Dow Transport Dive to Take Down Crude

By Global Macro Monitor

The Dow Transportation Index was down almost 4 percent today 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.

Dow Transports vs Oil

This post originally appeared yesterday at the Global Macro Monitor website

  1. David Lazarus says

    It all precludes how much oil the speculators have put into contango. If they have stored a lot then I doubt that it will come onto the market hence the difference.

  2. Breakout Theory says

    This is good news for once. A natural stimulus for the economy? Unheard of. The economy as a whole is stagnant and we are reaching a point where production of oil may exceed future consumption, which in turn should bring gas price down. (Fingers Crossed).

    1. David Lazarus says

      It might not last long. As soon as Asia accelerates the price of oil will start to climb so the boost for the US economy will end. The US is facing a decade of restructuring. It is simply not clearing out the bad investments of the past so no recovery will be sustainable, until that happens.

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