Mid East Revolution, Oil Panic, and U.S Consumer

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After a stellar bull market in 2009 and 2010, investors are again left confused as to what the current turmoil will eventually translate to when trying to evaluate what’s ahead for 2011.  As is the case in every market, investors are looking and finding many excuses as to why they should run away from their financial managers and throw the keys to their safes away.  The economy, unemployment, real estate crisis, and state deficit & debt issues are already becoming annoying old news.  The Middle East revolution on the other hand has not only left everyone nervous of the eventual outcome, but also created a panic reaction in the oil market, driving the price of oil to $100 per barrel.

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Note: A 42-U.S. gallon barrel of crude oil yields between 44 and 45 gallons of petroleum products.

It seems like as soon as this Mid East crisis began, the vultures flew down to attack the media with $200/barrel estimates for oil and a $5/gallon gasoline prices in the United States. How many times have we heard the headline “Can the U.S. consumer handle these astronomical oil prices, or are we headed towards a double dip recession?”  Personally, I must have heard this question at least a dozen times over the last few days.  Rather than give you my opinion right away, here are some facts to consider first.

  1. According to a recent CNBC news report, in addition to the proven published oil reserves in the U.S, there are approximately 800 Billion barrels of unproven reserves that we have locally—surpassing the presumed oil king country, Saudi Arabia, by over 3 times.   This means that if the current turmoil is going to cause a long term supply problem, then the U.S. has enough reserves to give them time to come up with multiple alternative, long term solutions, including looking locally.
  1. Libya’s oil supply is only 2% of world’s oil.  So although no one likes uncertainty and chaos, the complete halt of Libyan oil production would not really change the supply by anything material.  To put it in perspective, it’s the equivalent of your local supermarket deciding to stop carrying Honey Nut Cheerios cereal, but keep all other brands on the shelves.   Not good for Cheerios lovers like me, but we’ll survive.
  1. A $5/gallon gas price is really not that much if you compare us to the rest of the world.  Now before anyone starts sending me hate mail, consider this:  The average price at the pump around the world has always been considerably higher than we have in the U.S.  Many countries are offering gas at over $8/gallon; some are even over $10/gallon.  These countries may not be ecstatic about their sky-high prices, but they’ve not only survived, but many have even continued to prosper.

When you consider the much higher standard of living and income in the U.S. in comparison to the majority of the world, it’s astounding to me that anyone truly questions whether the U.S. consumer could really handle paying more hard earned dollars at the pump.  Of course a higher gas price will affect more than just the consumer, or a single industry.  But in my opinion, as long as we’re talking about the U.S. consumer, it should be no surprise to see them continue to show the world their resiliency to inflation, and spending power that avoids or shortens recessions.

“This Blog is for the purpose of sharing of personal opinion and should not be construed in any way as advice. The information contained in this report or information provided does not purport to be complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The contributors to this blog and or their affiliates may directly or indirectly have active positions in the securities that are mentioned. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Past performance may not be indicative of future results. Ron Reuven is a registered principal of Reuven Enterprises Securities Division, Member FINRA/SIPC & Licensed MSRB Dealer, a fully owned subsidiary of Reuven Enterprises Inc. and is President & Managing Partner of Reuven Capital Investments, LP (long/short equity hedge fund).”

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