Gas Prices Are Crashing: The Canary in the Coal Mine for an Impending Economic Crisis

Gas, Oil, and Energy Data

Gas prices are dropping like a rock—down 15% in August, and oil industry margins are hitting their lowest point in 3.5 years. Sounds great, right? Wrong. This is happening for all the wrong reasons.

Oil futures are dropping like a rock

Refiner margins have plummeted to a 3.5-year low, signaling that demand is so weak even Big Oil is feeling the pain. Gas usage in 2024 is down 0.8% from last year. And crude oil demand? It's significantly lower than anticipated, making it clear that the “strong and resilient” economy they keep talking about is more like a house of cards ready to collapse.

Crack spreads are the difference between the price for wholesale refined products and the price of an equivalent volume of crude oil.

From the EAI:

We forecast 4% less consumption of gasoline in the United States in 2025 than in 2019 and 3% less distillate fuel oil consumption. We forecast inventories for all three transportation fuels to be below their five-year averages in 2025 and for crack spreads to average higher in 2025 than in 2024.

Let’s be clear: this isn’t just a bump in the road—this is the economy flashing all the warning signs, and it’s only getting worse from here.'

As we’ve been saying, this impacts the ENTIRE WORLD. Remember how we got here:

COVID stimulus → a surge of fake income increases by 20% → global spending spree! → retailers and services ramp up inventory and hiring → supply chains get overwhelmed → inflation spikes as everyone competes for transportation, services, and manufacturing → stimulus stops → incomes drop → warehouses remain full → prices stay high → people tighten their wallets → banks begin to falter → warehouses still overflowing → job losses escalate → the bill comes due → Recession.

Even the mainstream is starting to catch on. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, couldn’t have said it better:

A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months.

Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January. Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity.

The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one and a half years, and one of the most worrying signals witnessed since the global financial crisis.

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While others are just waking up to the reality, we've been highlighting these issues long before the PMI took its latest nosedive. The latest stats? They’re alarming, but they’re not surprising.

Let’s break it down:

• BLS just revised jobs for 2023 down by 818K. Yep, you read that right—nearly a million jobs gone, just like that.

• Retail warehouses are overflowing with unsold goods, a direct result of faltering demand.

• Oil prices are tanking as shipping companies go under. It’s a grim indicator of the real economy grinding to a halt.

• Layoffs are increasing, and that whole “soft landing” fantasy? Yeah, it’s fading faster than a politician’s promise.

It’s not just numbers on a spreadsheet; real companies are feeling the heat:

• Salesforce: Stock down 20% after its first revenue miss since 2016. Corporate customers are tightening their belts.

• Kohl’s: Stock plummeted 25% due to a sharp decline in sales—consumers are feeling the pinch and aren’t spending.

• McDonald’s: First decline in same-store sales since 2020. Even Mickey D’s isn’t immune to consumers tightening their wallets.

• Wayfair: CFO warns of sales declines akin to the 2008-2010 period. If that doesn’t scream economic slowdown, I don’t know what does.

So, where does that leave us? The data is clear: we’re not just heading for a rough patch; we’re speeding toward an economic crisis that could rival the global financial crisis. This isn’t just about gas prices or manufacturing slowdowns—this is a full-blown warning that the economy is teetering on the edge.

And here’s the kicker: The Democrats will try to spin this as great, fantastic news. But make no mistake, this is the harbinger of terrible things to come. The only question left is: Will the crash come before or after the election?