200 plus oil

[Skeptic Guy]

diggy doesn't post here anymore.

 

[RecoveringYuppy]

diggy still has seven months to be right FWIW.

 

[Just thinking]

Below $68 a barrel.

And about $2.50 a gallon (give or take a penny) for gasoline here.

I really wonder just how much oil consumption has gone down ... I mean, have we really cut back by 50%? I seriously doubt it, meaning that those who called for just modest conservation in order to see oil prices fall like a rock may very well have been right all along.

 

[applecorped]

I Don't hear much about drilling nowadays.

 

[Skeptic Guy]

OPEC just announced that they are reducing production by 1.5 million barrels per day.

ETA: It's amazing that they couldn't see their way around increasing their production a few months ago when things were real ugly...ok, uglier.

 

[soylent]

OPEC just announced that they are reducing production by 1.5 million barrels per day.

And then the price dropped by $5/bbl. Looks like the market was pricing in an even larger drop than what was announced.

 

[Darth Rotor]

Here is a thought. Hugo Chaves might just be leaking into his drawers. He had attributed to him in the press last year a recommendation that the floor price of oil be set/fixed at about 55 dollars per barrel. This was necessary for a reason I do not recall him explaining. He has reason to be concerned, as oil is a significant source of revenu for his nation. (See also the problems in Mexico if Pemex can't develop more of their reserves.)

While I note that OPEC announced a production cut, I have a few things I'd like to toss out and see if our oil smart members can explain any of it.

Price of oil per barrel was just above $60 in June 2005, it had dropped below $50 at the end of April. The average nationally was $50.23 per barrel, gas at 2.27 a gallon average. (According to a US DoE web site.) It was below two bucks per gallon where I live, when the summer hit in Texas. Gas did not raise above two bucks per gallon until Katrina and Rita hit, doing a hit to Gulf Coast supply, production, and refinery capacity, among other things.

The past three years have been unstable, but I sit here this evening, three years after the wild swings in oil prices began, looking at an oil market that has returned to the 2005 high. The price of Crude closed near sixty dollars per barrel this week.

Brent North Sea crude slumped to $61 per barrel, the lowest point since March 2007. New York’s light sweet crude tumbled to $62.65, which was last seen in May 2007.

http://www.dailytimes.com.pk/default.asp?page=2008\10\26\story_26-10-2008_pg5_10

Today I saw gas for 2.26 a gallon. I think the national average is near 2.60=2.70) (Am I close)

The relationship between crude and pump is starting to close, it seems. Am I being fooled?

My friends in the oil business, and in the refining business, point out that not only do we pay for the conversion of crude to product, but the cost of transport has to be figured in, which is why I don't think we will see gas at the same price relative to crude this time at the sixty dollar level as we did in 2005. Diesel is still grossly expensive, and trucks tend to burn diesel.

Likewise, I wonder at how producers and distributors are doing contracts these days, long mid and short term, with an eye on the general instability of the market.

Let's look at the last three years of gas prices, and what that did to other economic activity. I get the creeping feeling that it had a sustained negative effect, not just on American car makers, that is coupled to what has been going on recently, a crash that is in part due to a sustained loss in confidence.

Help me out here: how sensitive to gas prices is the consumer economy? I have wathced the past six weeks of crashing and burning with the same disquiet as many others, but all the while I have marvelled at the decoupling of the gas price baseline while all else went awry.

Not only Hugo Chavez need worry. If this represents a modest stabilization, all to the good, but it begins to cast ethanol as a less sorely needed "replacement" or augmentation for gas. (The economics and BTU per volume, cost versus output, have been covered in some other threads.)

But ethanol seems to me related to all of this economic mess lately. Over the past two years, we have seen a lot of food prices surge. Again, a necessity, a staple, in part due to speculation (we think) based on futures and crops for fuel policies, seem to have contributed to lowered consumer spending on all else, and thus the confidence dearth part and parcel to the bad news from Wall Street.

Hugo is right to be worried. If the economies all retract, he's quite possibly SOL on a lot of his long term plans. What has me a bit confused is the correlation between food, fuel, and consumer discretionary income that keeps money moving in an economy.

Help?

DR

 

[Just thinking]

Help me out here: how sensitive to gas prices is the consumer economy? I have wathced the past six weeks of crashing and burning with the same disquiet as many others, but all the while I have marvelled at the decoupling of the gas price baseline while all else went awry.

It appears to be very sensitive, as it surrounds us daily. Not only gasoline, but home heating fuel, airline fuel, labor intensive equipment fuel (machinery), non-aviation transportation fuel for food and other commodities (public and private) ... the list goes on and on. I suspect a good number of defaulted mortgages occurred as more and more folks had to divert their money to fuel costs and its effects.

But anyway ... here is an article that sort of confirms what I mentioned just earlier (post 163) as to a small drop in demand resulting in a huge drop in price. Less than a 10% drop in demand results in an over 50% drop in oil. I also suspect that since the US consumes 25% of the world's oil, any mention of increased drilling on our part, coupled with a desire to significantly reduce our dependence on foreign oil, had some effect as well.

 

[Francesca R]

Help me out here: how sensitive to gas prices is the consumer economy?

Arguably not all that much. After all, a fourteen-fold (1400%) rise in oil (I know that retail petrol did not go up that much--perhaps it quadrupled at the most) was something of a stern test, no? CPI inflation (headline rate including food and energy) did not get higher than about 5.5% y/y and is probably falling back now.

What has me a bit confused is the correlation between food, fuel, and consumer discretionary income that keeps money moving in an economy.

One (not the only) fuel--> food link is a) oil became more expensive, b) more policy backing was given (at least in the US) to maize-ethanol production, c) corn got a lot more expensive, d) demand for food substitutes for corn increased, e) prices of corn substitutes went north as well.

The case for alternative energy doesn't diminish as oil depreciates by the way. Oil producers, losing revenue from undiversified supply, actually have a greater incentive to develop stuff like sugar-cane ethanol. I seriously doubt that Brazil is ratcheting that down right now. In several countries that have subsidised retail petrol prices, there is an additional means to do this because the subsidy saving boosts available fiscal support for alternatives.

 

[Darth Rotor]

It appears to be very sensitive, as it surrounds us daily. Not only gasoline, but home heating fuel, airline fuel, labor intensive equipment fuel (machinery), non-aviation transportation fuel for food and other commodities (public and private) ... the list goes on and on.

Arguably not all that much.

In economics, as in medicine, getting a second opinion oft leads to being just as confused as previously.

After all, a fourteen-fold (1400%) rise in oil (I know that retail petrol did not go up that much--perhaps it quadrupled at the most) was something of a stern test, no? CPI inflation (headline rate including food and energy) did not get higher than about 5.5% y/y and is probably falling back now.

Fourteen fold? Francesca, over what period of time did that take place? From 1973 to now? I am puzzled over what you are telling me. From fifty dollar per barrel to about one hundred and fifty, or so, in the past three years was a three fold increase in raw material. Clarification, please?

One (not the only) fuel--> food link is a) oil became more expensive, b) more policy backing was given (at least in the US) to maize-ethanol production, c) corn got a lot more expensive, d) demand for food substitutes for corn increased, e) prices of corn substitutes went north as well.

Not being an economist by trade, I am not all that familiar with models that explore the synergistic effects of these sorts of inter related products and markets. Food prices going up was, IMO, a significant problem for the global economy, not just in selected spots, as I understand the Economist's past year's worth of articles on the topic.

The constant theme I see as a subtext is the issue of the opportunity cost in decision on how agricultural resources -- land and crop output -- get significantly altered by the larger scale entry into the energy business.

The case for alternative energy doesn't diminish as oil depreciates by the way. Oil producers, losing revenue from undiversified supply, actually have a greater incentive to develop stuff like sugar-cane ethanol.

Yes, I get that, with a non trivial impact on land use, agricultural capacity, reserves, and thus food prices and food base product futures markets. I sense a synergy, but don't feel very confident in how valid that is.

I seriously doubt that Brazil is ratcheting that down right now.

Yes, with an unknown environmental and domestic agricultural secondary effect. As I understand it, the sugarcane based ethanol is far more energy in/energy out efficient than, for example, corn or palm oil.

In several countries that have subsidised retail petrol prices, there is an additional means to do this because the subsidy saving boosts available fiscal support for alternatives.

I had not considered that issue. Thanks.

FWIW, this morning I drove past three different gas stations with 1.99 per gallon regular unleaded, 87 octane, gasoline. Diesel is still lots higher, around three dollars per gallon today. It was explained to me that this was significantly influenced by the switch to the low sulfur (15-50 part per million) sulfur diesel standard, and the lag in procuders converting diesel production processes to meet that.

Darnit, with fuel prices changing to significantly in the past month or so, I am wondering at how much impact dumping dollars had in our latest financial slump. I don't think it's that closely linked, for all that some folks who do currency trading have been making a killing of late.

DR

 

[Drewbot]

I think that perhaps the Oil Executives had a change of heart. If the 'Greedy Oil Executives' were at fault when gas/oil was high, perhaps they should go in front of congress and be thanked for allowing us to have these low gas prices.

Kudos to Dr. Walter Williams at Townhall.com for opening my eyes on this.

 

[Francesca R]

Fourteen fold? Francesca, over what period of time did that take place?

From 1999 (USD10/bbl) to mid 2008 (USD145). The rise was less measured in some other currencies but still dramatic.

Food prices going up was, IMO, a significant problem for the global economy, not just in selected spots

Well I pointed to why the rise in energy price produced broad appreciation of food crops, due to the knock-on effects of substitution. The damage to nutritional standard of living is greater the lower average income is and the less able government is to subsidise food. So in some poor countries with rubbish public finances (like Bangladesh) it has literally been a killer (and of course in war-torn badly governed third-world states).

Food supply is "inelastic" in the short term like oil is.

As I understand it, the sugarcane based ethanol is far more energy in/energy out efficient than, for example, corn or palm oil.

Correct. However not everyone grows sugar cane.

I am wondering at how much impact dumping dollars had in our latest financial slump.

None IMO. The fall in the dollar against other currencies (since 2002--G7, since about 2004--Asia) did not reduce the confidence in US assets (or sovereign debt) at all. I consider almost everything I read during this period, and now, about "the demise of the dollar" to be balls.

 

[maxfrost]

Just wondering here: Is the sudden drop in gas prices related in anyway to speculators being unable to cover their bets when the credit crunch hit?

 

[balrog666]

Just wondering here: Is the sudden drop in gas prices related in anyway to speculators being unable to cover their bets when the credit crunch hit?

Nope. Just a drop in demand from the USA. And Europe. And China. And ...

 

[Francesca R]

. . . Apart from the evidence that a large mass of hedge funds were long commodities and are having a terrible year (especially the last 3 months)

 

[Francesca R]

[ . . . ] want diggy's plan get out of debt. And buy oil in thestock market for the long term.[ . . . ]

[ . . . ] If the public gets on the oil band wagon, now thats a scary thought.. 300 to 400 dollar oil in just months. [ . . . ]

And . . . investors selling oil futures because they don't want so many of them any more.

Sensationalism, not critical thinking.

UR kidding me , what kind of critical thinker are you??? you seem to be very closed minded to make coments like that. Do some research on oil.

They can sell oil futures all day at $130 and people are buying them.. cause if people where not buy they would go down. [ . . . ]

[ . . . ] I never owned oil till it was like 50 bucks/barrel..But im still buying at 125, so i guess im the speculator..or fundamentalist [ . . . ]

 

[Mister Agenda]

Just filled up at 1.959 a gallon.

 

[Just thinking]

Last week I was in Florida and saw regular at $2.05. And that was on the Disney World property ... Hess brand.

This week in my home state there are places below $1.90.

Oil is now hovering around $55/barrel. Brent is a few dollars less.

 

[Tailgater]

1.72 yesterday

[ . . . ] I never owned oil till it was like 50 bucks/barrel..But im still buying at 125, so i guess im the speculator..or fundamentalist [ . . . ]

ouch.

Sorry Diggy

Avoid bandwagons and be safe.

 

[Tailgater]

Or the one left holding the bag.

Just thought I would bump this post to go along with above.