"Here is an embiggened version of the infamous jobs chart prepared by Obama administration economists Jared Bernstein and Christina Romer back in January 2009 (and now updated again by me with data from the August jobs report)."
Number of Oil Barrels for an Ounce of Gold, 1969-2011
"The combination of Hurricane Isaac, refinery fires, Labor Day driving, and our deficit habit pushed August gasoline prices higher throughout the month. By the time September rolled around, the average price of unleaded self-serve gasoline nationwide stood at $3.84 per gallon. In January, the price was $3.29. That's a whopping 54 cent or 16 percent increase in eight months. Higher priced gasoline seemed to have arrived to stay. And with presidential hunting season running at full blast, some in the Obama Administration were talking about tapping the strategic fuel reserve in the hope of giving some relief.
But the $3.84 price is one of those averages that no one may really pay. There are 17 EPA-required gasoline recipes used across the country. This means gasoline in South Carolina will not do in California. At the end of August, folks in the Golden State were paying $4.00 a gallon for their special formula.
What can we expect in the days ahead? Are we again facing a higher gasoline price trend?
To get some perspective on this, I provide an update for my oil/gold chart that appears regularly in this report. Recall the chart speaks to the question: How much oil will an ounce of gold purchase? Historically, the answer has tended to be 20 barrels. The next chart shows the annual oil/gold relationship for the years 1969 through 2011. I have marked the oil embargo years when an ounce of gold would buy much less oil as well as the years when oil prices were deregulated and oil got cheaper. The data in the chart also tell us what happens when we drop bombs on oil producing countries. The price of oil shoots up. The last few observations suggest that oil is getting cheaper, with the number of barrels fetched for an ounce of gold headed toward 20 again.
But what about now? Is there anything other than hurricanes, fires, and other temporary factors pushing oil prices higher?
Looking at the oil/gold relationship for 2012 is instructive. In January 2012, an ounce of gold bought 15.9 barrels of oil. In August 2012, an ounce of gold bought 17.9 barrels. The price of oil fell 12.5 percent. But remember, we shop with dollars, not gold. So what happened? The gold price of oil went down 12.5 percent, but the dollar price of oil went up 16 percent! In a word, the dollar weakened in world markets.
So, aside from Hurricane Isaac, who can we blame for higher priced gasoline? Arab traders? OPEC? 'Big Oil'? How about our political agents who set monetary and fiscal policy? The folks who manage the deficit? As a result of uncertainties regarding deficits, debt, inflation, and U.S. credit worthiness, world currency markets just don't like dollars as much as they did in January. But we still like gasoline!
Will things get better or worse? I think we will see slightly lower oil and gasoline prices for the rest of this year. The world economy is slowing, hurricane season will pass, we are no longer dropping bombs on oil producing countries, and a huge amount of oil and natural gas is now being pumped on American soil.
U.S. average gasoline prices should fall in the direction of $3.20."
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