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The Problem With $100 Oil

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Friday April 20, 2018

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. $100 oil means expensive gasoline

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- Reports that Saudi Arabia is considering $100 per barrel as a goal would translate into prices at the pump in the U.S. at about $3.60 per gallon.
- That is more than $1 per gallon more than current average prices, and as Bloomberg Gadfly notes, it would seriously cut into demand. Not only would higher prices undercut consumption, but the fact that U.S. employment is essentially at its maximum and the U.S. economy is potentially in the waning stages of a period of expansion, higher gasoline prices would not easily be absorbed by consumers without affecting demand.
- In prior cycles in which gasoline prices were that high, it did not last long. To take a variation on an old adage, the cure for high prices is high prices.
- Over the long run, the falling cost of EVs will cut into oil demand, but an unexpected jump in crude prices to $100 per barrel would no doubt accelerate that trend. In other words, Saudi Arabia could reap profits in the short run but would be shooting itself in the foot over the long run.

2. Frac sand supply strained but set to grow

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