Oil Dropping At This Point Is an Increasingly Bad Sign

TW: The chart shows 12 month moving average demand for gasoline in the US. As one can see it has plummeted, not in an unprecedented manner but the decline is not yet over. The reason oil prices are dropping is directly related to the above and this decrease is highly correlated to drops in other countries. While I am sure everyone enjoys paying much less today for gas than say six months ago, the plunge is indicative of a worldwide terribly weak economy. Any further declines in gasoline prices should be regarded as signs of worry not hope or positive.

The chart above demonstrates the fundamental flaw in how oil and gasoline are priced. Any time you have a chart that resembles a series cardiac infarctions one can assume the markets are not functioning particularly well. Perhaps at some point we will wise up and try to smooth demand a bit with more aggressive taxation or other policies to try to prevent future infarctions. This patient (e.g. the US gas consumer) shows a very distinct propensity to gorge then barf with the commensurate side effects.