Will Gas Prices Fall If Commodity Rally Ends?
Commodity prices, rising since December, fell sharply Tuesday as inflation begins to curb demand and slow economic growth. A note from Goldman Sachs that it was time to cash in on crude oil, copper, cotton and platinum triggered a sell off that signaled a possible end to a historic commodities rally. As commodity prices have soared, something had to give and in this case it is consumer demand, which as it falls, is sending commodity costs down in turn. Resource for this article – Will Goldman-triggered commodity rout lower U.S. gas prices? by MoneyBlogNewz.
The Goldman prediction
Since December, there has been a 25 percent increase in commodity costs which may have ended the increase. Monday, April 11, this might have ended. There started to be a commodity rout after warnings on commodity price decreases from Goldman Sachs. There was also a warning from Japan’s economic minister that there would be more damage than believed from the earthquake and tsunami on March 11. There was a decrease in oil by 7 percent. Also, the biggest one day loss in copper since February occurred with a huge drop on Tuesday. Goldman explained that oil and gasoline are around the Spring 2008 levels currently. The concern is that there may be long lasting “demand destruction” on oil because of the high costs. There were really peaceful elections in Nigeria while the chances of Libya figuring anything out seem possible right now. This means those betting on fear of these events are no longer going to stopping the oil price increases.
Back to realistic commodity prices
Goldman may have been trying to get itself in on the upward trend. This is a reason why some analysts think Goldman has started the commodities rout. Commodity costs have been under pressure on top of what Goldman said. High oil prices could threaten the growth of the economy according to a report on Tuesday from the International Energy Agency. The International Monetary Fund talked about it on Monday. It said that commodity costs would trigger a decrease in economic growth to 4.5 percent in 2011 and 2012 from the 5 percent it was in 2010. In his daily remarks to subscribers Tuesday, Richard Russell, publisher of the Dow Theory Letters, said the markets could be preparing for the end of the Federal Reserve’s quantitative easing program. With the $600 billion that the Feds bought in Treasury Securities, there has been lots of cheap cash. This makes for more expensive commodities.
Prices affected by U.S. customers too
Goldman Sachs aside, there is another that makes a difference to the oil prices in the United States This is the customer in the U.S. A MasterCard report released Monday showed that gasoline sales dropped for the fifth consecutive week. Analysts expect the demand to increase as it did for a couple of months. The price of gas in the United States is 41 cents higher than in 2008′s period when, in July, $4.11 was the average price. This time last year, price was down 80 cents a gallon. MasterCard stated that last week there were 2.7 billion gallons of gas sold, which is 3.6 percent decrease than last year at this time. A survey was done by the Oil Price Information Service in March. It showed that of all gasoline station chains, there was a 70 percent decrease in service. Over half reported a big decline. This is defined as a decline of at least 3 percent.
Citations
Barrons
finance.yahoo.com/banking-budgeting/article/112536/commodities-selloff-possible-correction-barrons?mod=bb-budgeting&sec=topStories&pos=7&asset=&ccode=
Reuters
reuters.com/article/2011/04/12/markets-metals-idUSLDE73B0WS20110412
The Street
thestreet.com/story/11080240/2/goldman-calls-commodities-top-is-now-the-time-to-sell.html
Delcotimes.com
delcotimes.com/articles/2011/04/11/news/doc4da2fdeae7538694359346.txt?viewmode=fullstory
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