tony spencer - aka notsleepy

The Truth About Gas Prices

Politics May 5th, 2008

13 Responses to “The Truth About Gas Prices”

1. Str0ud Says:
   May 6th, 2008 at 9:36 am

   Tony, I’m no economist but I don’t think s&d has very much to do with the situation.

   Take this transcript from the April 29th edition of Marketplace….

   TEXT OF INTERVIEW

   Kai Ryssdal: I don’t know the last time the President pumped his own gas, but he’s probably got staffers who filled him in on how much it’s costing because he wasted no time this morning telling Americans he feels our pain.

   Gas is up $1.40 a gallon over the past year, he said, and he knows why:

   President Bush: One of the main reasons for high gas prices is that global oil production is not keeping up with growing demand.

   Our senior business correspondent Bob Moon’s been spending some time today going over the president’s remarks.

   Hi Bob.

   Bob Moon: Hello Kai.

   Ryssdal: Alright, so let’s get to the fundamentals, as the economists like to say: supply and demand. Is that really what’s going on here?

   Moon: Well, we got a leading industry analyst on the phone, Kai: Barbara Shook at the Houston research firm Energy Intelligence and she begs to differ with the president:

   Barbara Shook: The U.S. market is well supplied. Do you see anybody waiting in line at the filling station?

   Moon: In fact, analysts have been reporting that gasoline reserves in this country have been on the rise since October and in recent months, we’ve got more stored up than we have since the early 1990’s, so as Shook points out, we’ve got enough on the supply side. Then you’ve got demand and that’s actually been falling since last July. None other than the Bush administration’s own Energy Department now says the demand for gasoline here is on track to see the first annual drop in consumption in 17 years. And I might point out that analysts aren’t the only ones who are questioning this supply and demand explanation. Let me give you a quote from the head of Exxon Mobil recently: “In terms of fundamentals, fear of supply reliability is overblown.”

   Ryssdal: Hmm. The president mentioned Alaska — ANWR: The Alaskan National Wildlife Refuge — a couple of times today. He said he hopes Congress will start worrying as much about gas prices when they think about ANWR as they do about environmentalism.

   Moon: Well, Barbara Shook says more supply certainly couldn’t hurt here, but this comes down to a very long and complicated political fight that’s not directly connected to the price turn-up we’re seeing today, so even if we do open up that exploration, it’s not going to bring prices down right now.

   Ryssdal: Let me ask you about refineries, Bob. The president also talked about those a couple of times today. Here’s what he said:

   President Bush: Another reason for the high gas prices is the lack of refining capacity. It’s been more than 30 years since America built its last new refinery.

   Ryssdal: Mr. Moon, over to you. Is that the problem?

   Moon: Well, Barbara Shook was a little confused by that one. She says we’re already doing that:

   Barbara Shook: We’re expanding refining capacity in this country. We have probably more than half a million barrels of new refining capacity per day under construction right now and I wouldn’t be surprised to see another 100,000 barrels per day of new capacity announced in the next six months to a year.

   Moon: And Kai, remember what I just said about demand going down. We’re actually using less gasoline lately. Well that means refineries here in the U.S. have actually been cutting back on production because their margins are tightening up.

   Ryssdal: Alright, so to review, if it’s not supply and demand, it’s not refineries, it’s not gas on the market, what is it?

   Moon: Well, most analysts say it’s a combination of a couple of things. They say as long as the value of the dollar keeps sinking — and oil does get priced in dollars you know — the price of oil has to go up then, so that the sellers can make up the difference in their purchasing power. That doesn’t entirely explain this, though. Last year, for example, the dollar dropped a little over 10 percent, but at the same time, oil prices were up around 50 percent, so the major factor here seems to be the wave of investment dollars that are flowing into the oil market, the speculators driving prices higher. Here’s a number for you: about $9 billion was invested in oil futures back in 2000. Well, that’s now up to $250 billion and even the head of Exxon Mobil blames wild speculation for all this.

   Ryssdal: Marketplace’s Bob Moon and the president this morning. Thank you, Bob.

   Moon: Thanks, Kai.

   Eventually this bubble will burst.

2. tony Says:
   May 6th, 2008 at 11:03 am

   Absolutely the falling USD has a big impact on what we are paying and as long as it continues its free fall it will drive our cost up.

   I do however fully believe supply and demand dictate this market. OPEC is the big chunk of the supply and we all know they manipulate that supply. We all know demand is way up worldwide.

   Assume ANWR were enough to reduce our oil imports by 50%. I’m not saying it can because I don’t know. But if it did, what do you think would happen to the price of oil. I have a pretty good idea. Now, why don’t I know if ANWR holds a big field of oil as some experts have predicted? Because this congress won’t even allow exploratory drilling to find out.

   Thats the first I’ve heard of new refinery construction. I know its been over 20 years since one was built. I’ll have to go do some reading.

   It kills me to see all the candidates spouting anti-business rhetoric as though making “big oil” pay doesn’t somehow come back to us at the pump. Interesting summary of “big profits” and “price gouging”:

   MSFT (MS) net profit: 28.3%
   GOOG (Google) net profit: 24.9%
   AAPL (Apple) net profit: 15.1%
   XOM (Exxon Mobile) net profit: 10%
   CVX (Chevron-Texaco) net profit: 8.5%

3. tony Says:
   May 6th, 2008 at 12:28 pm

   Hehehehe. Good ole NPR:

   “…I wouldn’t be surprised to see another 100,000 barrels per day of new capacity announced in the next six months to a year”

   Sounds like a huge number doesn’t it? Tell me if I’ve calculated wrong but that amounts to a whopping 0.5% increase:
   http://tonto.eia.doe.gov/dnav/pet/hist/mocleus2m.htm

   The other problem I have is this increased refining capacity refers to increased production at our existing facilities. What happens when another Katrina hits and wipes out a refinery? Its too vulnerable IMO.

4. Scott Says:
   May 8th, 2008 at 1:46 pm

   “Now, why don’t I know if ANWR holds a big field of oil as some experts have predicted? Because this congress won’t even allow exploratory drilling to find out.”

   Right; that seems to be a hot environmental issue, and is in fact so hot, that our elected officials know that voting to drill there would be career suicide. They wouldn’t get re-elected, and that is what is MOST important to the D.C. insiders.

5. Brett Says:
   May 13th, 2008 at 7:48 am

   RON PAUL’s View:

   Many Americans understandably are upset with the sharp spike in gas prices since Hurricane Katrina hit the gulf coast in August, and are concerned by reports of oil company profits. But we must understand that high oil prices are not the result of an unregulated free market. On the contrary, the oil industry is among the most regulated and most subsidized of U.S. industries. Perhaps we need to ask ourselves whether too much government involvement in the oil markets, rather than too little regulation, has kept the supply of refined gasoline artificially low.

   Consider Marathon Oil, which operates a refinery in Texas City. Marathon recently announced the construction of new refinery that will bring several hundred thousand barrels of oil online every day- which is exactly what the nation needs. But building a new refinery is a daunting task that requires billions of dollars in capital investment. The process of obtaining federal permits alone can take several years. As a result, we won’t see a drop of refined gasoline from the new Marathon facility until 2009.

   Federal subsidies and regulations are largely responsible for limiting the supply of refined gasoline in this country. The demand for gasoline has risen dramatically in America due to population growth in recent decades, but virtually no new refining capacity has been added. Basic economics tells us that rising demand and a fixed supply will lead to higher prices. No amount of congressional grandstanding about price gouging will change this economic reality. We must increase domestic exploration, drilling, and refining if we hope to maintain reasonable gas prices. We need more competition, which means we need less government.

   Most Americans agree that the American economy should not be dependent upon Middle East oil. Economist George Reisman, however, explains that our own domestic regulations make us slaves to OPEC: “Today, it is possible once again to bring about a dramatic fall in the price of oil- indeed, one even larger than occurred in the 1980s. And it could begin right away. All that is necessary is to abolish the U.S. government’s restrictions on domestic energy production inspired by the environmentalist movement.”

   Reisman also explains how abolishing restrictions on coal production, natural gas production, and nuclear power would further reduce the OPEC stranglehold. By increasing the supply of these other energy sources, demand for oil would decrease and prices would drop.

   Note that much of the support for unrealistic environmental regulations comes from northeastern politicians and media, who weren’t nearly as interested in oil fortunes when the business hit rock bottom in the 1980s. Texas and the gulf coast have always been willing to supply the nation’s energy, and it’s a bit disingenuous to hear criticism from those who are happy to use oil but don’t want refineries in their backyards.

   Oil is critical, but it is not a magic commodity that somehow is immune from the laws of economics. In fact, it is precisely because oil is so critical to our economy that we must allow the free market to deliver it. Absent government interference in the oil markets, gas prices would rise or fall according to concrete realities affecting supply and demand. High prices would encourage conservation better than any environmental regulations. Entrepreneurs would race to develop viable alternate fuels if gas prices rose too much.

   Centralized government planning, on the other hand, cannot solve our energy dilemmas. The Nixon-era price controls on gasoline in the 1970s produced nothing but disastrous shortages. By contrast, the Reagan administration’s immediate deregulation of the oil industry resulted in an unprecedented boom in oil production and a dramatic reduction in prices. This is the lesson we must remember.

   What can Congress do to provide Americans with some relief at the pump? First it can suspend federal gas taxes, which would save consumers nearly 20 cents per gallon. In the long term, Congress must pass legislation like HR 4004, which I introduced earlier this month. HR 4004 takes a comprehensive approach by allowing offshore drilling, eliminating regulations that restrict refining, and suspending harmful tax rules that discourage domestic oil production. If we hope to have a stable, affordable supply of gas, we must allow the free market to operate.

   In summary, I just paid $78.63 to fill up this morning. You know how much beer that is? DANG!

6. tony Says:
   May 13th, 2008 at 8:48 am

   I think Ron Paul has nailed it on the head.

7. RBS Says:
   May 16th, 2008 at 5:09 pm

   Yes, supply and demand.

   WHen demand goes up, prices go up.

   When prices go up, demand goes down, prices go down.

   The best way to reduce the price is to reduce demand — by using less gasoline — in other words, by driving hybrids, or not driving at all.

   Of course, with demand rising in China and India, there’s little that American consumers can do — except use something other than oil.

   Because the global supply of oil is finite — the oil companies are finding less and less. We are unable to produce as much as we consume anymore.

   In other words, demand is going up, while supply is going down.

   Which is why prices are going up and up and up and up — and they ain’t coming back down.

   You don’t want to pay $5 a gallon for gas? Don’t use it.

   That’s your option.

8. tony Says:
   May 18th, 2008 at 5:22 pm

   @RBS
   you have missed the point. Contrary to popular belief, the actual physical supply of oil in the world is not in decline right now. Some fields are drying up but huge new oil fields have been discovered at a greater rate.

   The point is that the supply in the open market is controlled by OPEC which is why Bush is in the middle east begging the Saudis to put more oil into the market.

   “You don’t want to pay $5 a gallon for gas? Don’t use it.”

   Thats an idiotic statement. Like most Americans if I don’t drive, I can’t work.

9. RBS Says:
   May 18th, 2008 at 5:32 pm

   Not familiar with the concept of Peak Oil, then, eh?

   Oil is a finite resource. It is produced from the corpses of dead dinosaurs, and nothing else. Bubba, there ain’t any more being made.

   “An idiotic statement” that it’s possible to not use gas?

   I live in a city. So do many other Americans. Tens of millions, in fact. Maybe more. We have public transit. It works pretty good. I also ride a bike when I can. And I walk plenty.

   Your original post is arguing that there is no way to not use gasoline. There are a few other options out there.

   When I say “don’t use it” that’s part of what I’m talking about.

   You dismiss the very idea that there’s another way to use energy from the sun than using it to grow plants, having those plants eaten by dinosaurs, waiting for those dinosaurs to fall into anoxic swamps and die, and then for them to be buried over millions of years by sediments, and then pushed down toward the hot core to be “cooked” into crude oil.

   I suggest we cut out the middleman and use photovoltaic cells to electrolyze hydrogen from water, and use fuel cells.

   You think that’s idiocy, apparently.

   I’m guessing then, that you have a financial stake in the future of oil.

   It’s hard to convince a man to believe something when his paycheck depends on him not believing it.

   By the way, GWB is OPEC’s best friend in the world. Under his reign, oil prices have gone from $27 per barrel to $127 per barrel.

10. tony Says:
    May 18th, 2008 at 8:57 pm

    “there is no way to not use gasoline”
    At the moment there is no other way for our country to operate without it, nor will there be another option for a long time. I wish it weren’t the case but we are married to gasoline for a long while. I also don’t think fuel cells are idiocy but the ability to extract H from H2O without burning a lot of energy just hasn’t happened yet.

    It was an idiotic statement. Public transit in big, dense cities is great. I’ve used when I lived there and loved it but the vast majority of working Americans don’t live there Bubba.

    “I’m guessing then, that you have a financial stake in the future of oil.”
    You guessed wrong.

    “By the way, GWB is OPEC’s best friend in the world…”
    OPEC’s best friend is money. GWB means nothing to them which is exactly why he’s begged them twice in recent months to increase supply.

11. Scott Says:
    May 18th, 2008 at 9:52 pm

    @RBS: You’re right that oil is a finite resource. But I don’t think that driving less or not at all solves the problem. Think of all the consumables made from petroleum products, and the fact that creating heat, cool air, and electricity in the US is still primary due to burning oil.

    I agree with you; we all need to use less. But I agree more with Tony — eliminating driving isn’t feasible.

12. tony Says:
    May 19th, 2008 at 7:10 am

    I’m also all for using less. I’ve been driving fuel efficient, 4 cylinder cars for many years now:
    http://flickr.com/photos/notsleepy/55968830/

13. Joe Says:
    May 21st, 2008 at 1:37 pm

    Even if you’re not driving a hybrid or efficient car, you can still get a lot more miles to the gallon by following a few tips:
    http://www.ecojoes.com/how-to-increase-your-car-mpg/

    It might not affect gas prices a whole lot, but at least you’ll be saving yourself money by using gas more efficiently. Plus, you might save some money by not getting speeding tickets, bah-bam, double savings

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