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The U.S. Senate's rebuff of the rescue plan for the Big Three has re-shifted the oil equation back in favor of the oil bears. "The bulls tried to mount a mild charge on the likely large production cut by OPEC and possibly Russia, but a collapsing auto sector in the United States will further sap demand, so it's lower oil prices for the immediate future," Energy Trader Jim Dietz said Friday. "We're likely to see lower auto sales, falling consumer confidence, and of course, ripple effects in the economy. For the auto makers, bankruptcy looms because of some Washington Bo-zos."
Those ripple effects include workforce cutbacks in the steel, aluminum, textiles, auto parts, and auto dealerships sectors, and in collateral sectors, such as service sectors, like food services that benefit from auto manufacturing activity, he said. "All of that means less oil used and a deteriorating business climate. Oil will fall sharply in that kind of climate," Dietz said. Dietz added that he was currently short oil and unleaded gasoline with monthly contracts.
Oil began that selloff late Thursday night as soon as traders received word that a segment of U.S. Senate Republicans opposed the bill and had enough votes to either defeat it or filibuster it to its defeat. Oil had fallen $3.22 to $44.76 per barrel as of Friday morning.
The other major energy commodities also resumed their nearly four-month-long decline Friday morning. Heating oil fell 5 cents to $1.46 per gallon, unleaded gasoline declined 5 cents to $1.02 per gallon, and natural gas fell 11 cents to $6.48 per million BTUs.
Further, Dietz added that unless the U.S. Congress or another U.S. government-led effort finds a way to keep General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler from ceasing operations in the month ahead, oil will trend toward $35.
Oil / Economic Analysis: Oil demand will decline from the auto sector turmoil and from a further weakening of the U.S. economy, with a large increase in unemployment. The hope is that the U.S. government, either through the U.S. Treasury or the Federal Reserve, will intervene, citing TARP authority or emergency powers, to save a critical sector. However, the view from here argues there's only a 30-40% chance of that. And obviously, the failed auto rescue is bearish for stocks.
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Reader Comments (Page 1 of 1)
12-13-2008 @ 10:19AM
"Run-A-Way Bill" said...
If nobody can afford to buy a car, what is the use of a bailout? We will just dump the money out the window and into the hands of $75 workers who would rather lose their job than work for $50 hour. If GMC & Chrysler go out so what? If someone wants a car Ford, Toyota and the others will be glad to sell them one. Talking about a bailout for a company that has no customers is a waste of time!
12-13-2008 @ 11:57AM
Gail H. said...
$50? Try working for $12.00 an hour then having that cut to $11.30 ($10.93 plus a shift premium of .40) First shift makes even less than that. We aren't unionized. We are a two-tier supplier of the the big three and some of the foreign companies. We need them all to be healthy companies. They need new management with the focus being "lean manufacturing" and not corporate welfare.
2-06-2009 @ 10:36AM
jfp20959 said...
All the money in the world will not fix the banks and the auto industry; it will just get wasted away. What will fix the entire American ecomony is to give the tax payers the money. Let's see now, there are 100 million taxpayers and 300 million people. The banks got 700 billion by themselves, gee..... now 100 million taxpayers dividing the 700 billion bailout money would give how much to each taxpayer? Then the banks and auto industry would have to hire people to keep up with the demand right? Of course there is always that problem of companies who do not make a good product that will fold up because no one wants to buy the American made junk. For years now the foreign car makers have been making dependable and fuel effecient vehicles way ahead of the American competition. Ever notice that the 350 engine found in many trucks is still getting the same mileage it did when it was first introduced back in 1950's era. American people are tired of getting slammed just to be loyal. I say if they go out of business it serves them right and that might just put quality back into our system!