Are the ultra high gas prices hurting you?



Pendejo

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alienator said:
Unfortunately that do-gooder environmental thing is the one that's going to screw everyone once we pass the point of no return. I kinda care about the world my daughter and the other kids are going to inherit
Damn, Alien, you're really a softie underneath that tough exterior of yours.
 

limerickman

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Jan 5, 2004
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Very interesting interview this morning with one of the worlds top geological oil experts.

The expert said that the entire debate about oil and oil demand and oil supply needs to be defined.

The oil industry define oil reserves in terms of the number of barrels of known oil, which can be extracted at a reasonable economic price.
This definition is important.
It is important because, according to this expert, there are other oil deposits around the world which have not been costed in terms of the cost to extract that oil.

Therefore when you read the chairman of BP, commenting that there is plenty of oil supply (as he did yesterday), is he referring to the "number of barrels of known oil, which can be extracted at a reasonable economic price" or is he referring to "other oil deposits around the world which have not been costed in terms of the cost to extract that oil"?

The expert went on to say that, there is 1.35 billion barrels of oil, that can be extracted economically, and that he doesn't accept that demand has outstriped supply [/B]now
He said that it was his belief that the oil price is part of an asset bubble formed by speculators.
 

Crankyfeet

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Jun 5, 2007
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limerickman said:
Very interesting interview this morning with one of the worlds top geological oil experts.

The expert said that the entire debate about oil and oil demand and oil supply needs to be defined.

The oil industry define oil reserves in terms of the number of barrels of known oil, which can be extracted at a reasonable economic price.
This definition is important.
It is important because, according to this expert, there are other oil deposits around the world which have not been costed in terms of the cost to extract that oil.

Therefore when you read the chairman of BP, commenting that there is plenty of oil supply (as he did yesterday), is he referring to the "number of barrels of known oil, which can be extracted at a reasonable economic price" or is he referring to "other oil deposits around the world which have not been costed in terms of the cost to extract that oil"?

The expert went on to say that, there is 1.35 billion barrels of oil, that can be extracted economically, and that he doesn't accept that demand has outstriped supply [/B]now
He said that it was his belief that the oil price is part of an asset bubble formed by speculators.
These economists are sitting down trying to rationalise everything with their supply/demand economics. The fact is oil was just under US$11 a barrel in Christmas 1998 now it's around $135. The weakening USD among a host of other factors has contributed to this inflation. If you take out the USD weakening in the last 5 years the adjusted price would be around $80 a barrel. It's easy to blame speculators when prices seem irrational... but why should prices be rational? How much has global oil demand gone down with the price at $135 a barrel? Not much. So the price can fluctuate in a very broad band... without much elasticity (however some forced hardship).

Let's not forget that we are seeing inflation in minerals and metals pretty much across the board as well. This isn't just an oil market price bubble. The copper price has gone from around US$0.62 per pound in 2001 to US$3.60 today. Gold has gone from US$260 in 2002 to US$870 today. I have seen speculators waiting for the next inflationary cycle in commodity prices get their asses handed to them for 20 years trying to profit from another bull market in commodities similar to the one that occurred in the late seventies.

Speculators alone can't move prices IMO. The trend following trading systems have been trying/hoping for a massive uptrend for years (as I've said). Remember... for every futures contract that is long... there is an equal amount of contracts that are short. For every dollar of profits on the futures markets... there is a dollar of loss. It is a zero sum game for speculators. But speculators can develop their own bandwagon effect (following trends... and contributing to the bubble to sum degree)... as Soros describes in his books.

Suppliers can have some effect on prices though. The copper market was "coerced" IMO by at least one major world supplier starting about seven years ago.

It is somewhat of an irrational frenzy. Similar to the internet company share price bubble of 1998-2000. You needed a perfect storm of fundamental factors and/or alignment of "financial" planets ... to create the foundation for these large moves. We have witnessed this perfect storm.
 

limerickman

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Jan 5, 2004
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Crankyfeet said:
These economists are sitting down trying to rationalise everything with their supply/demand economics. The fact is oil was just under US$11 a barrel in Christmas 1998 now it's around $135. The weakening USD among a host of other factors has contributed to this inflation. If you take out the USD weakening in the last 5 years the adjusted price would be around $80 a barrel. It's easy to blame speculators when prices seem irrational... but why should prices be rational? How much has global oil demand gone down with the price at $135 a barrel? Not much. So the price can fluctuate in a very broad band... without much elasticity (however some forced hardship).
.

I agree - it would appear that demand is inelastic given that as the price of oil increases, demand has not fallen.

This might be explained by the fact that historically demand for oil was centred on markets like USA/Europe/Australia etc.
Today we have two huge new demand sectors, India and China : therefore whatever fall off in demand has resulted in the traditional regions, the newer regions demand for oil, offsets those drops in demand in traditional sectors.



Crankyfeet said:
Let's not forget that we are seeing inflation in minerals and metals pretty much across the board as well. This isn't just an oil market price bubble. The copper price has gone from around US$0.62 per pound in 2001 to US$3.60 today. Gold has gone from US$260 in 2002 to US$870 today. I have seen speculators waiting for the next inflationary cycle in commodity prices get their asses handed to them for 20 years trying to profit from another bull market in commodities similar to the one that occurred in the late seventies.

I see.
You're a lot more au fait with this stuff than I would be.
Can I ask, is the speculators rush in to minerals (gold, copper, grain etc) the result of nervousness about other asset bubbles such as property?
or is the increase in commodity prices just down to some cyclical event that happens every couple of decades (gold rocketted in the 1970's, then subsided in the 1980's/90's).?



Crankyfeet said:
It is somewhat of an irrational frenzy. Similar to the internet company share price bubble of 1998-2000. You needed a perfect storm of fundamental factors and/or alignment of "financial" planets ... to create the foundation for these large moves. We have witnessed this perfect storm.

Agreed.

Irrational was the word used by the commentator this morning, to explain the oil price movement.
His view was the given current levels of supply, and current levels of demand, that oil prices, in his estimation, should be somewhere between $60 - $ 80 per barrel.
 

kdelong

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Dec 14, 2006
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OK, I am not an economist or anything close. I can barely balance my checkbook. I have read different articles that tell where the oil dollar goes though, and it appears that most of it goes to the OPEC members. I have also read that OPEC will not increase production to take some of the pressure off of the price of oil. Increased production might not have an impact with the speculators screwing with the market, but I think it would.

With that said, I wonder how much food is produced in Saudi Arabia, Libya, Iran, and other OPEC countries? I know Venezuala produces a fair amount for themselves, but what about all of the other desert OPEC countries? I think it is time to form OFEC, the Organization of Food Exporting Countries, and tie the price of the food directly to the price of oil. If the price of oil goes up, the price of food goes up a compareable amount. If the price of oil falls, so does the price of food. After all, it takes gasoline or deisel to produce the food. And if the OPEC Members squawk about it, we can take a page out of their playbook and embargo food until they see things our way. If they think that they are so mighty, lets see them eat their oil!
 

Powerful Pete

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Kdelong, remember that it is hard to set up a functioning cartel with about 3/4 of the world's countries in it... someone will always be tempted to make an under-the-counter deal with the nice people with the money (as some OPEC countries do already!). The Saudis or Iranians or Nigerians do not need to make a deal with a whole lot of countries to solve their issue.

OPEC is currently pretty much up to the limit in oil production. I recall reading that upping production would cost several handfuls of billions of USD... and several years of time to 'come on stream'.

This means that: (i) as an oil producing nation they are concerned about investing in increasing production and ending up with too much capacity by the time the additional production is 'on-line'; (ii) the OPEC-ers are, overall, rational actors (at least moderately so on this particular issue) - they are constantly waiting for all of us consumers to reach a point where we begin to invest more heavily in alternative energy sources and lessen our oil dependence. Why invest more in upping capacity then when they have a near production monopoly and we clamour for larger x-trails, chevy something or others and mercedes MLs?

Remember that Mr. W is on record not so long ago stating that he would invest a billion - gazillion (not exact sum, LOL) in alternative energy/additional drilling to lessen US energy dependence on nasty foreigners. Hardly an incentive for the Saudis to invest in additional production, wouldn't you agree?

Do not forget that the OPEC countries are reinvesting a lot of this windfall cash in our own economies... who do you think bailed out Citibank in the current crisis (ok, maybe I exaggerate, but not by much)? And so far they are being very polite about it... not even asking to can the entire board for the little mortgage game, LOL.

Who finances your national debt, along with those exceedingly polite Chinese people?

Remember that globalisation is a nasty animal, and resorting to threats and chest-thumping when it does not go our way is not exactly reasonable.

Just my two cents. Please flame away...
 

kdelong

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Dec 14, 2006
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I'm not going to flame you because your arguments won't burn! Like I said, I am not anything near being an expert on oil or economics and my post was mostly just a venting session anyway. You are correct though, darned global economy:mad:. I just hope that someone makes an economically viable breakthrough on alternative sources of energy soon. As it is now, all that I have seen are alternatives that take more energy to produce than what they provide, or are unreliable, or cost more than the average person can afford.
 

kdelong

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Dec 14, 2006
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alienator said:
Unfortunately that do-gooder environmental thing is the one that's going to screw everyone once we pass the point of no return. I kinda care about the world my daughter and the other kids are going to inherit
While it sounds good, oil conservation is not the answer to our problems. Oil is going to run out sometime in someones lifetime, and then their kids will be screwed. Someday the Sun is going to go and then everyone will be screwed too. All we can do is fend for ourselves in our lifetime and do our best to preserve what we can for future generations, but with regards to energy, we need to find clean, renewable sources. If we do get past the point of no return, then it will defintely spur on the search. What's with geothermal and solar energy anyway. I never hear about them anymore. And what about hydrogen fuel cell cars? The only cars that I hear about now are stinking hybrids and flex fuel cars. With all of the ideas that are floated and disappear, I am beginning to wonder if there is anything viable out there, or are we doomed to going back to wood and coal when the oil is gone? O yeah, I forgot about buffalo chips. The Native Americans swore by them.
 

Crankyfeet

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limerickman said:
I agree - it would appear that demand is inelastic given that as the price of oil increases, demand has not fallen.

This might be explained by the fact that historically demand for oil was centred on markets like USA/Europe/Australia etc.
Today we have two huge new demand sectors, India and China : therefore whatever fall off in demand has resulted in the traditional regions, the newer regions demand for oil, offsets those drops in demand in traditional sectors.
Yes.. I agree with you.

What has contributed to oil's inelasticity in demand sensitivity IMO is that there are huge barriers to entry with regard oil/petroleum alternatives. As gas/petrol prices rise... people cannot easily switch to coal-powered vehicles.

The economic growth in China and India (with increased demand) easily cancels any reduction in demand in first world countries (the underlying long term trend in first world countries is increasing demand in any case).

limerickman said:
I see.
You're a lot more au fait with this stuff than I would be.
Can I ask, is the speculators rush in to minerals (gold, copper, grain etc) the result of nervousness about other asset bubbles such as property?
or is the increase in commodity prices just down to some cyclical event that happens every couple of decades (gold rocketted in the 1970's, then subsided in the 1980's/90's).?
Thanks for the spelling of "au fait".

Having some experience in commodity markets doesn't make one have any real edge in predicting market moves. Maybe some appreciation of risk... and avoidance of classical psychological errors. But the minute you think you know something in markets... is when you get farked usually. It's psychologically easy and tempting to claim good fortune in predicting markets as some innate ability... when in fact it is often luck. If the markets were as easy to predict as netting out some supply/demand sums... then there would be a lot of rich economists.

I think that the move into commodities is not a refuge from property deflation. These commodity markets have been moving up since at least 2001. The property market has only blipped down in the US over the last 12 months. And property, as a real asset, has traditionally been viewed as an inflation hedge in the past, somewhat mirroring commodity price moves in inflationary times. The trend of rising inflation... a US government not willing to defend it's currency (in fact encouraging dollar weakness), the indications of a global softening in economic activity... all create a circular (self-reinforcing) move into real assets as opposed to financial assets (stocks, bonds, CD's etc)... so the move itself (switching to real assets) feeds it's own raison d'etre as markets move up and inflation increases. There are a lot of brokers at the moment spouting the virtues to clients of a portfolio allocation in commodities and getting a positive reaction. This would have been a very difficult idea to sell in the nineties. Don't forget that you actually have to pay money (in storage costs) to hold most commodities as an asset (there is a price premium spread in forward futures positions that eventually converges with the spot price at the expiry of the contract)... You don't get any cash investment return other than price appreciation (hopefully!) after netting off these ongoing costs.

The perfect storm that would temporarily kill the US economy IMO (pretty obviously) would be a combination of severe: commodity inflation... financial asset deflation (concomitant with rising interest rates)... wage stagnation... and the killer... a significant deflation (say greater than 30% across the board) in property prices. This is the real fear of the Fed. It's already happening to some extent (in varying degrees depending on the region). But if there is a further 20% decline in property values across the nation... who knows what that is going to do to the balance sheet and cash flows of the average American maxed out on a mortgage with rising interest repayments, fuel and food costs?

The one piece of bright news is, that despite all the negative news in the last 9 months regarding the stock market.... it is only down (the S&P) about 10% from late August last year... when we were discussing it in the Bloody Soap Box. That to me shows resilience and strength... but new negative information in the near future could change that picture quickly.

The best historical analogy in the US that I can remember that approximates this situation is in 1988-89 after the 87 crash. You had a weak dollar, rising interest rates, a large budget and current account deficit, and the financial stress/crisis of the Savings and Loans debacle. Many pundits were bearish then. But the indexes just wavered around in a 10% band. Some savvy investors saw this as a bullish sign. In hindsight it was... as the market almost quadrupled in the ensuing ten years. The mitigating difference then though was that US property values were relatively solid (ironically not in the UK, Japan and Australia though)... and inflation (esp. the price of oil) was in check.

Apologise for the length of the post.
 

limerickman

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Jan 5, 2004
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Crankyfeet said:
Yes.. I agree with you.

What has contributed to oil's inelasticity in demand sensitivity IMO is that there are huge barriers to entry with regard oil/petroleum alternatives. As gas/petrol prices rise... people cannot easily switch to coal-powered vehicles.

The economic growth in China and India (with increased demand) easily cancels any reduction in demand in first world countries (the underlying long term trend in first world countries is increasing demand in any case).

Thanks for the spelling of "au fait".

Having some experience in commodity markets doesn't make one have any real edge in predicting market moves. Maybe some appreciation of risk... and avoidance of classical psychological errors. But the minute you think you know something in markets... is when you get farked usually. It's psychologically easy and tempting to claim good fortune in predicting markets as some innate ability... when in fact it is often luck. If the markets were as easy to predict as netting out some supply/demand sums... then there would be a lot of rich economists.

I think that the move into commodities is not a refuge from property deflation. These commodity markets have been moving up since at least 2001. The property market has only blipped down in the US over the last 12 months. And property, as a real asset, has traditionally been viewed as an inflation hedge in the past, somewhat mirroring commodity price moves in inflationary times. The trend of rising inflation... a US government not willing to defend it's currency (in fact encouraging dollar weakness), the indications of a global softening in economic activity... all create a circular (self-reinforcing) move into real assets as opposed to financial assets (stocks, bonds, CD's etc)... so the move itself (switching to real assets) feeds it's own raison d'etre as markets move up and inflation increases. There are a lot of brokers at the moment spouting the virtues to clients of a portfolio allocation in commodities and getting a positive reaction. This would have been a very difficult idea to sell in the nineties. Don't forget that you actually have to pay money (in storage costs) to hold most commodities as an asset (there is a price premium spread in forward futures positions that eventually converges with the spot price at the expiry of the contract)... You don't get any cash investment return other than price appreciation (hopefully!) after netting off these ongoing costs.

The perfect storm that would temporarily kill the US economy IMO (pretty obviously) would be a combination of severe: commodity inflation... financial asset deflation (concomitant with rising interest rates)... wage stagnation... and the killer... a significant deflation (say greater than 30% across the board) in property prices. This is the real fear of the Fed. It's already happening to some extent (in varying degrees depending on the region). But if there is a further 20% decline in property values across the nation... who knows what that is going to do to the balance sheet and cash flows of the average American maxed out on a mortgage with rising interest repayments, fuel and food costs?

The one piece of bright news is, that despite all the negative news in the last 9 months regarding the stock market.... it is only down (the S&P) about 10% from late August last year... when we were discussing it in the Bloody Soap Box. That to me shows resilience and strength... but new negative information in the near future could change that picture quickly.

The best historical analogy in the US that I can remember that approximates this situation is in 1988-89 after the 87 crash. You had a weak dollar, rising interest rates, a large budget and current account deficit, and the financial stress/crisis of the Savings and Loans debacle. Many pundits were bearish then. But the indexes just wavered around in a 10% band. Some savvy investors saw this as a bullish sign. In hindsight it was... as the market almost quadrupled in the ensuing ten years. The mitigating difference then though was that US property values were relatively solid (ironically not in the UK, Japan and Australia though)... and inflation (esp. the price of oil) was in check.

Apologise for the length of the post.

Thanks for this detailed reply Cranky.
Wow, a lot of detail in there!
 

kdelong

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Dec 14, 2006
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limerickman said:
Crude prices are skirting $143 pb.

Painful.
Just for the record, the increase in fuel prices have hurt everyone to an extent. Even the Amish are being hurt, even though they don't drive cars. The price of feeding a horse had doubled from around $1000/year to $2000/year due to feed corn being used for ethanol. The Amish use a lot of propane and it is much higher too. Anything that has to be transported is higher due to higher deisel fuel prices. I don't think that there is anyone who is not effected by fuel price increases, except maybe some of the Amazon Indian Tribes that have not been contacted yet.
 

limerickman

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Jan 5, 2004
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$146 per barrel this morning.
According to the Financial Times.

Pain all round folks.

Better get back to carving out me wooden toothbrush!
 

limerickman

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Jan 5, 2004
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Powerful Pete said:
I wonder what will happen this winter, when demand increases for heating requirements. :eek:

Oddly PP - the price of oil used actually fall coming in to winter.

Oil prices traditional increased during spring/summer because of the US driving season and for the demand for energy for airconditioning in summer.
Demand was always higher from May-August.

Maybe the nature and profile of demand has changed with the introduction of China/India economies and the more traditional demand measurements have become obsolete.
 

limerickman

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Jan 5, 2004
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kdelong said:
Just for the record, the increase in fuel prices have hurt everyone to an extent. Even the Amish are being hurt, even though they don't drive cars. The price of feeding a horse had doubled from around $1000/year to $2000/year due to feed corn being used for ethanol. The Amish use a lot of propane and it is much higher too. Anything that has to be transported is higher due to higher deisel fuel prices. I don't think that there is anyone who is not effected by fuel price increases, except maybe some of the Amazon Indian Tribes that have not been contacted yet.

Agreed KD :
Practically every price that you can think of is determined by the oil price.
From the cost of raw materials which have oil their component part, to transportation costs (fuel to get product to market) through to the fule that you put in your car to get you to the market to the finished product that contained the oil-based raw material : everything cost is determined by the oil price.

There is one thing nagging away at me when I look at the oil price though.
I was just about old enough to remember 1973/74 oil shock.
I remember sitting in my fathers car as we had to queue at the station to by petrol (gasolene).
Back then - supply was the problem.
These days supply doesn't seem to be a problem.
Even with India/China on board, there are no long queues outside petrol stations.
Supply appears to be fine.
Food for thought.
 

Powerful Pete

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May 29, 2004
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limerickman said:
Oddly PP - the price of oil used actually fall coming in to winter.

Oil prices traditional increased during spring/summer because of the US driving season and for the demand for energy for airconditioning in summer.
Demand was always higher from May-August.

Maybe the nature and profile of demand has changed with the introduction of China/India economies and the more traditional demand measurements have become obsolete.
Didn't realise that. All I know is that most of our heating is courtesy of Algerian methane, but for whatever reason that goes up every winter... and the price never seems to go down in the summer... :mad:
 

lwedge

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Mar 3, 2004
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Anyone know how to drive one of these things?


manip_A%20Horse%20and%20Buggy.JPG
 

Powerful Pete

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Why worry? Just ride more! :D I noticed a major difference since I have begun commuting to work and I only touch my car on the weekend...
 

Nukuhiva

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Jul 14, 2004
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I didn't read all 7 pages of this, so excuse the odd redundancy......

I'm fairly convinced that the old supply/demand explanation for the current mega-spike in oil prices is only a small part of the total picture and that greed and speculation have a LOT more to do with it than they're letting on.
I think this may be part of a 'plan' to get the general public to a point where they start to think of US $ 3.00/gal. as 'cheap'..........
(Adjust price for other locations worldwide, still works the same)

Comparing prices between countries is tricky, because the infrastructures are so different.
In Europe, cars are for the most part luxury toy status symbols and not essential to daily life, at least not for the majority.
Distances tend to be manageably short, cities tend to be designed for people (not cars) and public transport systems tend to be extremly dense and well developed.
In North America, distances are vast and everything is designed around the automobile, from the way roads and whole cities are laid out to the size of packaging of whatever. Cars are a daily necessity for many people.
In many parts of Africa or Asia, only the richest 5% or so of people can even afford a car, which gives the whole issue a totally different face altogether.

Personally, I bike, skate or walk most places, use my car only when I have no other reasonable choice and, oh by the way, cold weather riding is just a question of having the right equipment.........:)