Prices for crude oil and gasoline in the United States are expected to edge lower in the coming months. There are a number of factors that contribute to this long-term trend.
The first reason is that long-term economic data seems to be suggesting that the U.S. inventory count is moving higher. In recent months, monthly estimates have shown a rise in the surplus of non-residential material that is located offshore.
This surplus is being sent by manufacturers to fulfill domestic demand, but is instead going to refineries and other establishments overseas.
Meanwhile, retail sales have shown no sign of improving as economic data has been erratic, with little evidence of an improvement in the housing market and continuing problems at the workplace. What is apparent is that the economic slowdown is widening the gap between what people can afford and what they can actually spend.
Another reason to expect higher prices in the future is that the U.S. economic structural imbalance has widened. Much of this has to do with the number of people who are out of work. Another factor is the spread of the housing market crash, which is leaving many homeowners with underwater mortgages.
Other variables at play in the trend’s price expectations include: a strengthening dollar, the slow recovery from the recent recession, changes in Federal Reserve policy, the growing importance of alternative energy sources such as oil and natural gas, and the decline in manufacturing employment. With these conditions playing out in the real world, expect oil prices to edge lower.
One of the major factors in the problem that this trend is posing is that its accompanying inventory rise will disrupt the supply chain. That means that companies that rely on the distribution of their products will become more vulnerable to market disruptions.
In the past, companies could depend on stable inventories to make the products that were in demand. But this is no longer possible, since it takes more oil to keep up with all the extra inventories that are increasing.
That means that the long-term trend of increased demand for products will cause a disruption in the industry. It is almost certain that many companies will eventually be forced to adjust and use more resources to meet the demands that they are experiencing.
Given the fact that the costs of maintaining and building new facilities to accommodate this increased demand are likely to be higher than they were previously, some companies will be forced to scale back or forego plans to increase their production. And, in the process, that will inevitably lead to slower long-term growth.
Others may decide to operate at a loss, or even close their doors entirely, as they lose confidence in the strength of the economy, or even specific businesses. While they were once willing to take the chance on growth, some cannot do so anymore.
Those same companies who had been thriving on the production of oil and gas will also be feeling the impact of a short-term downturn. In most cases, they have expanded, often too expensive levels, and they will need to deal with the possible consequences of sustaining a decline in revenues.
Overall, there is no denying that the retail sales are down for the second year in a row, and many companies have been forced to lay off employees. This is only going to continue to happen until the economy starts to improve.