Saturday, February 18, 2012

Gas Prices are Increasing--Why???

Somehow the data is getting a little out of whack. Gasoline consumption in the US has decreased markedly. See the chart below. The last two dots tell it all.


This would lead one to believe that oil producers have cut production to keep prices from falling. Less gas is being sold, that implies less oil is being pumped out of the ground. There is one problem, the oil producers have grown accustomed to a lifestyle that did not anticipate cuts in production. Pumping less may keep the price high, but it won’t pay all of the bills.

The last time this happened, the OPEC cartel set quotas for each county, to keep the price of oil from dropping. It didn’t work, the price per barrel of oil fell off of a cliff. Officially, everyone was producing what they were allotted (and a little more on the side that no one knew about).

Prices are rising at the gas pump (4 dollars a gallon today), consumption has dropped and there is very little indication that the oil producers have cut production. It’s a given that refiners are only going to buy as much oil as they can expect to process and sell, while oil producers will tend to pump as long as they can sell their forward production into the futures market. There could be a meltdown in the oil commodities futures pit sometime in the near future.

There is one other possibility; Obama and Bernanke are printing dollars 24/7 and turning our currency into funny money. Below is how it turned out, once upon a time, long long ago . . .


We could be here. Early 2012 is just like early 1922.



You'll wish you had Obamacare if we get to here!



The only drawback to the opiate of printing money, is trying to stop. Either path is possible, my crystal ball is a little to foggy to see clearly. One sure thing, a fifty dollar bill won't fill my gas tank anymore.

23 comments:

Sackerson said...

Perhaps gas prices are rising because as volume shrinks, unit costs rise.

Paco Bell said...

Maybe refineries haven't cut back so much.

In a first, gas and other fuels are top U.S. export [USA Today]

"Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels."

"The last time the U.S. was a net exporter of fuels was 1949. That year, the U.S. exported 86 million barrels and imported 82 million barrels. In the first ten months of 2011, the nation exported 848 million barrels (worth $73.4 billion) and imported 750 million barrels."

It's a topsy-turvy world we're living in.

Jim in San Marcos said...

Hi Sack

I've seen something similar out here when we had a water shortage. Everyone was told to cut back on consumption. We did such a good job that the utility had to raise our water rates to cover their fixed costs.

The problem I see, is we are consuming less, but the oil producers haven't cut back on pumping it out of the ground---just yet.

Jim in San Marcos said...

Hi Paco Bell

Thats a great link, thanks for posting it. It was quite a surprise to see that we are exporting refined products on such a scale.

In a robust economy, selling to the third world makes sense. We are probably the most robust economy in the world and our consumption is down 30 percent. I would think that third world countries would have cut back just like us because of the economy.

Selling to the rest of the world at a better price than they can get at home makes sense. Reduced supply would tend to push our prices higher.

I am suggesting that if world consumption keeps at this level, oil production for the coming year has to drop or the price per barrel has to fall. There is too much supply in the pipeline. This is just calculations on the back of an envelope on my part, far from perfect.

My worry is that the price of everything is going up for quite another reason--the world printing presses are running 24/7.

Anonymous said...

I'm glad that I work at home in my home office and don't have to commute. Where I live I walk to the post office, grocery store, etc. and for most all of my errands. Walking is very good for you and keeps you in shape. My truck just sits in the driveway most of the time. Probably fill up the tank once every 2-3 months. So this isn't impinging on me directly but it will indirectly through food and other expenses.

We're all too "busy" to confront and deal with the scams, rip offs, nonsense, idiocies, corruption, and injustices stemming from our government, businesses, bankers, etc. Life and our standard of living and our futures would be a lot better off if we did confront and fix this out of control system.

dearieme said...

I'm baffled: why should the global production rate of oil, a globally traded commodity, be sensitive to the retail price of one refined product in one country?

Jim in San Marcos said...

Hi Dearieme

Welcome back.

Gasoline consumption has dropped about 30 percent. Each barrel of oil produces 19 gallons of gasoline. Oil production hasn't been dropping. At some point soon, there will be too much oil above ground for processing with no real demand for it.

Under normal supply and demand, the more the supply, the cheaper the price. Whereas the scarcer the product, the higher the price.

Even if the oversupply of oil was just notice, there is about a 60 day lag time from shipping, refining and getting it into your tank. If oil producers wanted to put the brakes on production, figure in, another 3 months on top of the two already.

The oversupply will eventually drive prices down at the pump, I'm just wondering why it hasn't started to happen yet.

The decreased consumption of gasoline makes things even worse, for every gallon over here, 40 cents goes to taxes. In your country, I believe it's double of that.

Even though the US produces 50% of its needs, it still the biggest consumer and imports the other half. So a 30% drop in consumption is more or less an indicator of the state of the world economy as a whole (not good to say the least).

Looking at the latest film from Greece, the question comes to mind; Are they buying lunch or spending it on a Molotov cocktail? (without the olive)

AIM said...

Greece, Portugal and Spain will eventually leave the Eurozone. It's a no brainer. Everyone is just holding off the inevitable. The silly politicos just can't admit that it doesn't work. It works in the US because there is mobility, etc. It can't work in EU because all of those nations are diverse and have completely different dynamics. They'd have to lose all soveriegn identity to have a fiscal union to support the monetary union. Ain't gonna happen. The experiment failed, drop it and get on with it. Same for the fiat/keynesian/central planning model of debt and spending. Face the facts, drop it and get on with a new model.

Jim in San Marcos said...

Hi AIM

I couldn't agree more. The Euro was a concept. The reality is that these are countries that don't want to be united, but they want the united country benefits. It ain't going to work. I have said many times in the past, the Euro is doomed, blame it on nationalism, and there is a lot of that in Europe.

Anonymous said...

Greece could drop a neutron bomb by just saying "no" and defaulting. The derivative credit default swaps on Greek bonds add up to trillions. A default would cause a domino effect that would wipe out so many banks and institutions around the globe we wouldn't know what hit us. The only way they could stop it would be to declare the CDSs to be null and void or define Greece's default as something other than a default. If they did that it would be goodbye rule of law and contractual law. Finally, the bankers and governments would get what they deserved. What they've had coming for so long. Would love to see the Masters of the Universe crash and burn. Love to see Lloyd Blankfein resign or get fired.

Anonymous said...

Back on subject...

Obama and the EU aren't helping matters with oil prices by badgering Iran with sanctions (stopping a country's ability to export and bring in income could be considered an act of war). Iran is the 3rd biggest oil producer/exporter in the Middle East. This and/or a war is the last thing we need. But Imperialist-Nation Building-Resource Sucking-Interventionist-Military/Industrialist America blindly goes forward bungling up the country and the world due to its political and corporate self interests.
We're all to stupid to get rid of our nukes, so... Iran deserves to have nukes just like eveyone else does (US, England, France, India, Pakistan, Israel, Russia, etc.). As if Iran would attempt to nuke Israel when Israel has over 200 nukes pointing at them and the rest of the Middle East. It's a big joke and the Big Bully USA is the cause of all of this.
Leave it up to Obama and our goverment and all the other clowns involved and soon we'll have $10 per gallon gas and all be riding bikes to work while Obama gets chauffeured around in a big ass gas guzzling blacked out Suburban limo.

Veterans marched on Washington yesterday to End The Fed and push the vote for Ron Paul. The mainstream media completely blacked it out so the public remains ignorant.

Wake up America you are programmed and controlled. You've lost your country. It's no longer the land of the free and the home of the brave.

It's a disguised police state that has cancer and will die out and lose its super power status.

Jim in San Marcos said...

Hi Anon 2:24

Your comments reminds me of a GI in Vietnam that threw a grenade into a grass hooch and laid back behind the outside of the hooch for cover.

Our retirement funds probably calculated that the return on the Greek bonds was well worth the risk if they bought insurance against default.

I'm just guessing, but the people who sold the default insurance, have a vested interest in Greece not going bankrupt. What's a hundred billion payed to Greece when several trillion are on the line in possible insurance payments?

I don't see the bankers and the governments getting what they deserved, its our money not theirs that will be lost.

This is not going to end well, the present maneuvers with Greece is to outfox the people who bought insurance. As you suggest, it could be rather explosive to world markets. Almost everyone bought the insurance without even bothering to buying the bonds. --I missed out, I should have bought the insurance.

Jim in San Marcos said...

Hi Anon 2:59

If I were you, I'd kick back, relax and have a couple of gin and tonics, maybe more than a couple.

I can see your frustration, but this isn't the same country it was 200 years ago.

Ron Paul has my vote, but lets face it, once you talk to 10 or twenty voters, you'd probably want to strangle half of them because of their political opinions. The guy that canceled my vote in the last election said he voted for Obama because he looked "presidential."

You need to lighten up a bit, Try using a setting of 6 on your flame-thrower for toasting toast. None of us are getting out of this alive anyway.

Anonymous said...

Jim,

I assume there is some hyperbole in your responses???

I do believe there will be very high inflation.

Anonymous said...

This is a spicy blog. Most of the posters on it are smart and alive. Tell it like it is and don't hold back. That has been our big problem as Americans == we don't want to rock the boat, don't want to be politically incorrect, don't want to be gloom and doom, etc.

C'mon the corruption and insanity is out of hand. Time for revolution and taking back our country.

Jim in San Marcos said...

Hi Anon 5:41

There is plenty of hyperbole. I try to keep a little levity in the comments section.

I don't think our worst case scenarios will come to fruition. Our imagination usually gets the best of us.

My vote is with inflation too, but inflation doesn't have to be very high to cause damage. 7% a year can eat you alive. It is a tax on savings which I consider insidious.

95% of the people in this country think gold has increased in price to $1700 and ounce and gas has gone to $4 dollars a gallon. In reality, the dollar has lost 75% of its value, and that's a hard concept to understand. Today's dollar looks just like the one printed 20 years ago. Go figure!

Jim in San Marcos said...

Hi Anon 6:31

Your comment "C'mon the corruption and insanity is out of hand. Time for revolution and taking back our country."----- Why don't we wait and see how it plays out in Syria first?

I have a solution that no one may like. Take the total you pay in taxes and that's how many votes you get to cast in elections. If you don't pay any taxes, you get to vote, but you get just one vote.

The thing that bothers me, is that there is a solution out there that none of us will like, that will get adopted, kind of like Obama-care.

Anonymous said...

Jim,

I laughed (sadly) when you wrote

The guy that canceled my vote in the last election said he voted for Obama because he looked "presidential."

In 1972 I worked in a national campaign. I'll never forgot someone commenting that they would vote for a candidate because they liked the suit he wore,

Some things never change.

Anonymous said...

No, it's all about the hair. The president has to have good hair. That is the main requirement.

That is why Ford turned out to be a rotten president.

Jim in San Marcos said...

Hi Anon 7:26

You've got it wrong. Ford was a rotten golfer. There are no rotten Presidents, just worthless voters.

This is the best attempt I've seen at hijacking a thread.

I recognize the dry humor, I think I know who you are.

Thank you for your off the wall comments.

Jim in San Marcos said...

Hi Anon 6:04

That's only the tip of the iceberg. I know two gun owners that look to see who's against gun control when they vote. I think that I can count 8 people that I know who voted for president on just one issue alone. A lot of voters are not focusing on the whole package.

My one well deliberated vote vs the one item voter. Kind of makes you wonder who holds the real power, the conscientious voter or the one item guy?

Anonymous said...

Look at these presidential candidates. Look what this un-American Obama has done to our country. Look at what we've been doing over the last 100 years or so to destroy this country. We blew it. We need to withdraw the American Revolution and contact King George's successor, admit we blew it and resume our status as a colony of England. Wait... that won't work because the monarchy there is now just an effete figure-head. They are degraded socialist too over there. We need a King a benevolent dictator. That is our only chance to steer away from smashing into a brick wall and dying as a country. What country has a benevolent dictator? We need to become their colony.

Or have a military coup that installs Ron Paul as our commander in chief and dictator.

Jenny Carlson said...

Pretty sure a big part of us in iraq ( ya know
..terrorists) .was to get fuel. I saw some documentary that spoke about the cheap price we get it there...

So gov/fed/ whoever elite is just profiting off us puppets