Gasoline prices have been steadily moving up for several months, and a majority of Americans are feeling the pain at the pump.
The big question is, what is really driving gas prices up?
1. THE EXPLOSION OF AUTO SALES IN ASIA & EMERGING MARKETS
Fifteen years ago there were few cars sold in China and India. Today, China is the largest auto market in the world—they surpassed the U.S. two years ago. India will likely become the third largest global auto market later this year and it is projected to surpass the U.S. in the next five to seven years.
General Motors sold 28% more cars in China last year than they sold in the U.S.
Auto sales in Asia and other emerging markets are expected to grow five to seven percent per year over the next decade.
The world now uses three times more oil each year than we are finding new oil resources. Yes, we have reserves, but this is a classic long-term supply and demand issue, where we are using more fuel each year and the oil we are finding is vastly more expensive to extract than what we have been used to in the past.
Solely because of the current global supply and demand for oil from increased auto sales in Asia and emerging markets, gasoline prices will most likely continue to go up.
2. IS FIGHTING IN LIBYA SENDING GAS PRICES HIGHER?
In the late 1970s and early 1980s, Libya was a major U.S. oil supplier. They sold us around 700,000 barrels of oil per day. But today, we import less than 50,000 barrels per day from Libya—a small fraction of the 9.2 million barrels per day the United States imported in 2010. Of the 86 million barrels consumed globally each day, less than 2 percent comes from Libya.
Right now, in my opinion, Libya is not a big enough global oil supplier for the military action there to have a meaningful effect on gas prices.
One of the reasons gas prices are going up is because the overall Persian Gulf region produces almost 24 million barrels of oil per day, more than 25 percent of global oil consumption. The Arab protests in Egypt, Saudi Arabia, Bahrain and Yemen could make the stock markets nervous over a possible disruption to oil supplies. This has the potential to make gas prices rise—whether the disruption materializes or not.
The fighting in Libya and the protests in other countries also tends to raise insurance premiums on the transportation of oil from this region
3. AMERICANS HAVE BECOME USE TO CHEAP GAS
Americans love their cars and they love cheap gas. They feel they are entitled to cheap gas.
But because of higher taxes, Europeans have lived for years with gas prices twice as high as Americans are use to paying.
While U.S. gasoline is starting to hit $4 per gallon in some cities, Europeans have been paying much higher prices. In England, gas hit 6 pounds, or about $9.76, per gallon this month according to the Washington Post.
Because of much higher gas prices, Europe’s per capita energy use is half that of the United States. From a national security perspective, that potentially leaves Europe less vulnerable to oil price shocks, while not undermining their standard of living.
It is true that the U.S. is less densely populated than Europe and we have more wide-open spaces.
The hard fact for Americans is that oil and gas prices will most likely continue to rise and either we will have to become more energy efficient or come to terms with the reality that gas is going to continue to take an ever-increasing percentage of each family’s budget.
Americans have shown that they can adjust their behavior when faced with higher gas prices. As gas prices climbed from $2.31 per gallon in 2005 to over $3.40 per gallon in 2008, sales of the energy-efficient Toyota Prius eclipsed those of the Ford Explorer, and public transportation use reached a 50-year high.
4. HIGHER OIL & GAS PRICES COULD AFFECT THE STOCK MARKET
Rising oil prices tend to have a negative impact on the overall economy. Higher oil prices raise the cost of transportation and raw materials and tend to negatively impact the sale of goods and services. Higher oil costs also tend to function as an inflation driver.
Foxhall’s core equity investment strategy, the FOXHALL GLOBAL GROWTH strategy, includes approximately 10% in commodities and hard assets. We also offer the FOXHALL GLOBAL COMMODITIES & HARD ASSETS strategy that is 100% commodities and commodity producers.
There are indicators that suggest inflation in the U.S. is rising. FOXHALL’S COMMODITIES & HARD ASSETS strategy is positioned to potentially provide a measure of purchasing power protection. At the same time, FOXHALL’S LONG TERM TREND RECOGNITION TECH-NOLOGY monitors global stock markets daily with an eye toward tracking and identifying the time when the long term up trend of the stock market shifts to a Bear market long term down trend.
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