Oil drops again

We're about to test the $122 barrier for crude futures, having settled at $123 and some change on Friday. Like I said last week, if it doesn't and build a base here, there's nothing to stop it until it hits $98 a barrel.

This is all demand driven and demand is contracting all over the world. Two major points from Bloomberg underscore this:

U.S. fuel demand averaged 19.9 million barrels a day last week, the lowest since January 2007, the Energy Department reported on July 23. U.S. gasoline consumption fell 3.3 percent from a year ago, the 13th consecutive weekly decline, a MasterCard Inc. report on July 22 showed.

and:

Japanese oil imports fell for the first time in nine months, the government said yesterday. South Korea consumed less fuel for the eighth straight month in June, state-run Korea National Oil Corp. said on July 22. The U.S., Japan and South Korea are the world's first, second and fifth biggest oil importers, according to the U.S. Energy Department.

The Saudis (and Russians and Venezuelans) can pump all they want but they are reaching a point where they can't sell it. And with more America field coming online soon, we may see an American automotove renaissance, albeit with smaller cars.

Alan Reynolds over at The Cato Institute brings sound logic to the table. Money quote:

When the price of anything gets unbearably high, it discourages demand. The resulting drop in sales, in turn, causes inventories to pile up and the price to come down. That has proven true of overpriced houses - and it will likewise prove true of overpriced oil.

He's right, you know.

Dead cat bounce

Despite yesterday's dead cat bounce, I see no reversal in the downward trend for oil futures prices. Yesterday $1+ increase came on the heels of horrible jobless numbers. The just released durable goods numbers came as a complete surprise to those who think we're spiraling down into recession (clue: we're not). Housing is still going to suck for sellers in the short term although this is quickly turning into a buyer's paradise.

But back to oil. Ford's decision to build their European line here in The States in what will become former SUV factories will offer the American car-driving public the opportunity to purchase cars that get 60+ mpg.

No, really.

Ford already manufactures vehicles for the European market that get 65 mpg -- the Ford Fiesta with a 1.8 liter turbo diesel. GM sells 9-3 Saabs in Europe with a 1.9 liter turbo diesel that are rated at 62 mpg highway. Once those vehicle start hitting the market, oil demand in The States will drop, further depressing the prices of crude futures. As more production comes online in the Bakken field, supply will increase, causing oil to sink further.

All this is good. Methinks $4 per gallon petrol caused a tectonic shift in American consumer attitudes. The age of the SUV is over and greening of America will begin in earnest. But don't think for one minute that we'll become a nation of bicycle riding vegans. We'll just be better at squeezing energy out of resources than everybody else now that it's fashionable.

From The Times of London

Barack Obama's (D-IL) anti-messiah blowback has started in earnest, with Gerald Baker the first to weigh in. It's funny and literate Here's a piece:

And it came to pass, in the eighth year of the reign of the evil Bush the Younger (The Ignorant), when the whole land from the Arabian desert to the shores of the Great Lakes had been laid barren, that a Child appeared in the wilderness.

The Child was blessed in looks and intellect. Scion of a simple family, offspring of a miraculous union, grandson of a typical white person and an African peasant. And yea, as he grew, the Child walked in the path of righteousness, with only the occasional detour into the odd weed and a little blow.

When he was twelve years old, they found him in the temple in the City of Chicago, arguing the finer points of community organisation with the Prophet Jeremiah and the Elders. And the Elders were astonished at what they heard and said among themselves: “Verily, who is this Child that he opens our hearts and minds to the audacity of hope?”

Read the whole thing here.

Oil down again

Despite yesterday's dead cat bounce, as of this posting, oil futures continue to decline. Next stop $122. If it fails to build a base at that level, there is nothing to stop it before it hits $100.