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Guest Post: The Story Behind US Gas Price Pain

Tyler Durden's picture




 

Submitted by Martin Karusa of Casey Research

The Story Behind US Gas Price Pain

Gasoline consumption in the United States has been dropping for years. In the last decade, vehicle fuel efficiency has improved by 20%, and the combination of that shift and a weak economy of late has pushed gasoline demand to its lowest level in a decade.

At the same time, US oil production is at its highest level in a decade. Deepwater wells in the Gulf of Mexico and horizontal fracs in the Bakken shale have turned America's domestic oil production scene around. After 20 years of declining production, US crude output rates started to climb in 2008 and have increased every year since.

With production up and demand down, the basics of supply and demand indicate that oil prices should be falling. Americans should be paying less at the pump.

Instead, the average US price at the pump reached US$3.80 per gallon on March 5, after 27 consecutive days of gains. That's 26.7¢ above the old record for March 5, set last year. The price of gasoline has climbed 32¢ or 9.3% since February 1; analysts expect prices to continue rising, reaching a national average of something like US$4.25 per gallon.

What gives? Is it all about Iran? Are speculators manipulating the market? Do any politicians have good ideas on how to "fix" the high cost of gasoline? And is there relief on the horizon?

What gives is a combination of forces. Rising tensions in the Middle East are part of the problem, but so are deficiencies in North America's oil infrastructure that are causing price discrepancies across the nation. Some of the refineries being forced to pay premium prices for oil are shutting down, and that limits gasoline supplies in parts of the country. Speculation is also a factor, as it is an ingrained part of the market, but it is not the driving force behind America's fuel-price problems.

If you're wondering, there aren't any politicians with novel, sound ideas on how to reduce fuel prices. Newt Gingrich's promise to bring prices below $2.50 a gallon is as attainable as Michelle Bachmann's plucked-out-of-the-air promise of $2 gasoline.

Thankfully though, there is some relief on the horizon. First, we'll tackle the issues. Then we'll outline some developments that should ease the pain.

A Two-Part Problem

Two main forces are driving fuel prices upward in the United States: high global oil prices and the state of the US oil transportation and refining industry.

High oil prices are the more obvious part of the problem and are certainly the part that attracts the most attention. Tensions in the Middle East have been elevated since Tunisia's revolution kick-started the Arab Spring in January 2011. Subsequent revolutions in Egypt and Libya as well as the oftentimes violent suppression of dissent in Bahrain, Jordan, and now Syria have kept questions about the stability of supplies from the oil-important Middle East front and center all year.

Now, of course, it's Iran that is keeping oil traders up at night. Between oil embargoes against the country and threats from Iran to block the Strait of Hormuz (a maritime passageway vital to the oil industry), the growing rift between Iran and the Western world is threatening supplies from the world's fourth-largest producer. That's a surefire way to push oil prices skyward.

The result: Brent North Sea (the pricing benchmark for crude oil traded in Europe) climbed above US$100 per barrel a year ago and hasn't looked back. Since last February Brent crude has traded above US$110 per barrel more often than not, and has regularly topped US$120 per barrel.

The Middle East's ongoing tensions also lifted crude prices in North America: After sitting comfortably near US$80 per barrel for most of 2010, the price for West Texas Intermediate (WTI) rose above US$100 several times during 2011 and averaged close to US$90. Yes, it moved much less than did Brent; moreover, not all crude oils in North America had similar boosts. To understand that situation, we have to delve into America's oil transportation and refining system.

The US is divided into five oil districts, which were originally designed to ensure energy security during World War II. Things have certainly evolved since then, but the districts remain less connected than you might think. Crude oil cannot necessarily flow from one side of the country to the other or from one producing region to another refining area. The system's disconnectedness means that refiners in different regions are forced to pay whatever the price may be for the crude oil they can access – and those prices differ significantly.

East-Coast refiners have traditionally relied on imported oil from Europe and West Africa, which means they pay Brent pricing for most of their crude. As such, Brent's surging price has dealt a blow to East-Coast refiners, hitting several so hard that they are shutting down. No fewer than four refineries serving the East Coast are going or have gone offline since 2010, eliminating almost half of the gasoline previously supplied to the US Northeast. Knowing that, high gasoline prices in the Northeast start to make a bit more sense: Refiners' costs have been sky high, and refinery shutdowns have eliminated a huge chunk of supply.

Similarly, refiners on the West Coast receive some supply from Alaska but depend on internationally priced crude for the bulk of their input. Their need to pay Brent pricing explains why gas prices in California are regularly among the highest in the nation.

At the other end of the spectrum are refiners in the Midwest. The oil hub at Cushing, Oklahoma, is being increasingly inundated with crude oil as production ramps up in North Dakota's Bakken formation and in Canada's oil sands. Crude from both of those rapidly-expanding oil regions flows primarily to Cushing, where refineries process as much as they can. Those refiners are able to buy at WTI pricing, which has held a roughly 20% discount to Brent crude for the last year. That helps keep gasoline prices in the Midwest a little lower.

However, Midwest refineries are generally designed to process light, sweet oil, which means they can handle output from the Bakken but are not up to processing heavy oil from the sands. Oil-sands crude needs to go to the Gulf Coast, where an army of sophisticated refineries are thirsty for heavy oil. All that is lacking is a pipeline to connect supply with demand, but at the moment there is no such pipe; thus, the supply glut at Cushing has discounted heavy oil significantly. Western Canada Select, the benchmark crude oil coming out of Canada's oil sands, closed at US$74.73 per barrel on March 5, a 30% discount to WTI and a 40% discount to Brent.

There is cheap oil available in the United States. You just have to be able to transport the crude from Cushing to your personal refinery to take advantage of it.

One final element is making matters worse: Refineries are currently starting to shift to producing spring-summer gasoline blends, which are lighter and therefore usually cost about 10¢ more per gallon than fall-winter blends. And this year, the quick refinery shutdowns needed to enact the seasonal shift are creating slight supply gaps because some of the "swing" refineries that usually help bridge the gap are no longer operating. For example, the Hovensa refinery in the US Virgin Islands – a joint venture between Hess Corp. (NYSE.HES) and Petroleos de Venezuela – used to produce extra volume during the seasonal transition, but it was closed down a few weeks ago after losing $1.3 billion over the last three years.

Lights on the Horizon

Both sides of the problem – high oil prices and insufficiencies in America's oil infrastructure – will develop over the next 12 months. On the infrastructure side, we can be pretty certain that the developments will be positive. One pipeline that for years has carried oil north from the Gulf to Cushing is being reversed, which will start to ease the heavy-oil glut within weeks. TransCanada recently announced that it is seeking expedited approval to start construction of the southern leg of its Keystone XL pipeline, which will also connect Cushing to the Gulf Coast. Since there is nothing controversial about the southern portion of the project it should be approved quickly, in which case TransCanada hopes to have the pipeline built and operational by the middle of next year.

These pipelines will enable America's army of Gulf Coast oil refineries to purchase North American crude oil. When that happens, Western Canada Select will not maintain its current 40% discount to Brent, but it will almost certainly remain cheaper than its European counterpart, creating cost savings for US refiners that they will pass on to consumers.

As for high oil prices in general, the biggest question there is Iran. If Iran blockades the Strait of Hormuz, oil prices will shoot up. If Israel or the US sends in air strikes against Iran's nuclear facilities, the same thing will happen. The average price of gas in the United States would likely top US$5 per gallon. However, if war can be avoided, the price of oil should start to recede as fears abate; if oil sanctions against Iran stay in place, Saudi Arabia should be able to step up production enough to replace the lost volumes. Under this scenario the price of a barrel of Brent oil could fall below $100.

The level of warmongering from all sides seems to change on a daily basis, so we are not prepared to make any predictions about whether an attack on Iran is imminent. However, there are ways savvy energy investors can profit from this uncertain situation as well as other shifting trends. Get our free 2012 Energy Forecast to get started today.

 

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Thu, 03/08/2012 - 18:31 | 2237523 mophead
mophead's picture

The reason oil is climbing is because of massive global currency devaluation. That's all you need to know.

Thu, 03/08/2012 - 18:44 | 2237559 r101958
r101958's picture

That is one of the reasons and seems to be the most popular. It is only one of the reasons though.

Thu, 03/08/2012 - 19:11 | 2237609 ZerOhead
ZerOhead's picture

Prices are also up by 50% in Venezuela year over year. Of course Americans who support 'free markets' would be rioting in the street if they only had to pay the ridiculous 18 cents per gallon the Venezuelans pay at the pumps.

http://www.msnbc.msn.com/id/46580113/ns/business/#.T1k7m4Elt1I

Thu, 03/08/2012 - 21:22 | 2238085 sun tzu
sun tzu's picture

The government/citizens are subsidizing that 18 cents per gallon gas. It's coming out of the citizens' pockets either way. They could sell that gas at market prices overseas and bring in billion more in revenues or they can sell it for a fraction of the cost at home. 

Thu, 03/08/2012 - 20:49 | 2237977 mophead
mophead's picture

Devaluation is Thee reason and only reason.

With that said, I should clarify: money printing alone does not cause price inflation. Most people believe the dollar is being devalued through excessive credit creation/money printing. But that has a limited effect. It actually works the other way around: price inflation is caused through the upward manipulation of core commodities and core services, which then trickle-down to the finished goods and services we buy. Naturally, oil is a key component in that it drives up gas prices, then transportation, etc.

Thu, 03/08/2012 - 22:56 | 2238363 Taint Boil
Taint Boil's picture

 

 

Well according to this chart the supply is pretty flat no matter what the price. You can buy a gallon of gas for a dime.

Thu, 03/08/2012 - 20:49 | 2237981 mr. mirbach
mr. mirbach's picture

Peak Fiat

Fri, 03/09/2012 - 04:33 | 2238911 tabasco71
tabasco71's picture

Sorry, but the bears taught me all I needed to know about this... 

Fri, 03/09/2012 - 06:16 | 2238982 BlackVoid
BlackVoid's picture

No, the number one reason is falling oil exports in the last few years.

Thu, 03/08/2012 - 18:31 | 2237524 Hedgetard55
Hedgetard55's picture

No mention of Central Bank liquidity tsunami???

 

FAIL.

Thu, 03/08/2012 - 18:53 | 2237588 lunaticfringe
lunaticfringe's picture

Shit you guys are unmerciful. Other than the currency devaluation meme, I thought the info was good and made sense. Shit, cut somebody a break...

Thu, 03/08/2012 - 21:52 | 2238186 espirit
espirit's picture

Perhaps consideration could be given to nationalization of those refineries shutting down.  Shouldn't constriction of this national resource be considered domestic terrorism?

Rules to play by - Call DHS.

Thu, 03/08/2012 - 18:32 | 2237530 Doubleguns
Doubleguns's picture

Plunging dollar bitchez. Priced in ounces of gold oil is still reasonable.

Thu, 03/08/2012 - 18:48 | 2237533 Zero_Sum
Zero_Sum's picture

The author completely overlooks the cost of crude production. Yes, we're producing more crude than we were in 2008. But the methods we have to use to produce crude now (shale, sands, deepwater drilling) are much more costly and energy intensive. This effectively places a floor under the base price.

T. Boone Pickens gave an interview where he talked about oil sands. He said he visited the Canadian fields in the 70's and walked away laughing. "You'd need $50/barrel oil for that to be profitable!" he'd said at the time. That would be $50/barrel in 1970's dollars. Our current methods of production are only profitable enough to continue as long as prices stay high.

...or let me sum it up more simply: Peak Oil, Bitchez!

 

Thu, 03/08/2012 - 21:04 | 2238019 FrankDrakman
FrankDrakman's picture

T. Boone Pickens gave an interview where he talked about oil sands. He said he visited the Canadian fields in the 70's and walked away laughing. "You'd need $50/barrel oil for that to be profitable!"

That would be the same savant who invested millions in Texas wind farms, only to shut them down when the government gravy ran out? Here are some facts on oil sand production costs and profits:

As of 2007, crude oil prices were significantly in excess of the average cost of production, which was about $28 per barrel of bitumen. However, bitumen production costs are rising rapidly, with production cost increases of 55% from 2005 to 2007, due to shortages of labor and materials.

In mid-2007, Royal Dutch Shell announced that in 2006 its Canadian oil sands unit made an after tax profit of $21.75 per barrel, nearly double its worldwide profit of $12.41 per barrel on conventional crude oil.

Thu, 03/08/2012 - 21:44 | 2238152 Papasmurf
Papasmurf's picture

Pickens didn't care about wind farms.  His motive was a land grab to build a water pipelines from the Ogallala aquifer.

Thu, 03/08/2012 - 21:59 | 2238219 Augustus
Augustus's picture

Nonsense.  He bought hundreds of millions of dallars of the whirlygigs that became a writeoff when they could not be used.

Stop the nonsense of the smear.

Thu, 03/08/2012 - 21:30 | 2238107 sun tzu
sun tzu's picture

That's also $50/brl in 1970's technology. Oilsands companies like PetroCanada, Imperial Oil, and Suncor are making a killing. It's more around the $40/brl range now depending on the type of soil and density of the oil

Thu, 03/08/2012 - 18:37 | 2237541 Mr. Lucky
Mr. Lucky's picture

No mention of how user friendly the EPA is.

Thu, 03/08/2012 - 18:37 | 2237542 asteroids
asteroids's picture

Oil should be refined where its pumped out of the ground.

Thu, 03/08/2012 - 18:54 | 2237591 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

That works until the hole goes dry. Refineries are expensive and NOT portable.

Fri, 03/09/2012 - 00:53 | 2238537 r101958
r101958's picture

Oh no!! they never go dry....just think of all that abiotic oil bubbling up.  It is just speculators and govt printing and greedy oil companies and and and and and and....

Actually they don't go dry - they just start to cost more than they are worth. However, now some 100 bl a day plays are getting uncapped because oil prices are high enough that they can again produce a profit. Oh wait...profit is a bad word, right?

Thu, 03/08/2012 - 18:38 | 2237543 leathaface
leathaface's picture

These pipelines will enable America's army of Gulf Coast oil refineries to purchase North American crude oil. When that happens, Western Canada Select will not maintain its current 40% discount to Brent, but it will almost certainly remain cheaper than its European counterpart, creating cost savings for US refiners that they will pass on to consumers.

dont think that is going to happen.

Thu, 03/08/2012 - 21:35 | 2238124 sun tzu
sun tzu's picture

refiners don't control the cost of gas. if you want to blame anyone, blame the futures traders. look at the profit margins for refiners. it's usually less than 10%. they live on razor thin margins. if it was such a profitab;e business, there would be refineries popping up everywhere (subject to EPA approval)

Thu, 03/08/2012 - 22:02 | 2238229 leathaface
leathaface's picture

just sayin, that i dont think most, if any, companies are passing along savings to customers.  seems like it is all being kept for execs and the like

Thu, 03/08/2012 - 18:39 | 2237546 Let them eat iPads
Let them eat iPads's picture

Long story short, China keeps using more oil.

But thanks for the long winded explanation.

Fri, 03/09/2012 - 01:11 | 2238569 Crisismode
Crisismode's picture

"China keeps using more oil."

 

Not for very much longer.

China is about to go bust.

 

Fri, 03/09/2012 - 12:18 | 2239782 Coast Watcher
Coast Watcher's picture

If China goes bust, demand should drop, but I've been reading that China is about to go bust for three years now. So far, no bust. Not even a very good bustline, but silicone is a miracle drug over there.

Thu, 03/08/2012 - 18:40 | 2237548 r101958
r101958's picture

Oh yes, and not a word about oil being a finite resource. Oblivious.

Thu, 03/08/2012 - 18:49 | 2237573 LaLiLuLeLo
LaLiLuLeLo's picture

the ice caps are melting! HOORAY!!! Drill baby DRILL!... 

Worthless humans - we don't deserve this gem of a planet

Thu, 03/08/2012 - 20:05 | 2237826 Neo
Neo's picture

Yes, your are correct. Please do the planet a favor and kill yourself.

Thu, 03/08/2012 - 21:40 | 2238140 sun tzu
sun tzu's picture

yes we must all pay carbon taxes to the bankers lest the world will boil like a teapot

Fri, 03/09/2012 - 00:48 | 2238530 DaveyJones
DaveyJones's picture

this may be a shock, but supporting the carbon tax and understanding the humans' effect on the environment are two different things  

Fri, 03/09/2012 - 03:27 | 2238858 Bear
Bear's picture

Are you running your blogging computer on wind power?

Thu, 03/08/2012 - 19:32 | 2237713 Baleful Runes 4 U
Baleful Runes 4 U's picture

Yeah, the blind delusion is impenetrable.

Thu, 03/08/2012 - 18:40 | 2237549 uno
uno's picture

just watched Gasland last night, so depressing the pollution from NATGAS.  Having been through much of the country, felt like knowing someone dying watching the destruction of nature; then add in BP oil spill, Japan Nuke meltdown, depleted uranium droppings anywhere the military goes - wonder how long Earth puts up with it.

The full documentary is on Youtube.

Thu, 03/08/2012 - 20:09 | 2237836 blueridgeviews
blueridgeviews's picture

Yeah, the world was so much cleaner before we started using oil and natural gas.  Google Pittsburgh in the 1850's and see how pretty and clean the world used to be. Heck, Google Pennsylvania Station and look at what all the soot did to that marvelous structure. They tore it down because it was black and disgusting looking.

The world is cleaner now in the US then anytime before. POeople live to ripe old ages and we enjoy (or enjoyed) the best living standards in the world. God bless petroleum and all it's carbon sibblings.

Fri, 03/09/2012 - 01:14 | 2238576 Crisismode
Crisismode's picture

Here's someone who has bought into the whole MSM bullshit.

 

Keep smoking that fine dope, blueridge boy.

Thu, 03/08/2012 - 21:56 | 2238205 Augustus
Augustus's picture

GasLand is a prima facia case of pure propaganda.  They have beeen fracing wells for 50 years in the southwest.  No problems from the fracing.

There have been instances or poor well control with some surface spills.  The bugs take care of it, as they did in the GoMm.   However, it is impossible to have milk without some cowshit.

Fri, 03/09/2012 - 00:41 | 2238513 steve from virginia
steve from virginia's picture

 

'They' tore down Pennsylvania Station b/c the railroad wanted to build an office building. Then, the railroad went bankrupt, most likely due to their poor judgement.

Not mentioned anywhere is China/India demand along with increasing consumption within oil-producing countries.

BTW, the increase in US production @ Bakken and elsewhere is about 300k barrels per day. The US imports 11 million barrels per day. The conventional domestic o' fields such as @ Prudhoe Bay are declining in the meantime.

BTW, when Prudhoe production drops below 400k barrels per day there will not be enough to push through the Alyeska pipeline. Right now it looks like 399kbpd to zero ...

Gas fracking turns out to be a scam, reserves are booked based on the initial flow from wells which tapers off very quickly.  The reserves help inflate stock prices which fund more drilling. Meanwhile, costs run away.

 

Thu, 03/08/2012 - 18:42 | 2237552 bbq on whitehou...
bbq on whitehouse lawn's picture

Lamp oil gave rise to kerosene that gave rise to gasoline that gave rise to diesel that gave rise to asphalt and plastics.

If you remove demand for any one, it becomes an unprofitable waste product and may not be worth the costs of of operation.

Hence more refinerys shuting down. If the plant was built around makeing gasoline it may no longer be profitable to operate if the demand is not there.

Thu, 03/08/2012 - 20:20 | 2237556 Fiatfan
Fiatfan's picture

Garbage.  May be accurate or true but missed the pink elephant stepping on all our toes.  Dilution of currency on a global scale.  End the Fed.  Consequence the fraudsters.  Hang em high!  That is the entire story, the rest is just inconsequential stuff of minimal impact.  Deal with the Fed and you deal with the problem.  

Edit: Now if we ended the Fed and remained intact as a nation, then the rest would no longer be inconsequential.  

Thu, 03/08/2012 - 18:46 | 2237565 Yardfarmer
Yardfarmer's picture

this drivel sounds like paid public relations from Exxon/Mobil.

Fri, 03/09/2012 - 00:50 | 2238534 DaveyJones
DaveyJones's picture

how's the garden

Thu, 03/08/2012 - 18:46 | 2237567 LaLiLuLeLo
LaLiLuLeLo's picture

don't hold your breath

Thu, 03/08/2012 - 18:51 | 2237576 besnook
besnook's picture

or, since the price of gasoline is cheaper in terms of silver value than in 1964 and the price of oil is only about a 2/3 of an once more expensive than 1964 the price of oil and gas in 2012 are roughly about the same given that the price of silver is related to the value of the dollar when adjusted for the increased cost of extraction(slightly higher cost/barrel) and more efficient refining(slightly cheaper gasoline).

Thu, 03/08/2012 - 19:23 | 2237682 CrazyCooter
CrazyCooter's picture

Or maybe silver is presently undervalued ... you know, just a little bit ... in dollar terms ...

Regards,

Cooter

Thu, 03/08/2012 - 18:52 | 2237579 dbTX
dbTX's picture

Bottom line: gas prices are where they are and going up because Obama wants it that way, period, over and out

Thu, 03/08/2012 - 21:59 | 2238218 espirit
espirit's picture

You mean to say Obama controls the costs of commodities?

Hoo Boy, another one of those who believes the TOTUS is in charge.

Thu, 03/08/2012 - 19:02 | 2237581 bob_dabolina
bob_dabolina's picture

This is part of the problem but this missive neglects the elephant in the room.

Sure, the cost of oil is rising. However, the cost of everything BUT housing is rising. I'm not sure if people understand how inflation works, or, if they just need someone to scapegoat their problems to. The fact is, in 2008 oil was trading in the $30 p/b ballpark range, than the money printing starts (by the trillions) and all of a sudden the price spike is due to - speculators, Iran, and infrastructure problems.

#1 Speculators play a small but crucial roll in ALL markets. There are those who speculate to the long side, and there are those that speculate to the short side. These evil speculators include the airlines whom try to keep ticket prices low by hedging higher fuel input costs. You can rid all speculators but be prepared to pay $1,200 a ticket (coach) for a 75 mile flight booked 2 months in advance. And speaking of that, why would you buy a plane ticket 3 months in advance instead of just before your flight? Are you speculating the cost will be cheaper if you buy the ticket months in advance? You, according to Obama, are a speculator and if rising ticket prices are occuring it's because evil people like you are speculating.

#2 Iran. The middle east has been blowing up since the Arabs grew brains capable of synapses. Last year around this time the Middle East was literally collapsing under the force of the Arab Spring. In fact, people were scared SAUDI ARABIA would collapse due to this uprising...the price of oil was LOWER than it is today. In fact Iran just PRAISED Obama - http://www.csmonitor.com/World/Middle-East/2012/0308/Iran-offers-rare-pr...

#3 Taxes. Do you live in New York, CT, or California and wonder why you're paying $4 - $5 a gallon when some people in other states are paying closer to $3.30? The politicians in those states could lower the price at the pump to $3.30 if they cut their gas taxes to that of what people pay in Wyoming...AND IT COULD HAPPEN OVERNIGHT. Here is a map of gas taxes by state - http://www.api.org/Oil-and-Natural-Gas-Overview/Industry-Economics/~/med...

....but it's more conducive to Nancy Pelosi's re-election to find some other mythical figure to demonize, rather than looking at her stretched out piece of foot ball leather (excuse me, her face) in the mirror.

#4 Infrastructure: Obama touts success in programs that were implemented under George Bush over 5 years ago (the increase in domestic oil supply) However, when was the last time an oil refinery was allowed to be built in the USA with the stringent EPA?

But the newest significant (or sophisticated) refinery began operating in 1977 in Garyville, Louisiana.

http://www.eia.gov/tools/faqs/faq.cfm?id=29&t=6

So how about we cut the bullshit and call a spade a spade. The price of oil is high because of POLITICIANS having a reckless fiscal policy which has resulted in loose monetary policy (monetizing debt), a harsh regulatory enviroment (POLITICIANS), and in some states - mainly states run by leftist pigs wanting higher taxes to fund overly generous social welfare programs (POLITICIANS)

The high gas price is due to POLITICIANS.

Thu, 03/08/2012 - 19:19 | 2237665 Yardfarmer
Yardfarmer's picture

 informative post. but "The high gas price is due to POLITICIANS" who are the paid employees of the oil cartels. just sayin".

Thu, 03/08/2012 - 20:38 | 2237936 bob_dabolina
bob_dabolina's picture

The people elect the politicians.

The best argument against democracy is a conversation with the average voter

-Winston Churchill

Fri, 03/09/2012 - 01:17 | 2238584 Crisismode
Crisismode's picture

The best argument against democracy is a conversation with the average politician.

 

Fri, 03/09/2012 - 02:12 | 2238677 bob_dabolina
bob_dabolina's picture

...you're young.

I understand that.

Thu, 03/08/2012 - 20:14 | 2237854 Fiatfan
Fiatfan's picture

The Fed devalues currency, increasing inflation. Politicians enable the Fed, voters (ignoring the epic fraud) enable the Politicians...therefore the voters are responsible for shooting themselves in the foot with inflation.

Yup, sounds about right!

If you like the state of things, vote for whoever you want to, except Ron Paul.  If you don't like the way things are, vote Ron Paul.  

End the Fed, End the fraud.  Hang 'em high!

Thu, 03/08/2012 - 21:37 | 2238130 FrankDrakman
FrankDrakman's picture

And speaking of that, why would you buy a plane ticket 3 months in advance instead of just before your flight? Are you speculating the cost will be cheaper if you buy the ticket months in advance? You, according to Obama, are a speculator and if rising ticket prices are occuring it's because evil people like you are speculating.

I don't disagree with most of your post, but seriously - have you ever purchased an airline ticket? Depending on some factors, such as competition, flight frequency, etc., most airlines have seat revenue management programs that offer lower price tickets in advance to ensure some portion of seats are filled, with prices rising as departure nears (to get maximum revenue from people with frequently changing itineraries, e.g. business travellers), until just a few hours before takeoff, when the price falls (since revenue from an unsold seat is zero, airlines offer better prices to standby travellers willing to chance a full flight). All of this behaviour - from advance purchase to rev mgmt programs to cheap standby seats - is not speculation, but perfectly rational actions by all parties.

But I agree on the politicians. Here in Canada, where gas is about C$1.20/l (roughly US$5/US gal), almost 1/3 of the price is various government taxes. Oil company profit is less than $0.03 per litre, but it's the greedy oil companies fault. Riiiiiight.

 

Thu, 03/08/2012 - 21:57 | 2238193 bob_dabolina
bob_dabolina's picture

I think you missed my point as we are in agreeance.

As a consumer, if you are planning a trip requiring commercial flight arrangements, it is in best practice to buy the ticket in advance (as typically the price is cheaper) This is because the consumer is speculating on getting a cheaper fare by booking in advance. You can always chance it by not booking a flight and just showing up for stand-by.

The point was that airlines do the same thing, they just do it with oil. If they speculate the price of jet fuel will be higher in 3 months, they are going to buy fuel at current prices for future delivery, for the same reason a commercial passenger would look ahead and say "gee if I buy this ticket two months in advance it's gona' be cheaper than if I buy it one week in advance" However, the politicians would say..."you're buying tickets too far in advance and that's why ticket prices are going up and the higher prices are your fault for speculating" The argument of the politicians make no sense, yet people accept them @ face value.

Fri, 03/09/2012 - 00:46 | 2238527 Lotus
Lotus's picture

There is one thing your overlooking in the speculating argument here ,planes have two halfs.Passenger and cargo,the cargo area actually competes with the passenger "weight",as a plane by model has a maximum take off weight you can be rest assured the load master for the aircraft has it loaded just under that weight,so next time your on a flight with empty seats around you they are making up the difference in cargo.The plane still pays.  

just saying

Thu, 03/08/2012 - 18:52 | 2237582 Let them eat iPads
Let them eat iPads's picture

"so we are not prepared to make any predictions about whether an attack on Iran is imminent. However, there are ways savvy energy investors can profit from this uncertain situation"

 

That's right kids, a lot of people are about to be blowed up real good so Casey Research is here to show you savvy investors how to make some quick profits.

Thu, 03/08/2012 - 18:52 | 2237583 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

You forgot to mention why the refineries are being bankrupted, money printing. Thank you Bernanke! Screwing the US again.

Thu, 03/08/2012 - 19:11 | 2237634 Piranhanoia
Piranhanoia's picture

I will throw this up so you can run it up the flagpole, but we might trot that old consititution and arrest a few of the houseboys of Saud that reside in the halls of power.  They are easy to spot.  They all say the same thing with varying amounts of words that end up saying  "kill iran".  

Thu, 03/08/2012 - 21:40 | 2238103 Bringin It
Bringin It's picture

This is not about - the houseboys of Saud.  Saudi does what they're told or their protection goes away.  That's the Ptro-dollar deal.

Thu, 03/08/2012 - 19:13 | 2237637 dataanalytics
dataanalytics's picture

Here are the corporate owned media ‘talking-points’:

  • Geo-political tensions
  • Possibility of supply interruptions
  • Decreased crude supply from Nigeria and Libya.
  • Decreased capacity from Cushing/Midwestern refinery’s

In turn, this is what investment firms and traders use as
a so-called “inflection point” or “trigger” to artificially drive
prices up, of both crude oil and retail gasoline.

However, here are a number of facts uncovered by DataAnalytics.

Most of the previously lost Libyan production is back to
over 1+ billion barrels per day.

Nigerian production of 2+ bb/per day has been relatively
stable for the 15 months.

The supposed Geo-political issues in the middle east have been
on-going for the past 40+ years. This is nothing new.

The prospect of supply being disrupted is slight.

U.S. Gasoline demand is at its lowest in 17 years.

  • The level of supply is elevated
  • The level of demand has decreased

Gasoline supply has increased 9.7% from January.
Refinery utilization has declined from 85.6% to 84%
per day or only 0.4% which equates to -218K per day.
(this is basically a negligible amount)

Other than the minor effect of monetary inflation, it is geo-political rhetoric
and wild, unregulated speculation, the mostly normal and broadly acceptable
model of demand and supply, based on consumption, appears to have
no place in the current price ‘controls’ established by Wall Street,
OPEC and supposed government regulations.

The fact is that the current and unchecked speculation is unfounded
and is in the process of creating a gasoline bubble. 3 weeks ago,
traders bought 90 billion barrels of futures contracts for themselves.

A major consequence of course, will be increased consumer inflation
and the further erosion of discretionary income and spending, which will
push the economy towards a double-dip recession.

Thu, 03/08/2012 - 19:23 | 2237683 Yardfarmer
Yardfarmer's picture

according to the blueprint.

Thu, 03/08/2012 - 21:56 | 2238204 FrankDrakman
FrankDrakman's picture

data ANAL lytics drivelled (or dribbled, take your pick);

Most of the previously lost Libyan production is back to
over 1+ billion barrels per day.

Nigerian production of 2+ bb/per day has been relatively
stable for the 15 months.

HAHAHAHAHAHAHAHAHA. That's the funniest thing I've read on ZH (save WB7's intentional comedy).

Here's a clue, d-ANAL - WORLD oil production is around 85 million bbl/d. Libya produces around 700k daily (November). It would take the Libyans four (4) ((100 binary)) freakin' years to produce a billion barrels at that rate.

I post this to save any casual readers from bothering to read the troll's site. Anyone who can't grasp the difference between a million and a billion, even in casual conversation, isn't worth exploring. 

 

Thu, 03/08/2012 - 23:00 | 2238351 joe6px
joe6px's picture

What's a comma and three zeros rounded up and posted with a plus sign realy mean in our wonderful age of re-readjusted employment figures or cotton swabs and mothballs inflation data?  I'm reporting you to the Department of Truthy-ness.

 

edit: just because-

https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...

Fri, 03/09/2012 - 12:11 | 2239747 dataanalytics
dataanalytics's picture

Yes, my bad. Huge typo, million not billion.

I am foulable, thanks for pointing that out Frank.

Thu, 03/08/2012 - 19:21 | 2237673 Osmium
Osmium's picture

"Newt Gingrich's promise to bring prices below $2.50 a gallon is as attainable as Michelle Bachmann's plucked-out-of-the-air promise of $2 gasoline."

 "as attainable as Michelle Bachmann's plucked-out-of-her-ass promise of $2 gasoline."

Fixed it for ya.

 

Thu, 03/08/2012 - 19:26 | 2237693 gowyoming
gowyoming's picture

This gentleman is absolutly clueless. North Sea oil is depleting @ 15-20& a year, and has virtually no impact on oil imports. None.

Thu, 03/08/2012 - 21:51 | 2238181 Augustus
Augustus's picture

The producction from an individual field can be declining.  However new ones are being found.  Look for releases from STO about the recent discoveries they have made.  It all goes into the same world market.  Higer production rates in Europe will lead to lower prices in US, no different from higher production rates in Saudi Arabia.

Thu, 03/08/2012 - 19:33 | 2237721 bugs_
bugs_'s picture

Some speculators are able to access ZIRP money to maintain their margin pyramid.  End ZIRP.

Thu, 03/08/2012 - 19:46 | 2237765 Yen Cross
Yen Cross's picture

  Those " Heated & Air Conditioned"  seating sufaces are guzzling my gas! What gives?

Thu, 03/08/2012 - 20:04 | 2237786 chistletoe
chistletoe's picture

"Gasoline consumption in the United States has been dropping for years."

Exactly four, in fact.  This is the first decline of this magnitude and duration in the history of the U.S.

"In the last decade, vehicle fuel efficiency has improved by 20%"

whose vehicle?  You sold your jacked up pickup truck and bought an SUV crossover?

For one thing, the average age of the vehicles now on the road is the largest in history, having exceeded 11 years, because a lot of folks can't afford new cars anymore and because the new cars are utter junk anyway..... People who don't have jobs, even if they have supposedly dropped out of the workforce, still don't have money to buy gas.   Cars that drive 0 miles on 0 gallons of gas get remarkable efficiency ....

", and the combination of that shift and a weak economy of late has pushed gasoline demand to its lowest level in a decade."

 

Meanwhile, the output from Mexico has vanished, Nigeria, Iraq, Kuwait, Norway, Saudi Arabia, Iran, Venezuela, and even Russia are all reporting steadily-declining production and even faster declining exports.  All eyes are on Ghawar, which could collapse at any time.

 

Prices are high because worldwide demand, although slowing,

is still greater than worldwide production, which is seriously declining.

Peak oil, baby.  Its not just a good idea, its the law.  No amount of fancy writing and highly-selective fact reporting is going to make it go away.

 

 

Thu, 03/08/2012 - 22:13 | 2238260 FrankDrakman
FrankDrakman's picture

For one thing, the average age of the vehicles now on the road is the largest in history, having exceeded 11 years, because a lot of folks can't afford new cars anymore and because the new cars are utter junk anyway

Nice try, Einstein. According to JD Power, who track this more closely and intelligently than you, initial car quality improved to its BEST LEVEL EVER in 2011. With just fewer than 103 faults per 100 vehicles, the score is substantially better than a decade ago. At the same time, vehicle dependability (longer term quality) has improved.

People hold on to cars now because the cars are built better, hold up better, and there's no compelling need to trade up. Meanwhile, each car from before 2000 that's replaced by a new car has at least 10% better fuel economy, on a same size/model basis. We should expect to see average fuel economy in the US continue to increase.

Fri, 03/09/2012 - 00:24 | 2238486 r101958
r101958's picture

Frank....'Einstein' is partially correct in that. However, do you really think that the 10% improvement in fuel economy here in the U.S. will really be able to offset the 12 million new vehicles purchased in China this year?

Fri, 03/09/2012 - 01:21 | 2238591 Crisismode
Crisismode's picture

JD Power is an MSM and TPTB tool.

Fri, 03/09/2012 - 02:35 | 2238754 Sandmann
Sandmann's picture

103 faults per 100 vehicles

You aren't serious ? Whatever happened to ZERO DEFECTS ?

As for cars - how many of them are on the road in the USA relative to Drivers ? There must be a phenomenal second-hand stock

Thu, 03/08/2012 - 20:04 | 2237820 blueridgeviews
blueridgeviews's picture

If you want to see the price of gasoline come down then STOP PRINTING MONEY! The US is borrowing 0.40 of every dollar it spends.  The buyers of US debt are disappearing. Enter the Federal Reserve. They print money and buy the debt that congress approves. This devaluation of the dollar along with the insane amount of cash that the Fed is giving banks (to hold onto and make their balance sheets look pretty) is what is driving the price of oil and gas through the roof.

Does anyone remember back in 2008 the pricew of gas went from $4/gal to less than $2/gal in months????? Does anyone remember the world was facing a liquidity problem? I suggest you all put 2+2 together and get to the real problem of high gasoline prices.

Fri, 03/09/2012 - 00:10 | 2238462 alex_g
alex_g's picture

i paid $1.45 a gallon in Dec '08.  those were the days...

Thu, 03/08/2012 - 20:39 | 2237938 max2205
max2205's picture

And I hear states like MD want to double gas taxes to fund pension shortfalls. It can only get worse

Drop out people

Thu, 03/08/2012 - 20:43 | 2237950 windcatcher
windcatcher's picture

The author glazed over the Alaska oil pipeline that was built with tax payer funds with the provision that the oil would never be exported so that out own oil would relieve the high price of oil in the US?

 

It was all a lie and the same smoke and mirrors used back then are used today. Clinton, by executive order, changed the meaning and intent of the Alaska pipeline and most of the Alaska oil is exported to China and Japan.

Thu, 03/08/2012 - 22:09 | 2238240 Augustus
Augustus's picture

The Alaska pipeline was not built with taxpayer funds.  smoke and mirrors are your forte.

http://www.alyeska-pipe.com/pipelinefacts.html

Pipeline Quick Facts

  • The Trans Alaska Pipeline System was designed and constructed to move oil from the North Slope of Alaska to the northern most ice-free port in Valdez, Alaska.
  • Length: 800 miles.
  • Diameter: 48 inches.
  • Crosses three mountain ranges and more than 30 major rivers and streams.
  • Cost to build: $8 billion in 1977, largest privately funded construction project at that time.
  • Construction began March 27, 1975 and was completed May 31, 1977.
  • First oil moved through the pipeline on June 20, 1977.
  • More than 16 billion barrels have moved through TAPS.
  • First tanker to carry crude oil from Valdez: ARCO Juneau, August 1, 1977.
  • Tankers loaded at Valdez: 19,625 through April 30, 2008.
  • The mission of Alyeska’s Ship Escort Response Vessel System is to safely escort tankers through Prince William Sound.

Last updated July 8, 2011

Thu, 03/08/2012 - 20:44 | 2237960 dolph9
dolph9's picture

What about peak oil bitchez?

This article is mental masturbation.  Oil is finite, global production of crude has been flat since 2005.  Supply is flat or dropping, dragging demand down with it.

If people had the choice, they'd all buy trucks and sports cars and drive them everywhere to their heart's content, and fly anywhere around the world, whenever they want to.  You know, the way things were supposed to be.

But nature doesn't care, any more than it cares when you die.

Thu, 03/08/2012 - 22:13 | 2238261 Augustus
Augustus's picture

Global oil reserves have increased every year for the past 20 years or so.

the observant ones who once promoted the Peak Oil nonsense have now quit quacking about it.  The technology to develop the shale resources have shut them up.

So what about Peak Oil?  It is still nonsense and always was.

Fri, 03/09/2012 - 00:42 | 2238519 r101958
r101958's picture

No Augustus, those 'promoting' peak oil as you put it have given up trying to talk sense with fools that think that every natural resource on earth will increase and remain cheap just because our economy needs to grow. Shale oil is nowhere near as cheap as conventional crude. If availability of conventional crude was so limitless then why do we need to try to high pressure blast it out of sand and shale? Why do we need to drill 10000 ft below the bottom of the ocean? Peak oil does not mean we are out of oil it means we have reached the peak production of conventional crude (as opposed to 'all liquids' which is now the label they paste on alternative sources) and will see a slow decrease in production thereafter. If you really want to understand what more expensive energy does to the economy then you should first read up on EROEI and then take the 'Crash Course' by Chris Martenson. The reason you don't read that much about PO here anymore is because when we try to explain all this we get the same lame retorts and thoughtless arguments. Wake up! The world and its resources are finite. We have all been trained to think as narcissists - that the world will continue to provide us with whatever we need just as long as we want and we needn't be responsible stewards of our resources. Telling this to people with closed minds though is like...well....squeezing oil from a rock.

Fri, 03/09/2012 - 00:55 | 2238542 DaveyJones
DaveyJones's picture

trouble counting spent fields or categories of fuel? We have been consuming more oil than we found since the eighties 

Thu, 03/08/2012 - 20:53 | 2237987 Implicit simplicit
Implicit simplicit's picture

It seems all the things that keep oil high like inflation from dollar devaluation, the middle east scares, refineries closing etc... are all true, but oilpretty much does what the stock market does. if the stock market crashes so will oil. if it keeps going up, so will oil, for now anyways

Thu, 03/08/2012 - 21:00 | 2238005 Implicit simplicit
Implicit simplicit's picture

Forgot the comparison chart:

http://screencast.com/t/SQ7zmklQUlz

 

 

Thu, 03/08/2012 - 20:56 | 2237996 jg900ss
jg900ss's picture

Niggle.  I could be wrong but I believe the original poster's name is actually MARIN KATUSA.  Worth a check to give accurate credit to him, regardless of his approach.

http://www.caseyresearch.com/our-staff/marin-katusa

Thu, 03/08/2012 - 21:25 | 2238092 miker
miker's picture

I absolutely guarantee the Central Banks (primarily our Fed) and key government leaders (primarily our President) have a direct hand in keeping oil prices (and gasoline) jacked up. 

Everyone thinks that "market force" are setting these prices.  Give me a fucking break.  When the shit hit the fan in 2008, Bush II went to Saudi Arabia.  The press line was for him to ask the Saudis to keep oil affordable.  Nothing was further from the truth.  Bush went directly himself to convince the Saudi's to hold the price of oil UP!  UP you idiots. 

Oil is the price structure of virtually everything important in all economies.  What do you think would happen if oil dropped to 30-40/bbl and stayed there??  We'd be in a hell of a deflationary spiral.  No, oil is being held up and pops occassionally when they feel a need to inject a little inflationary pressure to the system. 

Here's another thought; although even more conspiratorial than above.  MF Global was a carefully planned and orchesterated faliure.  The sole purpose was to scare the shit out of small/medium futures players so that the big boys could more easily control these markets (for oil and gold, but other commodities too).  WHY.  Easy.  Commoditiy control is the quickest/most direct way to "inject" inflation into the system and counter deflationary forces.  To incredible to believe?  Probably.  Keep your eye on Corzine.  If nothing happens to him, conisder my theory plausible.

Remember, there are only markets when key governments decide not to intervene.  Regarding the US, the economy has reached NATIONAL SECURITY status and believe me, they will not hold back with what they need to do.

Thu, 03/08/2012 - 21:48 | 2238165 Augustus
Augustus's picture

When I read these accounts of how US prodiction is UP and US demand is down, therefore some is getting cheated if the US gasoline price does not decline, I have to laugh.  It is nonsense to not recognize that the oil price is determined in a World Market.  Oil is transported and shipped efficiently all around the world with a great system.  Since the US is now a larger producer of oil, it should be noted that US prices are in fact lower than the World price.  Good for us.

For some reason there is no complaint that US grain prices have been driven higher because of EXPORTS that being them into line with world prices.  It should be noted that those prices vary by region and location as the transport system is simply more costly than the efficient oil transport.

Thu, 03/08/2012 - 22:42 | 2238336 yogibear
yogibear's picture

Every instance Benanke devalues and our deficit ceiling keeps being hit. With Bernanke and the Fed monetizing/debasing one has to think as the US dollar continually devalues oil and other commodities will keep getting more expensive. 

The average price of oil has been steadily increasing, so has food.

Maybe Bernanke and the Fed can trigger riots once food stamps don't provide enough food for the masses.

 

Thu, 03/08/2012 - 23:36 | 2238427 Jim in MN
Jim in MN's picture

I am growing to dislike posts about oil prices that show absolutely zero knowledge of the topic.  Some good comments but the post is a total nothing-burger.

 

Fri, 03/09/2012 - 02:11 | 2238459 TheObsoleteMan
TheObsoleteMan's picture

Forget gold, oil is the ultimate indicator of inflation, period. Americans really don't want to return to $1.79@gal gas. Politicans REALLY don't want a return to $1.79@gal gas, and here is why: we are paying, what we are paying largely due because of deficit spending. Double tax rates so that we actually pay for our largesses, and gas prices would come down-ALLOT. As long as we stay at low tax rates and deficit spend the balance, we will pay ever higher gas prices. This gives the politicans cover: they can blame "big oil", speculators, Iran, etc, for high oil prices. Doubling the tax rate would get them strung up on a lamp post, like Mussolini. They can manipulate gold and silver through endless naked shorting. Not so with oil, it is too big a market, and the OPEC nations would'nt stand for it a day.

Fri, 03/09/2012 - 01:04 | 2238557 Dingleberry
Dingleberry's picture

Fiat money. End of story. Next question.....

Fri, 03/09/2012 - 05:34 | 2238954 FunkyOldGeezer
FunkyOldGeezer's picture

$3.80 (whatever) gasoline... GET OVER IT ALREADY!

It's been too cheap for too long, the party's over.

 

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