Gasoline Price Redux

From Chart of the Day:

As a result of ongoing geopolitical tensions as well and increasing global demand, the price of crude oil continues to trend higher. Over the past eight months, the cost of one barrel of crude oil has increased by over $40. With oil prices trending higher, it is not all that surprising to find that gasoline prices are following suit. Since the financial crisis lows at the end of 2008, the average US price for a gallon of unleaded has risen $2.18 per gallon. The only time when gasoline prices were higher than today was during a brief three-month period in mid-2007, just prior to the Great Recession.


As readers may recall, we examined the impact of high gasoline prices in a recent post here.

As one economist states, when gasoline prices in suburban America hit $3.50 per gallon, discretionary spending stops.

We are now well past that point.

If the present trend continues much longer, we will soon be paying 3 times the amount for gas compared to just 2 years ago.

One of the consequences of Quantitative Easing has been a huge flow of hot money into many asset classes, commodities being one of the primary beneficiaries.  The problem is their are unintended consequences of these actions.

Energy has historically been priced according to demand with little volatility.  When we look at the chart, we see gasoline prices moving up and down rapidly with great volatility over the past five years.  Since consumers and businesses rely on accurate pricing information from the market to make consumption and business decisions, volatility leads to confusion.

For the consumer to determine whether they should by econo-box cars or gas guzzlers.  Should they live near their place of employment or in suburbia?  For businesses that ship bulking goods, how should they price their products to maintain profit margins?

A messed up, manipulated market can only lead to poor decisions by consumers and business owners.

High energy prices, combined with confusing price signals means one thing:

Lower or negative growth and the threat of recession returning.