Posted in: Mr. Tito
Tito's Money - What's Up With the Price of Oil Rising?
By Mr. Tito
Jan 4, 2012 - 9:04:48 PM

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Stock market was "meh" today... But what intrigues me as not just someone who watches financial markets, but as a regular consumer is the price of Oil. The Oil Futures market (in theory, betting on the price of oil next month based on current conditions) is at $103 and has pushed itself above $100 for the past few weeks. This has been going on for the past 2 months, actually, as Oil prices were kept below $90 before November 2011.

What is the root cause of all of this? Well, Iran is threatening to close off a key strait in the Middle East used to help transport a good chunk of the world's oil exports. That's what the news media and economics with an agenda will tell you. SURE, issues with supply are important. I would argue that our failure to drill for oil domestically or get it even cheaper from Canada (hello Keystone Pipeline!) is causing higher prices on the supply end of things.

Something else is driving up the price of oil.... Normally, I would say the weakened U.S. Dollar. However, against the Euro, the Dollar has gained considerable strength since May 2011 when energy prices skyrocketed.

So what's the cause?

I would venture to say that it's purely domestic inflationary pressures here in the United States that's beginning to overprice energy and other forms of goods. I'm looking very closely at price indexes of goods. Take, for instance, the Producer Price Index as measured monthly by the Bureau of Labor Statistics. The costs of producing goods/services are up considerably for the past year. Typically, 3.0% annualized growth in prices is deemed "stable" because it's considered a "rise in value" for a good or service. Looking at the 12 Month Growth through November 2011, producer prices are at 5.7% and have been up to 7.1% in previous months.

That's not good. That suggests that for one, there's too much liquidity in the economy right now thanks to excessive printed money creation by the Federal Reserve and $1 trillion+ borrowing by the Federal Government. But this also suggests that raw materials, healthcare costs, and utility costs are rising considerably. Utility costs, as seen by reports, are skyrocketing based on local cities pushing up prices to pay for their debt incurred during this recession.

I think anything that has a $ attached to it is going upward and I don't mean in value. The cracks of an incredibly loose monetary policy and ridiculous Keynesian based government spending policy are beginning to show. 2012 could priming itself for a repeat of 2008 when its recession was inflation-induced and then the financial meltdown made things worse. 2012 could have some inflation-induced problems and then possibly a European Union meltdown.

Hey look, the stock for Vaseline (or its Holding Company) is up!

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