Rising Supply and Falling Demand (i.e., Recessions) can lower Oil Prices

Posted by PITHOCRATES - May 13th, 2012

Week in Review

There is less bad news for gas prices.  Rising crude oil supply and falling demand will provide a little price relief at the pump.  ‘Little’ being the operative word here (see Oil price tumbles as global supplies flourish by Garry White, and Emma Rowley posted 5/13/2012 on The Telegraph).

Opec supply has risen to about 31.62m barrels per day (bpd), as the Libyan oil industry started to recover. Saudi Arabia has also been ramping up production by than 56,500 bpd to 9.9m. Oil inventories in the US have also been rising. Supply is no longer such a large concern.

As well as worries about contagion from another eurozone crisis, data from China have also been weak, implying that demand could fall.

Chinese industrial production is the weakest it has been in three years. Industrial production rose by 9.3pc in April, the lowest level since May 2009, while retail sales surprised the market by slowing to a 14.1pc rise. This is the lowest level in 14 months…

“Crude oil prices have remained weak after last week’s sharp falls, largely due to concerns over the US economy and the escalating problems in Europe,” Mr Jessop said.

Well, imaging that.  You can lower the price of crude oil by increasing supply.  And crashing your economy.  For that’s another big part of the fall in prices.  Lower demand.  Because the economies in China, Europe and the United States ain’t looking so good.  So President Obama may get his wish come the 2012 election this November.  Lower gas prices.  And if the economy keeps tanking he’ll have even better prices at the pump.  Of course that will probably come with an up-tick in the unemployment rate.   But he can massage that away by just not counting the people who’ve given up looking for full-time work and those working part-time because they can’t find full-time work.  The U-3 unemployment rate.  Which looks a whole lot better than the U-6 rate that counts all those other people.  And has been stuck in double digits throughout his presidency.

Of course he could do something else to bring down those gas prices.  He could drill more.  Increase supply more.  Then build refineries and pipelines to move that oil around.  Creating jobs AND lowering the price of gasoline.  A win-win if ever there was one.  And it would move both the U-3 and the U-6 unemployment rates down towards full employment.  But he won’t do that.  Because the Left hates oil.  So we’ll have to hear how great the economic recovery is.  When it isn’t.  At least until November.



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