Oil Just Sent a Terrifying Warning to the Entire Economy

Gasoline prices are tanking. They've fallen to the lowest wholesale level since early 2021. I know what you're thinking. This is a good sign. This is a huge positive, maybe even an answer to what everybody calls the affordability crisis, but it's not. In fact, this is a sign that the affordability crisis has, it's taken its toll on the one thing that we don't have enough of, nearly enough of, and that's demand. It's not really about prices to begin with. Lost in this flood of macroeconomic data that's come out more recently with the government shutdown over was one series that everyone missed. It wasn't on inflation, nor was it specifically tallying job counts, though it's every bit related to employment and the big concerns that consumers and especially voters have all around the country that's got them in a very bad mood. What it shows is exactly why gasoline is being sold down this much over at CME. And it's backed up by everything, too. The latest surveys, the latest on government jobs numbers, including more of them from earlier this week that hardly anyone noticed. The situation continues to get worse. Hell, even the Federal Frickin' Reserve figured this out, or at least enough of its voting members did that they ditched the whole hawkish rate cut thing yesterday. Speaking of voters, those near me down in Miami just flipped the mayor's race there to Democrat for the first time in almost 30 years. Voters are angry. They call it an affordability crisis, but that's really just code for the economy sucks. It's not actually getting any better. If anything, we have all of this data, including gasoline prices, that shows the affordability crisis, the sucky economy. It's just when you think that the economy can't suck even worse, it finds a way to do even more suck. That's what we're seeing all across the board. And as I said, even the Federal Frickin' Reserve finally gets it, too. So lower gasoline prices, they sound like a godsend, but as I'll show you, the problem isn't gasoline, nor is it prices. Now, for those of you wondering, RBOB just stands for reformulated blend stock for oxygenate blending, which is just base gasoline that comes out of distilled crude, which is then ready to get blended with other compounds to become the finished motor fuel that we actually use. That's why it's the key contract for tracking wholesale gasoline. The market price over the CME today, just $1.75. We haven't seen wholesale gas prices this cheap since February of 2021. Not only that, the gasoline prices should be rising now because it's already in the middle of December. Right around this time every year, you'll see gasoline bottom out and start to go up for nothing more than seasonal reasons. Last year, for example, RBOB hit its seasonal low on November 29th at just under $1.90 per gallon. And then the winter rise over the following months was, as I kept pointing out here on YouTube, it was unusually weak, only getting to around $2.30 by the end of March. The year before that, 2023, the winter low was set on December 12th at $1.98 per gallon. It then soared to just about $2.80 over the next four months as the combination of seasonality and interruptions to Red Sea shipping, remember that, they conspired to create a non-economic increase in pricing. In the process, not inflation, they destroyed even more demand. In fact, you can argue, and I do argue, the oil and gasoline spike in early 2024 was a key catalyst in the global inflection that we've been talking about ever since then that shows up practically everywhere. The one that followed in March and April that led to the recession scare in summer 2024, not to mention the current Pringles rate cutting cycle at central bankers. All of the factors that we're still dealing with right now. And it also shows that a non-economic jump in energy costs, as I just said, it's not inflationary, even though almost everyone back then either said it would be, or like Jay Powell, was worried it could turn out to be. That's not how inflation works, nor basic economics, small e economics. If you push up the price of a basic necessity into an economy that can't support it, that forgot how to grow world, the result is demand destruction because consumers have to take from somewhere else. Consumers and businesses have to take from somewhere else to pay for the necessity. Gasoline in the case of what we're talking about here. So gasoline prices in 2025, they should be heading higher, but instead keep finding new and lower lows. As I said, at $1.75 today, that's significantly under the seasonal troughs of the past four years and almost 10% less. And there are a number of reasons to believe we aren't seeing the bottom just yet. And what we're seeing here from falling gasoline prices and WTI curve contango and reshaping there are just the macroeconomic counterpart to these credit market signals that we've been getting, the Eurodollar tightening all over the place. That's why we really have to go over where we're at, where we think we're going, which is what we're going to do next Wednesday, December 17th, 6 p.m. Eastern time at Eurodollar University's latest webinar in our webinar series. There's a link in the description to sign up. We're going to talk about what are these Eurodollar signals, what are they saying, including what is the Fed doing by restarting it's not QE. What does that actually mean and how does that play into everything? Well, join me next Wednesday, December 17th, 6 p.m. Eastern time for our webinar link in the description to sign up, and it will be well worth your time to attend. And the biggest one of those reasons is the oil surplus, the imbalance between demand and supply in crude oil, not just in the U.S., but all across the economy. And while everybody focuses on the supply part, you can see and you'll continue to see why it's actually the demand part that is leading to lower prices and therefore more of is getting more, not less certain. Again, this is basic economics, the reverse of what we all experienced back in 2021 and 2022. Back then, demand was rebounding at the same time that supplies were difficult to find and source, and then they got even more difficult with the Russian invasion of Ukraine, which sent crude prices soaring into the stratosphere. But again, notice how that did not lead to a repeat of the 1970s as basically everyone said back then. On the contrary, that big oil shock of 2022 was the final straw. It was the proximate cause of the forgot how to grow disinflation and a lot worse across the global economy. Too much demand got destroyed because contrary to mainstream assessments and popular perception, the economy at the time was not robustly recovering. It wasn't even recovering that much at all. It was hidden up and covered up by the price delusion. Everybody associates consumer prices with heating the economy when it was just an imbalance in supply. And then whatever recovery there had been coming out of the pandemics and really the lockdowns that got snuffed out by the oil price shock. It wasn't the Fed. It wasn't central bank rate hikes that stopped the worst of the price surge. What everyone wrongly called inflation. It was the crush of energy costs that actually did it. The cure for high prices is high prices in a supply shock situation. But unfortunately, the opposite is not true. Low energy prices aren't going to be the solution to forgot how to grow. They're instead a signal that too much growth has indeed been forgotten. We've been talking about the oil surplus for quite some time already, including how it's already reshaped the WTI futures curve. It had flipped the curve into contango or at least partial contango all the way back in October. Since then, as I told you to expect, the WTI futures curve has been moving in and out of contango. We've seen some steepening and backwardation at the front end, alternating with flatness and contango in the farther contracts. And that has continued here in December. In fact, yesterday, the curve was back to being almost entirely backward dated with contango limited to just the less traded outer years. And today, with oil down significantly more than 2% at the front, the flatness and contango are back. Not much contango more flat than not, but still it's back with a pivot at the April contract, which is the point of the curve that keeps coming back up over and over again, indicating there are strong expectations that whatever's going to happen on the demand side, it's going to happen by the springtime. And remember, WTI futures, the curve contango is a key sign, a dependable sign, a historic sign of a global downturn, a further downturn from forgot how to grow to remembering how to do worse. So while the mainstream is going to characterize this thing as a supply glut, and that's technically true, there is more supply than demand. The second part of it, the demand part is equally, if not more important. It's also important how oil prices headed lower today, despite the International Energy Agency reducing its estimates for the oil supply glut coming this year. Now, what they had said previously was that this thing was going to be maybe historic, but ever since then, the last couple of months, IEA, they've said that demand may be not as worse as they thought and supply isn't coming back as fast as they previously estimated. So you put those two things together, you still have an epic surplus coming in 2026, if not quite as eye-popping as the estimates had been more recently. So you can see why the futures curve is in and out of contango. Even if the IEA is right, and the situation isn't so dire as they thought, you know, it doesn't mean it's good. These are still historically weak demand estimates to begin with, and there's only more downside to them than there is any kind of upside. The only upside, as far as prices are concerned, are geopolitical, which hasn't had the same kind of impact as the issues had back in, say, 2023 or early 2024, as we just talked about. And the entire reason why OPEC gave up on its supply restrictions in the first place was because of demand destruction, the very demand destruction that I just went over. The group had implemented, you know, production cuts and supply limits back in 2022, figuring the softness in the global economy would only be, dare I say, transitory, rather than realizing it was forgot how to grow. Saudi Arabia in particular bet wrong, and Saudi Arabia in particular is now paying for it. So realizing last year in 2024, after the inflection, that demand wasn't going to ever live up to the hope and the hype, therefore oil prices, they're only going to keep sliding lower as a result, no matter what, the cartel finally realized their only hope was try to make up for lost prices by restoring more volume, which is exactly what they've been doing over the last year or so. Either way, the end result is a crude oil surplus that was created. It was created by the lack of demand and demand destruction more than it was the supply side. And that's why lower gasoline prices coming from lower can tangle in the futures curve, not a good sign. Rather than reflect more favorable fundamentals, there are products of increasingly negative small e economics. Now to put some data behind all this, specifically where it comes to gasoline and specifically the United States, so you can see where gasoline prices are coming from, the U.S. Energy Information Administration put out its estimates for gasoline supplied into the economy, which is a proxy for demand or what gasoline got used. And you can see exactly why gasoline prices are behaving the way that they are. Starting with total petroleum or total crude oil, the government estimated that it's being used at a rate of 20.5 million barrels per day on average over the past eight weeks. That's up only very slightly from the same eight week period in 2024, which is hardly the booming economy that's pictured by the robust stock market at the very least. And when it comes specifically to gasoline, gasoline usage slid to just 8.5 million barrels per day on average over the past month, which is down from a weak 8.6 million barrels per day in the same period of 2024. And that comparison, as I just said, does a lot more to explain the almost five-year low in gasoline prices than anything else, certainly on the supply side. Now the problem in all this continues to be the lack of income, which means even though the flat beverage labor market isn't all that flat right now, it is more than flat enough to create these growing economic problems. Why can't people afford Christmas or just basic necessities like cheaper gasoline? There aren't enough jobs and there haven't been enough jobs and incomes for way too long. And now here in 2025, there are even fewer of them as data point after data point points to outright job losses, not crashing employment. This is in 2009. Don't let them change the goalpost on you. The fact that we're losing any jobs is a seriously bad situation. It's more than enough to greatly strain an already strained situation. And you can see it best in terms of private income that's adjusted for prices or what's imaginatively called real personal income, excluding transfer receipts. This is basically all income that's generated from all sources in the private economy, from financial payments like interest and dividends to small business owners and their net income, but primarily it's wages and salaries, cash payments for earned work. And then all of that adjusted for price changes. So you can really see what I'm talking about here. Prices surged back during the supply shock in 2021 and 2022. While incomes were rebounding from the lockdowns, it wasn't nearly enough to offset them. American workers, like their counterparts around the rest of the world, they fell way behind those price changes since incomes just were not enough. For all the talk about labor shortage and robust recovery, here you go. Incomes never kept up with the price changes. And we all fell behind as you can clearly see it here. We never caught up. In fact, workers kept falling further and further behind over the years since then that forgot how to grow. You wonder why people are so pissed off. Here's the explanation for it in a single chart. Your income, your work, your labor got devalued, not by inflation or money printing, but by the government's response to the pandemic. And then all the while you and your friends and your family got left further behind, what did economists and central bankers tell you? The entire mainstream media said you were hallucinating when you pointed out how the economy sucked. They derisively called it a vibe session as if you were completely wrong or that you were isolated and you were the only one feeling this way. They pointed to the stock market as if that meant something, as if stocks aren't just randomly determined by herd thinking and bubble behavior. The entire economy, the reality of this economy for the entire 2020 so far, right here on this one chart in this one data series. And it's just a horrific continuation of the same types of behavior from the 2010s, the silent depression. We keep getting further and further behind and people know it, even if they don't know why or specifically what the problem is. And it also explains why falling gasoline prices are not a good sign. Once again, we see the same thing. Now that we're in an era well past the supply restrictions of earlier in the decade, the entire global economy has to normalize the fundamental levels of demand, which is where incomes are, real incomes are, and that is not good. So while the income data perfectly illustrates the structural long-run problems with the U.S. economy in particular and also the more recent downturn to it this past summer, we also can turn to other stats and other macroeconomic accounts that show the other part of the flat beverage equation, which means the rising, not just probability, the rising reality of job shedding and job loss is to go along with this already years-long slump in real incomes. Now the BLS earlier this week released its JOLTS data for both September and October. While the mainstream media focused on the first two letters of the acronym, job openings, that series continues to be the most unreliable number in all of macroeconomics, even more than the worthless establishment survey is. And for the same reason, it's this clear tendency to greatly overstate labor demand. But more important than that, every other data point in JOLTS, the LTS or labor turnover numbers, they all uniformly and massively contradicted job openings. So while job openings look somewhat steady, hiring, quitting, and laying off say the situation is deteriorating. It is definitely flat beveraging. Hiring had already slid to a cycle low in August and then it rebounded only slightly in September before heading right back down to that low in October. These are recession levels of hiring. And worse, the BLS JOLTS data shows the downturn in employment wasn't just a summer thing as a lot of people have been trying to say recently. It kept going right on into October and therefore supports other data sources like ADP that shows the same thing. And ADP, as we know, that one says the job loss has kept on going into November, not just through October. In both of these series, they also show it wasn't the government shutdown that was to blame for the weakness either. But as bad as hiring has been, we got a real shock out of quitting, especially in the month of October. The estimate for quits dropped below 3 million for the first time since 2020. So job openings are supposedly steady and relatively decent, but then companies aren't hiring anyone. Recession levels of hiring. Current workers are refusing to quit where they're at, even though they probably don't like to quit their jobs. These are recession levels and indications of the key fundamental aspects of the labor market. And then JOLTS even went further and reported an increase in layoffs too, which matches other sources suggesting the same thing is going on. And for private layoffs in JOLTS, those rose to the highest for that series since 2020. In other words, the economy that was already ridiculously short of income before it even got to 2025, Americans being left behind by the pandemic and the lockdowns, then the supply shock phase shift in prices, and finally the oil spike in 2022. Now they're facing the rising prospect of outright job losses on top of everything else. You put all these things together, not only does it explain lower gas prices, it tells you exactly why voters are so angry and why consumers are so damn pessimistic. They have every right to be angry and every right to be pessimistic. This economy sucks and it is finding new ways to suck even more. So while gasoline price is going down, it sounds like a good thing, it is actually a bad sign. I mean, even the Fed has come around to seeing it too, or at least most of the FOMC mostly seeing it. Now there are the tariff inflation zealots, and yes, they are zealots because they refuse to concede that tariff inflation has zero evidence behind it in an incredibly weak theoretical basis. But beside Casey Jeff and his tariff inflation ban, the Fed staff gets it with what they put out in the last beige book, which inflation was noticeably absent from it, but layoff mentions soared. Powell and the doves on the FOMC, they even changed the statement language yesterday to reflect the greater risk of unemployment, even if policymakers themselves don't think right now that it will necessarily happen. They see it as by far the greatest risk. So set the Fed aside, the basic economics of jobs and incomes more than adequately explain falling gasoline prices. And the lower the gasoline prices go, the worse you know it is on the demand side because of those fundamental reasons. So while we look at gasoline prices as positive for individual consumers, what they tell us about the economy overall is completely the opposite. So politicians should really be paying attention and beware if you aren't. Despite all the macroeconomic implications and interpretations from the FOMC yesterday, the biggest thing, the biggest takeaway was this restart of not QE and what that meant about repo. That's all in the video link below. As always, thank you very much for joining me. Join me next Wednesday, December 17th webinar. Link in the description to sign up. Huge thanks to you at all university members and subscribers. And until next time, take care.