas tax.  The issues is that budgets are budgets, and everything needs funding.  Where they fund specific line items from doesn't matter, IMHO, since at the end of the day everything needs to be paid for.  If the gas tax is earmarked mostly toward road maintenance, safety, and the education fund, while the duty goes toward health care (and these are MADE UP EXAMPLES, FYI), it doesn't really matter...because taxes are taxes, and at the end of they day the total tax revenue should (in theory) take care of all your costs for all of your programs.  What funds what, specifically, means more to the bean counters than it does to "what we get for each tax" kind of comparisons.

[AxlsMainMan]

Oil prices rebound above $127 in volatile trading

By PABLO GORONDI ? 42 minutes ago

Oil prices rebounded Friday after initially extending a decline of more than $4 in the previous session as investors sensing bargain opportunities bought back into the market.

By the afternoon in Europe, light, sweet crude for July delivery was up $1 to $127.62 a barrel in electronic trade on the New York Mercantile Exchange.

The contract fell $4.41 to settle at $126.62 a barrel overnight, the lowest settlement in two weeks and the biggest single-day price drop since March 19. The contract is now down almost $10 below the all-time high it hit last week of $135.09 a barrel.

In London, July Brent crude rose $1.69 to $128.58 a barrel on the ICE Futures exchange.

Earlier Friday, the Nymex contract had fallen as low $124.67 as a stronger dollar and falling demand outweighed a huge unexpected drop in U.S. crude oil stocks.

The U.S. Energy Department's Energy Information Administration said delays in unloading oil tankers along the Gulf Coast had led to the 8.8 million-barrel drop in crude oil inventories for the week ended May 23, and that explanation helped to lessen the impact of its report. Analysts surveyed by Platts had expected a gain of 750,000 barrels, and usually such a discrepancy would send prices soaring.

"The impact of it was lost," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney. "Their explanation for the decline of the crude inventories really countered the impact of the actual number."

Traders instead focused on gains in the U.S. dollar, analysts said, which hit a three-month high against the yen overnight and was at 105.53 by the afternoon in Europe. The euro was trading at $1.5524.

"The rebound of the dollar and the market pricing in no further Fed cuts is also playing less in favor of commodities," analyst Olivier Jakob of Petromatrix in Switzerland said in a research note.

Investors who buy commodities such as oil as a hedge against inflation when the dollar is falling tend to sell when the greenback strengthens. Also, a stronger dollar makes oil more expensive to investors dealing in foreign currencies.

"The market has lost some attraction on the upside," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The surge in pricing was so fast and so much last week, some pull back is well deserved."

Concerns about U.S. gasoline demand weighed on prices, with many investors and analysts expecting record high retail prices to continue to impinge on American driving habits.

Energy high prices are cutting consumers' appetite for fuel, so demand fell slightly over the last four weeks, EIA data indicated.

And commentaries about how high oil prices are affecting airlines and driving habits, "actually maybe causing people to think oil prices are on a level where they are having a material economic impact," said Moore.

Also putting some weight on prices were supplies of distillates, which include heating oil and diesel fuel. The EIA said stocks of distillates rose 1.6 million barrels last week, double what analysts had expected.

In Washington, meanwhile, the Commodity Futures Trading Commission revealed that it is six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation. The CFTC also announced a handful of initiatives designed to increase transparency of the energy futures markets.

Disclosure of the investigation may have contributed to oil's declines, analysts said.

In its weekly inventory report, the EIA also said gasoline supplies fell 3.2 million barrels. Analysts surveyed by energy research firm Platts had expected an increase of 400,000 barrels.

In other Nymex trading, heating oil futures rose 0.94 cent to $3.6979 a gallon while gasoline prices climbed 2.88 cents to $3.433 a gallon. Natural gas futures rose 11.3 cents to $11.587 per 1,000 cubic feet.

http://ap.google.com/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD9100A9G1