Monday, February 20, 2012

Gas is getting (more) expensive again

Yup.  I am up on my old pulpit again on the subject of oil and the economy.  But seriously folks, if the price of oil goes up, the demand for everything else goes down.  Inflation and recession at the same time—or what we old-timers used to call stagflation.

UH OH: Gas Prices Are Getting Close To The Magic Freak-Out Point
Henry Blodget

THIS Is The Point Where Gas Prices Start Changing People's Behavior
When oil prices began their big surge about a decade ago, doomsayers immediately began bloviating about how rising gas prices were going to put the smackdown on the economy.

But as gas prices blew through milestone after milestone--$2, $2.50, $3, $3.50--this fear proved completely unfounded. The economy kept cranking right along.

Right up until the moment gas hit $4 a gallon.

Then everyone freaked out.

When gas blew through $4, the car companies all suddenly started talking about how it was a new era and they were going to completely redesign their fleets, etc.

And, seeking to defer blame for doing nothing to build up alternative sources of energy for the 30 years since the last oil price spike, Congress immediately blamed "speculators" for the price spike--ignoring the fact that global oil demand had gone through the roof with the growth of China, India, et al.

Then the global economy crashed and oil prices tanked and everyone forgot all about them.

But now oil prices have surged through $100 a barrel again.

And now gas prices are, once again, nearing the magic $4 a gallon freak-out point.

So it is indeed going to be interesting to see what happens this spring, if the global economy keeps recovering. But it's not hard to imagine that gas prices could blow right through $4 and head all the way to $5 or $6.

And that really might begin to act as a brake on the economy. more
And this is the interesting graph.  Of all the low-hanging fruit in energy efficiency in USA, raising the efficiency of vehicles is by FAR the easiest.  Park the SUV getting 10 mpg and drive a Focus getting 40 mpg and you are 400% more fuel efficient overnight.  But for a long time, that has not happened.  Folks have a dizzying array of rationalizations for why they "need" an SUV, and an equally dazzling list of reasons for believing that oil could be infinite and cheap.

But while the reality of liquid fuel supplies is terra incognita for my fellow citizens most of the time, they ALL know how to shop.  Make gas expensive enough and they WILL figure out how to do with less.
What Does Declining Gasoline Consumption Mean?
By James Bianco - February 15th, 2012

Retail gasoline deliveries, already well below 1980 levels, have absolutely fallen off a cliff:

“Is the plunge inventory-related, i.e. are storage facilities so full that retailers are simply putting off deliveries? Though I don’t have data on hand to support this, I know from one of my correspondents who is in the gasoline distribution/delivery business that gasoline is very much a “just in time” commodity: gas stations are often close to running out of fuel when they get a delivery. Stations aren’t holding huge quantities of surplus gasoline; that’s not how the business works. Given the absence of “extra storage” in gas stations (and the fact that the number of gas stations has fallen dramatically since 1980), it is reasonable to conclude that retail delivery is largely a function of demand, i.e. gasoline consumption.

Even if you dismiss the recent plunge as an outlier, the declines in retail gasoline deliveries are mind-boggling.
-Why Is Gasoline Consumption Tanking?

The Energy Information Administration approximates U.S. energy consumption by a statistic known as “weekly product supplied.” This is the amount of petroleum product supplied to an end-user such as a gas station. It is a very timely statistic as the last plot is through February 3.
As the chart below shows, total weekly U.S. product supplied of all petroleum products currently averages just over 18 million barrels per day, 8.5 million barrels of which is gasoline. The rest of the total petroleum product supplied consists of fuels like heating oil, propane and kerosene (jet fuel). more
And just a final reminder.  Oil is found in places where the local cultures are usually hopelessly unprepared to deal with the wealth, the environmental damage, and the pirates who show up in the wake of a major oil find.  Perhaps only Norway has dealt with their newfound wealth wisely.

But man, I wish we would stop picking on the Iranian scab.  Can anyone in their right mind want to go to war over their non-existent nuclear weapons program?  When I was barely a teenager, the USSR had over 1000 nukes they could drop on our soil and the Chinese had exploded a small dirty device.  I am DONE being scared by this madness!  The way I look at it, I'll start worrying about Iranian nukes when they have more than India and Pakistan combined.

In the meantime, Iran actually could close the Straits of Hormuz.  All it would take is a few hundred mines and supertankers could not get insurance to go through loaded with stuff that is valuable because it burns easily.  35% of the world's oil moves through that waterway.  I think it's time to take this whole dispute down about 40 levels.
Iran announces it has stopped selling crude oil to UK and France
Tehran takes step four months ahead of EU import ban amid heightening political tensions over country's enriching of uranium

Jill Treanor, Sunday 19 February 2012

Iran announced on Sunday that it had stopped selling crude oil to British and French companies, in a move that may put further pressure on the price of oil amid heightening political tensions.

The price of Brent crude – the benchmark for oil – had been rising last week because of tensions with Tehran, which had warned it might cut oil supplies to the Netherlands, Greece, France, Portugal, Spain and Italy in retaliation for Europe's latest sanctions.

On Sunday, a spokesman was quoted on the Iranian oil ministry's website as saying: "Exporting crude to British and French companies has been stopped … we will sell our oil to new customers. We have our own customers … The replacements for these companies have been considered by Iran." more 

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