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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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Amazing what the underclass can do when they have all the time in the world to mob at the malls and spend your money.
Liam Halligan in today's Telegraph has this happy factoid:
"More than four-fifths of the world's major fields are beyond peak production. The output of the world's largest 580 oil fields is declining at a 5.1pc annual average"
Increased production from Bakken looks pretty shabby compared to that. So, to this non petro expert, the cheap oil is going away and, even if new oil can be found , it is going to be a whole lot more expensive to produce. Congress needs to take the SPR out of political hands. Using it to drive the price down does not benefit the American consumer as such a result would reduce global supply if successful as high cost production is shut in and then cause the price to climb even higher if any attempt was made to refill the SPR.
I know where that can find an alternate source of oil..
http://www.eszlinger.com/facts/humanbodyfacts.html
Rendering process.
Andrei Molodkin, the renowned Russian artist who made transition from ball pen sketches to three dimensional crude oil sculptures is now planning to go a step ahead and make the very crude oil from human corpses itself and use it for his sculptures. The artist has always been fascinated by cycle of life and death. After having worked as transporter of oil in Siberia during his soldier days he continues to see the world caught in the never ending cycle of Oil. It is the crude oil which comes from decades of decay of organic life form that finally sustains human life on this planet. There can be no human life without energy of oil. Crude oil is the main issue of world politics, economics and all the wars too. His art of using crude oil has been a global political statement as well.
However Andrei Molodkin’s main realm of exploration has been Death. He began sketching human skulls with ball pens while serving in Soviet Army. Later he created body parts sculptures with crude oil. But his latest thoughts and plans about extracting crude oil from human corpses and transforming the oil into an artistic form of sculptor is truly dark, scary but fascinating. He has finally not only conquered the fear of ultimate inevitable reality of death and finiteness of life but has also dared to make death of a human being immortal.
Human beings have always been buried, incinerated, fed to vultures after death depending on the dictates of various religions. Essentially life form gets reduced to basic elements of the planet. No one really knows what happens after collective atoms which form human body get dispersed. Death is the final full stop. A human life, a thinking loving person becomes formless and gets totally erased. But now Andrei Molodkin has given us another choice. To get transformed into a lifeless art form and become decorative pieces of our drawing room. He has found volunteers too for his experiment.
Artists have indulged in death art. Human bones, animal bones, teeth, animal horns, furs etc have been displayed as creative art forms. But mostly it has always been impersonal usage of body parts. One wonders if Andrei is truly conquering the inevitable death or mortality by giving a new form to a dead person. Can death be truly immortalized as an art form?
The true essence of a living person is not the material or the atoms he is made of, it’s the thinking, feeling and emotion part which forms the identity. That identity remains in the memories of people one relates to when alive. Man’s creativity and work too immortalizes him. This mad urge to deconstruct and reconstruct physical death seems equally futile. Instead of turning a corpse into carbon or other atoms Andrei’s plan of reducing it to crude oil and then pouring it into a mould to create art is nevertheless another deconstruction of Death.
Andrei Molodkin may have attracted controversies thanks to his plans to immortalize human beings by converting their bodies in to crude oil which could be used in art. However, this very idea of using the human body as an art form is a need which was not fulfilled for a long time. Perhaps, the human body is the most mysterious of everything around us. Our own bodies, but we know not whether they have a life of their own. It is immensely easy to explain the dynamics of human body and mind.
It is easy to say that the brain controls and commands organs to function, move or throb in a certain way. However, the ones that gave these convincing explanations would know that a lot about the human body still remains mysterious. One can control their environment, but strangely, their own bodies are beyond their control. The secrets that the human body holds may never be unraveled and artists like Andrei may seek to find an explanation for something that can’t be explained. Artists and scientists have desperately tried to explain the human body aesthetically and mechanically. Unfortunately neither gives a meaning nor explanation to this body that is so part of the self, yet so distant and strange.
In the end, the reduction of human entity to a pile of organic fluids can be devastating to the human psyche. This very fluid is reduced further to crude oil, which is what modern warfare is all about. The disgust and fear associated with one’s own and others bodily fluids and innards are a reminder that the human body is similar to that of an animal’s. This realization hurts the ego and denial sets in.
Search: Industrial boilers found at FEMA detention locations.
http://pimpinturtle.com/2009/09/21/swine-flu-internment-camp-documents-revealed-refuse-quarantine-its-off-to-camp-fema-for-you.aspx
Reference: Haliburton / DHS / Obama Care aka Health Care Bill. Could be something.
And yes, I wouldn't put it passed them, this is what your Government thinks of you! Read this if you have a minuite also.
http://pimpinturtle.com/2007/09/26/cia-plane-crashes-in-yucatan-carrying-32-tons-of-cocaine.aspx#comment-16201273
get back on your meds
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.
Why anyone wants to live in those red states (I used to) is beyond me. I can't say I know all of them, but the most populous, CA, is a poop hole and not much else.
You all missed the point. It costs more to 30 miles when electricity is involved. Perhaps GOD does exist! The junks are just juvenile.
I'll support " Rational" exploration. Parden the Pun Ladies. Public Schools.
5 dollar gas will only be 'transitory'. Wouldn't worry about it, we in the UK are well out of the 5 dollar transitory zone so we're all good now Bernankaman!
We need more Escalades on the road ...
And Suburbans ...
Does anyone know if the hype around thorium molten salt nuclear reactors is more than hype?
Hard to think of a civilian nuclear energy policy that does not funnel (if needed) into weapons.
Wish they would funnel some of the shit sitting around in i-Point somewhere else.
It is my understanding that a thorium reactor could burn it.
I am personally convinced that thorium molten salt nuclear reactors (LFTR- Liquid Fluoride Thorium Reactors) used to generate electricity (and for other uses) is the ONLY way to go. One ton of thorium can produce all of the electrical power used in the world for one year. Since test reactors were successfully built and operated decades ago it would not take much to bring this concept into commercial application.
This would not be good for the international oil companies, banks and governments that are constantly trying to control the worlds population and I believe they are suppressing this technology.
Start with this series of presentations: http://www.youtube.com/watch?v=D3rL08J7fDA&feature=player_embedded#at=111
Correction: One ton should read 5,000 tons.
For some unknown reason I can't get into edit mode!
What fraction of our transporation infrastructure is based on electricity?
There is your answer...
Also, the technology is not proven commercially (yet, I might add)....
It's rumoured that electrically powered locomotives have been perfected. Think how much diesel fuel that would save.
"What fraction of our transporation infrastructure is based on electricity?"
Who gives a shit?
There are only two ways to go here:
1. Kill off 90% of the worlds population (will you be in the 90%?).
2. Come up with an alternative to the use of oil.
If you watch the presentation you will see that 5,000 tons of Thorium is produced yearly as a waste product from one mine in this country!
whatever the source, it should (1) be sustainable (2) not destroy other vital systems (3) have some sort of worthwhile return on energy invested (4) integrate somehow into our exisiting systems (5) either be produced and delivered more locally or (6) not lose a significant amount in transition.
So many questions...
What are the components in the price/gallon in Cali vs, say, CO or SD?
What's the GDP per capita in Cali vs NY vs CO, SD, all the other flyover states? (please factor in your best guess to include illegal aliens (oops -- undocumented workers). Does government count as a positive or negative in GDP? Does the FIRE sector count as positive or negative? bea.gov site says that WaDC has the highest GDP/capita by far among US states. What do they "produce"?
Bernanke is an academic who has never held a real job before. How can you be surprised that he keeps doing dumb shit?
As for buying the dip on oil, I 100% agree. Oil is more valuable than gold or silver. It's the most valuable thing on this planet. I would store barrels in my yard if I could.
Nice article Bruce....
I'll link it the next time some yahoo tells me that Keystone is a panacea....
I don't live in the USa. Here in Euroland the price is already in the clouds, but 60% of it is tax. Our distances are lower and most urban dwellers do use mass transit. I hate to think what this means to "red state suburbia" USA, if the price goes to the levels we now encounter in Europe. Mass transit is weak in USA. It will hurt bad.
It already hurts many bad over here due to a 30 year low LPR and declining wages...
what hulk said
Save a fish, eat a pussy.
Fuck this, Oil dependency my azzz. Start fucking drilling. WH and COngress are giving each other blow jobs and sucking on Saudi Aramco. After 30 years you would think Amerika would have fucking learnt. My azzz USSA learnt crap. I hope poil in CA and NY does got to 5 or 6 dollars a gallon soon, I mean in a week or two.
We already did drill, we have more oil rigs / feilds in America then the world combined. Go check it out. We just don't use our own oil. Were an OPEC contributing Nation.. Duuh.
Who Chairs OPEC?
Penetta just said Iran isn't building a Nuke fuck weapon yeaterday. Hello? Told you I was right.
A view of Iran the chickenhawk war mongers don't want you to see. Don't be shy, dear Americans; have the decency to meet the people your tax dollars will soon go towards murdering.
https://www.youtube.com/watch?v=D61uriEGsIM
Come to the western U.S. They are drilling,(baby). There's a shortage of rigs even. All these rigs and the price shoots up. Must not be as much oil as the GOP says there is, eh?
How would you control the proles if not through the gas pump? Tailgate parties are less fun when the guage is on "E".
On a serious point. Look Up battery producers. Look at the waste involved. Look at input costs ( vs ) output!
I guess all those " HOT GIRLS" , have a job. PUSSIES! BTW! I'm a single white Male!
I like it that way! Pussy is over rated><
It's like a gang of kids with a chemistry set. They throw a bunch of flammable stuff together then are really surprised when they burn the house down. No grownups in sight to tell them what to do.
Just where exactly did they think all those dollars/euro/yen would end up anyway?
Can't we get some adult supervision around here?
My only comment about the article is....of course the prices are highest in the states with the most cars. If there are more cars, there is more demand. More demand (and more difficult or less supply) and you get higher prices.
New Jersey, at one time, was a primary port for oil and a major refinery state. We used to have some of the lowest gas prices in the nation. No longer, we are somewhere in the middle. But then again, NJ is the most densely populated state and in terms of size has the most traveled roads. That puts pressure on prices.
It does indeed put major pressure on the cost of living. So I'm taking my job and moving to Wichita. If my company will let me. I've been told we live in a mobile work environment. I'm willing to test it out.
I respectfully disagree. The price of gas is highest on the coasts where the politicians look at cars as revenue opportunities. NY (red) has extremely high taxes on fuel, and as the map shows, NJ (yellow) much lower. The real difference from the Hudson valley in NY to western NJ is on the order of 35 cents which is almost exactly the tax differential.
Gas is easily transported and it goes where it is needed. I don't believe population or traffic density is a driver of price. Jersey is still an important destination for crude and is the regional supply center for hundreds of miles around. We celebrate this importance by not allowing you to pump your own gas....
As far as moving, if you are leaving the Garden State, good luck to you. Chris Christie has not been able to clean out the Augean Stable of ill-concieved regulation, waste and excess tax that is the statehouse.
Yes, fuel prices have always been higher on the coasts. But we are in a different situation as we have been in the past. The price is now ~$2. You can see this in the difference between WTI and LLS (20+%).
The ABC clip that I got the chart of the red and green states follows. Have a look. It may convince you that what the USA is paying (based on GDP) is crude at 130, not 108.
http://abcnews.go.com/wn
Bruce,
When the Seaway pipeline reverses starting in June ( will move 150 mbd from Cushing TO the gulf coast) ramping upto 450 mbd by Jan 13 the WTI market will start to move up to the Brent price. It currently runs south to north.
If you note there is no comments about Seaway it has all been about Keystone. The benefit of Keystone would be to back out the heavy crude that gulf coast refiners are currently buying from Venz. making it more difficult to sell their crude.
It as if no one in govt has even a semblance of the truth and the facts. Even o'Reilley spouts his it is the speculators fault line all the time.
It is very possible given the reserves of the Bakken and other fields combined with the new technology that we could become close to the world's largest oil producer in 10 years. Would sure change the dollar is weak scenario. Unfortunately current policy and the debt structure we face might not let us get there.
If you ever want to chat about oil love to share thoughts, love your stuff.
What the fuck is wrong with all you people. YOU DO NOT use your own precious resources whilst some other idiot is happy to accept little green pieces of paper for them. PERIOD.
nor do we accept little green pieces of paper for our GOLD bitchez
Yet bullion dealers continue to accept mine. Either they are stupid, or I am.
only if you hold on to your dollars... stacking dollars in this day and age maybe not the best strategy
U.S. has 47,000 miles of paved interstate & Americans drove 2.9 trillion miles in 2011, the lowerst since 2003. America's population is China populations rounding error. Globalization was a fucking asinine idea.
That took some work! Thanks for the stats. +1
i want my old slant six, best damn car engine ever created
http://www.youtube.com/watch?v=3GC0W11UFu8
Solyndra [ cubed ]
Bumper stickers seen in the USA in 2003 as the 2nd Iraq war invasion was starting:
"KICK their ASS ... TAKE their GAS!"
So now, if US President Mr Obummer promises lower gas prices from an Iran invasion, conducted alongside his fellow oligarch puppets running the Israeli branch of the syndicate ...
Does he also get a PASS so he can take their GAS?
http://t2.gstatic.com/images?q=tbn:ANd9GcTT39loxBaVZWCyWZgtjopz_NQIq-oJL...
Too many pussies playing with their IPADS in Amerika.
Iraqs government is failing---they are running into Iran's arms, who is running into Communist China's arms. TAKE their GAS & GIVE IT TO COMMUNIST CHINA
in that order of effect
Why is Alaska dependent on imported crude? I guess there are no refineries up there. But it is ridiculous nevertheless.
Everytime I think we have hit peak stupidity, a politician opens his mouth, and I realise I was wrong.
Bruce, I live in Colorado and drive a 2001 Honda Prelude which also requires premium gas. I filled up with premium at the cost of $3.31 per gallon just to confirm your sorry. This was 15 minutes ago. Milestones
All cars sold in the US must run on regular gas, ignore your owner's manual, they are trying to make you believe you bought something special...
Is there a regulation to that effect and if so when did it apply? Some older muscle cars have problems with regular, but newer computer controlled fuel/ignition systems not so much.