Crude oil has become increasingly unhinged, with speculative swings all over the place, both the oil and stock markets are making seemingly random 3-5% changes day to day on any news they can find.
Today’s news sent oil to a new record, testing the $140 mark.
Oil reached $140 a barrel for the first time ever Thursday following reports that Libya may cut production and an OPEC official said crude could hit $170 a barrel this summer.
Meanwhile, the dollar’s decline against the euro added further upward price pressure.
“I think this is just a combination of all those” factors, said Mark Waggoner, president of Excel Futures in California.
Light, sweet crude for August delivery ended the trading day at a record settlement of $139.64 a barrel, up $5.09, on the New York Mercantile Exchange. The previous record of $138.54 a barrel was set June 6.
Just before the close, oil spiked to an intraday record of $140.39 a barrel. The previous trading high of $139.89 was set June 16.
“This is volatility-based momentum,” said Stephen Schork, publisher of energy trading newsletter The Schork Report.
“Volatility-based momentum” is such a nice phrase, conjuring images like the example of a mechanical engine coming apart under the power of its own vibrations. In that example, the engine often becomes damaged beyond repair. In economics a similar situation appears more and more likely every day.
So if the OPEC official in question is right, and we see $170 oil later this summer, then what? That would put gas between $5 and $6 a gallon. Americans are making do at $4 now, but they can’t take much more.
The Dow lost 350 points, sputtering under the dual pressures of a weak dollar and skyrocketing energy costs. So far, this June has been the worst June since the Great Depression for the Dow.
The Dow has slumped 9.4 percent this month, its worst June since an 18 percent tumble in 1930 during the Great Depression. All 30 companies have posted losses in the month as oil surged, the unemployment rate jumped to the highest since 2004 and concern grew that global financial firms will add to $400 billion of subprime-related writedowns.
The Dow’s retreat today erased all the gains since mid-March that were spurred by JPMorgan Chase & Co.’s rescue of Bear Stearns Cos., a drop in the Federal Reserve’s benchmark interest rate to 2 percent and the central bank’s new lending programs for securities firms.
That’s largely the ballgame, folks. There’s not much the Fed can do now other than palliative hospice care on a dying economy. When oil can jump $5 a day, nobody knows how long the ride will last. Oil is no longer responding to rational supply and demand behavior. When prices rise for no other logical reason other than speculators bidding the price up, you have a bubble.
But it WILL end at some point, like all bubbles. The problem is how much damage will result from it in the meantime.
Evidence is increasing that an attack on Iran is in the works. What will Americans do when oil goes northward of $200 a barrel because of it?
Do you have a plan to continue your current lifestyle under gasoline being twice what it is now?
For most of us, the answer will be “We can’t continue our current lifestyle. Something has to change.”
What will YOU change? Start thinking about it. Start thinking about how you would function with drastically limited use of your vehicle, because the days of the American open road are about over.
Oil affects everything you do. The costs are being passed on to the consumer in every way possible. The American consumer can’t hold on much longer. When their collective shoulders give out under the load of debt, the game ends.
That time is getting closer every day.
Be prepared.
