{"id":753635,"date":"2018-06-08T21:45:17","date_gmt":"2018-06-08T21:45:17","guid":{"rendered":"http:\/\/juniorminingnews.com\/?p=753635"},"modified":"2018-06-08T21:45:17","modified_gmt":"2018-06-08T21:45:17","slug":"oil-shock-2","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=753635","title":{"rendered":"\u201cOil Shock!\u201d"},"content":{"rendered":"

By Brian Maher<\/a><\/span> <\/p>\n

\"Chart<\/a><\/div>\n

This post \u201cOil Shock!\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Is the economy in for a jolting \u201coil shock\u201d?<\/p>\n

Today we wander out to the tail end of the bell curve\u2026 look around for black swans\u2026 and raise scandalous questions.<\/p>\n

\u201cJudging by internet searches for the term,\u201d says Bloomberg commodities analyst David Fickling, \u201can oil shock is the last thing anyone should be worried about.\u201d<\/p>\n

It is true \u2014 \u201coil shock\u201d is an orphan term, unloved, unwanted \u2014 and unsearched:<\/p>\n<\/p>\n

We would be \u201cshocked\u201d if the search term \u201coil shock\u201d drew any attention at all these past few years.<\/p>\n

After nicking $115 in June 2014, oil slid all the way down the greasy pole to $26 in February 2016.<\/p>\n

It has been rebuilding steam for the past two years \u2014 but quietly.<\/p>\n

Oil has since taken a long, meandering route to last month’s $72\u2026 before retracing a few steps.<\/p>\n

Today a barrel of West Texas Intermediate Crude fetches $66.<\/p>\n

That nonetheless represents a 170% increase over the past two years.<\/p>\n

And UBS economists claim the 46% spike over the past year alone is the 11th largest of the past 70 years.<\/p>\n

Pretty handsome, you say.<\/p>\n

But hardly suggesting oil \u201cshock.\u201d<\/p>\n

This is not the oil shock of the 1970s when OPEC put the squeeze on us.<\/p>\n

But must it be that extreme to disrupt?<\/p>\n

Economist James Hamilton of UC San Diego has drilled into the history of oil shocks.<\/p>\n

To truly shock, he finds, oil prices need not rise dramatically.<\/p>\n

Oil prices need only rise above their peak for the previous three years.<\/i><\/p>\n

That is, they needn’t return to 2014’s $115 to constitute a shock\u2026 or even $100.<\/p>\n

The threshold is much lower.<\/p>\n

Recall, today’s price is $66.<\/p>\n

Before last November, oil had not cracked the $60 mark since June 2015 \u2014 precisely three years ago.<\/p>\n

Today’s $65\u201372 range thus exceeds the peak price over the past three years.<\/p>\n

By this narrow definition\u2026 we are witnessing an oil shock.<\/p>\n

To illustrate, take some liberty and extend the analysis a year or two\u2026<\/p>\n

Bloomberg columnist David Fickling notes that oil prices averaged roughly $30 in the mid-1980s before falling to an average $20 until decade’s end.<\/p>\n

Then Saddam Hussein moved on Kuwait in 1990.<\/p>\n

In the five months leading up to Operation Desert Storm, oil prices spiked to an average $30.84.<\/p>\n

Prices had only reverted to their mid-’80s average, in other words.<\/p>\n

But that spike, Fickling concludes, was sufficient to trigger the recession of the early ’90s \u2014 at least in part.<\/p>\n

Do not focus on the dollar price we are asked to conclude\u2026 but the current price compared with recent peaks.<\/p>\n

And by that measure, Hamilton argues we are presently witnessing the largest oil shock since 2008 \u2014 when prices shot to an obscene $144:<\/p>\n

\"Chart<\/p>\n

Incidentally\u2026 many analysts project the highest gas prices in four years this summer.<\/p>\n

Maybe this is some sort of quiet oil shock, you agree grudgingly.<\/p>\n

But the big deal is what precisely?<\/p>\n

The economy is in swell shape, you say.<\/p>\n

Unemployment is at multidecade lows\u2026 tax cuts are fattening the national purse\u2026 markets are regaining their bounce after February’s correction.<\/p>\n

And mainstream consensus dismisses the possibility of an oil shock.<\/p>\n

Bank of America Merrill Lynch is typical when it says it doesn’t expect higher oil to produce \u201ca material slowdown in growth.\u201d<\/p>\n

But we would remind you that mainstream forecasters are perpetually in the mists.<\/p>\n

IMF economist Prakash Loungani revealed the results of a recent study\u2026<\/p>\n

These results demonstrated that the professional wiseacres missed 148 out of 153 world recessions \u2014 a nearly imperfect record.<\/p>\n

Why should now be any different?<\/p>\n

And let the record show\u2026<\/p>\n

Substantial oil increases have preceded 10 of the previous 11 business cycle peaks since World War II.<\/p>\n

Moreover, they approach on cat’s paws\u2026 and pounce without warning.<\/p>\n

The aforesaid David Fickling:<\/p>\n

\n

Oil shocks are prophets \u2014 not partners \u2014 of economic downturns. This means that one shouldn’t expect to see other signs of weakness until the shock has already taken root.<\/i><\/p>\n

So unless supplies surge and prices ease sharply, and in the very near future to offset what has already been a remarkable \u201coil shock,\u201d the next downturn may already be a foregone conclusion.<\/i><\/p>\n<\/blockquote>\n

Is the next downturn a foregone conclusion?<\/p>\n

We do not pretend to know.<\/p>\n

But few are taking any note of an oil shock right now \u2014 which we find worrying.<\/p>\n

The bullet that gets you is often not the one you hear\u2026 but the one you don’t\u2026<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/i><\/p>\n

The post \u201cOil Shock!\u201d<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

…read more<\/a> <\/p>\n

From:: Daily Reckoning<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Brian Maher This post \u201cOil Shock!\u201d appeared first on Daily Reckoning. Is the economy in for a jolting \u201coil shock\u201d? Today we wander out to the tail end of the bell curve\u2026 look around for black swans\u2026 and raise scandalous questions. \u201cJudging by internet searches for the term,\u201d says Bloomberg commodities analyst David Fickling, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[366],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/753635"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=753635"}],"version-history":[{"count":0,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/753635\/revisions"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=753635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=753635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=753635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}