gas prices- a deeper look

[GAWKY]

Good article from BusinessWeek:

"They see speculation in the market, I see decline in global inventories. I don't think this is a big surprise, that we've had a jump in price when there has been a decrease in crude inventories."— Energy Secretary Sam Bodman, Bloomberg News, Mar. 5, 2008

"It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up." — President George W. Bush, Associated Press, Mar. 5, 2008

One wonders if verifiable facts ever get in the way of this administration's statements on issues that are critical to the average American's wellbeing. After all, last time I checked, when politicians are elected to public office, or appointed, as is Energy Secretary Samuel W. Bodman, they must take an oath to the American people before assuming their new positions. How can they forget a sacred oath so quickly? Were they daydreaming when they took it, so it never meant anything to begin with? Maybe it's just another promise you have to make to get into office: When you're securely incumbent you can ignore even solemn oaths you took.

Obviously, the two quotes that led this article came from discussions concerning the current high price for oil on the futures market. Bodman appears to be protecting the speculators in oil, as opposed to looking after the interests of all Americans. President Bush, apparently, has never talked to the Energy Dept.'s Energy Information Agency to see whether gasoline demand is actually up. More troubling, the writer of that particular Associated Press article obviously didn't look up the EIA's numbers to verify the President's assertions. They weren't accurate.

1. There Is No Shortage

Gasoline reserves on hand are at the highest levels since the early 1990s, which is remarkable considering the nation's refineries have been cutting back on the production of gasoline because their margins have declined. In fact, average gasoline reserves on hand have risen since this past October, while oil reserves in this country have gone up virtually every week this year—and only fog in the Houston Ship Channel that kept oil tankers from unloading their crude one week kept it from being every week.

In the same Bloomberg article that quotes from Bodman's CNBC appearance on Mar. 4, he also said that it was thanks to ethanol that the gasoline problem isn't even worse. He then added that the fact that making ethanol is forcing up prices of other farm commodities, including hog and chicken feed, is "nowhere near as important as trying to relieve pressure on [gasoline] supplies."

Of course, there is no pressure on gasoline supplies in this country as of today, but Bodman's statement must have made eyes roll among the executives at Pilgrim's Pride PPC; the Pittsburg, (Tex.) poultry producer announced 1,100 layoffs on Mar. 13, closing one processing plant and 6 of their 13 distribution centers because their company's outlay for chicken feed went up $600 million last fiscal year and was on track to increase by another $700 million this year.

Here's the scorecard, in case you missed it. There's no shortage of gasoline or oil in the U.S. today, and we have near-record reserves on hand. Meanwhile the Congressional mandate for ethanol has jacked up the price of chicken feed for Pilgrim's Pride, which is the U.S.'s largest processor of chickens and turkeys—by $1.3 billion. And that's for just one company processing chicken. This is what passes for acceptable to our Energy Secretary?

2. Demand Is DOWN, Yet Prices Are UP

Just so we can all get on the same page, here are the verifiable facts on oil supplies, production, and gasoline demand.

In January of this year, the U.S. used 4% less petroleum than we did a year ago. (Oil demand was down 3.2% in February.) Furthermore, demand has been falling slowly since July of last year. Ronald Bailey of Reason Online has pointed out that worldwide production of oil has risen 2.5% in the first quarter, while worldwide demand has grown by only 2%. Production is expected to increase by 3.3% in the second quarter, and by as much as 4.1% by the third quarter. The net result is that the U.S. daily buffer for oil production against demand, which was a paltry 1.5 million barrels as recently as 2005, is now up to 3 million barrels in excess capacity today.

So what is going on here? Why would our Energy Secretary say there's a supply and demand problem when none exists? Why would he say that speculators have little or nothing to do with the incredibly high price of oil and gasoline, when it's clear they do? President Bush—a former oilman—gives the ever-growing demand for gasoline as the primary reason prices are so high, yet that notion can be dispelled with one minute of research. That's the problem with rhetoric; it rarely matches the facts.

3. Speculation is Up, and the Dollar Is Down

On the same day the President and our Energy Secretary made those foolish comments, no less an authority than ExxonMobil (XOM) Chief Executive Officer Rex Tillerson was quoted by Marketwatch as saying, "The record run in oil prices is related more to speculation and a weakening dollar than supply and demand in the market." He added, "In terms of fundamentals, fear of supply reliability is overblown."

As for the speculators, in 2000 approximately $9 billion was invested in oil futures, while today that number has gone up to $250 billion. Now, if any publicly traded company had an additional $241 billion put into its stock in the same period, its stock would rise out of sight too—even if the company was not worth anywhere near that amount of market capitalization.

Moving on to the weak U.S. dollar as a primary cause for skyrocketing oil prices—there is ":some": truth in that statement. But consider this: The dollar has depreciated 30% against the world's currencies since 2002, while the price of oil has gone up 500%. So is it the weak dollar that has caused a 550% increase in the price of oil, or is it the extra $241 billion worth of speculation? You can make the call on that one.

Possibly just to ensure oil prices don't respond to real-world market conditions, Goldman Sachs (GS) forecast on Mar. 7 that turbulence in the oil market could cause oil to spike as high as $200 a barrel. This flies in the face of all known information—but then again, Goldman Sachs is the world's biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely watched barometer of energy and commodities prices.

What Is Washington Thinking?

Rounding out the list of experts discussing our oil and gasoline situation is , head of San Antonio (Tex.) Valero Energy (VLO). He spoke in San Diego a week after those comments from Goldman Sachs, the President, and Secretary Bodman. Believe it or not, Klesse said poor margins may cause Valero to sell one-third of its refinery operations; he stated that poor margins in recent months had caused planned refinery expansions—which would have produced 500,000 more barrels per day—to be canceled. Moreover, according to a report from Reuters on Mar. 11, 2008, Klesse recently released the information that gasoline production has been curtailed in response to slowing demand.

Imagine that: Refiners cut gasoline production, yet gasoline reserves have grown to their largest since late 1992. So much for "surging demand."

Klesse also called for the government to start imposing a tariff on imported gasoline to protect U.S. refiners' profits. Protectionism? As famed economist John Kenneth Galbraith correctly said, "In America, the only respectable form of socialism is socialism for the rich."

Which takes us back to the original question: Why is Washington doing everything it can to convince us there is a shortage when there isn't one? After all, the only people they're protecting are those heavily invested in oil futures—and that's to the detriment of all other Americans.

We're Paying for What?

When it became undeniable that poor decision-making by company executives had put a respected 85-year-old U.S. institution in financial peril, why did the Federal Reserve rush in to save investment bank Bear Stearns (BSC)? Of course, we need to restore confidence in our financial institutions, but why protect the personal assets of those who were responsible for the mess? Both the corporation's officers and its board members should contribute their personal assets toward saving the bank they put in the ditch—the bank all of us are going to pay to bail out.

Instead, the Bush administration is protecting those responsible for creating yet another speculative bubble in oil futures, and is protecting investors in the ethanol industry—much to the detriment of food-processing companies such as Pilgrim's Pride. And the net result of all this is that the prices of crude and gasoline rise ever higher thanks to a "shortage" that does not exist, while food costs are soaring thanks in part to the ethanol mandate.

The Federal Reserve lowers interest rates, but the cost of mortgages goes up six weeks in a row—and last month Bank of America (BAC) credit-card holders started being charged more than 24% interest on new purchases.

This is what they call "Republican Prosperity?" Ronald Reagan was both right and wrong when he said, "Government is not the solution, government is the problem." And government is still the problem. Instead of a fair and open market they gave us a free-for-all marketplace with no regulations at all, which lately these "bubble boys" have sent south for all of us.

One would guess that Washington missed the obvious: Protect all U.S. consumers and you're also protecting business expansion.

http://www.businessweek.com/lifestyl...041_945564.htm

['97ventureowner]

I found it interesting to note on one of our local radio programs this morning they were talking about gas prices, and the announcer said that when Clinton took over the White House in '93 gas was going for $1.19/gal. and when he left office in early '01 it was $1.31/gal. When G.W. Bush took over in "01 it was $1.31/gal, and now today 4/08 it is $3.31/gal. i guess that's what you get when you have an "oil man " in the White House .

[BNaylor]

From what I read Congress recently grilled 5 oil company executives and their reply was yes we have very high profits (net) but deserve it, acceptable and inline with other industries...something to that effect. The AP carried the story. For example ExxonMobil made 40 billion in net profits alone. Congress is wondering why the oil companies should continue to get billions of dollars in tax breaks. The oil company investments argument doesn't hold water since they have not built any new refineries to keep up with demand and they are dropping the ball on the supply issue. As far as demand Americans are consuming a crap load of more gasoline versus the last decade with the SUV revolution which IMO really got going well after Clinton left office. Also, OPEC doesn't listen to anybody let alone G.W.

I understand that truckers nationwide protested the high cost of diesel yesterday.

['97ventureowner]

I heard on the news yesterday that the oil companies are supposed to devote some of their profits towards renewable energy sources. While Exxon-Mobil had $40 billion in profits, they only set aside $10 million towards this.
Also I thought I read somewheres recently that the SUV craze really took off shortly after the first Gulf War in 1991. People saw the vehicles that were used during the war and vehicle manufacturers quickly followed suit in producing vehicles to meet the demand.

[BNaylor]

Originally Posted by '97ventureowner

I heard on the news yesterday that the oil companies are supposed to devote some of their profits towards renewable energy sources. While Exxon-Mobil had $40 billion in profits, they only set aside $10 million towards this.
Also I thought I read somewheres recently that the SUV craze really took off shortly after the first Gulf War in 1991. People saw the vehicles that were used during the war and vehicle manufacturers quickly followed suit in producing vehicles to meet the demand.

I don't know about that Tom. That doesn't sound right. They weren't that popular in the 90s as they are today or since 2000 which IMO was the prolific year for SUV sales. Back in 1994-1995 only a few of us on my block had them. I had a '94 Isuzu Rodeo 4X4 bought for off-roading and fun not to drive as a family/passenger car or daily driver.

Back in 2000 there were more than 50 sport-utility vehicle nameplates fighting for consumers' minds and monies. Even more today. SUV sales in the first 8 months of 2000 was approximately 3.45 million-units annualized rate which was double the sales of all SUVs back in 1995. I hate to see what the figure(s) has been for the past 7 years.

['97ventureowner]

I "wracked my brains" trying to remember where I heard it and the only place that came to mind was yesterday morning's CNN Headline news. I think thy were doing a report on the oil companies' CEOs grilling in Congress. The more I thought about it they probably said something on the order that the SUV craze began shortly after the first Gulf War, with people seeing the vehicles that were being used there and stories by returning soldiers. Although the War might have been the catalyst for the interest in SUVs, like you said, they really didn't take off in sales for a few more years,(late '90s/early 2000s.)
The way the report was presented could lead one to believe the craze started in the early to mid '90s when in actuality it was still in it's infancy,( later 'fueled' <pun intended> by fairly low gas prices of the era.)

[ericn1300]

It's not the SUV's that are the problem, it's the pickups. http://www.nytimes.com/2006/04/09/bu...y/09count.html

I'm glad to see diesel going up faster than gas maybe we will see less of those noisey, smell diesel pickups on the road

[03cavPA]

Absolutely. I love paying more for goods that have been transported by diesel powered vehicles. It just makes me feel all warm and fuzzy. Yeah, we need to get rid of all those turbodiesel cars, too.

How did the truckers' protest go? Haven't heard much about it.

[YogsVR4]

So if I can summarize.

Once GW leaves office gas prices are going to drop.

Demand is claimed to be down, though http://www.eia.doe.gov/oiaf/ieo/oil.html shows otherwise. Not to mention China and India are moving up the usage scale faster then a mofo.

Profits for oil companies are bad. Though their margins are even less then other industries - such as entertainment, software, precious metals. When are they getting called to the mat for having a higher profit margin. Lest we forget that many people have pensions, 401Ks and othe retirement money tied into the energy industry. We certainly don't want those people making any money.

People have the choice of what vehicle they want to own. Gas guzzler or not. Not the suppliers fault someone chooses to get 12 miles to the gallon.

Tax breaks are a good thing. I'd like more of them. Raise taxes on a company and watch rates go up. Welfare is a bad thing, the government shouldn't hand them any money, but I'm all for letting them keep their own (but I'm that way about everyone - keep your own money).

Don't get me wrong, I want cheaper gas, but there is no way that an act of congress is going to make it happen. The oil companies are a private business and ever single time government tries to put in price controls, prices skyrocket or the product becomes more scarce. It happened in the seventies with gas and it can happen again.


The last thing I'd like to mention is that the biggest profiteer in Big Oil is BIG GOVERNMENT! The single largest piece of the money paid per gallon is TAX!! If the senate really wanted to lower the price of oil, reduce the tax burden.

['97ventureowner]

I highly doubt prices will drop much at all once G.W. leaves office, especially on the points you touched on concerning India and China, (along with other developing countries and their newer demands - something we didn't really have in the equation a decade ago.)

People have the choice of what vehicle they want to own. Gas guzzler or not. Not the suppliers fault someone chooses to get 12 miles to the gallon.

In a way the supplier can be at fault. They can change what they produce to get more miles per gallon, as will happen in the future as the CAFE is increased. It has to start somewhere and i thin k the manufacturers should be nudged a little more to start producing more efficient vehicles and those that can run on alternate fuels. Maybe if this happens the oil companies will take note and devote more profits into researching alternate/renewable energies supplies like they are supposed to.

The last thing I'd like to mention is that the biggest profiteer in Big Oil is BIG GOVERNMENT! The single largest piece of the money paid per gallon is TAX!! If the senate really wanted to lower the price of oil, reduce the tax burden.

Just the other day our new county executive approached the county legislature and asked them to let a law enacted 2 years ago which requires a renewal at the end of May, capping the tax on fuel to $2.00/gal. This was enacted when prices were around $2.35 to $2.50 /gal and would cap the tax at $2.00/gal ( 8% county tax rate = 0.16 cents /gal.) Back then they didn't think the price would go that much higher so soon and enacted it as a form of a small tax relief, because if the price went higher the county tax would be capped at 0.16 cents. New information recently came out that our county has lost over 10.5 million dollars since the cap took effect and the price went a lot higher quicker than anticipated. That has created a shortfall in the county budget and when the new budget is approved for the next fiscal year it would be expected that our property taxes would increase to make up for the loss. Our county executive asked that the current law be allowed to "sunset" when it expires and then take the additional tax revenues generated when the cap is lifted and gas is taxed on the county level at the full 8%/gal, and apply it towards property tax relief so our property taxes will not increase next year. You should have heard the outpouring of comments related to this. Most seem against it but I think they don't realize that if we lift the cap then the additional revenue will offset any increase in our property taxes. What would they rather do, pay .03 to .05 cents (est.) more at the pump now and less property tax next year, or keep the cap on ,(to me the price of gas will still continue to increase so adding a few cents now really doesn't seem that bad,) and pay a lot more in property taxes next year? I vote for letting the cap expire and pay less in property tax as a result. I think our county needs to do a better job at educating the public as to the ramifications of lifting the cap versus keeping it on.

[J-Ri]

Originally Posted by ericn1300

It's not the SUV's that are the problem, it's the pickups. http://www.nytimes.com/2006/04/09/bu...y/09count.html

I'm glad to see diesel going up faster than gas maybe we will see less of those noisey, smell diesel pickups on the road

I disagree, pickups are not the problem. The problem is the idiots that choose these vehicles. I'm not saying all SUV owners don't need what they drive, some may need it, but a lot of SUV drivers would be able to do everything they need to do in a compact car. Almost all SUVs could be replaced with a mini van. I know there's the occasional trailer puller SUV, but most are just a "status symbol" Pickups, on the other hand, are more frequently used for hauling stuff. Although they get the same mileage, they are needed for some purpose (usually, I do know there are pickup drivers that don't need a truck). I wish cops would start cracking down on moving violations for big vehicles. Pull them over for 5 MPH over the speed limit, touching the centerline, rolling a stop sign, etc. IMO, that would be by far the best way to keep people from buying one if they're only going to be used for people transportation.

[ericn1300]

Originally Posted by J-Ri

Pickups, on the other hand, are more frequently used for hauling stuff.

Most Pickups are used for hauling less than 5% of the time and and could be rented on those occasions and still cost less than owning one. With my 96 Pontiac sedan and utility trailer I can haul 3 times the weight of a 1/2 ton pickup and 50% more than a one ton and it gets 25/33 mpg the rest of the time.

Originally Posted by J-Ri

I wish cops would start cracking down on moving violations for big vehicles. Pull them over for 5 MPH over the speed limit, touching the centerline, rolling a stop sign, etc.

Amen brother. One of the first thing you learn in driving classes to get your CDL is to center your vehicle in the lane. Whish more prople would learn to do that.

['97ventureowner]

...And how many SUVs do you see flying down the highway doing 80 to 85 m.p.h.? I guess those drivers don't care what gas costs or what their m.p.g. is.

[72chevelleOhio]

Originally Posted by ericn1300

my 96 Pontiac sedan and utility trailer I can haul 3 times the weight of a 1/2 ton pickup and 50% more than a one ton

Are you sure about that?

Who cares if its safe or not?

[ericn1300]

Originally Posted by 72chevelleOhio

Are you sure about that?

Who cares if its safe or not?

350 tounge weight 3500 gross trailer weight max, 4 wheel disc brakes. safer than having the fat mother in law in the back seat chewing on me.