As we look out of our office at the BP station, we see the rapidly changing numbers as the price of gas continues higher.   Not only is gasoline high, but diesel fuel is at a 31 month high.  The impact of rising gas prices is as follows: 1) every one penny increase in retail gasoline costs American households over a billion dollars; and 2) every $10 rise in oil prices reduces real annual GDP growth by 0.2%.  Almost all the goods you buy at the store are shipped and as shipping costs increase, the final cost to the consumer increases.  We just met with a mutual fund representative from Chicago last week who drove down to see us because the cost for a flight from Chicago to Cincinnati was over $800.  The bad news is prices will probably go higher over the next few months.

The easy excuse for higher oil prices is unrest in the Middle East – especially in Iran.  Yes, the reduction in supply from Iran is putting a squeeze on prices, but there are other factors as well.   One of the biggest reasons is refineries are closing down because they are losing money.  Sunoco is closing its largest refinery on the east coast in July.  Valero is closing its refinery in Aruba.  In the Pacific Northwest, union workers at the Tasero Anacortes refinery in Washington rejected a new contract and are expected to strike in the weeks ahead.  The law of supply and demand will cause gas prices to rise as the supply of refined oil drops.  Any bad news from the Middle East will just compound the pain at the pump.

Sincerely,

Your THOR Team