Things That Make You Go Hmmm - Such As $4.00 Gas (Again)

Tyler Durden's picture




 

 

From Grant Williams' Things That Make You Go Hmmm

After the attack on ‘speculators’ failed to lower gas prices (here’s a piece of free advice by way of a simple mathematical equation for anybody in the current Administration who may be reading: ZIRP ? Low Gas Prices), it was the turn of the other staple solution to an intractable problem; the US Strategic Petroleum Reserve (SPR):

(Montreal Gazette): A group of Democratic lawmakers in the U.S. House of Representatives is again urging President Barack Obama to aggressively use the threat of releasing oil from emergency reserves to rain on speculators driving up oil prices.

 

The three lawmakers are gathering signatures from others in Congress for a letter to Obama to press him to wield the 696 million barrels of oil that the government stores in salt caverns as a weapon against “rapid price escalations resulting from speculation in the oil markets.”

Last June (the 24th to be precise), it was announced that 60 million barrels of oil would be released from world reserves, with about half of that amount being taken from the SPR. Oil was trading at $91 when the announcement was made but actually rose in price - hitting $97 - before dropping to $88 once the surplus oil was introduced on July 15.

60 million barrels = $3 lower price. Hardly bang for the buck - especially as oil was back above $100 before the end of the year.

As much as the SPR is seen by many to be the panacea for high prices, the lack of available additional supply from the world’s biggest producers is a far bigger concern; one which my friend Ronni Stoeferle from Vienna wrote a fantastic report on recently entitled “Nothing To Spare” (you can email Ronni HERE for a copy of the report which is an incredibly detailed piece of work). In it he took an in-depth look at some of the supply constraints facing the world and his conclusions are, to say the least, troubling:

The still low reserve capacity makes the oil price vulnerable to geopolitical tensions. With the exception of Saudi Arabia, no country holds any significant reserve capacities. But since Saudi Arabia has never exceeded the barrier of 10 mbd on a sustainable basis, we harbor doubts as to whether the country can actually produce 12.5 mbd. Risks are that it will take a supply side crunch to find out whether the alleged reserve capacity actually exists to the extent proclaimed. At any rate, the decision of IEA to tap the strategic reserves during the Libya crisis is a clear indicator of the strained supply situation.

Ronni goes on to examine the price forecasts of many major oil producers and their projections also point the way to higher prices:

A comparison of the oil price forecasts from various oil producers reveals that, in the period of 1999 to 2010 Mexico, Saudi Arabia, and Russia made the most accurate forecasts. All three of them also came closest to the actual price last year, which is why it makes sense to listen to their expectations. For 2012 they predict substantially higher oil prices. Saudi Arabia expects an average WTI price of USD 97, Mexico forecasts USD 116, and Russia USD 120/barrel. Iran has given the highest forecast at USD 137/barrel.

But these producers have their own problems - most notably the Gulf States who, in order to calm tempers amidst last year’s Arab Spring, handed out billions of dollars to placate their angry citizens which has driven up their breakeven cost to between $80 - $90 per barrel. In fact, the sheer magnitude of the Saudi  “stimulus package’ was simply staggering. Ronni again:

The Saudi Arabian “Day of Rage” in March was without any consequences due to the generous governmental handouts. The economic stimulus package worth  USD 130bn contained a wage increase of 15% for civil servants, an increase in the minimum wage, cheques for two months’ salary for civil servants, and an unemployment program.

 

Almost USD 70bn will be invested in the construction of 500,000 social flats, and all mosques across the country will be renovated. Overall, the package equals more than 20% of the Saudi Arabian GDP (by comparison, TARP in the US accounted for 5% of GDP).

Clearly, talk of speculators is (as it invariably is) a convenient attempt to find a scapegoat for a problem that doesn’t sit well with the public (incidentally, in an in-depth study that I won’t even bother conducting, it was proven that scapegoats are extra-convenient in election years), but the real problems are far more complex and far less solvable by policy - at least in the West.

Much more in the full report (pdf)

 

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Sun, 03/18/2012 - 20:12 | 2268099 bugs_
bugs_'s picture

buried in the pdf is a table showing california tax revenues 2012 vs 2011 - check it out!

Sun, 03/18/2012 - 20:21 | 2268118 Eireann go Brach
Eireann go Brach's picture

Can I use food stamps to buy gas? I bet Obama will come up with Bama Gas Bucks to buy some more votes soon!

Sun, 03/18/2012 - 20:28 | 2268130 GMadScientist
GMadScientist's picture

No, but you can sell your car to buy food.

 

Sun, 03/18/2012 - 21:37 | 2268284 Long-John-Silver
Long-John-Silver's picture

Who is going to buy a used car they can't afford to put gas in? Anyone that can afford the current gas prices will buy a new car. That new car is not going to be a tiny gas sipper. It's going to be a huge SUV.

Sun, 03/18/2012 - 22:57 | 2268457 GMadScientist
Mon, 03/19/2012 - 07:12 | 2268882 GetZeeGold
GetZeeGold's picture

 

 

You buncha freakin Philistine flat earthers probably think drilling more supply would bring the price down........HAH!!!!

 

Just go get some Obama gas.......it's freakin free don't you know!

 

/YesWeCan

 

Mon, 03/19/2012 - 11:24 | 2269721 Woodyg
Woodyg's picture

I'd like to see domestic oil production from federal lands be named a strategic resource and a law passed saying any oil produced from federal lands must be sold in the USA.

The USA is the 3rd largest oil producer by country on the planet.

Let's keep that black gold in the USA.

Sun, 03/18/2012 - 20:31 | 2268142 Id fight Gandhi
Id fight Gandhi's picture

Oh can't win an election with gas or $3. Gas prices have double since Obama took office.

Thank you central planning

Sun, 03/18/2012 - 20:57 | 2268199 Dingleberry
Dingleberry's picture

So has Fed money printing...excuse me...."quantitative easing"

Sun, 03/18/2012 - 22:07 | 2268351 Id fight Gandhi
Id fight Gandhi's picture

But the people notice gas prices, not stock prices.

Mon, 03/19/2012 - 07:18 | 2268891 GetZeeGold
GetZeeGold's picture

 

 

That's because all the QE cash has gone to supporting equities not gasoline prices......cause lower gas prices would help out the little people....and that just makes way too much sense to do that.

 

 

Sun, 03/18/2012 - 21:40 | 2268295 Long-John-Silver
Long-John-Silver's picture

If Obama wins a second term he will double gas again by March and if people still refuse to buy Chevy volts he will double it again by June.

Mon, 03/19/2012 - 00:22 | 2268610 Harbanger
Harbanger's picture

They cant even sell the European version of the Volt, and they’re already paying twice as much for Gas.  Govt. Motors was another one of Obama's many accomplishments.  And next years line of Chevy Volts are going to be made in China. for real.

Mon, 03/19/2012 - 05:08 | 2268810 fredquimby
fredquimby's picture

I sat in it yesterday at the Geneva Car show. And it is very boring. Why did they make it look like a Ford Mondeo from 2001? I then sat in the Tesla S and the Fisker and both have way more exciting interiors and exteriors than the Volt.

P.S I also cancelled my Fisker order last week. It has been on order since 2008 so it's not like I didn't give them a chance to deliver.....

 

 

Mon, 03/19/2012 - 07:15 | 2268893 GetZeeGold
GetZeeGold's picture

It has been on order since 2008 so it's not like I didn't give them a chance to deliver.....

 

It's almost insane to think anyone can get anything done in that amount of time....clearly you should give them 4 more years.

 

Mon, 03/19/2012 - 09:31 | 2269261 Long-John-Silver
Long-John-Silver's picture
Fisker electric Karma was pushed to market before it was ready

Consumer Reports wrote in a blog post:

We buy about 80 cars a year and this is the first time in memory that we have had a car that is undriveable before it has finished our check-in process.

 

Good thing you canceled that order.

Mon, 03/19/2012 - 08:24 | 2269001 Shizzmoney
Shizzmoney's picture

It went up at times during Bush, Reagan years as well.

Rise of oil has NOTHING to do with presidental policies, for the most part.  Or oil speculators (although their input into the final price has increased due to volume being spurred by volitility in the economy, Middle East, corporate shenanegians, etc).

Where can we trace that volitlity in USD and Oil?  Well, oil, as we know....is traded in the world's reserve currency......the US Dollar. 

Who controls the US Dollar?  The Federal Reserve.

Yet, we don't hear about their role in oil's price in MSM.  Hmmmmmmmmmmm

 

Sun, 03/18/2012 - 20:32 | 2268143 non_anon
non_anon's picture

when I was a kid my folks used green stamps, maybe they'll come back

http://en.wikipedia.org/wiki/S%26H_Green_Stamps

Sun, 03/18/2012 - 23:22 | 2268505 HungrySeagull
HungrySeagull's picture

Gawd.

And it will take a whole 10 minutes to count and verify them. hell, there were 6 lanes about 30 feet wide and every one was staffed with two managers, 6 baggers, 6 cashiers and 4 people to help load your car.

MAN those were the days.... work for all who wanted to even if it was folding boxes for the export dumpster.

And the store bought and stocked only what the local area in terms of city blocks would eat. For us German Americans... it was great. And so it was for the Irish, French and so on down the street.

Sun, 03/18/2012 - 23:58 | 2268571 non_anon
non_anon's picture

lmfao, I remember my grandma, at 6th street grocery store, cashing in those fucking green stamps, a little fucker back then!

Mon, 03/19/2012 - 07:35 | 2268910 GetZeeGold
GetZeeGold's picture

 

 

Bought my first ounce of silver back then........I uas just a tiny tyke with a pocket full of bullion.

 

Sun, 03/18/2012 - 20:48 | 2268175 AbruptlyKawaii
AbruptlyKawaii's picture

you can sell your "benefits" 2-1 for cash

Sun, 03/18/2012 - 23:22 | 2268512 HungrySeagull
HungrySeagull's picture

I am not surprised, there is a little underground trade in that. The problem is you needed one hungry Benefit card holder to swipe something for cash.

Sun, 03/18/2012 - 20:23 | 2268122 Future Tense
Future Tense's picture

I think $4 gas is one of many things that is going to bring markets lower.  It is the new Fed Funds rate.  This article provides a lot more reasons, through an easy to understand format, on why stocks are very overpriced right now:

http://www.ftense.com/2012/03/global-market-forecast-introduction.html

Sun, 03/18/2012 - 20:46 | 2268172 navy62802
navy62802's picture

Well, the last time we reached $4 / gallon for a sustained period, we ended up with a massive market melt down and a financial crisis. I can't help but think that the two things are related, as people begin spending more on gas (and other items affected by high oil prices) and less on paying off their debts, we may see it all play out again.

Sun, 03/18/2012 - 21:21 | 2268237 Id fight Gandhi
Id fight Gandhi's picture

The early summer/spring ain't going to help. People are out and about which they say... Is driving up sales at retail places like home depot.

Mon, 03/19/2012 - 01:14 | 2268682 downrodeo
downrodeo's picture

wha? reallly?

696 million barrels - (1/2)*60 million barrels = 666 million barrels

we only have 666 million barrels left in the SPR, seems like a good number.

 

Solution: maintain stock of said 666 blah blah bs until oil approaches asymptote, then lease it back to the public to settle the national debt. lulz

cheers zhers

 

 

Mon, 03/19/2012 - 09:58 | 2269167 Flakmeister
Flakmeister's picture

Instead of this drivel, I suggest you google

EIA Cushing Stocks

or

EIA SPR Stocks

It might open your eyes....

Sun, 03/18/2012 - 20:53 | 2268176 nmewn
nmewn's picture

Revenues down 22.5% is one helluva change.

Also, for a heart rending story of what totalitarianism is, begin on page 14...

Shin and his mother lived in the best prisoner accommodation the camp had to offer. They had their own room, where they slept on a concrete floor, and they shared a kitchen with four other families. Electricity ran for two hours a day. There were no beds, chairs or tables. No running water.

If Shin’s mother met her daily work quota, she could bring home food. At 4am, she would prepare breakfast and lunch for her son and for herself. Every meal was the same: corn porridge, pickled cabbage and cabbage soup. Shin was always hungry and he would eat his lunch as soon as his mother left for work. He also ate her lunch. When she came back from the fields at midday and found nothing to eat, she would beat him with a shovel.

Her name was Jang Hye Gyung. She never talked to him about her past, her family, or why she was in the camp, and he never asked. His existence as her son had been arranged by the guards. They chose her and the man who became Shin’s father as prizes for each other in a "reward" marriage."

?Lovely.

Sun, 03/18/2012 - 21:52 | 2268321 Long-John-Silver
Long-John-Silver's picture

Vehicle License fee revenue dropped from 102,386 to 2,573.

 

That's caused by Truck Drivers getting the hell out and refusing to take loads into California.

Sun, 03/18/2012 - 23:24 | 2268516 HungrySeagull
HungrySeagull's picture

And half of those truck drivers will fall into tier two or completely out of the CDL pool by mid 2014.

Mon, 03/19/2012 - 02:28 | 2268747 Seer
Seer's picture

POVs are to the trucking industry what junk mail is to the USPS.  A vast reduction in POV travel will force trucking costs, which translates to increased costs of goods sold, UP!  And This, my friends, is what I've been trying to warn about for a LONG time; this is a perfect example of "economies of scale" in reverse, how it works/plays out.

Mon, 03/19/2012 - 05:37 | 2268819 RafterManFMJ
RafterManFMJ's picture

 

 

...and those Mexican truckers, they don't pay either.

Mon, 03/19/2012 - 06:48 | 2268877 Seer
Seer's picture

I suspect that Canadian truckers surpass the numbers of Mexican truckers.  Regardless, it does bring up an interesting point: one way to avoid paying road taxes is to relocate your company next door and then use the same road systems for free (though I'm not sure the taxes paid by the Canadians would be less; for the Mexicans, I'd figure so).

Sun, 03/18/2012 - 22:19 | 2268373 tempo
tempo's picture

What pdf table? BTW who was the President who added to the SPR at $35/bbl?? Should that President be praised rather the Obama who wants to deplete the SPR for political reasons? BTW SPX and AAPl should go higher until the end of the quarter as more and more hedge funds must show they hold a AAPL position.

Sun, 03/18/2012 - 20:15 | 2268103 sitenine
sitenine's picture

A friend made another video for you guys.  Enjoy.

http://www.youtube.com/watch?v=RgE563VCDOg&feature=youtu.be

Sun, 03/18/2012 - 20:45 | 2268168 gwar5
gwar5's picture

Great video sitenine. Thanks.

 

Given the other EOs, the NDAA, 30K domestic drones, and the Utah spy center information getting out, I think it is all escalation in posturing and implied threats, like Putin usually does.

If TPTB were going to escalate, next up would be making a few select public examples out of target groups with arrests, like Putin just did. This is an old playbook. We'll see. I will be interesting times if the Liberator USA were to suddenly be killing their own people, like Assad and Ghadafi, and China then send us aid and air support to help us kick out the regime.

Sun, 03/18/2012 - 23:07 | 2268479 mbarido
mbarido's picture

OH, what a devious twist on international affairs.  Just imagine what TPOTUS would say with his teleprompter.  Would it sound like Ghadafi or Assad?  Would China even step in?

Sun, 03/18/2012 - 20:55 | 2268190 Dr. Engali
Dr. Engali's picture

That video lost all credibility by that Jefferson quote. He never ever said that. It's a phoney quote that's made it's way around the net. The executive order is serious shit. But if you don't do due diligent research on what you are posting people will not lend the subject matter any credibility.

Sun, 03/18/2012 - 20:58 | 2268202 sitenine
sitenine's picture

I didn't make the video, but I can pass on that advice.  I would like more information on why that quote is not attributable to Jefferson if you are able to pass it along, as I've heard it many times over - including some of Bill Still's stuff (who I respect very much for thorough research).

Sun, 03/18/2012 - 21:08 | 2268214 Dr. Engali
Dr. Engali's picture

Here's a link to snopes on that quote.

http://www.snopes.com/quotes/jefferson/banks.asp

I'm not trying to be crass. That Executive order needs to be taken seriously and the more awareness the better.

Sun, 03/18/2012 - 22:10 | 2268343 sitenine
sitenine's picture

In full agreement on the seriousness.

Thank you both for the links.

Mon, 03/19/2012 - 02:01 | 2268727 TWSceptic
TWSceptic's picture

Maybe you should do your own research better, that quote is only partly spurious, much of it however is actually Jefferons opinion on private banks.

Mon, 03/19/2012 - 07:09 | 2268868 Dr. Engali
Dr. Engali's picture

You're a moron noob .Just because he didn't care for banks doesn't make it okay to attribute a quote to him that he never said. I can assure you that I've probably forgotten more about Jefferson than you know. Just because you displayed your intelligence level with a comment like that doesn't make it okay to put the following words in your mouth....... "I'm stupid and I don't know what the hell I'm talking about." that may line up with the facts but you still never said it. .... At least I don't think you have. Have you?

Mon, 03/19/2012 - 02:41 | 2268750 Seer
Seer's picture

Tell your friend that the Thomas Jefferson quote is bogus.

It's one thing to bash bad things, but it's another to do it in ways that use falsehoods.

To me this smacks of party pussy-ism.  It's immaterial whether Obama did or didn't want to sign this thing (like anyone could know what's in his, or anyone else's, head?), the signing was mandated by TPTB.

Sun, 03/18/2012 - 20:16 | 2268105 gwar5
gwar5's picture

So what is the relative highest price for gasoline adjusted for inflation? Anyone know if are we there yet?

 

Methinks we are close. But the middle 1980's were pretty high too, like about $1.35 in the SF Bay Area, which might convert to about $3.75.

Sun, 03/18/2012 - 22:22 | 2268376 seek
seek's picture

We're past that point. This provides some background: http://zfacts.com/p/35.html

Short answer is that the peak gas price in today's dollars in history happened in 1980, at $3.55.

So current "normal" gas prices are very near the highest seen in a full-on crisis (Iran-Iraq war) 30 years ago. The structural difference between the pricing situation is huge, it's unlikely that the current situation will resolve the way the crisis 30 years ago did, because current pricing is reflecting a lot of inflation and only a little bit of the crisis/shortage mentality. If we get a hot war in Iran, we could easily go higher, if it settles down, I doubt we get below $3.

Sun, 03/18/2012 - 23:09 | 2268482 LaLiLuLeLo
LaLiLuLeLo's picture

The main difference is that every Tom, Dick & Harry has a credit card to pass the buck onto their future selves.

Mon, 03/19/2012 - 10:47 | 2269570 Amish Hacker
Amish Hacker's picture

Here's a historical price chart for gasoline:

http://gasbuddy.com/gb_retail_price_chart.aspx

I'm not sure how you would want to adjust for inflation. CPI? Gold price?

Anyway, the price went to $4.12 in 2008, then fell off a cliff, down to $1.61 at about the time of Obama's inauguration, then back up from there.

 

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