Interesting article on gas prices

[eclark53520]

Article

What do you guys think about this one?

I know there are other threads about the gas prices, but i think this one can be the "official" serious thread about why the prices of gas are going up. Whether it be truth to "peak oil" or just greedy bastards that own oil companies to the several thousand other reasons why gas is going up.

I am somewhat indifferent. Peak oil makes sense to me, but then supply and demand also makes alot of sense, and if the numbers in this report are true then the price is only going up for one reason...greed.

[Eracer]

Oh great. First we have a housing bubble brought on by greedy mortgage brokers offering sub-prime million dollar mortgages to people on welfare, and now we have an impending crash in the price of oil that will bankrupt all the hedge funds around the world.

What's next, a run on latex?

[MCDavis]

Originally Posted by Eracer

Oh great. First we have a housing bubble brought on by greedy mortgage brokers offering sub-prime million dollar mortgages to people on welfare, and now we have an impending crash in the price of oil that will bankrupt all the hedge funds around the world.

What's next, a run on latex?

Only in Tampa!

[Eracer]

Originally Posted by MCDavis

Only in Tampa!

Yeah, the girls here are using up a fair bit of the world's supply. Not that I'm complaining, mind you!

[MCDavis]

I appreciate that response!

[Eracer]

Originally Posted by MCDavis

I appreciate that response!

I'd worry about you if you didn't!

[wirehair]

Here’s a couple of serious comments from an old man with degrees in Economics, Accounting, an MBA, and who was a CPA. I spent a pretty good bit of my life in the Oil Bidness, and another chunk in the financial markets. Them’s my bonafides. Here’s my thoughts:

The claim in the article that speculators are driving up the price of oil by buying options is total BS. The oil futures market consists of buying and selling options, (puts and calls). In it’s simplest model, you pay for the right to buy a barrel of oil (or a bushel of corn) at a specified price on a specified date in the future. The options are written by a supplier who intends to deliver at that price. That type of market activity is used by the producers to lock in their prices in a volatile market. If you don’t want the oil (or corn), you have to sell the option, if not when the option comes due, you will need to pay for and take delivery of the oil. It won’t affect the market value of oil at all.

Oil is very inelastic in the short run. Using classical supply/demand economics, which is valid without significant external forces. This means that we’re not able to decrease demand in the short run. To decrease the demand for gasoline, the number of SUV’s and other inefficient vehicles must drop. If you sell your Yukon and buy that Cobalt you won’t change a thing, the SUV will still be on the road, using the same amount of oil, but some other sucker will use it. Demand won’t drop until the SUV gets melted down into 2 Cobalts.

Gasoline is the biggest part of the oil market, but a big drain on the supply is the demand for feedstocks. Just about everything contains significant parts of plastics, oil is the big source of raw material for plastics.

Probably the biggest new demand that seems to be “the straw that broke the camels back” is the growth of use in China and other third world countries. It's big and real.

There is no Big-Oil conspiracy, there doesn’t have to be. Demand is real, it’s growing, and prices are being bid up in the normal course of business. BP, Shell or Chevron have no motivation to get into bed with Exxon-Mobil. They’re competitors for supplies and bid against each other on the supply side. They also compete on the demand side of the equation, has anyone noticed a bunch of 2^nd tier retailers hitting the market? Valero et al. They see a market that can be very profitable and are getting into it.

Oil industry spin doctors are quick to point out that there hasn’t been a new refinery built in the US since 1976, and that’s true. The capacity of the existing ones have been dramatically increased. Shell’s big Houston refinery will expand to a million barrels a day in the near future. BTW, a refinery that gets shut down really takes a long time to get back to full production. When Katrina/Rita forced the shut down of that refinery, Shell lost a butt-load of profit because they had to buy refined products on the Market for their outlets. The quantities we’re talking about are huge. Imagine the logistical problems to move 38 million gallons of crude into and the resulting refined products out of that refinery each and every day. There isn’t a valve that can be turned on or off. To be profitable, a refinery has to run within a fairly narrow set of parameters.

The major oil companies are huge, publicly held, multinational corporations. The stock is widely held by millions of individual owners. It can be true individuals, or more likely by retirement trusts, and index funds. Probably most of us, or our parents are the indirect owners of these companies. There isn’t a room full of cigar smoking old men who have a plot to control the world, but each company is out to maximize profits and have become pretty good at it.

The only large-scale, successful use of alternative fuels is in Brazil. They’ve become pretty self-sufficient by creating ethanol from sugar cane. It’s more efficient as a source of alcohol than corn, and won’t put a drain on the food supply like the corn based plan in the US. However, think about all the environmental outcry about cutting down the rain forest, that land has been put into sugar cane production – millions of square miles of sugar cane that used to be rain forest. Someone's ox is always going to be (Al) Gored.

Our food prices are rising because this "renewable" source is someone's "better solution". This is probably the scariest thing in the whole mix. Folks get really emotional when they get hungry, and do some pretty dramatic things. You don't want to eff with the food supply unless you're looking for real trouble.

As prices rise, alternative sources become economically viable, Tar Sands and oil shale for example. If it costs $75 to manufacture the equivalent of a barrel of oil, and the price is $100 then extraction plants will be built, if oil is $60 a barrel, nothing happens.

So, before everyone gets to trotting out the tar ‘n feathers, let’s consider the facts. Tar is a oil product and it too is going to be expensive.

[Eracer]

So basically, we're effed, no matter what....

[eclark53520]

Originally Posted by Eracer

So basically, we're effed, no matter what....

thats pretty much what i got out of that...

[SiberianDVM]

I still think The Cabal is behind it all.

If I've got to pay $80 for a fill-up, I need somebody to blame while I'm pumping those 12 gallons.

[SilverUberXeno]

I didn't get "we're effed" out of that at all, UNLESS we pursue the corn-ethanol plan. That's pretty much a guaranteed disaster. Every intelligent thing I've read about that claims that it takes more energy to produce ethanol from corn than is actually gained in the form of ethanol. And of course it leads to food prices rising; assuming you could lower fuel prices with corn-E85, you're going to spend the extra money on food. Stupid.

Tar sands and oil shale are definitely a feasible method. I believe there are successful ways to extract the oil from, but that a full-scale operation will take a couple years to get under way. The economic fact is solid though; when oil was cheap and easy to come by via conventional methods, why bother with more tedious and difficult sand/shale operations? However, now, when conventional methods have become rather costly, the previously "expensive" sand/shale operation is quite appealing.

SUVs can save money/gas if used effectively in carpooling, as one big SUV likely uses less gas than 2 small cars, let alone 3+ or any number of larger cars. Sort of a small scale busing operation.

I just don't flip over gas prices. I work 2 part time jobs, sink more money into golf than I should, and attend college, but it still seems like a good value to me. Even if gas went up to 8$ a gallon, think of it like this...

I average about 27mpg in my car. In an hour, I can travel approximately 54 miles on two gallons of gas. Assume this is at 8$/gal, for a total of 16 dollars.

54 miles is a long way. Obviously at that price I'd be more critical about why I was traveling, but if I had motivation to get that far, what are my other options?

I could walk, but that would take probably 20 hours. Assuming I could have even HALF that time back working a minimum wage job (7.15 here), I've lost $70.15, but saved $16. Woohoo.

I could bike, but that would take at least 5 hours, and by the time I arrived I'd be in no condition to do anything. Even half of that five hours would still cost me more in time than the 16$ in gas would cost me.

My point is that gasoline, and the automobile, are such an incredible convenience that it will still be worth utilizing them even at 8 or 10 dollars a gallon, though certainly more selectively. This is why everybody whines about the gas prices, but doesn't reduce their consumption. It sucks to pay more when we didn't have to before, but there's no more economical way to travel, other than a motorcycle. For single-person transportation, motorcycles are actually a great idea.

[eclark53520]

thank god we dont have this problem...

[SilverUberXeno]

Originally Posted by eclark53520

thank god we dont have this problem...

L...O...L

A friend of mine has a younger sister who was doing a school mandated report on how awful global warming is (go figure) and in one of the picture she had a polar bear jumping off of an ice-block. The ice-block wasn't really in the shot though, so I had to say...

"If global warming produces flying bears, I'm all for it."

[Calhoun]

I over heard two iron workers talking in our shop before they left this morning to go to work. They were discussing gas prices. The old crusty dude said to the other one, "Gas is going up, groceries are going up, everything is going up except my MFing paycheck." I tend to agree in a way with him. I don't know about ya'll, but in the construction industry things have slowed down considerably since this time last year in my part of the world. I know that my company isn't giving out raises right know until we get some backlog built back up. Companies are taking work at very low margins right now. A few years ago I would see 5 or 6 companies at bid openings. The last one I went to there were 25 companies on bid list. It is harder to get work and you don't make as much on the work that you do get!

Thanks I need that.

[Eracer]

Originally Posted by SilverUberXeno

I didn't get "we're effed" out of that at all, UNLESS we pursue the corn-ethanol plan. That's pretty much a guaranteed disaster. Every intelligent thing I've read about that claims that it takes more energy to produce ethanol from corn than is actually gained in the form of ethanol. And of course it leads to food prices rising; assuming you could lower fuel prices with corn-E85, you're going to spend the extra money on food. Stupid.

Tar sands and oil shale are definitely a feasible method. I believe there are successful ways to extract the oil from, but that a full-scale operation will take a couple years to get under way. The economic fact is solid though; when oil was cheap and easy to come by via conventional methods, why bother with more tedious and difficult sand/shale operations? However, now, when conventional methods have become rather costly, the previously "expensive" sand/shale operation is quite appealing.

SUVs can save money/gas if used effectively in carpooling, as one big SUV likely uses less gas than 2 small cars, let alone 3+ or any number of larger cars. Sort of a small scale busing operation.

I just don't flip over gas prices. I work 2 part time jobs, sink more money into golf than I should, and attend college, but it still seems like a good value to me. Even if gas went up to 8$ a gallon, think of it like this...

I average about 27mpg in my car. In an hour, I can travel approximately 54 miles on two gallons of gas. Assume this is at 8$/gal, for a total of 16 dollars.

54 miles is a long way. Obviously at that price I'd be more critical about why I was traveling, but if I had motivation to get that far, what are my other options?

I could walk, but that would take probably 20 hours. Assuming I could have even HALF that time back working a minimum wage job (7.15 here), I've lost $70.15, but saved $16. Woohoo.

I could bike, but that would take at least 5 hours, and by the time I arrived I'd be in no condition to do anything. Even half of that five hours would still cost me more in time than the 16$ in gas would cost me.

My point is that gasoline, and the automobile, are such an incredible convenience that it will still be worth utilizing them even at 8 or 10 dollars a gallon, though certainly more selectively. This is why everybody whines about the gas prices, but doesn't reduce their consumption. It sucks to pay more when we didn't have to before, but there's no more economical way to travel, other than a motorcycle. For single-person transportation, motorcycles are actually a great idea.

Must...........not.................reply.......... ..........