Gas $4.15 per gallon

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Originally Posted By: buster

Very true.

http://blogs.forbes.com/johntharvey/2011/04/26/why-you-are-paying-so-much-for-gas/


He says that "It’s simple: the increase in demand causes futures prices rise." And he's right. No mention of money supply in that blog? Which DOES increase demand.

And it's not just the FED:
Quote:
There is one final factor in play that is driving the markets, and in the past five years it has greatly magnified the role that investors play: an increase in the money supply.

Over the past six years, the global money supply has roughly doubled.

http://blogs.forbes.com/energysource/2011/04/20/spiking-oil-prices-its-the-investors-stupid/
 
Originally Posted By: PandaBear
Originally Posted By: Tempest
State owned oil "companies" control 77% of the world known oil reserves and western oil companies control less than 10%.


Isn't that kind of obvious, resources are either states owned or companies owned. Unless you compare them against abundant resources like Oxygen in the atmosphere or the H20 in the open sea, which I'd imagine would be hard to regulate.


It's not obvious (due to our pathetic media) what effect that has on global supply and therefore prices.
 
Originally Posted By: mechanicx
Originally Posted By: Ursae_Majoris
Originally Posted By: mechanicx
And the financialization of oil commodities which set oil prices on commodity exchanges.


Which was driven by large oil consumers, such as airlines, pharmaceuticals and plastics manufacturers, etc. to have predictable (not necessarily cheaper) oil prices.


But they are real buyers or hedgers of oil and are small compared to the financial funds' massive pouring of money into the commodities. If anything the financial funds are causing the price volatility and encouraging users to hedge.


Do you have some statistics/data on that, on what percentage was business and was pure financial speculation? I would love to see it...

Looking at one thing I do know about: Airlines, UAL, as an example, is a $16B company that bought over $6B (2.5 billion gallons) of jet fuel in 2009. They hedged about $500M in fuel...or about 10% of their fuel. In contrast, SWA routinely hedges about 50% of their fuel...but let's take UAL as representative (though low...).

Fuel, by the way, costs more than labor across the industry, around 40% of the companies' cost. The world airline revenue is about $400B, North America is about $160B. So, UAL is 10% of the US, and just under 3% of the world, market...and they hedged (bought futures) on $500M...they're on the low end of the industry, remember, so...

A reasonable (and likely low, given the SWA example) guess is that the airline industry alone, across the globe, bought about $12 Billion in futures contracts...

A change in supply of 1% will cause substantial swings in a tight market like oil...so, buying up over 10 billion dollars' worth of production likely had dramatic impacts...and I am willing to bet that those transactions took place via the major financial services firms, so you would see them buying the production contracts (futures) and selling them to the airlines and other industries...

I know that lots of folks would like to ascribe the fluctuations in the price of oil to dark forces, such as financial manipulation, but the simple market realities of supply and demand in this case are enough to cause the fluctuation...
 
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Thank you. Then you add companies like DuPont, Rubbermaid, etc where oil is the main raw product...

Or EPA, that just shut down drilling off the coast of Alaska in Beaufort sea, after Shell spent 4 Billions dollars and 4 years doing exploration and jumping thru the regulatory hoops.

So it is not hard to guess that future oil supply will decrease, while demand will increase (Earth population is still growing), hence the trade in oil futures.
 
Funny thing is 2 years ago all the airlines were complaining about financial speculators. Airlines are oil users and hedgers and naturally belong in the market. You put all the world's airlines hedging at $12B. A source in this article, http://www.reuters.com/article/2010/04/27/us-oil-speculation-survey-idUSTRE63Q1FJ20100427 put the financials at $283B. And unlike airlines these financials don't even have a need to be in this commodity market.

Airlines and every other consumer of oil want the prices to be low and stable. Financial speculators want to see prices rise or at least see volatility.
 
Good article...

I thought it interesting that the method used to determine the percentage was polling of people in various industries...so, we're relying on perception vs. empirical data...

But this fact was interesting: Commodity investments hit $283 billion in early 2010, according to Barclays Capital...bigger than I would have guessed...and I have to assume that they mean only oil commoditization...

"The oil markets are the messenger when it comes to supply and demand fundamentals. I think too often we want to kill the messenger," said PFGBest analyst Phil Flynn in Chicago.

"With the huge growth of China in recent years, we have had some of the greatest demand growth ever for commodities. The value of speculators coming into the market is that they allow the needed investment in future supplies."

And that last quote is one of the critical issues...explosive increases in commodity demand from the economic expansion in China. Take a look at ALL commodity prices...Chinese demand has caused dramatic rises in the price of many indistrial products, including metals with which we're all familiar, like copper, nickel, iron, aluminum, molybdenum as well as the obscure but vital like, neodymium and niobium....

And they are using their political influence to establish rights to those commodities as well, particularly in Australia and West Africa....

We don't experience those market fluctuations personally or dramatically, as we do with the price of gasoline at the pump, but similar fluctuations are taking place in those markets...
 
Most of the timber my nieghbor is now logging is going to China. They are just peeling the logs and shipping them whole. Not sure if we have seen a big increase in lumber because of this. Its been some time since I priced lumber.
 
Gas went over $5 a gallon in this part of Canada earlier this year. And it did so at a time when it usually starts to drop in price. Instead its still increasing. After conversion, our current price is $5.33 for a US gallon.

Commodity speculation is only part of the picture, and attributing the trend to that alone isn't accurate and ignores too many other realities.

Worldwide demand has been steadily increasing and will continue to increase. At the same time, oil is becoming more expensive - overall - to extract as the really big wells have passed peak output and what's left in them is on the downward part of the curve. To meet demand, suppliers are looking to more marginal sources that are more expensive to extract. All of that is reflected in the price as well.

And then, at last, we get to the speculation part and that its not much a matter of speculation anymore for oil futures buyers to expect a profitable return on their investment given the above. It does drive the prices up further, yes, but only because the conditions are already there for them to do so.

Bottom line: I have said before that $5 a gallon gas is coming soon to a pump near you south of border, and commodity speculation wasn't even part of the thinking when I first wrote it back when we saw it happen here.

Its not any kind of a bubble. Its also not due to speculation as causation (at least not directly, though indirectly it is). Root cause is very basic and is related to supply and demand. It doesn't matter if supply is the same when it costs more to provide that supply while on the demand side, the market has to bear the price regardless because of a lack of alternatives.

Nothing we can do about the supply side, or even really the speculation aspect. It'll drop (in a meaningful and lasting way) when measures are adopted on the demand side, which is the only part of the equation we have any control over.

-Spyder
 
Too late to add this to my previous post, but the only "bubble" I see is the one people are living in where entitlement sentiment runs so deep they believe they can use more of a limited resource (by way of much larger and less fuel efficient vehicles that are now a dying fad) while expecting the price of it to stay the same - and then looking anywhere but in the mirror to put the blame when reality doesn't meet those entitlement expectations.

Hate to be the one to pop that bubble, but when you produce only a fraction of the energy you use, you're entitled to nothing. You get to pay the prevailing price. If your energy use (collectively) is increasing, while costs on the supply side are also increasing as well, then its realistic to expect to pay more now and more tomorrow. Anything else is wish thinking born of entitlement that is out of touch with reality.

That is the only bubble. When people come down to earth and begin to realize that the only way off the accelerating train is by (collectively) adopting measures that lessen their drain and dependence on fossil fuels, to the point that supply exceeds demand, then and only then will prices level. And speculation will also then be a non-issue.

Much easier to whine and finger point, though. Too bad that its screaming into the wind and isn't going to do a tap to change anything.

You want change, then either own up, beginning at the individual level, to your own part of the problem and stop looking (and blaming) factors you have no control over and focus on the one you do control. You're either part of the problem or part of the solution. Pick one or the other, but realize that if you pick the former that your shrill protests fall on deaf ears.

-Spyder
 
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Spyder7. You hit the nail on the head. A very well written and acurate response. Like I said before, You can't control the price of oil but you can control your consumption. I am in the process of dumping my oil furnace in favour of a high effecient natural gas furnace. All of my vehicles get reasonable gas mileage and I try to conserve when I can.
 
+1 Spyder...

Nice to see a rational, thoughtful estimation...instead of the emotional frustration expressed so often on this topic.

That said, even when gas gets to $100/gallon and we're all driving our "Mr. Fusion" powered electric cars, I will still be buying a bit of refined iso-octane, putting it in the Packard's tank and enjoying some real driving!

Cheers,
 
I just got gas today at BP for 3.73 gallon. I had to go to the hood to get that price. man, everywhere was 3.79 and up.
 
Personally I am soooo tired of hearing about this "entitlement" garbage! Because you drive a car that MIGHT get better MPG than your neighbor means you are using less "resources"? PLEASE. You think you are a better person because your car gets "reasonable" MPG? I don't get it!

My Mercury get about 20 MPG around town. I drive it nice and easy. My neighbor's Hyundia something or another gets about 25 - 27. He drives 70 miles one way to work I drive about 8. His house is double the size of my house yet it is only him and his wife, vs. my wife and I and 2 college age daughters.
So who is using more "resources"? I guarantee you it costs more to heat/cool his house as it does mine.
But that is how him and his wife choose to live their life and I'm fine with that. It's not my place or ANYONE else to tell him what he should/shouldn't do.

I car pool whenever possible with 3 other people. So who is using more resources? My 20 MPG Mercury, or 4 people driving a car that gets even 30 MPG? How many of what I am going to call "anti-entitlement" people drive to work with only themselves in their car?

I've seen many people driving some small cars who seem to think they need to set new speed records getting from one stop light to the other. I've seen my Mercury beat the MPG of the wife's Camry (the Camry has a 2.4L 4 cylinder and 5 speed automatic). The point is often it is about the driver and the type of traffic a vehicle is driven in.

Also - people have short memories. I've seen people say we will never see gasoline below a certain amount - in this case 4.00! Funny thing is back in summer of 2008 when gasoline hit almost 5.00 a gallon here, they were saying the same thing. Funny thing was a few months later we were under 2.00 a gallon.

Now Mechanix hit the nail dead center on the head!

Originally Posted By: mechanicx
Yeah
wink.gif
. What's as bad or worse is to listen to some people says that it's all due to real supply and demand and manufactured market bubbles don't exist. If the people controling the markets want $6/gal gas it'll be $6/gal no matter how much consumers scrimp on gas usage.
 
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Did anyone even read the great link that Buster posted?

"I promise I’m not going to say, “It’s supply and demand.” I cringe every time I hear one of my colleagues say that on the news. I’ll let you in on a secret: that’s economist code for, “I’m not really sure but I don’t want you to know that!” But, in reality, it’s a very simple story. Today’s spike is being driven by speculation, just as it was up to the financial crisis."

"While there as clearly been a huge jump in growth from 2009 to 2010 and this does coincide with a rise on the gas-price chart, compare this with what happened from 1991 to 1999 (even 2002, save for a brief spike). Supply, according to world reserves, changed only slightly, but there was strong and consistent world growth year in and year out. If ever there was a time we should have seen a huge rise in prices, it was then. Instead, prices bounced around between $1.40 and $1.00. Today, not only have known reserves risen substantially, but we are only just emerging from the worst recession since the Great Depression–hardly a boom period. For comparison, world growth averaged 2.6% from 1991 through 2002. Since then, it’s also been 2.6%, and over 2008-2010, it was 1.1%. This is not sounding like “It was supply and demand.” Is it surprising that gas prices are rising? No, not at all. The economy is recovering (albeit not nearly enough given our 13.5 million unemployed, but that’s another story) and there is considerable tension in the Middle East. But, do underlying forces justify an increase in pump prices from $1.81 in February 2009 to $3.81 as of yesterday? Absolutely, positively not. Nor was there a reason for the run from $1.07 in December 2001 to $4.00 in July 2008.

What’s left out of the equation is the financialization of the US. Our economy has become increasingly oriented toward managing financial wealth as opposed to the production of commodities."

I'm going to stop there at the risk of quoting something that could be considered political.

http://blogs.forbes.com/johntharvey/2011/04/26/why-you-are-paying-so-much-for-gas/
 
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Originally Posted By: oldmaninsc
Personally I am soooo tired of hearing about this "entitlement" garbage! Because you drive a car that MIGHT get better MPG than your neighbor means you are using less "resources"? PLEASE. You think you are a better person because your car gets "reasonable" MPG? I don't get it!

My Mercury get about 20 MPG around town. I drive it nice and easy. My neighbor's Hyundia something or another gets about 25 - 27. He drives 70 miles one way to work I drive about 8. His house is double the size of my house yet it is only him and his wife, vs. my wife and I and 2 college age daughters.
So who is using more "resources"? I guarantee you it costs more to heat/cool his house as it does mine.
But that is how him and his wife choose to live their life and I'm fine with that. It's not my place or ANYONE else to tell him what he should/shouldn't do.

I car pool whenever possible with 3 other people. So who is using more resources? My 20 MPG Mercury, or 4 people driving a car that gets even 30 MPG? How many of what I am going to call "anti-entitlement" people drive to work with only themselves in their car?

I've seen many people driving some small cars who seem to think they need to set new speed records getting from one stop light to the other. I've seen my Mercury beat the MPG of the wife's Camry (the Camry has a 2.4L 4 cylinder and 5 speed automatic). The point is often it is about the driver and the type of traffic a vehicle is driven in.

Also - people have short memories. I've seen people say we will never see gasoline below a certain amount - in this case 4.00! Funny thing is back in summer of 2008 when gasoline hit almost 5.00 a gallon here, they were saying the same thing. Funny thing was a few months later we were under 2.00 a gallon.

Now Mechanix hit the nail dead center on the head!

Originally Posted By: mechanicx
Yeah
wink.gif
. What's as bad or worse is to listen to some people says that it's all due to real supply and demand and manufactured market bubbles don't exist. If the people controling the markets want $6/gal gas it'll be $6/gal no matter how much consumers scrimp on gas usage.


The reason gas went to $2.00 a gallon was a thing called an economic collapse. I don't think anyone here said they were better than anyone else because they drive a fuel efficient vehicle. They are controlling the amount of fuel they use. If you want 20mpg be my guest. If you think gas prices are going to be at the level like it was in the past you are sorely mistaken. Emerging markets like India and South America are driving up comsumption. Like it or not oil is not a renewable resource and in the future it will cost alot more to get the black gold from the earth with more complex mining techiques.
 
This last month, I've been speculating myself...

Aussie dollar heading for $1.10, I thought surely that would impact pump prices at some stage. So I started mixing up my car useage to keep the cars at around the same level (obviously only works for commute and town activities)...Alas, it only seems to affect fuel prices when the $Oz is dropping.

Now that we are ahead of parity, our fuel prices look even worse.
Regular $6.10/US GAL, diesel $6.40...and laughably, E10 only saves you 12c/gal these days
 
Originally Posted By: Autobahn88
Originally Posted By: oldmaninsc
Personally I am soooo tired of hearing about this "entitlement" garbage! Because you drive a car that MIGHT get better MPG than your neighbor means you are using less "resources"? PLEASE. You think you are a better person because your car gets "reasonable" MPG? I don't get it!

My Mercury get about 20 MPG around town. I drive it nice and easy. My neighbor's Hyundia something or another gets about 25 - 27. He drives 70 miles one way to work I drive about 8. His house is double the size of my house yet it is only him and his wife, vs. my wife and I and 2 college age daughters.
So who is using more "resources"? I guarantee you it costs more to heat/cool his house as it does mine.
But that is how him and his wife choose to live their life and I'm fine with that. It's not my place or ANYONE else to tell him what he should/shouldn't do.

I car pool whenever possible with 3 other people. So who is using more resources? My 20 MPG Mercury, or 4 people driving a car that gets even 30 MPG? How many of what I am going to call "anti-entitlement" people drive to work with only themselves in their car?

I've seen many people driving some small cars who seem to think they need to set new speed records getting from one stop light to the other. I've seen my Mercury beat the MPG of the wife's Camry (the Camry has a 2.4L 4 cylinder and 5 speed automatic). The point is often it is about the driver and the type of traffic a vehicle is driven in.

Also - people have short memories. I've seen people say we will never see gasoline below a certain amount - in this case 4.00! Funny thing is back in summer of 2008 when gasoline hit almost 5.00 a gallon here, they were saying the same thing. Funny thing was a few months later we were under 2.00 a gallon.

Now Mechanix hit the nail dead center on the head!

Originally Posted By: mechanicx
Yeah
wink.gif
. What's as bad or worse is to listen to some people says that it's all due to real supply and demand and manufactured market bubbles don't exist. If the people controling the markets want $6/gal gas it'll be $6/gal no matter how much consumers scrimp on gas usage.


The reason gas went to $2.00 a gallon was a thing called an economic collapse. I don't think anyone here said they were better than anyone else because they drive a fuel efficient vehicle. They are controlling the amount of fuel they use. If you want 20mpg be my guest. If you think gas prices are going to be at the level like it was in the past you are sorely mistaken. Emerging markets like India and South America are driving up comsumption. Like it or not oil is not a renewable resource and in the future it will cost alot more to get the black gold from the earth with more complex mining techiques.


I love people who have a crystal ball and can predict everything. LOL!
Quote:
If you think gas prices are going to be at the level like it was in the past you are sorely mistaken.

Yup same thing I heard back in 2008 - some of it on this very forum. Go back and read some of the old posts.
I'm not saying we will ever see 1.00 a gallon again, but I'm not Chicken Little either! LOL
 
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