With gas prices on track to hitting $7/gallon within the next four years (gas prices are hovering around $120/barrel; estimates show $200/barrel by 2012), I thought I'd give a little (totally personal, and totally independent from my job) analysis of what's going on.OPEC controls only half of the world's supply of oil. So if prices are skyrocketing over there, then theoretically, the world's non-cartel suppliers should step up to fill the void. But this isn't happening. Why? Who's to blame?
The average consumer will blame Big Oil immediately. I can't tell you how many times I've heard, "Big Oil is getting tax breaks while they post record profits for 1Q 2008? I'm going to boycott them by not filling up for an entire day at ________ (enter most hated gas station here.)" The fact is, that's just stupid thinking.
Yes, Big Oil is rolling in the profits. Yes, they're getting more tax breaks (with the initial intent to actually promote exploration and alternative energy sources, which isn't immediately realized by the average American consumer.) However, profit margins for Big Oil are only slightly higher than the average for the S&P 500. These companies are pumping back their profits in the way of dividends, capital spending, employment, etc. They're worthy of getting a hit or two from us, but unfortunately, they aren't entirely to blame.
Speculators seem to be the highest source for media and consumer-driven panic right now. Did you know that the first day of trading 2008, some jackass on Wall Street decided - hey, I'm going to go down in the books as being the first person to close trading on a barrel of oil at $100+? That said, ultimately, the traders get burned faster than the consumers.
As I mentioned before, OPEC only controls 50% of the supply in the world. When oil prices go up, other countries with oil supply (England, Norway, Russia, Canada, etc.) open up to take advantage of these high prices. This, economically, should decrease price. But disruptions in supply in all of those countries (by as much as 65%) makes me think that maybe speculators have a reason to . . . well, panic.
Basic economics says that China and India might have something to do with skyrocketing prices. After all, as the middle class grows in these countries, they buy cars. Cars require fuel. Demand sharply increases, supply remains the same (or goes down), and market equilibrium shoots way, way up. That said, China and India's demand for oil is steady. It doesn't explain why, in 2004, we were paying $1.20 for a gallon of gas, and 4 years later we're paying $4.00. The increase in demand and price surge doesn't correlate.
The falling of the value of the dollar is a legitimate potential reason. Oil is priced in USD. Interest rates have been low in recent years, so of course the value of the dollar is low. When the value of the dollar is low, it takes more on our part to buy high-priced oil. We should be more concerned about the credit/mortgage crisis than the oil crisis, because once that's resolved, I anticipate some alleviation to the crunch our budgets are feeling right now.
So, my general conclusion: blame it on the rain. Yeah, yeah.
-10-key princess
6 comments:
so serious today princess, but so right.
keep giving the righteous stuff.
tcb,
toby
In the last several years...oil (gasoline) went up 92% for countries that have Euro and 392% for Americans. With all that said, falling dollar is THE ONLY reason seeing the pump is painful. Iraq war certainly did not help since oil price pre-invasion was $25 a barrel plus the war contributed to the dollar demise. Like you already mentioned, low interest rates (in fact negative interest rates) also gave dollar a kick in the butt because no one in their right mind wants to invest in dollar denominated assets and lose. The funniest thing is how stock market is high fiving every time news isnt as bad (what a paradox), Citi posts 5 BILLION dollar loss and everyone is happy because they expected more, employers layoff 20,000 people but "all is good" because everyone thought it will be more (it actually is but that is another story), GDP comes in 0.6% but its all good because we thought it will be 0.5% (it is actually negative but also, another story)...so the "new rules" are if you set the bar low enough, than any news is good news...unless till the day when The Officials run out of bullshit to tell people.
Belgium: $8.22 per gallon
Ah, the "we've been paying high prices in Europe all along" argument. I used to live in Belgium, and not once did I ever need to fill up a gas tank. Why? Because of the train system. Because of the bus system. Because to get to Brugge from Brussels took all of 1 1/2 hours on a regular non-commuter train, and suddenly I was in a totally different part of the country. Europe is small, lovely, and wonderfully laced with public transportation - but can't be compared to the US. Is it feasible to connect, say, Fargo, ND with Austin, TX? Not at all. Once we figure out a way to recoup the loss on our dollar... once we figure where best to invest in alternative fuel research and actually get somewhere... once we stop driving monster SUV's and start being a little more economical with our spending habits (gas and consumer spending)... once we stop blaming banks for the current mortgage crisis and start taking accountability for our own finances... that's when we'll see some relief. We've been too lax for too long.
Well, miss 10kp, some things work in some societies...even if you could connect Fargo with Austin and even if people do hop on those trains, they will likely end up killing each other there, for some reason Americans canot behave, are always affraid and i always see people very uncomfortable when they have to pass a group of 3 or more on the street (not to mention if they are of a different race), even in an office where i was walking with several of my Mexican friends i saw a white woman hold onto her purse as we walked by (it it was in an office and they were her coworkers!!!).
Alternative fuels have been hijacked by lobbies but there are many small companies investing into biofuel, but made out of grass, the biggest hurdle is to figure out how to strip celulose from it (like cows do), there is geothermal potentials where you inject a hot rock under earth with cold water (drawback is that it can cause earthquakes), it is possible however, too many obstacles...and if you lived in Europe maybe you noticed many cars running on natural gas (hookup costs like $200 and you store a propate tank in the trunk, by the way, steel around the propane tank is thicker than one of your gas tank).
Along with idiots who bought houses, banks are absolutely to blame, mainly Wall Street banks like investment banks as well as Government Sponsored Entities like Fannie and Freddie. FOr some reason Paulson (clueless as ever) thinks the worst is behind us...i think it is just starting. Bank of America is backing out of Countrywide purchase (yes, they would like the Govt AKA taxpayers to guarantee that deal like they did for JP and Bear), Citi is one foot in the grave so is Lehman. Number 2 richest man in the world is Mexican, number 4 and 5 are Indian...sign of the times. Rant over.
My husband works for Big Oil. Just for the record, we aren't getting any kickbacks, bonuses, discounts on gas, nothing. In fact, his company just announced layoffs and a huge move to Texas. How's that for loyalty.
-SM
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