The Dow Transportation Index was down almost 4 percent Tuesday and if there is any silver lining  in the current market turmoil is that Trannies usually lead crude down, which will drop gas prices.  The chart below shows the 12.2 percent swan dive in the Dow Transports since July 7th with crude oil barely moving.  We’re expecting a catch-up trade to the downside for crude oil in the next few days.

If oil falls,  the price of gas falls, which acts as a tax cut for the consumer — the good kind of stimulus!   See here for our gas price sensitivity matrix on consumer budgets.   A person who  drives 70 miles per day, for example, saves around $1,500 on an annual basis for every $1.00 decline in the price of gasoline.    All bets off if the Fed cranks up QE3.

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Category: Index/ETFs, Technical Analysis

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11 Responses to “Trannie Swan Dive to Take Down Crude Oil”

  1. crutcher says:

    “A person who drives 70 miles per day, for example, saves around $1,500 on an annual basis for every $1.00 decline in the price of gasoline.” Meaning that this person spends now about 5-6k on gas a year? This is why China and India are the future – they can LIVE on that and figure they’re doing ok, with prospects up.

  2. Mike in Nola says:

    Usually when I see the word “trannie,” something else comes to mind.

  3. [...] Will the nosedive in the trannies lead to a drop in prices at the pump?  The data says prolly.  (TBP) [...]

  4. wally says:

    Its a Mexican standoff.
    We can’t have a rising economy with expensive oil and oil can’t stay expensive if we sink.
    I think we’ll see what engineers would call underdamped oscillations.

  5. Usually when I see the word “trannie,” something else comes to mind.

    Exactly……..transmissions

  6. realgm says:

    Oil can’t go down too much. The cost to produce oil is over $70. I don’t see much downside to oil and in the long run, it would go up a lot. QE3 is almost a sure thing. It’s a matter of when it would happen and maybe it would be named differently.

  7. genevakiwi says:

    Oil can’t go down too much? Most oil in the world costs nothing close to $70/bbl to produce, that may be what production in the oil sands costs, but not convential supply. You think companies were pumping oil at a $40/bbl loss in 2008 when it dropped to $30?

    BR…Looking at the chart it is quite obvious that oil has dropped by considerably more than 12.2% since the May peak. Maybe this time around oil is leading the trannies? And if you look at mid-Feb oil rallied before the trannies too. Apparently a single historial instance is now defined as “usually”? Or are there more historical instances that you didn’t link to that would justify this claim?

  8. wally says:

    The cost to produce oil is over $70.

    When it goes, it all goes… the cost of labor goes down, the cost of material goes down, people will take less profits; you can never assume there is a fixed line under the ‘marginal’ cost.

  9. RC says:

    I hope the morons at Fed dont act and eff up the drop in Oil price. I really hope and pray. The true value of Oil should be in $40 to $50 range. When that happens it will have a HUGE stimulative effect.
    The soft patch in the second quarter is ENTIRELY due to unjustifiably high Oil prices, partially due to the Libya situation. Libya situation deteriorating was that unexpected left field sort of a thing but even if Oil goes to a pre-Libya level it will be a large enough stimulus.
    All the Fed idiots please go on a vacation and come back after 6 months. Please spare us of your “actions”.

  10. genevakiwi says:

    “The cost to produce oil is over $70.” I’d like to see your data….or even a link to where you have seen this number

    “Jan. 29 2009 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, said the cost of producing Canadian oil sands rose to about $38 a barrel last year, including fuel expenses. ”

    The Saudi’s are rumoured to produce at about $7/bbl.

    $70 is about the marginal cost of incremental supply, not existing conventional supply

  11. [...] Ritholtz notes in his blog post on Wed. that when the Dow Transports head down, the price of crude will follow. That also means the [...]