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Tuesday, June 19, 2012

Prices dropping again
Not good on provincial coffers though!

Media release

Conception Bay South, NL, June 19, 2012- Consumers just might have to "get used to it". Prices dropping, that is. Numbers are again reflecting some modest drops to consumers this week as oil prices continue to slip against uncertainties in the European Union financial sector and continuing doubts about world economic recovery. That news comes from George Murphy, group researcher with the Consumer Group for Fair Gas Prices.

"Oil prices have slowed their drop, but now consumer prices are down with some recent slides in refined commodity prices. It's exactly where we needed to see some positive sign of movement", Murphy said. "High oil prices aren't doing anything beneficial to economic recovery, unless you're in the oil business. Cheaper prices spark everything in an economy, including consumer spending."

Numbers down
"Numbers show some slight drops to prices. Heating and stove oils are projected to drop 91/100ths of a cent and Diesel with also a decrease of a half cent a litre. Gasoline is projected to drop by 1.6 cents a litre Thursday morning."

Where are oil prices going?
"There are several reasons why I can't see oil prices recovering anytime soon, barring any outside untoward factors of course.
  • Numbers aren't there to warrant oil rising on the juxtaposition of economic recovery, that remains an uncertainty.
  • The ongoing worries over the European Union member country's fiscal position is also a sore point with the mounting problem of debt countries of the Union being a concern. Any fiscal problem is seen as a chance for strong austerity programming brought in to alleviate any of the member country's problems, and that means tagging citizens with the problem. They, in turn, reign in on consumer spending."
  • Call it what you will, but consumers, industry and some governments themselves, are starting a sharp turn towards conservation efforts. It may be hard to believe, but the simple evidence over the past couple of months shows that consumers themselves could not tolerate prices where they were and made a collective impact on refiners. They conserved their fuels as much as refiners turned back the spigots, and that helped, so far, to keep abreast of inventory levels. Here we are now on the edge of the summer driving season with a drop in prices in our midst, and that's another good sign of strong evidence to that end.
  • The natural gas/fracking phenomena: While the focus has been driven on oil in recent years, the high price of oil became a rude awakening of the importance to several countries in the reserves they have already. That other option turned out to be fracking for gas and oil, the recovery in some cases of oil deposits even left over from previous exploration and recovery efforts. with the realization that fracking has started a revolution in energy of sorts, attention has to be paid to the fact that there is a "viable" alternative to traditional oil use. That fact alone and not "quantity" or "availability" is enough to turn the value of oil upside down. Keep in mind however, that it may not last forever. Some places will realize the dangers to water supplies for example, and may very well turn to other sources of energy, like wind power, as cheap and "inflation proof". I fully expect that natural gas deposits in stranded form will take precedence over fracking, due to low cost and less danger of environmental damage, as compared to each other. That may increase natural gas prices sooner than expected."

Province takes a pounding

"With Brent crude prices depressed for at least the next two years, until a strong sign of economic and financial recovery in the Euro-zone, expect royalties to the province to stay at a depressed level. While there are doubts in the world on economic recovery and fiscal position, look at your own spending habits and that of others. If oil prices started to rise, it could start another run of inflation and hence, an increase in interest rates as well. That could mean a restriction on consumer spending to an already tight household debt situation. In other words, any sharp oil price increases right now could be "self-defeating" in the game of royalties. The real danger here is not taking the time now in making sure a diversified economy is there to catch you in a time as troubling as this one may be. Remember as well that, with lower prices at the pumps, the tax take of the provincial government can also be expected to be lower than the projected in the budget."


For more information, contact;

George Murphy

Group researcher/Member

Consumer Group for Fair Gas Prices

Twitter: @GeorgeMurphyNDP

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