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Have Oil Jitters Gotten Overblown? (No)

Posted By Barry Ritholtz On June 6, 2004 @ 12:20 pm In Finance | Comments Disabled

Um, no.

An Online WSJournal article asks that question. The writer dutifully reported what the people she interviewed said.

That’s unfortunate, cause they said some fairly unsupportable things:

“Indeed, when you break down the numbers, $2 a gallon at the pump isn’t as big a drag as it looks like. According to David Kelly, economic advisor to Putnam Investments in Boston, the price of gas is about 50 cents higher today than it was a year ago. While that’s a 33% increase, the average American uses about 700 gallons of gas a year translating into an extra $350 for the entire year, assuming gas prices don’t drop. It’s not chump change, but it’s less than $30 a month hardly a budget breaker for most families.

“People overestimate the importance of gas prices because you can’t drive two city blocks without seeing it on a sign,” says Mr. Kelly. “[The extra cost] is about the same as one extra car payment it won’t break you.”

Seriously, what color is the sky in this guy’s world?

1) It’s not $2 anywhere around here;

2) $30 extra dollars a month? Not for a 2 car family, not if they live in suburbia, not if they drive further than the 12 miles Mrs. Big Picture drives to work, not if one of their cars isnt a Prius . . .

3) Fun with math:

I was paying $1.49 – $1.89 last year — Now, I am paying $2.29 – $2.59 for regular.

That’s as much as $1 higher — my wife’s car costs $8-12 more to tank up
(15 gallon tank X 80 cents X 5 – 6 refills per months)

Thats $50-60 per month for a new, small, fuel efficient car — a 4 cylinder, manual transmission, 28 mpg PT Cruiser; Many families have 2 cars — and in many of them, one of the cars is an SUV that gets 12 – 14 mpg. As cars age, they tend to get worse mileage, also.

That’s gonna be any where from $100 – $120 more per month — for the SUV alone, depending upon miles driven. 2 cars, its more.

4) Additional evidence: Slowing same store sales. No, it was not due to Shrek 2 [1] — it was caused by a finite supply of discretionary income — more than $30 — going to gasoline costs . . .

UPDATE JUNE 6, 2004 9:06pm
My quant alarm went off today after rereading this post. In particular, I was wondering about one sentence:

“the average American uses about 700 gallons of gas a year”

Not the average drive, or the average car owner, but the average American. Pretty slick, jack.

I don’t care about a mythical “average” — this guy’s numbers are way, way off. And that’s before we get to all the additional expenses — travel, shipping, and every other price bump caused by higher fuel expenses (outside of gas for the family car). Everything else a family purchases will costs a little more.

$30 a month? Puh-leeze! (Someone by that poor schlub a calculator . . . )

Wall Street’s Jitters About Oil May Have Gotten Overblown [2]
Erin Schulte
WSJ, June5,200411:47a.m.


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URL to article: http://www.ritholtz.com/blog/2004/06/have-oil-jitters-gotten-overblown-no/

URLs in this post:

[1] Shrek 2: http://bigpicture.typepad.com/comments/2004/05/blame_it_on_the.html

[2] Wall Street’s Jitters About Oil May Have Gotten Overblown: http://online.wsj.com/article/0,,SB108618586524326849,00.html

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