Rising price of oil

[notorious bum]

The only shortage that will happen in the near future is the lack of cheap, easily-drillable wells that will hinder the oil companies' comfy profit margins that continue to set records. Statistically, the oil-shortage panic is a conspiracy made-up by big oil to back-up their whole "Demand > Supply" mantra that keeps gas prices from ever returning to "normal"

Someday = more like 30-40 years if we are stupid enough to never invest in future technologies and abandon any hope for mass-transit infrastructure in the U.S.

On a side note: How many months of oil reserves does the govt. hold during emergencies? Wasn't it estimated at 6 months pre-economy collapse, when everyone could afford to drive their Hummers offroad and shit?

I'm no expert, but I would assume $5/gal+ at the pump would warrant some sort of relief to prevent more bankruptcy/homelessness of the middleclass, eh?

[Drex]

The only shortage that will happen in the near future is the lack of cheap, easily-drillable wells that will hinder the oil companies' comfy profit margins that continue to set records. Statistically, the oil-shortage panic is a conspiracy made-up by big oil to back-up their whole "Demand > Supply" mantra that keeps gas prices from ever returning to "normal"

Someday = more like 30-40 years if we are stupid enough to never invest in future technologies and abandon any hope for mass-transit infrastructure in the U.S.

On a side note: How many months of oil reserves does the govt. hold during emergencies? Wasn't it estimated at 6 months pre-economy collapse, when everyone could afford to drive their Hummers offroad and shit?

I'm no expert, but I would assume $5/gal+ at the pump would warrant some sort of relief to prevent more bankruptcy/homelessness of the middleclass, eh?

Any government imposed restrictions will create a shortage. It always works out that way. There's no reason to continue pumping tons of oil if you're not making the profit you could be off it. They'll either stop producing so much until the restrictions are relaxed, or they'll sell it illegally at even higher prices than now since it's more risky to sell that way.

Then people blame the company or the government for the shortage, when they were the ones who demanded it (in the form of regulation) so much in the first place.

[kuronosan]

Well whats the argument against doing that here in the US? Could have farmers plant instead of using harvested corn I would imagine that would make both sides happy. Though I still believe diesel is an incredibly more efficient alternative.

It would piss off the CRA, which is the same reason they are trying to shove HFCS down everyone's throat. Money, money, money.

[Anton]

Now you're thinking with dollars!

Welcome to free market economics.

You know what I miss? When companies would give the illusion they competed. You'd have two gas stations on a corner and one guy would be like, .3 cents cheaper on the litre and steal all the business . Now it's pretty much preordained so accurately you can look them up days in advance.

[Cantih]

Saw this come up on the news last night due to Obama showing up in LA, and gas being an issue here.
http://www.cnn.com/2011/US/04/21/holder.gas.prices/

I doubt anything epic will happen, no oil industry Enron bust, and many will say it's just some political window dressing, but it's a step in the right direction.

[Zalius]

FOUR FUCKING DOLLARS A GALLON WHAT THE FUCK im typing with my pinky out oh god

[Drex]

Saw this come up on the news last night due to Obama showing up in LA, and gas being an issue here.
http://www.cnn.com/2011/US/04/21/holder.gas.prices/

I doubt anything epic will happen, no oil industry Enron bust, and many will say it's just some political window dressing, but it's a step in the right direction.

Declining dollar (inflation)
Processing 90% less efficient than it was less than a century ago
Oil prices rising faster than gas prices for decades
Gas prices in US a lot cheaper than in other countries
Lots of developing countries upping demand without nearly as significant an increase in supply
No alternatives that are as efficient or practical
Not a lot the government can do. It makes sense for gas prices to be going up.

[notorious bum]

I cannot even eyeroll hard enough to express how much bullshit that was contained in that last post.

[popsiclestix]

I thought Obama said recession is over in 2009 Core CPI is only 2%, says the Fed!

Gas prices are going up:

1) Declining strength in dollar. US Dollar is backed on its strength as the currency used to purchase oil. Other currencies debase their currency to sell their goods and commodities to the US. With the current debt that the US Holds (14 trillion and rising), there is obviously no end to the debt. Since spending is far exceeding taxation, the only answer is a weakened US Dollar.

2) Inflation. The US dollar is inflated. Remember, inflation is the increase in currency supply. More dollars chasing after the same products. Some people argue that "Oh look a loaf of bread isn't that much more. Inflation is tame!" They are using the Keynsian way in thinking. If you need more clarification, the US is in monetary inflation and has been rapidly increasing since TARP/QE.

3) Flared political tension in oil rich countries has caused panic and worry with investors. All assets (coffee, pork bellies, cotton, gold, etc) , however, are in the rise in price with respect to the dollar. In a sense, the dollar is weakening. America and the EU has committed to overthrow some of the regimes in oil countries, with the exception of Bahrain. However, cocoa beans don't count for invasion, which is unfortunate for Côte d'Ivoire.

4) In the past, we have had corrections that have counter-balanced after recessions. The US economy is typically in a 7 years boom-bust cycle. Each one has been getting bigger and bigger since the Federal reserve has been exercising monetary policies that cause the booms and busts. The 2008 "Slow Down" was just that. We had some banks consolidated, and a lot of business cut their work force, but the CDS and CDOs were much larger than that. The Fed helped avoid the unwinding. Unfortunately, since the government has invested and committed money for private institutions' decisions, the US Economy could suffer like the Greeks and Irish. The one country that didn't bail out their banks was Iceland. They had a tumultuous 2008 but are on their feet now, and having real growth.

The US is currently in a 0% interest rate mode. The poor will be poorer because rising prices. They will continue to be even more poor since most of their expenses goes to food and gas. The middle class and fixed income people are hurting because there is no net returns on interest rates when saving money. People are forced into stock markets, upside down mortgages, reverse mortgages loans, etc. Since the CPI is not being correctly measured, no one is getting more money who depend on COLA, Social Security, pensions, etc.

Back to oil, yes the price is going to keep rising, the supposed goal is $200 by summer. There is some conspiracy theorists out there and the one that is very amusing to listen to is Lindsey Williams. His "predictions" so far has been nearly spot on, with the 2007 price rise, then decline, and subsquent rise 3 years later. He was spot on with the price points and timing. His background is that he was the clergyman for some of the top oil execs a few years back and received inside information on the long term plans and goals. He was receiving more press a few months back by detailing a plan hatched in the 70's with Henry Kissinger, top 4 oil companies, Arabian countries that had untapped oil fields, and US Treasuries.

[Cadsuane]

I thought Obama said recession is over in 2009 Core CPI is only 2%, says the Fed!

Gas prices are going up:

1) Declining strength in dollar. US Dollar is backed on its strength as the currency used to purchase oil. Other currencies debase their currency to sell their goods and commodities to the US. With the current debt that the US Holds (14 trillion and rising), there is obviously no end to the debt. Since spending is far exceeding taxation, the only answer is a weakened US Dollar.

2) Inflation. The US dollar is inflated. Remember, inflation is the increase in currency supply. More dollars chasing after the same products. Some people argue that "Oh look a loaf of bread isn't that much more. Inflation is tame!" They are using the Keynsian way in thinking. If you need more clarification, the US is in monetary inflation and has been rapidly increasing since TARP/QE.

3) Flared political tension in oil rich countries has caused panic and worry with investors. All assets (coffee, pork bellies, cotton, gold, etc) , however, are in the rise in price with respect to the dollar. In a sense, the dollar is weakening. America and the EU has committed to overthrow some of the regimes in oil countries, with the exception of Bahrain. However, cocoa beans don't count for invasion, which is unfortunate for Côte d'Ivoire.

4) In the past, we have had corrections that have counter-balanced after recessions. The US economy is typically in a 7 years boom-bust cycle. Each one has been getting bigger and bigger since the Federal reserve has been exercising monetary policies that cause the booms and busts. The 2008 "Slow Down" was just that. We had some banks consolidated, and a lot of business cut their work force, but the CDS and CDOs were much larger than that. The Fed helped avoid the unwinding. Unfortunately, since the government has invested and committed money for private institutions' decisions, the US Economy could suffer like the Greeks and Irish. The one country that didn't bail out their banks was Iceland. They had a tumultuous 2008 but are on their feet now, and having real growth.

The US is currently in a 0% interest rate mode. The poor will be poorer because rising prices. They will continue to be even more poor since most of their expenses goes to food and gas. The middle class and fixed income people are hurting because there is no net returns on interest rates when saving money. People are forced into stock markets, upside down mortgages, reverse mortgages loans, etc. Since the CPI is not being correctly measured, no one is getting more money who depend on COLA, Social Security, pensions, etc.

Back to oil, yes the price is going to keep rising, the supposed goal is $200 by summer. There is some conspiracy theorists out there and the one that is very amusing to listen to is Lindsey Williams. His "predictions" so far has been nearly spot on, with the 2007 price rise, then decline, and subsquent rise 3 years later. He was spot on with the price points and timing. His background is that he was the clergyman for some of the top oil execs a few years back and received inside information on the long term plans and goals. He was receiving more press a few months back by detailing a plan hatched in the 70's with Henry Kissinger, top 4 oil companies, Arabian countries that had untapped oil fields, and US Treasuries.

So you just took an intro to economics course

[popsiclestix]

Nope...I haven't been to college in years, went to school for Computer Engineering actually.

[*Shinzon*]

Since we were discussing this with some regularity, and because I found this article today, I'd figure I should share this with some of you guys.

http://jalopnik.com/#!5795871/why-ga...n-they-go-down

Why gas prices go up much faster than they go down

Bob Sullivan, msnbc.com — Why gas prices go up much faster than they go downYou might have heard over the weekend that skyrocketing gas prices have finally "plateaued." If gas prices were like gravity, you would anticipate they would start plummeting soon. Raise your hand if you expect that.

Me neither. While the words "skyrocketing" and "gas prices" often end up in the same sentence, "plummeting" and "gas prices" rarely occupy even the same paragraph. In a perfect free market, prices should float up and down with equal speed. But in our market, what goes up doesn't seem to come down, at least not at once. What gives?

We've been told for months that instability in the Middle East spooked the traders who set gas prices, which are almost $1 per gallon more at the pump than a year ago. Prices jumped 30 cents from mid-March to mid-April alone, to an average $3.88 a gallon. What are odds, do you think, that average prices will return to $3.58 by mid-May?

The quick rise/slow fall phenomenon will feel familiar to most consumers, who often explain it with this conventional wisdom — greedy retailers take advantage of temporarily high prices as long as they can to sock away a little extra profit.

Economists tend to scoff at conventional consumer wisdom, but basic economic theory holds no explanation for the sharp rise/slow fall price pattern. Twelve years ago, economist Sam Peltzman — a free market advocate not known for consumer-friendly research — conducted a vast study of price "shocks," which could have dispelled these complaints as yet another whiny consumer myth. Instead, it fueled the fire. His review of 77 consumer goods that had been subject to abrupt price increases – including gas — led Peltzman to write a paper called simply "Prices rise faster than they fall."

"The title summarizes the main result: the person in the street is right and we are wrong," Peltzman wrote.(PDF) In fact, the results were so vexing he called it "a serious gap in a fundamental area of economic theory."

Consumers might call it price gouging; economists like Peltzman have settled on a more neutral term: "asymmetric price adjustment." And while economists have conceded this time that whiny consumers happened to be right, they aren't yet ready to sign up for their conspiracy theories.

For economists interested in the more general problem of pricing, gas prices are a fantastic real-world laboratory. Nearly all consumers need gas. Prices fluctuate often, and there is (theoretically) widespread competition, making gas stations a nearly ideal marketplace to study. And nowadays, thanks to services like GasBuddy.com, it's relatively easy to gather price data across wide geographic regions.

The first research into what some called gas price "stickiness" was published in 1997 by a research team headed by Severin Borenstein, who found that gas prices fall about twice as slowly as they rise after a price shock. For example, if prices rise 50 cents in four weeks, and the cause of the increase is eliminated, it'll take about eight weeks for the prices to return to pre-shock levels.

Matt Lewis, an economist at Ohio State University, has been studying gas prices for more than a decade. He's considered some of the usual allegations, like pricing fixing and collusion among stations. He doesn't entirely discount those, but he thinks he's found a better explanation for the fast rise/slow fall phenomenon. Here's his theory in a nutshell: When prices fall, consumers are so relieved that they stop shopping around for the best price. That eliminates the normal downward pressure on gas prices and allows stations to squeeze out a few more cents of profit while prices slowly fall.

http://cache.gawkerassets.com/assets...04/6527460.jpg

One chart from Lewis' research, showing the inexact relationship between wholesale and retail gas prices during 2003-2005 in the Los Angeles market. Notice the soft, rounded peaks on retail prices, as opposed to the sharp peaks on wholesale prices, showing that prices don't go down as quickly as they could. Also notice that stations' profit margins often shrink as prices rise.

"Consumers shop around more intensely when prices are going up. When they are falling, they don't shop around as much," Lewis said.

A key element of his theory is something economists call a "reference price." Your local car salesman might know it as "framing." Once consumers get a number in their head — $10,000 for that car, $3.70 for that gallon of gas — all subsequent choices are impacted by a new price's relation to that reference price. When the car dealer says, "OK, $9,500," you think you have a good deal. When the nearest gas station drops the price to $3.63, the average consumer impulsively stops searching.

"If prices are falling, you pull into a station and think 'I have a good deal,'" Lewis said.

The last big gas price shock — the speculation price bubble of 2008 — created a perfect opportunity for Lewis to test his theory. Consumers can use GasBuddy.com to search for the lowest gas price in their area. As prices soared in the first half of 2008, Lewis charted a similar spike in GasBuddy.com traffic. When prices fell that fall, GasBuddy.com Web traffic fell, too — showing gas shoppers became less interested in shopping around while gas prices waned.

Lewis' more recent research has added another nuance to his theory that might make consumer conspiracy theorists feel a bit better. Lewis has, for years, observed several Midwestern retail gas markets that don't behave like other U.S. markets. Intense competition in some small towns near his Columbus, Ohio, home has led to regular cyclical price wars. Stations undercut each other on a daily basis, engaging in short-term price wars that might drop prices from $2.50 to $2.38, for example. But after a few weeks, one station will bite the bullet and raise prices back to $2.50. Other stations follow suit. Then, the cycle begins again.

In these areas of cyclical price wars, Lewis has found that the fast rise/slow fall phenomenon doesn't apply. In other words, stations facing intense competition can't get away with what consumers might call "gouging" and economists call asymmetric price adjustment.

Lewis isn't ready to generalize those observations just yet, but conventional wisdom will tell you there's not enough real competition in gas prices. Twelve years ago, Pelzman predicted imperfect competition would be blamed for the sharp rise/slow fall price pattern. He dismissed that explanation as "unlikely to be rewarding."

But Lee Branstetter, an economist at Carnegie Mellon University, said that local monopolistic behavior is probably the fundamental cause of "downward price rigidity." When prices go up, retailers who don't react immediately lose money. Failing to raise prices in lockstep with higher wholesale prices leads to an obvious, quantifiable loss. But when wholesale prices go down, many gas station owners play the game every retailer does – "How much extra can I get away with charging before I lose consumers?" And even with competitor's prices so obviously posted, station owners face little risk in trying to grab a few extra pennies per gallon from drivers

"Retail gas sellers in the same neighborhood can function as a kind of local oligopoly," Branstetter said — a small group of businesses that collectively operate with monopoly power. And consumers are often loath to change their buying habits. "If you are lagging behind a little bit — all your consumers aren't going to desert you immediately. … (Consumers) are willing to be abused a little bit in the short run."

Any study of retail gas prices risks ignoring complex factors in a market that is anything but pure: The spot price is controlled by speculators making bets on the whims of the oil producing nations' cartel, the threat posed by government-subsidized energy alternatives and the likelihood of another environmental disaster, to name a few. A mysterious wholesaling and distribution system adds to the cost in difficult-to-measure ways. Also, gas stations often make very thin margins on retail gas sales – many use gas as a loss leader for chips and soda sales. As prices go up, their razor-thin margins shrink toward zero, Lewis said – and station owners naturally try to recover some of those lost profits as prices head back down.

Making the issue even murkier, behavioral economists will tell you, is the fact that gas shoppers are anything but rational agents who constantly seek out the best price. Instead, many are pesky realists for whom the nearest station will do. On the other hand, some consumers overestimate the true value of a cheaper gallon of gas, because they underestimate the cost of driving to get that cheaper gas (what economists call "search costs").

In "The Cheapest Gas in Your Area Can Cost More," Loyola College Professor Joseph Ganem makes the argument succinctly.

"If you drive five miles out-of-the-way to purchase gas in a car that gets 25 miles per gallon, that 10-mile round trip burned 0.4 gallons. If you drove that distance to pay $2.95 per gallon to fill a 12-gallon tank, instead of paying $3.00 at your local pump, you actually spent almost a nickel more per gallon for your tank of gas," writes Ganem, author of "The Two-Headed Quarter: How to See Through Deceptive Numbers and Save Money." He has a nifty "Is it worth it" calculator on his Web site.

It should also be noted that while retail gas prices – in fact, all commodity prices — remain artificially high temporarily, retailers can't get away with exorbitant overcharges for long. Gas price history bears this out.

"While it takes much longer for price of retail products to adjust downward, eventually you do observe adjustments," Lee said. "The forces of competition do eventually assert themselves."

Still, Lewis' theory has implications far beyond the gas market. If there is a general lack of price sensitivity when prices fall, basic supply and demand just took another body blow, and comparison shopping just isn't what we thought it was. The lesson for consumers is clear: As gas prices fall during the next few months, don't abandon the good price shopping habits you've acquired. While consumers tend to be hyper-vigilant while the price of gas is soaring, the real rip-offs will occur when it's declining – when you're likely to have stopped paying attention.

[Boyiee]

I can't decide if I want to trade in my explorer for a golf tdi/gti, or get a new bike. Really miss my f4i. Damn you oil companies.

[Ferion]

2) Inflation. The US dollar is inflated. Remember, inflation is the increase in currency supply. More dollars chasing after the same products. Some people argue that "Oh look a loaf of bread isn't that much more. Inflation is tame!" They are using the Keynsian way in thinking. If you need more clarification, the US is in monetary inflation and has been rapidly increasing since TARP/QE.

Just saw this. Either you're not being clear about your point or I'm not understanding what you're saying. People have been saying that inflation was tame until recently because during a recession aggregate demand decreases, which decreases the price level. Which is exactly why people like Bernanke weren't too worried about inflation while the economy was still struggling. Now that the economy is beginning to recover it is becoming a concern, which is why one of the biggest concerns of QE is when to start raising interest rates again. If you do it too soon you may stall the economy, if you do it too late then inflation gets out of control. Another reason is because of the Phillips Curve, in the short-run inflation and unemployment are inversely related. Speaking of inflation though, does anyone know what the inflation rate is now? I haven't seen any recent statistics.

[Drex]

Since we were discussing this with some regularity, and because I found this article today, I'd figure I should share this with some of you guys.

http://jalopnik.com/#!5795871/why-ga...n-they-go-down

One thing that always bothered me about my conventional economics classes was how heavily it relied on everyone involved being "rational". I called my professor on it when he mentioned it and he reassured me that "at the corporate and professional levels, it's true." I imagine he'd shit his pants if he found how much economics has been shifting towards applied psychology lately.

[Ferion]

Well isn't the definition of being rational just that the person maximizes their personal utility? I wouldn't say that's too far fetched of an assumption, although there is a decent amount of interesting studies in behavioral economics kind of contradicting that.

[Drex]

Well isn't the definition of being rational just that the person maximizes their personal utility? I wouldn't say that's too far fetched of an assumption, although there is a decent amount of interesting studies in behavioral economics kind of contradicting that.

Yeah but then you run into people who don't follow their own definition of maximum personal utility, like risk-averse people buying lotto tickets and joining raffles. It becomes a big old mess when you throw psychology into it.

[Restrat]

how do you maximize your utility? will a new pair of jeans make you happier than a video game of the same price? the idea that the choices people make actually can be rational at that level is preposterous. Everyone makes guesses, and we do so using our human brain, which is very irrational.

[popsiclestix]

Just saw this. Either you're not being clear about your point or I'm not understanding what you're saying. People have been saying that inflation was tame until recently because during a recession aggregate demand decreases, which decreases the price level. Which is exactly why people like Bernanke weren't too worried about inflation while the economy was still struggling. Now that the economy is beginning to recover it is becoming a concern, which is why one of the biggest concerns of QE is when to start raising interest rates again. If you do it too soon you may stall the economy, if you do it too late then inflation gets out of control. Another reason is because of the Phillips Curve, in the short-run inflation and unemployment are inversely related. Speaking of inflation though, does anyone know what the inflation rate is now? I haven't seen any recent statistics.

The inflation rate in America is always reported with hedonics as a factor, making the numbers incorrect. Talking heads on CNBC and Fox, economists, politicians, etc use the core CPI, which removes fuel and food from its metrics because "they are too volatile." Hence we do not hear about inflation, but we see it in the prices of commodities. Look at all the prices for futures in 2008-2009, they are all at least 1/2. However, we apparently don't have inflation? Wtf!

Inflation is the increase in money supply. Prices rise as a result of inflation. People saying inflation is the rise in prices is incorrect. We started to rapidly trend towards higher inflation since QE1.

Actually, in relative terms, price of gas is nearly flat in terms of gold. Maybe it is a bit cheaper than years ago, but its not bad.

http://bsfootprint.com/sites/default...ld-601x411.png

http://bsfootprint.com/blogs/bsfootp...lative-to-gold

[Ferion]

Inflation is the increase in money supply. Prices rise as a result of inflation. People saying inflation is the rise in prices is incorrect. We started to rapidly trend towards higher inflation since QE1.

Except you're incorrect. In the long-run inflation is affected by the money supply. In the short-run there are numerous factors that determine inflation. Also, after the 1980s commodity prices have been a terrible indicator of inflation rates. They actually generally tend to over predict inflation which is what you're basing your point on.