Earthside Comments: The U.S. economy and oil.
Try as the politicians might to blame gasoline costs on a 'speculators' conspiracy, the truth is that demand is driving price. That means as long as the world market is willing to pay $140-plus for a barrel of petroleum, that is going to be the price. There is little prospect for any kind of major decrease in the fee.
Therefore, the news about plunging auto sales at Ford should be a clear, bright warning message about the profitability and value of any companies that depend upon oil for manufacture of its product, distribution, service transportation, etc.
Make no mistake, airlines will fail because the cost of jet fuel is going to erase any profitability that they might have had ... the same for plastics manufacturers ... the same for delivery services ... travel agencies ... out-of-the-way tourist destinations ... you get it -- if a company depends upon getting people or product from one place to another, there is going to be big financial trouble.
So, who is going to buy Ford or GM stock today?
Link: Group Says Demand Pushing Oil Higher | ABC News
It is easy to blame speculation for the doubling of oil prices over the past 12 months, but the real reasons are strong demand growth, coupled with shortages of supply and refining capacity, the IEA said on Tuesday.
In its Medium-Term Oil Market Report, the International Energy Agency (IEA) said there was little evidence speculation had distorted prices over both the longer and shorter term, although it noted a lack of data on inventory levels, as well as on financial market participants.
"Blaming speculation is an easy solution which avoids taking the necessary steps to improve supply-side access and investment or to implement measures to improve energy efficiency," the IEA concluded.
It placed the emphasis on the sheer number of factors responsible for driving up oil, which hit a record of close to $144 a barrel on Monday.
Perhaps the most important driver is the strain on supplies of distillates, which include diesel and heating fuel.
"Distillate tightness has been extreme in late 2007-8 and may have been the single largest factor," the report said.
Power outages, including in China and South Africa, helped to create "a perfect storm" and increased the demand for distillates for back-up generation, it added.
Another ingredient in the rally is the weakness of the U.S. dollar, which has had an impact on oil priced in dollars, but oil denominated in other currencies is also close to records, showing other factors are boosting prices, the IEA said.
Link: Ford Sales Plunge as Buyers Flee SUVs and Pickup Offerings | CNNMoney.com
Ford Motor reported that its U.S. sales tumbled 28% in June from a year ago, as record high gas prices and rising consumer worries about the economy resulted in what could turn out to be the weakest month for auto sales in 16 years.
Ford (F, Fortune 500), the No. 3 automaker in terms of U.S. sales, saw demand for its SUVs plunge by more than half and for pickups and other trucks fall more than a third.
Even the so-called crossovers, a sign of strength in the light truck segment until recently, saw sales off 18% from a year earlier, as buyers went searching for more fuel efficient vehicles in the face of record $4 gas prices. But Ford apparently didn't have the car models buyers were looking for, as its car sales fell 12%.
"Clearly, the rapid rise in gasoline prices, and the resulting shift toward fuel efficient vehicles, has been challenging," said Jim Farley, Ford group vice president, in a statement.
"Consumer fundamentals and consumer confidence deteriorated as the first half unfolded. The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty," Farley continued.
Ford announced steep cuts in production of its pickup and other truck models last month and a shift towards more production of cars. It also said it expected to announce plans for further cuts in plants and capacity in the months ahead.
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