By on May 22, 2015

Ford Mustang Receiving Gas Circa April 2015

OPEC is doubling down on shoving shale off a cliff, continuing the trend of low fuel prices through the fall in so doing, Memorial Day Weekend aside.

Thirty-three out of 34 analysts and traders surveyed by Bloomberg believe the Organization of Petroleum Exporting Countries will stay the course of 30 million barrels produced daily when the group meets in Vienna next month, the publication reports.

The reason to continue down this road is to ensure victory for Saudi Arabia’s strategy of putting shale oil producers and other competitive suppliers — notably those in Canada and the United States — in their place. Thus far, the plan is working: half of the drilling rigs in the U.S. have been idled since October, while production fell 1.2 percent last week to 9.3 million barrels/day. Global investment in production is expected to fall $100 billion in 2015, while demand growth for oil is projected to climb to 1.4 million per day over the same period.

In the meantime, fuel prices will continue on their own course. University of Purdue Wally Tyner predicts prices in all but California and Hawaii will remain below $3 throughout the summer, Forbes says. This is, of course, due to the ongoing supply glut, hovering around 485 million barrels compared to the 350 million barrels normally available.

Meanwhile, Oil Price Information Service Tom Kloza believes fuel prices will stop at $2.50 this summer before dropping down between $2 and $2.25 this fall. Tyner adds Iranian oil could cut prices at the pump by 30 cents in 2016 should a nuclear deal between Washington and Tehran lead to a lift in sanctions.

Before the prices can fall, however, they must climb a bit for Memorial Day Weekend. AAA says prices rose 5 cents a gallon within the last week, with the current average national price hitting $2.71/gallon Tuesday, The Detroit Bureau notes. The group adds motorists are paying an average of 26 cents more for a gallon of regular in May than in April.

Causes behind the rise include regional production issues in the Midwest and West Coast, as well as a rally in crude prices; West Texas Intermediate and Brent are trading for around $60 and $66 respectively as of this writing.

Despite the price hike, motorists hitting the road this holiday are paying 94 cents less for each gallon dispensed compared to last year, the lowest average since 2009.

[Source: Robert Couse-Baker/Flickr/CC BY 2.0]

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55 Comments on “OPEC Doubles Down Against Shale, Fuel Prices Continue Downward Spiral...”


  • avatar

    Well I just filled my JeepSRT on $3.03 per gallon Super Premium Unleaded 93.

    I hear TALK of “apocalyptic” gas prices and “collapsing economies due to apocalyptic gas prices” but as we approach Summer, I just ain’t seeing it.

    I see more money in my pocket – since it isn’t $3.89 a gallon, but until 93 octane is below $2 per gallon (like it was in January 2009 when Obama got in office) I’m not impressed.

    • 0 avatar
      28-Cars-Later

      The psychopaths in charge would be wise to target $2.00 at the pump if there is any hope of real economic growth. Assuming that is even still possible.

    • 0 avatar

      I don’t get it. Even if diesel goes up to $4.00 per gallon (I paid $2.59/gallon yesterday), I really won’t be too bothered. People get so upset when fuel prices go up thirty cents, but…you still need the fuel.

      Side note: those are my favorite Mustang wheels in recent history.

      Question: If Jeep ever did a Grand Cherokee SRT Hellcat, would you consider it?

  • avatar
    ajla

    Time to bring back the V10 and 454.

    • 0 avatar
      28-Cars-Later

      Don’t worry, gov’t will be along to steal enough to keep prices artificially higher.

      • 0 avatar
        Charliej

        I love it. When prices go down, government had nothing to do with it. When prices go up, it is all governments fault. It must be interesting to be so psychotic.

        • 0 avatar
          sportyaccordy

          Lol. Govt sends prices down too, just to lull you into buying a gas guzzler, then they turn them back up to steal even more from you! Koch Brothers! Illuminati! Eye in a triangle! More after the commercial break!!!

          • 0 avatar
            28-Cars-Later

            Then there is the fact infrastructure has been ignored for twenty years on both the federal and state levels:

            “The Highway Trust Fund is the primary source for federal highway and transit programs funding for local, state and national projects. It is funded by the federal gas tax — currently set at 18.4 cents per gallon — which hasn’t been raised since 1993. In the past six years, there have been 32 short-term measures taken to maintain the fund, but Boxer endorsed raising the gas tax as a reliable long-term solution.

            At a Wednesday news conference on the Capitol lawn, Boxer outlined a proposal to be introduced later this week that would reduce the effect of a tax increase by providing gas tax refunds to middle-income households.”

            http://www.usatoday.com/story/news/politics/2015/04/15/gas-tax-highway-bill-unions-boxer/25848153/

            “More than 550 bridge will be replaced across the state over the next three years through a new public-private partnership deal struck between the state and private firms.

            Act 89 restructured the state’s gasoline tax system and increased fees for various registrations, permits and violations to raise money for road improvements.

            It means that Pennsylvania now has the highest gas tax in the nation, according to Gasbuddy.com.

            The Keystone State has one of the largest and oldest transportation infrastructures in the country. Pennsylvania has 40,000 miles of paved roads (the fifth largest highway system in the country) and 25,000 bridges (the third highest number in the country).

            “[Drivers] have an expectation that their ride will be smooth and that their bridges will be properly maintained, but the reality is that is a huge challenge,” Kirkpatrick said. “[Act 89] is really allowing us to move the ball forward.”

            While many states across the nation are struggling with finding funding for road and bridge repairs, Kirkpatrick said Act 89 is Pennsylvania’s roadmap for future funding and improvements.

            The number of bridges repairs being performed in the state dropped from 1,336 in 2009 to 525 in 2013. Act 89 brought an influx of money that allowed the state to invest $669 million to repair 682 bridges in 2014.”

            http://www.pennlive.com/politics/index.ssf/2015/02/act_89.html

            But then again per the US Senate:

            “CRS identified 83 overlapping federal welfare programs that together represented the single largest budget item in 2011—more than the nation spends on Social Security, Medicare, or national defense. The total amount spent on these 80-plus federal welfare programs
            amounts to roughly $1.03 trillion. Importantly, these figures solely refer to means-tested welfare benefits. They exclude entitlement programs to which people contribute (e.g., Social Security and Medicare). CRS estimates that exclusively federal spending on these federal programs equaled approximately $746 billion, and further emphasizes that there is a substantial amount of state spending—mostly required as a condition of states’ participation—on these same federal programs (primarily Medicaid and CHIP). Based on data from the Centers for Medicare and Medicaid Services and the Oxford Handbook of State and Local Government Finance, Budget Committee staff calculated at least an additional $283 billion in state contributions to those same federal programs, for a total annual expenditure of $1.03 trillion. By comparison, in 2011, the annual budget expenditure for Social Security was $725 billion, Medicare was $480 billion, and non-war defense was $540 billion.

            The exclusively federal share of spending on these federal programs is up 32 percent since 2008, and now comprises 21 percent of federal outlays (this share too is more than Social Security, Medicare, or defense).
            As a historical comparison, spending on the 10 largest of the 83 programs (which account for the bulk of federal welfare spending) has doubled as a share of the federal budget over just the last 30 years. In inflation-adjusted dollars, the amount expended on these 10 programs has increased by 378 percent over that time.”

            http://www.budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=34919307-6286-47ab-b114-2fd5bcedfeb5

            TL;DR: States can’t balance budgets partially because states are burdened by ACA/Medicaid increases, infrastructure ignored for decades on both Federal and State levels, Federal expenditure for welfare up 32% since 2008. Therefore fuel taxes will continue to increase creating an artificially higher price regardless of market conditions.

        • 0 avatar
          28-Cars-Later

          Wow this really isn’t going to let me post my reply.

        • 0 avatar
          28-Cars-Later

          Theoretically the raw materials price is dictated by “the market”. Gov’t, both at the federal and state level, will keep costs artificially higher on a permanent basis through taxation. But why?

        • 0 avatar
          28-Cars-Later

          State budgets:

          “If nothing has changed in Washington, why are Republicans so tax-happy on the state level—at least when it comes to fuel? “The difference is states have to balance their budgets,” Davis said. Unlike Congress, state lawmakers can’t simply borrow money and accumulate debt when the coffers run dry, and the sorry state of the nation’s transportation infrastructure has been well-documented. “States have a tough list of options they can choose from,” Davis explained:

          They can raise the gas tax, they can raise a different tax, or they can cut spending on education and other parts of the budget and spend that money on roads and bridges instead. Because you can only let your infrastructure get so bad before you have to find a way to deal with it.”

          http://www.theatlantic.com/politics/archive/2015/03/how-red-states-learned-to-love-the-gas-tax/389084/

        • 0 avatar
          28-Cars-Later

          There is a link and citation to Citizens Against Gov’t Waste TTAC’s system will not allow to be published for reasons I do not understand. The citation was:

          “According to the joint report, the Congressional Budget Office (CBO) estimated that new state spending on Medicaid will be “$20 billion between 2017 and 2019, and an independent report from the Kaiser Commission on Medicaid and the Uninsured found that new state spending would be even higher at $43.2 billion through 2019.” The report estimates that, conservatively, the Medicaid expansion provision contained in ACA will cost state taxpayers “at least $118.04 billion through 2023.”

      • 0 avatar
        tonycd

        28, if you want prices to be higher for real, you’ll get your wish soon enough.

        The Saudis’ victory will be temporary, because more than they care to have others know, the supply of oil under their well-cushioned imperial tushes is speculated by some pretty smart people to be diminishing rapidly.

        • 0 avatar
          28-Cars-Later

          I do not wish for this to happen as oil powers our civilization and cheap oil drives real economic growth. What I speculate will happen is gov’t will artificially increase the pump to a minimum of 3.00 through taxation and a genuine supply disruption or geopolitical event will occur which will completely knock out the real economy. Their thinking today is the debt slaves handled 3.00/gal for years, they can continue to prod along. But this is shortsided thinking at best.

          • 0 avatar
            tonycd

            28, you’re a smart guy. Think bigger picture. You’re right that “oil powers our civilization and cheap oil drives real economic growth.” And that’s exactly the problem, because cheap oil is doomed.

            As a human race that hopes to survive in some sort of dignified fashion, we need a Plan B, some plausible variation of what the tree-huggers call “sustainability.”

            At a larger level, our corporate overlords enforce via Wall Street the dictum that the only healthy business is a constantly growing business, and they mercilessly punish the stock price of any company that’s stable, profitable, but not growing. Yet perpetual growth is as impossible as a chain letter. Governing our entire economy this way is, quite simply, madness. It cannot end well.

          • 0 avatar
            28-Cars-Later

            I think it depends on how long of a timeline when one suggests “cheap oil is doomed”. If we say in a hundred years cheap oil is doomed, then I agree. For the next twenty five? I’m not sure I can agree (supposedly Aramco can profitably pump for <$10 a barrel). Bottom line is without a dramatic paradigm shift in energy production, civilization is dependent on oil and will collapse without it. Renewables are interesting but thus far have not proven cost effective or can be done on a large enough scale (ie hydropower). Civilization could survive in regions where sustainable energy is put in place, but without scale life as we know it could not continue on renewables alone. Personally I see a continued devolution of society which will rapidly accelerate in the wake of an extended oil supply crisis.

            Perhaps its time to dust off some of Nikola Tesla's patents and surviving work notes. I seem to recall a story where he was able to generate electricity from the Earth and the idea was nixed by his investors/backers because it could not be metered.

    • 0 avatar
      Scoutdude

      The Ford V10 hasn’t gone away it is still available in the F650 and F750 but it would be nice to see it in the F250 and F350 again as well as the F450 and F550.

      GM needs to bring back the 496 (8.1), why mess around the the little 454. I believe they are still making a crate version for hot rodders so it wouldn’t be that hard.

      Chances are however that the Chrysler V10 tooling was scrapped somewhere amongst the ownership changes.

      • 0 avatar
        DenverMike

        The F450/550s come with V10s too, but I don’t see why not in F250/350s.

        I guess the 454 had to die with the Ford 460. Too thirsty and emissions pigs. I loved them though.

        More alternatives to diesels are needed post haste.

  • avatar
    Kendahl

    Driving your competition out of business only works if they can’t come back again after you relieve the pressure. That’s not going to happen with shale oil. The drilling rigs may be shut down now, but they will be back in action as soon as the price rises. In the meantime, enjoy cheap fuel.

    • 0 avatar
      tonycd

      Exactly, Kendahl. I think their game is to destroy fracking and oil shale investors’ faith. It will work, but not permanently.

      • 0 avatar
        Lou_BC

        Agreed. You can kill the companies doing fracking or shut down tar-sands oil extraction BUT the reserves are still there. As long as there is a profit to be made in those reserves they will be restarted.

    • 0 avatar
      stuki

      Yessss!

      Finally someone realizing that a model for how the world works, may need to be just a smidgen richer than that of a silly us-vs-them football game.

      The Saudi Sheiks need X dollars/year to bribe their captive population not to join Isis. If they can make $50/barrel, they need to produce Y barrels. If they can only make $25/barrel due to shale oil producers capping the price, they will need to produce around 2Y. Which they can’t, hence instead produce all that they can, in a desperate and ultimately futile attempt to stave off Isis for as long as possible.

  • avatar

    Downward Spiral?

    This may have been true back in December. The way I see it Oil/Gas have gone back up.

    Since March oil has gone from $42 to $59 per barrel. Did you mean an upward spiral perchance?

    • 0 avatar

      If I was talking about crude oil, then “upward spiral” would have… not entered my mind; I would have used different wording instead. When I talk about fuel prices, I speak of what one pays at the pump.

      Also: “The Downward Spiral” is a good album.

    • 0 avatar
      tresmonos

      Yeah, the Saudi’s are playing a game of chicken with ingenuity. They have only made US production more efficient through this charade. When prices start their slow climb (see the last 2 oil crashes of the 80’s and early 2000’s), domestic producers will be all the more profitable.

      I placed my bet on domestic crude. If it dips below 57 again, I’m upping my ante.

    • 0 avatar
      SCE to AUX

      Agreed, JPW – I think gas here in the Pittsburgh area was around $2.25 in the winter, but it’s back around $2.95 now. I see no decreases.

      • 0 avatar
        shaker

        Funny how everyone was PO’d about the PA 9.5 cents/gal tax increase – small potatoes when gas prices fluctuate by 25% when the Saudis sneeze.

        • 0 avatar
          an innocent man

          The reason we were PO’d in PA was because we have the highest gas tax in the country, and some of the worst roads. We assumed, likely correctly, that the money would be going everywhere but to road maintenance. Sure, weather, truck traffic, and road miles are important contributors to bad roads. But that doesn’t explain it all.

          • 0 avatar
            28-Cars-Later

            I think what is happening is the result of a perfect storm:

            -Pennsylvania has difficult topography and its infrastructure includes more bridges, tunnels, on ramps, and other concrete bits more than any other state.
            -PennDOT is one of, if not the, most corrupt and inefficient DOT and is not capable of managing the most challenging infrastructure in the Union.
            -PennDOT has for decades purposely ignored its Depression era or earlier infrastructure which needed replacement starting in the 1980s.
            -Pennsylvania to its detriment still has a strong union/communist/marxist presence and is forced to continue to prop up financially failing county public transit systems with state monies and PennDOT itself which should have been broken up and/or privatized years ago.
            -Pennsylvania’s budget was crushed by the ACA mandate in which state budgets were forced to increase Medicaid at a certain percentage matching the Federal gov’ts.

            Now I haven’t researched this but this is what I think is/will happen(ing):

            -Some of the funds will be allocated to the most dire infrastructure replacement projects, but in my view this will only be done at a bare minimum and no real repairs will be made outside of critical replacement projects (i.e. structurally deficient bridges in major areas). Dangerous infrastructure in non-essential areas will simply be closed and NOT replaced (already happening in the Mon Valley).
            -No one will question where the fuel tax funds were spent since 1980 when these projects should have been slowly phased in (hint: part was spent on bare minimum maintenance, part wasted, and part paid to the Ponzi scheme of state retirees).
            -Kicking the can, bonds will be sold by Harrisburg -backed by this huge tax- to make up budget shortfalls caused by ACA, state education, and an overall increase in state welfare as more non-contributing citizens are born and emigrate to the Commonwealth.

            I fear in the long run Pennsylvania, and most of the other states, financially are toast unless they rein in the spending.

  • avatar
    turf3

    Let’s face it, the Arabs have smart people running their oil production. In a command economy (absolute monarchy, remember), the powers that be can manipulate production to keep them right at the top of the profitability/production curve. Or, as now, drive the price down to drive the competition out of business.

    What Kendahl leaves out is that there are re-start costs for an industry that is shut down. Once the Saudis have all the US shale oil production stopped, they can let the price gradually rise, and there will be a considerable hysteresis; i.e., the price at which it makes sense to incur re-start costs and resume production of North American shale oil will be higher than the price at which it made sense to stop production.

    As far as I am concerned, I think we should use up all the foreign oil first before using ours. I think the US would be in a much better place to be the only producer left with significant oil production capacity, decades from now when the stuff starts getting genuinely scarce.

    And for those of you who seem to think oil will go on forever, don’t forget there are a billion Chinese who want to rise into the middle class, and once they start shipping all their low wage jobs to India and Africa there will be another – what? – billion and a half or so there that want the same thing. Along with the Western middle class lifestyle comes a drastic increase in rate of fuel consumption. Right now, the only fuel that really fits the bill is oil.

    I am not planning to buy a 9 mpg car any time soon. Sooner or later the price will rise again.

    • 0 avatar
      tonycd

      Yep, except for the part about “using up all the foreign oil first.”

      That’s a bad bet because it leaves us at the mercy of a bunch of kooks, which is what’s enabling our current costly and insane corporate-mandated foreign policy of Endless War™.

      At the other extreme, using up all the American oil is already beginning to destroy our supplies of clean underground water, which is rapidly becoming as precious and scarce as the oil. You can sustain human life and grow food without oil. You can’t do either without water, which is why fracking is also insane.

      The only viable answer is to use less oil, no matter where it comes from. Since nobody’s figured out how to make a nuclear power plant that’s free of extremely toxic long-term waste products and immune to catastrophe (see “Fukushima” if you haven’t been keeping up on that), that means an all-out assault on the cheap and readily available energy sources that have been successfully marginalized so far by the oil and gas industries’ extensive PR campaigns: geothermal, solar, wind.

      Which is why the Germans have already taken the steps to get way, way ahead of us on those technologies, wisely supported by the government aid we love to ridicule but nonetheless lavish on fossil fuel producers.

      • 0 avatar
        shaker

        ^^^^^What HE said^^^^^

      • 0 avatar
        Davekaybsc

        They figured it out 50+ years ago, it’s called molten salt thorium. They create drastically less waste than conventional light and heavy water reactors, and more importantly, the waste that is created has a shorter half life by an order of magnitude. Thorium reactors can actually use traditional spent fuel as their fuel, and thorium is incredibly abundant across the globe.

        And speaking of Fukushima, guess what, thorium reactors CANNOT melt down. When you lose all power to a conventional reactor, even if you shut it down, you’re in BIG trouble. Thorium reactors cannot enter catastrophic melt down by design, and just as importantly, they operate at normal atmospheric pressure, and so they also cannot blast highly radioactive material into the air as in Ukraine. The fact that we’re still using water cooled reactors based on technology developed for submarines in the 1950s is INSANE.

      • 0 avatar
        Big Al from Oz

        @tonycd,
        I don’t know if you realise there is plenty of shale oil outside of the US.

        I do know we have one reserve in Australia that is holding nearly what the Saudi’s have in reserve.

        Even the EU has considerable amounts of shale oil.

        This doesn’t even consider the unexplored regions of Africa, Sth America and even the Antarctic.

        When the time comes we will mine the Antarctic, irrespective of current treaties etc.

        And when that time arrives a global war like never seen before will occur to control it.

    • 0 avatar
      Lorenzo

      Where have you been? A majority of our consumption has been foreign oil since the late 1970s, and even before that we were importing a large amount. We’re now using less oil overall and producing about 60% of consumption, and our two biggest foreign suppliers are Canada and Mexico, squeezing out part of OPEC’s share. Saudi Oil was the biggest part of OPEC’s imports and they need to keep a share of the World’s largest consumer.

      Whatever they have to lose by trying to curtail shale oil, they’ll lose more if the innovation and production continues, lowering the price anyway. Forget US self sufficiency, we could end up with a surplus, and an end to the ban on exports. Shale oil and the Spraberry field output is higher grade than Saudi or Brent, producing more gasoline, jet fuel, and diesel per barrel.

      • 0 avatar
        tonycd

        I’m endlessly amazed by this notion that we have an infinite supply of fossil fuels.

        Our population spirals. As another poster noted, Third World peoples keep escalating in their thirst for Western-style conveniences. Earth is a rock of finite size, with petroleum sources being made over a time horizon of billions of years, not hundreds. We’re blowing through all the conventional sources of fossil fuels so fast, we’re down to arguing over whether we can get by on the secondary ones. And no matter which ones we use, their combustion will incinerate the human race under a CO2 greenhouse, probably within our children’s lifetimes (see Climate Wars by Gwynne Dyer, and hundreds of others like it).

        Where do people get the idea that we will never run out of oil? It’s utterly implausible in the face of basic math.

    • 0 avatar
      stuki

      The main “hysteresis” you’re likely to see wrt restart of shale fracking, is the ability to rehire labor at half price compared to before. The frack rigs have no other use. They are simply mothballed, and can be brought back online largely cost free.

      Virtually all of even the original “startup costs” the frackers faced, was in the development of fundamental technology. Once that is amortized/(written off supposedly thanks to the Saudis), the marginal cost of even a new frack rig is tiny. Think Intel cranking out yet another chip of an existing design. And for mothballed rigs, sitting there ready to load on a truck and deploy on six hours notice, it’s much lower than even that.

      Then there’s labor. Most of whose second best option is flipping burgers. They’ll be back to their old haunts real soon if asked to. And now the two biggest drags on initial hiring, lack of available barracks in South Dakota and fear that the boom would be ridiculously short lived, are much less of a problem as well.

      The notion that “we” should use up “their” oil first, is suspect as well. In the US, fracking and other tertiary recovery is all the rage, since that is all “we”‘ve got left. The Saudis still has cheaper and more easily recoverable oil available. Once they no longer do, they’ll have to employ more sophisticated drilling tech as well. By which time, costs for said technology will be even lower. Noone ever “runs out” of oil. It’s all a matter of at which cost it can be produced, vis a vis other places. Which varies with available reserves, and available technology.

  • avatar
    TW5

    If OPEC were to cut production to raise prices, US oil production would continue rising sharply. If OPEC cut production again to bolster price, US oil production would continue rising sharply. OPEC is not interested to hand out free money to non-OPEC producers.

    OPEC is not engaged in a battle to the death with US shale. US shale isn’t even the highest cost oil in the world. Russian oil fields and deep sea rigs are more likely to shut down before shale plays. Perhaps people remember when Putin said that low oil prices were a conspiracy by Saudi Arabia and the US to cripple Russia?

    Oil price is dictated by boring economics. For all we know, Saudi Arabia might be hoping that Texas will reinstate oil production quotas via the railroad commission.

  • avatar
    Big Al from Oz

    This comment from the article is incorrect, by a long shot;

    “Saudi Arabia’s strategy of putting shale oil producers and other competitive suppliers — notably those in Canada and the United States — in their place”

    If shale and tars oils were competitive then why are they shutting down the wells?

    They are obviously not competitive. They are only competitive when the oil market is rigged and controlled.

    • 0 avatar
      craiger

      “If shale and tars oils were competitive then why are they shutting down the wells?”

      They’re not all the same. Some sites are more competitive than others. Transportation is a big factor in the overall cost too.

      For anyone who is truly interested, RBN Energy is a good site. Also listening to the quarterly conference calls of the E&Ps is educational.

      • 0 avatar
        Big Al from Oz

        @craiger,
        I would almost agree with you. I have also done quite a bit of reading on shale oil operations.

        There are two issues that reduce the competitiveness of shale oil.

        1. Logistics, ie, moving the oil to a refinery or transport to a port.

        2. Longevity of the wells.

        A shale oil well will not be as viable as a well the Saudi’s have. They remain in place long enough to spend billions of infrastructure nearby and each well also produces lots more oil.

        Sure the RBN site isn’t just looking for investors?

    • 0 avatar
      George B

      Big Al, it would be more accurate to say that drilling activity has been cut in half in US shale fields. I haven’t heard of wells already in production being shut down like happened in the mid 1980s.

  • avatar

    I did not read all the comments so if this has already been addressed I apologize for the repetition. I have been surprised that we have not seen even a modest decrease in prices at the grocery store amongst other places. Lower fuel costs “should” translate to lower prices of commodities for consumers. Anyone have any thoughts they can share on this aspect of the price of oil affecting our lives? Thanks!

    • 0 avatar
      Lorenzo

      Commodities, especially groceries, are sensitive to increases, but not all the increases get passed on. To stay competitive, profit margins are shaved, absorbing some of the increase in costs to keep price increases as modest as possible.

      When costs go in the other direction, the first place the savings would go is back into profit margins for the retailer, supplier and middle man, and only later, if at all, into price reductions. Given that the Fed’s measure of inflation is very conservative, it’s likely that possible price reductions are eaten up by other rising costs.

      The best the consumer might get is stable prices over an extended period. At least that’s what they used to teach in economics classes.

  • avatar
    bd2

    Regional production issues in the Midwest and West Coast – ahh, the near-annual fire or other mishap at a Midwest and West Coast refinery, perfectly timed with the periodic maintenance/change-over to summer blend to ensure inflated prices.

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