Home / Asia / Oil and Natural Gas Prices Continue to Fall
Print Friendly and PDF

Oil and Natural Gas Prices Continue to Fall

Written by Gary North on May 27, 2013

The decline of oil in response to falling manufacturing figures from China will continue to pressure the Consumer Price Index down. The price of natural gas has also fallen. This is good news for consumers. The CPI went negative 0.4% in April.

The Median CPI, which is less volatile than the CPI, went up by 0.2% in April. It has risen 0.1% in March. So, there are offsetting signals.

The energy sector is a good proxy for the international economy. Rising energy prices reflect growing demand due to a growing economy. Falling energy prices indicate a slowdown in the world economy.

Oil is the single most important international commodity. The world consumes a billion barrels every 12 days. It is the foundation of the world’s economy. There are few oil reserves. So, at the margin, the price of oil is determined mainly by demand. The supply does not change week to week. Producers are maxed out, or close to it, at all times. So, a decline in price reflects falling demand, which in turn represents economic slowdown.

Three Asian stock markets have been down in recent days: the Asian Dow, the Japanese Nikkei, and the Hang Seng.

China’s manufacturing slowdown is an indicator of falling demand worldwide. China is the world’s major manufacturer-exporter. The purchasing managers’ index (PMI) fell below 50 to 49.6 in May. The figure of 50 is neutral on growth.

Continue Reading on stream.marketwatch.com

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

4 thoughts on “Oil and Natural Gas Prices Continue to Fall

  1. The key ratio that has held up since the end of World War II is about 15 barrels of oil (West Texas crude) / 1 ounce of gold. The ratio fluctuates somewhat depending on Fed money printing, production and use (China's economy, as Dr. North writes). But the ratio always has been restored. Today, May 27, 2013, it's $94.15 per barrel of oil and $1386.6 / ounce of gold = 14.73 barrels per ounce of gold.

    So the main reason oil has declining in price is because gold has been declining against the dollar. The ratio won't hold forever. But for now, the ratio has held up for 68 years.

  2. Oil is declining in price *because* gold is declining in price? LOL The average ratio of these prices over some period of history may be 15, but as anyone even mildly familiar with Austrian economics knows, there are no constants in human action, including markets, and future prices of these commodities will be set in their own markets, though each is obviously subject to common influences. It may even be the case that going long one and short the other when the ratio gets too extreme might be a good trade, but the claim of causality is not tenable.

  3. I would agree with your gold-oil ratio than gold-dollar hence the 1980 and 2008 spikes in gold price: the fear that cheap oil was over.

  4. Bob Marshall says:

    The price of gasoline continues to rise at the pumps.