Follow the oil

Monthly Oil

What a shock.

The gap to look at is the rate of consumer inflation and the price of producer oil. When that gap is large, the consumer chain will deflate, drop in rank. It changes the mix of goods, having fewer choices over time and geography. So is the choice, more oil efficiency in the consumer chain or a simpler consumer chain. The problem is the next step up in oil prices, it is large. Oil sets the new "positive" in the economy, the "positive" is the standard supply chain form that minimizes inventory zero crossings. Change is asymmetric because of the high cost of negative inventory, so deflations happen faster.

The Remarkable:
The peak of the chart, a sudden, but smooth ride to $100, tells me something. The peak tells me that some large proportion of American suburbs had managed to continue on, with nearly double the oil efficiency than previous oil shocks.

If oil next breaks resistance, up, then this "smart" consumer group is more prepared, larger, and better. This larger group may hold, with oil at $100, and the message of oil efficiency spreading.

The issue of quantum jumps is another matter. It comes from the requirement of obtaining the optimum consumer group to maximize use of the constrained resource with the smallest supply chain. We are near the point where we canot guarantee the average household the average tank of gas for the average auto transportation. But, the technology that allowed oil at $140 will spread, fairly smoothly, to solve the problem.