The collapsing oil prices

[Value Buy]

Everyone knows crude oil is very cheap around the world right now. Trading in the $26.50 a barrel range.
Today wti west Texas crude, fell about 7%, but RROB gasoline only fell 1%. 
This has been an ongoing problem for the consumer.
Falling oil prices equal cheaper refined oil  products somewhere down the calendar.

Now, has anyone seen oil based products get cheaper than they were six months ago?

A quart of oil?
New tires for your vehicle.
All garbage can and kitchen trash liners?
Paint
Airline tickets-they just raised the price of a ticket two weeks ago.
We can go on and on about this. Thousands of items.
Nothing made from oil really gets cheaper to the relative decline of oil cost to the manufacturers.
There are still delivery companies charging a fuel charge delivery fee out there when they have not paid such a cheap price for fuel in twelve years.

We can also apply this argument to the American dollar.
The Euro was at over $1.35 to a dollar about a year ago. Today it is $1.09 to a dollar.

Are imported wines dropping 20% in retail price? ten percent? Are any European imports produced by companies based on the Euro dropping?
I know it takes time to work through old inventory, but companies have no problem raising the price on old inventory in the system when the Euro was rising against the dollar years ago.
Mexican peso and Canadian dollar are way down from a year ago, but hotels in the Carribean are not any cheaper this year than last year.
If you are traveling there, and paying in dollars, you will see the savings, but book it from a travel agency and the savings are not representative of the dollar's worth.

Economists are baffled why the American consumer is not spending the savings from gasoline, but no one asks manufacturers, why are no savings being passed on to consumers do to lower input costs of goods. 

Thoughts?

[Tiny]

My thoughts?

Well, on this:

Economists are baffled why the American consumer is not spending the savings from gasoline, but no one asks manufacturers, why are no savings being passed on to consumers do to lower input costs of goods.

I suspect American's ARE spending the savings (how much can this be per household - for me it's about $30 a month... but I don't drive much) I think they are spending any money on take out food and eating out and alcohol. What's happening is their CC bills are staying about the same size - but instead of spending so much on gas for their car - they are eating and drinking it.

And not at places like McDonald's and Taco Bell - but at the "fine fast casual" places - so they are dropping $25 for lunch (or dinner) a couple, two, three,  nights a week (per person) in addition to the fast food (less than $10 per meal per person) that they buy a couple two three four more times a week.   

That's where I think any money that people have is going...

Fat Americans are keeping the economy going at this point. If people stop eating so much America will fall into an Economic Depression that rivals the Great Depression.

[Wisconsin Beth]

Tiny is correct regarding booze and our house. We also spent a lot on Christmas.

I don't think we're eating out more but we do eat out a lot anyway.

[zibazinski]

Food prices haven't dropped either and the excuse given was gas prices were high. Now they're low and food is still high.

[Aman A.K.A. Ahamburger]

Jan 20, 2016 15:15:09 GMT -5 Value Buy said:

Everyone knows crude oil is very cheap around the world right now. Trading in the $26.50 a barrel range.
Today wti west Texas crude, fell about 7%, but RROB gasoline only fell 1%. 
This has been an ongoing problem for the consumer.
Falling oil prices equal cheaper refined oil  products somewhere down the calendar.

Now, has anyone seen oil based products get cheaper than they were six months ago?

A quart of oil?
New tires for your vehicle.
All garbage can and kitchen trash liners?
Paint
Airline tickets-they just raised the price of a ticket two weeks ago.
We can go on and on about this. Thousands of items.
Nothing made from oil really gets cheaper to the relative decline of oil cost to the manufacturers.
There are still delivery companies charging a fuel charge delivery fee out there when they have not paid such a cheap price for fuel in twelve years.

We can also apply this argument to the American dollar.
The Euro was at over $1.35 to a dollar about a year ago. Today it is $1.09 to a dollar.

Are imported wines dropping 20% in retail price? ten percent? Are any European imports produced by companies based on the Euro dropping?
I know it takes time to work through old inventory, but companies have no problem raising the price on old inventory in the system when the Euro was rising against the dollar years ago.
Mexican peso and Canadian dollar are way down from a year ago, but hotels in the Carribean are not any cheaper this year than last year.
If you are traveling there, and paying in dollars, you will see the savings, but book it from a travel agency and the savings are not representative of the dollar's worth.

Economists are baffled why the American consumer is not spending the savings from gasoline, but no one asks manufacturers, why are no savings being passed on to consumers do to lower input costs of goods. 

Thoughts?

Yeah, what you are describing is called deflation, and once it starts it hard to stop. It's called around 500k job losses in the oil industry already, which is now hitting the restaurants. As restaurants lose money, guess what goes next? JOBS!

It's "fun" to hate the oil companies from a consumer standpoint - I guess - in reality the oil companies provide lots and lots of good paying work and were instrumental in the recovery after the crisis of '08. I.E. be careful what you wish for.

[Value Buy]

Jan 20, 2016 20:07:38 GMT -5 Aman A.K.A. Ahamburger said:

Jan 20, 2016 15:15:09 GMT -5 Value Buy said:

Everyone knows crude oil is very cheap around the world right now. Trading in the $26.50 a barrel range.
Today wti west Texas crude, fell about 7%, but RROB gasoline only fell 1%. 
This has been an ongoing problem for the consumer.
Falling oil prices equal cheaper refined oil  products somewhere down the calendar.

Yeah, what you are describing is called deflation, and once it starts it hard to stop. It's called around 500k job losses in the oil industry already, which is now hitting the restaurants. As restaurants lose money, guess what goes next? JOBS!

It's "fun" to hate the oil companies from a consumer standpoint - I guess - in reality the oil companies provide lots and lots of good paying work and were instrumental in the recovery after the crisis of '08. I.E. be careful what you wish for.

So far, no deflation other than lower gasoline prices.
If delivery costs fall for transportation of product, consumers should see a price reflection somewhere.
A quart of oil should drop fifty cents. Yes it hurts the oil industry, but we also know a year from now, oil could be at $75 a barrel too.
Four tires for the vehicle should drop by at least $100. Most are made, or owned by in Chinese companies which devalued their currency twice last year, plus with the cost of raw oil down 40%. Where are the savings?
Money value due to currency rates is a different story. We should see deflation from imports. That was why China deflated their currency a couple of times last year. They wanted their goods to be cheaper all over the world, and not the cause of deflation rather than recession in specific countries.
The American consumer has not seen that in the cost of goods from China.
The Peso is way down. Trips should be 20% cheaper than a year ago. They are not.
Making the argument that deflation is bad and we must not lower prices for the good of American's sounds like a win win for big business and banks to me, and no one else.
The price of a loaf of bread has consistently been raised over the years regardless of cost of wheat. Wheat prices are way down from a year ago.
The price of bread should have dropped by 20% by now. Same for pasta, etc.
We do not have to worry about deflation. The government should embrace it. Government costs would come down dramatically for their procurement contracts.

[Aman A.K.A. Ahamburger]

So far......

Be careful what you wish for, that's all I'm saying here. Price decreases, once they start become expected. Deflation is deflation...

[Value Buy]

Jan 21, 2016 8:39:08 GMT -5 deminmaine said:

Price decreases due to lower energy costs would not be harmful deflation .

These costs take time to filter through the economic chain though, to the extent they will at all.  Short term impact on pricing structure is virtually nil in most sectors, as price flux is normal.  Mid term some may be absorbed as profit, some will pass through.  Any longer term decreases due to structurally lower energy cost will not be deflationary in the classic sense.

That is the problem.the costs take time to filter down, but by then the price of oil has jumped and business holds off on lowering pricing, because they will have to raise them back within six months.
This is unacceptable to me. Cost of goods are either FIFO or LIFO, but businesses does not practice either concept at the pricing level. They capture the profit either way on produce cost.
I can live with that, as we are a country of industry and free markets, but I still do not like the hypocracy (sp)

Think about you? Do you pass savings onto the purchaser if the price of input costs drop immediately, or do you skim some extra profit for awhile until another competitor does it?
(Please do not answer, as it is personal, but you get my drift of corporate America today)

[zibazinski]

Just like the gasoline already bought and paid for sitting in the tanks, the price is raised regardless of what the previous gas was paid for.

[Aman A.K.A. Ahamburger]

posted without comment...

www.worldbank.org/en/news/press-release/2015/07/01/global-food-prices-drop-to-a-five-year-low

[Value Buy]

Jan 21, 2016 8:54:58 GMT -5 Aman A.K.A. Ahamburger said:

So far......

Be careful what you wish for, that's all I'm saying here. Price decreases, once they start become expected. Deflation is deflation...

Be careful what you wish for, that's all I'm saying here. Price increases once they start become expected, and never decrease. Inflation is inflation...
Fixed for you.

If commodity prices ebb and flow, why shouldn't all consumer goods ebb and flow due to cost of goods.
The government recognizes business to use either FIFO or LIFO when reporting income.
Yes, I know they cannot jump back and forth, but this was instituted to recognize changes in cost of goods to protect their bottom line. 

I know economists state it can hurt wage structure, but if wages remain stagnant, cost of living drops, it is still a real world income gain for people.
When we return to true inflation, wages whlie behind the curve, will increase.
Let Americans enjoy deflationary prices for a few months. It could even heat up the economy and make it grow, actually starting inflationary tendencies, based on consumers rather than because of government intervention screwing up the whole thing, sending more people into perpetual poverty.
 

[Aman A.K.A. Ahamburger]

Jan 21, 2016 9:04:52 GMT -5 Value Buy said:

Jan 21, 2016 8:54:58 GMT -5 Aman A.K.A. Ahamburger said:

Be careful what you wish for, that's all I'm saying here. Price decreases, once they start become expected. Deflation is deflation...

Be careful what you wish for, that's all I'm saying here. Price increases once they start become expected, and never decrease. Inflation is inflation...
Fixed for you.

If commodity prices ebb and flow, why shouldn't all consumer goods ebb and flow due to cost of goods.
The government recognizes business to use either FIFO or LIFO when reporting income.
Yes, I know they cannot jump back and forth, but this was instituted to recognize changes in cost of goods to protect their bottom line. 

I know economists state it can hurt wage structure, but if wages remain stagnant, cost of living drops, it is still a real world income gain for people.
When we return to true inflation, wages whlie behind the curve, will increase.
Let Americans enjoy deflationary prices for a few months. It could even heat up the economy and make it grow, actually starting inflationary tendencies, based on consumers rather than because of government intervention screwing up the whole thing, sending more people into perpetual poverty.
 

Food prices are down(yes the data is correct), now so are gas prices. The drop in oil has lead to job losses and is now spilling into the restaurant and real estate industry. It's started, so I guess will see how much of your wishes come true, VB.

[Value Buy]

I am assuming the job loss in restaurants and real estate prices were in the Dakota's (fracking) and Texas, etc, where inflation was out of control due to job opportunities available at the time of high price oil. This inflation was manmade and detrimental to the locals, unless they sold out their homes at the time. Prices are retuerning to the norm there.
Always has been a boom or bust cycle there.
Now they are on the bottom of that bell curve, and will eventually rebound with higher oil prices.
I assume you do not expect oil at $26 a barrel for long......

[Value Buy]

Can you imagine the national quick oil change corporations and the amount of money they are skimming off consumers right now?
It has to be more than their old normal profit range on the cost of oil alone  
Skimmed profits plus regular profit margin = rip off, and actual real inflation not recognized by Government agencies.

Inflation is well and alive in our economy, since there have been no deflation, as of yet.

[Aman A.K.A. Ahamburger]

VB, in your initial post you are saying: now that the drop in oil prices has caused deflation in gas prices; and we are seeing deflation in the Euro, the Peso, and the Canadian dollar(which makes it cheaper for US consumers to travel abroad). Why aren't we seeing deflation in costs from oil changes to goods from Europe?(still not recovered from the crisis of '08 and are now in a worse one with the refugees). You also claim – incorrectly – that food prices have not gone down, even though the prices of commodities have dropped(deflation).

You then make a post - in response to me saying that what you are describing is deflation – about how China has devalued their currency(because their economy is heading towards a depression but they still have to raise wages because of social unrest, BTW) and that this deflation should translate into cheaper prices for, ME the American Consumer.

I get what you are saying VB, and my example with the oil patch was an attempt to explain how this cycle of deflation feeds on itself and starts to accelerate quickly once it begins.(I forgot how the oil slowdown is also affecting the manufacturing industry as well.) So yes, I am obviously talking about restaurants and real estate attached to the patch(which lead the way to a very, very slow general recovery in the US economy after '08, BTW) and like you said, the inflation there was caused by opportunity and jobs(yes greed from John Q. Public is always a problem). However, as I have explained here, you are talking about the precursor to deflation throughout the rest of the economy(outside the oil patch) with your OP, and in your replies.

If you think that the prices of goods should immediately be reflected in the prices that speculators think the price of things should be, you are free to do so. Personally, I have no desire to have speculators set the price of everything day to day because it's only a matter of time until that would spill into the job market.(Can you imagine if everyday the price of a job was set by what the market thinks it should be?) However, you already stated why things don't change in price that quickly, and dem backed it up. Contracts and time. Personally, I am happy that there is still inflation in the US and Canadian economy, because the opposite is a very, very real possibility.(And yes prices have dropped across the board numerous time throughout the short history of the USA.)

Have a good one VB, the rest of the day is a busy one around here.

[Value Buy]

I do not believe the price of goods should immediately fall. I stated they have to work off inventory, etc and I understand there can be a six month lag on pricing.
With the fall of a currency, it should be coming through the supply chain somewhat faster, especially when many American companies work with a small inventory on hand expecting 30 day delivery, or maybe 60 for overseas,
And some companies sign long term contracts to lock in a specific cost.
That said, I also know some Canadian crudes are selling in the low teens for a barrel of oil. depending on how heavy it is.
High sulfur oil sells for even less under $9 a barrel.

It might cost a refinery a few extra dollars per Barrel to refine this stuff, but the final product should be a lot less than wti or brent refined product is.
My original post was questioning why economists cannot figure out why consumers are not spending the savings, and I wanted to know why economists are not talking about lower input costs for almost everyone, and nothing else is getting cheaper.
Deflation is bad for big government, not for the American working stiff.
And just like inflation getting out of control, I agree deflation out of control can be just as bad, but a little deflation just increases buying power for everyone.

Decades ago, a ten cent move on an oil contract on the commodity exchange was a large move. Today, $3 move is big. It is all relative
And retail pricing was based on commodity costs, but that is not really how it works today.

Inflation is just like your taxes, it always goes up higher, and never comes back to past levels.

[djAdvocate]

this s(*t is just killing my uranium investments. 

[Aman A.K.A. Ahamburger]

Honestly, VB I'm not even going to keep going on about inflation. We talked about it ad nauseaum‎ on Market Talk for like two years(sorry, it's truly nothing personal.) Mr. Z and myself were proven correct. I know one of the reasons that he has essentially stopped posting is because people kept going on and on about this hyper inflation that was "just around the corner;" when the biggest underlying issue is actually  the threat of world wide deflation.(hence the reason DIs got their asses handed to them over the implosion in China.)

As far as economist being baffled about gas savings and input costs; well, what I can tell you is that people that are saving money on gas costs probably are spending it. The problem is that the deflation in the oil industry has lead to the loss over over 500k well paying jobs(and other industry are suffering), which means the effects of these saving are mostly cancelled out. So while for retired people and service industry folk the "little bit of deflation" might be good, for the working stiffs on the patch it sucks ass. Then we have to pile on the job losses from the coal industry as well(also well paying jobs, so for sure the gas savings is balanced out with the loss of good paying work). 

As far as the currency, agian Europe is essentially screwed, and has been essentially in a depression since '08. Any extra cash that companies can make there they are holding onto. China is running off the rails and they are trying to do whatever they can to rebalance their economy. The last thing they are worried about right now is passing savings onto the US consumer because they are trying to build their own consumer base with these savings.(raising wages).

You can blame globalization or whatever for the fact your prices don't move like they used to, but this is where the market has taken us. It has been evolving in this fashion since the 1600's in western Europe(at minimum). And yes, prices have reset many time since that period. No, I don't think we are about to see the USD collapse though, so‎ at least there is that.

[Deleted]

Jan 20, 2016 15:15:09 GMT -5 Value Buy said:

Economists are baffled why the American consumer is not spending the savings from gasoline, but no one asks manufacturers, why are no savings being passed on to consumers do to lower input costs of goods. 

Thoughts?

At least where I am at component prices have not come down, suppliers gave their usual inflation adjustment for 2016 prices and the cost of labor has increased due to lower unemployment.  If the lower commodity costs hold through 2016 I think component costs come down for 2017 but then do our finished goods prices come down for customers based off of 1 year of lower component costs?  Again there would probably need to be a couple years at the lower component prices before the consumer would finally see a reduction in price in 2019.

I'm sure it depends on sector but that is how it has been for all of the companies that I have worked for.  Increased prices take a year to show up to the end customer, decreased prices take 3 years.

[Aman A.K.A. Ahamburger]

Jan 22, 2016 7:24:56 GMT -5 deminmaine said:

I know this is out of fashion to say, but I don't think the Chinese economy is necessarily off the rails.

You are correct, they are trying to build their own consumer economy, but that is a very sensible goal, and certainly a worthy one if they can achieve it.  Given the central control of the economy in China, they have a lot of pull in making these changes.  Also given this control we don't really have a good understanding of what drives their economy, because it is not mostly determined by market forces.

There will be a lot of disruption to the Chinese economy to be sure, but again, their system is much different.  They can deal with this disruption more effectively than a free market/ democratic economy can.  On top of that, they are sitting on a mountain of cash.  This will be lubricant that will help steer the ship.  However this is not a promising development for the west, at least in the short term, because it probably portends less Chinese investment (or worse) in the West.  I also wouldn't expect their markets to be any more open to us than they have ever been. 

Dem, you would be correct in what you are saying if, Putin wouldn't have let the jihad spread globally by invading the Ukraine and backing Assad. This has completely screwed China's plans for a new silk road and it's the reason that China sacs Russia!! Without even firing a shot.

China's debt is the problem, and their mountain of cash is nothing but a hill of beans at this point. You are free to believe what you want, but I have all the data to back it up.

The social unrest in China - largely due to insane amounts of pollution - is kept under wraps. The illusion of control has been the downfall of dictators and monarchs since our time began.

A bit more in depth on that can be found in this story... www.marketwatch.com/story/russia-china-and-saudi-arabia-are-on-the-ropes-2016-01-22?dist=beforebell

[Value Buy]

In fairness, this article can explain how deflation could take the world economies and even some governments down.
We always talk about how many billions in T-Bills China buys and sit on, but no one discusses Saudi Arabia's holdings.
With falling oil prices they have to sell some equities. They have burned through 100 billion dollars in money due to the falling price of oil. They possibly have been selling off some positions of stocks already agrivating the recent sell off of stocks?
Remember they are a big holder of Citi. It seems they are a larger holder of T-Bonds.
Start selling mass quantities of T-Bonds, or even stop buying them now, in big quantities, and the route in world economies grows.


www.msn.com/en-us/money/markets/saudi-arabias-secret-holdings-of-us-debt-are-suddenly-a-big-deal/ar-BBoxymC

Of course, we also have to admit that low oil prices around the world is because they are trying to kill off fracking here, and do not want Iran selling oil at a profit in the next few months. They are digging the hole faster and deeper.

[Value Buy]

Jan 22, 2016 9:26:22 GMT -5 @aj said:

Jan 20, 2016 15:15:09 GMT -5 Value Buy said:

Economists are baffled why the American consumer is not spending the savings from gasoline, but no one asks manufacturers, why are no savings being passed on to consumers do to lower input costs of goods. 

Thoughts?

At least where I am at component prices have not come down, suppliers gave their usual inflation adjustment for 2016 prices and the cost of labor has increased due to lower unemployment.  If the lower commodity costs hold through 2016 I think component costs come down for 2017 but then do our finished goods prices come down for customers based off of 1 year of lower component costs?  Again there would probably need to be a couple years at the lower component prices before the consumer would finally see a reduction in price in 2019.

I'm sure it depends on sector but that is how it has been for all of the companies that I have worked for.  Increased prices take a year to show up to the end customer, decreased prices take 3 years.

We all know commodity prices will not stay this low. The problem is when they go up, it is an immediate increase, unless they are tied into long term contracts.
Look at oil today. Up 7% on a 5% rise yesterday. 12% in two days. Want to bet gas stations raise prices by this weekend because of
rising prices?

[Value Buy]

Here is an article explaining why gasoline prices were not important this time in consumer spending habits

www.msn.com/en-us/money/markets/this-time-cheaper-oil-does-little-for-the-us-economy/ar-BBoyOLt

[tallguy]

Jan 21, 2016 19:03:22 GMT -5 djAdvocate said:

this s(*t is just killing my uranium investments. 

What do you think it's doing to my oil royalties?  Admittedly, it's not a substantial amount anyway, but still....  

[Deleted]

Jan 22, 2016 10:25:18 GMT -5 Value Buy said:

Jan 22, 2016 9:26:22 GMT -5 @aj said:

At least where I am at component prices have not come down, suppliers gave their usual inflation adjustment for 2016 prices and the cost of labor has increased due to lower unemployment.  If the lower commodity costs hold through 2016 I think component costs come down for 2017 but then do our finished goods prices come down for customers based off of 1 year of lower component costs?  Again there would probably need to be a couple years at the lower component prices before the consumer would finally see a reduction in price in 2019.

I'm sure it depends on sector but that is how it has been for all of the companies that I have worked for.  Increased prices take a year to show up to the end customer, decreased prices take 3 years.

We all know commodity prices will not stay this low. The problem is when they go up, it is an immediate increase, unless they are tied into long term contracts.
Look at oil today. Up 7% on a 5% rise yesterday. 12% in two days. Want to bet gas stations raise prices by this weekend because of
rising prices?

If you don't like the pricing structure, don't buy the product.  Gasoline has been sold the same way for quite a while now.  This is nothing new that couldn't of been planned around to your satisfaction.  Most don't shop the cheapest station anyway.  Which provides little incentive for competition.  They do like to bash faceless oil companies though.  One thing I have noticed though is that the lower fuel economy a persons vehicle gets, the more they hate "big oil".  Yet they're the ones keeping big oil going strong.

[Aman A.K.A. Ahamburger]

VB, don't worry. The whole house of Saud thing is going to become big, big news over the next couple of years. The dollars of gains in your oil shares+dividends should make up for the extra pennies at the pump.

Jan 22, 2016 13:55:23 GMT -5 @jma23 said:

Gasoline has been sold the same way for quite a while now.  This is nothing new that couldn't of been planned around

Sounds like it's time for a resurrection of one of my favorite threads of yester years.. Energy Price and Supply sure is a current event.

[marvholly]

Most of the companies & the airlines that use oil or fuel LOCK IN prices on contract WAAAY ahead.  They need to know their supply primary costs.  That is at least partly why airfare & plastic type products have NOT gone down in price.

I paid $1.639/gal of gasoline yesterday.  I KNOW it was MUCH higher 10 years ago at this time as I was using a lOT of gas meeting up w/DD2 over her wedding stuff and she is about 80 mi rt from me.  In the first quarter of 2005 I was already retired but still averaging $20/week for gasoline & making about 1-2 trips/month to DD2 so only a mx of 160 mi extra driven.

[Deleted]

Jan 23, 2016 11:30:49 GMT -5 Aman A.K.A. Ahamburger said:

VB, don't worry. The whole house of Saud thing is going to become big, big news over the next couple of years. The dollars of gains in your oil shares+dividends should make up for the extra pennies at the pump.

Jan 22, 2016 13:55:23 GMT -5 @jma23 said:

Gasoline has been sold the same way for quite a while now.  This is nothing new that couldn't of been planned around

Sounds like it's time for a resurrection of one of my favorite threads of yester years.. Energy Price and Supply sure is a current event.

Aside from you, there are very few left here from the old Market Talk on MSN that understood that thread. I've also lost some of my information contacts that I used to have.  I did like doing it back then though.

[Deleted]

In the Branson area and extending about 50 miles east, all the gas stations were at $1.39 or slightly less per gallon of regular grade. RBOB futures at $1.02  as of this post.

[Aman A.K.A. Ahamburger]

Jan 27, 2016 13:44:28 GMT -5 @jma23 said:

Jan 23, 2016 11:30:49 GMT -5 Aman A.K.A. Ahamburger said:

VB, don't worry. The whole house of Saud thing is going to become big, big news over the next couple of years. The dollars of gains in your oil shares+dividends should make up for the extra pennies at the pump.

Sounds like it's time for a resurrection of one of my favorite threads of yester years.. Energy Price and Supply sure is a current event.

Aside from you, there are very few left here from the old Market Talk on MSN that understood that thread. I've also lost some of my information contacts that I used to have.  I did like doing it back then though.

I hear ya! Good times in-deed!