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On Gas, Cars and Bernanke
On Gas, Cars and Bernanke
Courtesy of Bruce Krasting
Everyone is talking about gas this past week, and for good reason. The price at the pump has been tearing higher. According to the papers this morning the national average price for regular gas is $3.65. Unfortunately for me, the price the media is spouting has nothing to do with my cost. As of this morning, my local gas guy is charging $4.85 for premium fuel, and that’s the stuff my car uses.
I doubt the numbers being bandied about regarding prices at the pump actually reflect the real economic consequences.
I'll probably take some flack for this, but I believe it's true. The only thing that matters is the price of gas in California and New York.
The USA has evolved into a two-tier gas market. The supply of crude from Canada and the Bakken fields has created a lower cost of supply for the central portion of the country. This differential is most notable in the market spread between WTI (a futures contract that settles physical delivery in Oklahoma) and LLS (Louisiana Light Sweet Crude) - the pricing of crude for the big Gulf refineries.
These charts show the WTI and the LLS pricing over the past year.
While both crude prices have risen significantly of late, what jumps out is that the LLS pricing broke through the highs of ten-months ago, while WTI has not.
Consider this map of the country. The green area is where the Canadian crude is helping to keep prices lower. The dark red areas are those that are dependent on the high-priced, imported crude.
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Gas prices are north of $5 in southern California today, but they are as low as $2.95 in Ft. Collins Colorado.
While this may make the folks in Colorado and North Dakota happy, it will crush the national economy. It doesn’t matter what happens in Co. or N.D., they have (relatively) no cars.
A few years ago, the Highway Transportation Department put out a report on registered vehicles by state. The total of all registered vehicles was 244,000,000. Of that total, 33 million were on the roads of California (13%), only 1.8 million (0.75%) were in Colorado, and a measly 700k (0.25%) were in North Dakota. The total of vehicles on the road in the states that are in red in the above map comes to 137 million. Fully 56% of all vehicles are in high cost states. Only 15 million vehicles (6% of total) are registered in the green states!
State GDP is directly correlated with vehicle registrations. The red-colored states, paying the highest prices today, represented 57% of 2010's GDP. Green states, contributed only 8% GDP.
My thoughts:
-Crude prices in Louisiana hit their highest in a year on Friday. If this level is sustained (or heaven forbid increases), the price of fuel in the red states will go up by 50 cents in the next few weeks. Forget about $4, start worrying about $5.
-California and NY will be hit the hardest. These two states represent 21% of GDP. It will be a big burden for the NY economy. For California, it could be a crushing blow. The national economy cannot expand without California growing. Cali is a very big portion of the pie.
-Given these facts, I wonder if the Administration is planning to release more oil from the Strategic Reserve. I bitched and moaned about this last July when the SPR was tapped. Following the June SPR sales, there was a multi-month drop in crude prices.
The SPR sales had little consequence; the drop in crude reflected a slowdown in global growth and an easing of concerns regarding Libya.
The Administration may look at the same charts as I did and conclude that it was the SPR sales that broke the market for a while. Folks who like to intervene in markets are biased to believe their intervention "works." This Administration would love to push down crude prices for another three months. It would take the gas story off the front page. It would help the economy from running into a wall.
This being an election year, it's possible that Obama will try an SPR sale. If gas is $5 in November, anything could happen.
If there were an SPR sale, any beneficial impact on prices would have a half-life of about 48 hours. This ain’t June 2011. If we should we see an SPR sale (low probability), buy that dip.
-The LLS crude price tracks Brent crude. (A tanker can go to Rotterdam or Louisiana, it will go to where the price is the highest.) If there is a Middle East supply disruption, it will affect Brent more than WTI. But for the red states, gas prices will track Brent.
-Greenspan remarked in July of 2010, “The economy appears to have hit an invisible wall." Bernanke reacted a few months later with his Jackson Hole speech that brought us QE2. In the Summer of 2011 the economy hit another of those “invisible walls.” Bernanke delivered TWIST and Perpetual ZIRP. I wonder if Ben will try QE3 if the economy hits another those walls due to rising gas prices.
The thing is, if Ben tried another form of QE/LSAP the price of crude would be up $20 in a week. Bernanke is another of those who likes to intervene in markets. He also thinks it “works.” It won’t work this time; it will blow up in his face.
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Just talked to my friend in Germany, over there premium has reached $9 per US gallon.
I really don't understand under these circumstances why people don't change more about their car preferences, we have the minicar options now or the car sharing options as well. The high gas prices is what convinced me to Go to MINI of Baltimore and switch for a lighter car, we should all keep our options open.
Bruce, received a mention of this from an email put out by FL Senator Nelson. Not sure if they're barking up the wrong tree? http://thomas.loc.gov/cgi-bin/query/z?c112:S.1598: Input?
Maybe someone else has pointed this out, but the location of refineries also has a lot to do with gasoline cost differences across the country.
http://abarrelfull.wikidot.com/blog:troubles-in-refining
http://www.eia.gov/neic/rankings/refineries.htm
http://www.eia.gov/energyexplained/index.cfm?page=oil_refining#tab4
Also, each state assesses a different gasoline tax.
http://www.taxfoundation.org/taxdata/show/26079.html
Regional price pumping.
I'm in one of the green zones, gas is $3.26 or so a gallon.
They are ramping the retail price in zip codes with higher income and/or greater % of government cheese $$$'s.
SSDD.
Food is probably little different.
Recovery, blah-blah, recovery.
Yeah, sure MSM.
Keep trying.
Generational theft on a global scale continues unabated.
Bruce,
Speak of the devil: http://www.politico.com/news/stories/0212/73279.html
There are elections to be waged.
Pete
Tks Pete. Unbelievable. These folks actually believe that intervention "works".
What they really want is to get elected. What a system we have....
BernaKKK and clown posse (read FED) pull up in clown car (read ECONOMY)(HONK), throw bags of $ to the crowd, waiving signs saying "WHAT INFLATION?" (PIE IN THE FACE), crowd (read UNEMPLOYED) eating peanuts cause that's all $ will buy, scoop up tiny paper bills in wheel barrows, while BernaKKK shoots expanding baloons "FOOD & ENERGY PRICES" down with CORE CPI cannon. All clowns get back in car and drive away pursued by elephant (read US DEBT), until wheels fall off car and elephant falls on car (read ECONOMY) and crushes it. Ring Master (read OBAMA) holds up sign "APPLAUSE" (read vote for me), and yells "ONE MORE TIME"! Is it just me, or are clowns evil?
When it comes to oil, supply and demand doesn't work.
http://www.gasbuddy.com/gb_gastemperaturemap.aspx
Save gas, fart in a jar. My own little fuel farm, run on pennies a day, with beer and pickled eggs making for the highest octane rating. That smell that does not kill you, makes you stronger. And, energy independent. Hell, on a dozen eggs, 24 beers, and five pounds off kidney beans a week, I can power a small Bartertown !
obama will make natural gas required for big rigs 10 years tooo late, gold will be revalued and become a portfolio investment 10 years too late, its already 10 years too late for most of us,,,,,,,,
"my local gas guy is charging $4.85 for premium fuel, and that’s the stuff my car uses" -
You driving an Aston Martin Bruce?
On a serious note, any insight on Maine being so high? It is arguably a very poor state, with a high per capita on welfare/gov't subsidies. It's so bad up there, I was recently sent an inquiry if I would mind environmental restrictions being lifted for coastal property owners (I have property on the coast). Obviously, it's a clear sign that they need tax revenue, and the only way to get it, is from out-of-staters to build more, but cant under current zoning laws.
I do not have an expensive car. But it does burn premium.
I think Maine is paying big bucks becasue of transportation costs. Same for Alaska.
Meh. Bruce, I support a lot of data networks in rural areas - if I don't take parts or equipment with me, I won't have any. Ever drive fly-over country? On a good day my truck never gets started - I work remote. On a bad day I'll burn 25-30 gallons of regular and consume what seems like a similar quantity of coffee.
I pays what I gots to pay.
To check realtime gas prices nationwide or the cheapest gas in yourtown, goto www.gasbuddy.com.
The banksters and Federal Reserve do not give rat’s ass about the real economy or gas prices. The only things that concern these lawbreakers are saving insolvent banks and manipulating the equity and bond markets.
The government focuses on the illusion of releasing America’s “Animal Spirits,” and expecting that to bring the US economy back to health. Barack Obama is the PR president.
Bruce -
You forgot about taxes.
States that are heavily democratic have higher gas prices in general because democrats are the "tax, tax, tax" party.
Gotta' get those revenues for all the state sponsored welfare programs.
To elucidate the taxing you have to think about why New Jersey has such cheaper gas than New York and Connecticut. It's because the state taxes are a lot lower on gas.
Regulation by state officials also plays a part. For example gas prices are higher in CA for two reasons #1 The taxes are high on gas in CA but also because CA gas stations have to sell a more enviromentally friendly blend of gas (which is more expensive) to help with the impact on the enviroment.
From http://unionwatch.org/california-does-not-need-a-tax-increase/
[quote]
Look at this disgusting list of California Agencies.
I sorted out some but not all of the more ridiculous ones.
Does the state need a ….
California does not need ANY of those. Moreover I assure you I missed dozens more that could be cut back if not eliminated entirely. What the heck do those cost? And how much can be saved by my suggestions above.
[/quote]
Yep... that's why the Red states on the whole get more Federal monies than they pay in taxes...
Hell CA gets 80 cents on the dollar....
Take your bullshit and peddle it elseswhere...
http://www.economist.com/blogs/dailychart/2011/08/americas-fiscal-union
State taxes, moron.
Did it occur to you that if a state is sucking at a Fed teat, that they don't have to have higher state taxes...
STATE taxes not FEDERAL taxes
Look at the map of taxes on gas by state ASSHOLE
http://www.easy-tax-information.com/state-gasoline-taxes.html
I'm not sure if you're smart enough to find it so I'll provide the link directly to the graphic.
http://www.easy-tax-information.com/support-files/gasoline-taxes-by-stat...
CA and NY pay the most in taxes on gas which is why they pay more per gallon at the pump.
I'd be willing to bet that higher taxes also come with a weaker economy by state. Why don't you juxtapose states with higher taxes and their respective UE rates. I'll tell you what you'll find because I've already done it: States with lower taxes and lower regulation have lower UE rates. Let that marinate.
Oh I long for the days long gone in days of old when petrol was as cheap as you have in the US.....
they have enslaved the people so they can only 'afford' the fuel to get to work to pay for the fuel to get to work to pay for the fuel to heat their homes to pay for the fuel that inflates the price of the food they need to eat that they have to pay for the fuel to get to the supermarket and pay for the fuel for the lorries to get the food to the supermarket.......
Fuck this noise. I'm buying a TDI.
Audi A3 Clean Diesel.
I'll summarize this and any other article that in any way insinuates that 2008 was merely an appetizer for what the near future (and in many instances, the present) holds:
The Bernank & the fractional reserve bankers of the world have so distorted the flow of capital and disrupted the natural rhythm of commerce that they have broken all markets.
The genie isn't going to be pushed back into the lamp.
Night, night, whatever degree of true capitalism and sustainable organic demand/supply derived economic activity existed in the past.
The central banks and their government puppets have crushed the skull of private enterprise with a big boot stomp to the face.
If you're not an insider & intimately connected to the upper tiers of central banks and their government proxies, in which case you're part of the Borg that's draining the lifeblood of free markets and entrepreneurialism, sleep tight. The choke hold has been applied.
*There are some successful entrepreneurs right now who have adapted to the times, so they think, and are doing quite well, by relative standards, even if they're fewer and further between. They have no idea that the contortions they've done to successfully adapt to a changing economic marketplace will all be for naught very soon. If they think they've secured their place in the sun through their talent, smarts and adaptation, they've deluded themselves. Their sweat & toil and willingess to risk their capital is all going to be annexed to keep the fractional reserve Ponzi going. In fact, they're the survivors, and are now on deck as grist for the mill.
that was a fucking SUMMARY?
Abridged summary, at that.
I'll second that motion. I have a large position in eur/chf, and rumor has it 20 large rests just below 1.20. I'll go long SNB!
I feel so sorry for the unfortunates driving exotic vehicles requiring premium fuel, the huge sport truck 4 x 4s and the twin turbo yacht owners.
And cheap vehicles like the VW Tiguan.
Exotics are not daily drivers. Kids need to get to sporting events, and Mom and Pop need to get to work! Last time I checked the state of California was the Nineth largest economy on Planet Earth. I'm half Expatriated, so there is room for statistcal improv!
The real kicker is Jet Fuel! No one discusses that? Also, why do we pay BRENT prices on the coast?
YC, you know damn well why you pay Brent indexed on the coast....
The rest of you may live in " BUM FUCKED" Egypt. But coastal California is approaching 6 dollars per gallon of " Hollywood" BULLSHIT!
I was watching the O'Reilly Factor the other day. Bill focused on a single topic: if we have ample supply of oil, why is the price going up? He had an oil industry representative on the show -- a great source to learn the truth.
The entire show was laughable. Bill, the price of oil is going up (even though there is plenty of it) because there are even more dollars and dollars are easier to make than oil. Dr BS Bernanke pushes a button and presto, another trillion dollars hit the street. Don't you wish he could do that with oil?
But first, Dr BS will destroy the economies of all those oil importing nations whose currency is something other than USD but must pay for oil in USD (except China, which has more than ample reserves of USD). Very clever!
Bill O'Reilly is laughable. His "shoooowwwwwww" (as he loves to call it) is geared for the retiree. In other words, incendiary commentary mixed with bleached blondes to titillate the octogenarians. I just wish one night that Gretchen Carlson's boobs would pop out. The broad has the hubris to talk about herself being a "parent"......sure Gretch..why not stay home in the mornings and give your hubby a blowjob then?
O'Reilly is more wrong than right, "uses" his bully-billy pulpit to ponificate all sorts of who-shot-John, and his only segment worth watching is Dennis Miller (but even he is getting redundant now; more fun to watch Millers Tum-Scum form on his lips a.k.a. spittle).
The Fox line up all night is getting pitiful. A grab bag of Dick "Rat Face" Morris, Karl "The RAT" Rove, Charles "I ate something awful" Krauthammer, and Bernie "Too Much Pancake Make Up" Goldberg.
Hannnity sucks. Greta is the ugliest man/woman on TV. 8pm to 11pm EST? Rehash city. Mind numbing tripe from the mind of Roger Ailes.
Beetle - Just turn it off already. Clearly you're putting way to much time into this. [The TV that is, not ZH of course.]
And what makes it different this time is that the increase in dollars is not resulting in any meaningful increase in supply....
Too much liquidity and plateaued oil production (in spite of it) is the meme du jour...
Why can't the Majors increase their production despite zero cost of capital???
And don't even play the enviromental card, it won't fly...
And the price of gold would be up $200.....also in a week.
Welcome to the rest of the $8 per gallon world, my friends.
BTW, if you amortize the annual costs of policing the Persian Gulf and South West Asia, the US driver is already paying well north of $7 per gallon on their way to $8.
that's my favorite part of the equation - GUESSING how much our real oil cost costs
US$6.10 per US Gallon in Australia. Price based upon Singapore TAPIS crude. Still cheap.
Bruce, there is also Washington state who has the highest gas tax in the union.
Car`isma! Chevy Volt or bust! Am I wrong? Fiat/Chrysler?
Well... you're asking for flack Bruce. New York's GDP is based on the productivity of it's financial slaves in the middle of the country.
Though people are feeling the pinch of the price at the pump, what do you think will happen when the farmers who have any capital left after MF Global start planting their crops?
Oil is pretty much involved in ANYTHING and EVERYTHING we use.
Transport by air, ship, rail, or truck is affected by oil.
Fertilizer is affected by oil.
Tractors, harvesting, and planting equipment is affected by oil.
Herbicides and pesticides are affected by oil.
Plastics for iwhateverthefuck are affected by oil.
But, fortunately, this is unlikely to affect CPI, and is only transitory.
If people are rioting over $220 shoes, I can only imagine what people will do when there is nothing in the grocery store, or when McDonalds rolls out the $100 menu.
Point noted but $220 glow in the dark Nike sneakers are a discretionary ( to say the least) item. My gasoline is not.
Premium for my car passed the $4 milestone in Sarasota yesterday. I bought a boat last month ( diesel) but if gas goes to $5+/gallon I just bet there are going to be some deals in the marinas this summer because a boat is just as discretionary as $220 glow in the dark sneakers!
$4.159 in Miami yesterday for premium.
Its free where I am at, you just need a plywood back window !!!