Contour Enthusiasts Group Archives Forums General Common Interests wtf Gas price keep going up

From the posts I've seen so far, you people do not truly understand why oil has gone up in price so much. Thus, it is time for Oil Economics 101 to point out some of the major factors involved here (I may miss some that others will point out in follow-ups).

1. Oil is sold in 42-gallon barrel quantities and some time ago, the world decided that the price would always be tied to the U.S. Dollar.

2. Due to the Monetary Policy of the Federal Banking System (low interest rates making Treasuries and Bonds almost worthless investments), the massive swing from Federal annual budget surpluses to massive deficits, and the U.S. getting into the war in Iraq, the International community has decided that they do not value U.S. dollars so they have been selling them and buying foreign currencies; the Euro and the Rupee in particular. Thus, the dollar has depreciated massively in the last two years. As a result, OPEC and other oil exporting nations are able to charge a higher premium for oil because their revenue does not having the buying power it once did when converting to Euros or other currency.

3. The price of oil is also somewhat inflated by the Futures market due to concerns about the possible terrorist attacks on oil infrastructure anywhere in the world as a retaliation for our war in Iraq. As a result of this additional inflation, oil companies are trying to restrict their purchase allocations because they don't want to be left holding a bunch of expensive oil should prices decrease in the near future. Thus, a bottleneck in oil imports is occurring which keeps prices high in the U.S.

4. The U.S. barely has enough refining capacity to handle current demand. Back in the 1970s, we did have a glut of refineries. The oil industry realized this was not good for their business so they slowly began mothballing plants, especially ones in crappy shape/least profitable. Over time, more refineries were shut down because environmental regulation required upgrades made it even more expensive to keep some facilities running. What I also haven't mentioned is that somewhere before the late 1980s/early 1990s, the oil industry treated their refining divisions as one big block in terms of evaluating profitability. Thus, they would operate profitable and unprofitable locations at the same time. The industry changed their position and started looking at each individual refinery and required tha each one be profitable to stay in operation. Thus, unprofitable refineries were shut down. At todays peak consumption, U.S. refineries run at ~ 94% of full capacity to meet demand. Any accident, mechanical failure, maintenance shutdown can cause a severe pinch on supplies in certain localities when this occurs. There are no new refineries being built/scheduled to be built that I am aware of in the US. Thus, as we continue to drive gas-sucking cars and engage in non-necessary driving (vacations), we will eventually exceed refinery capacity within the U.S. The U.S. will have to start importing refined gas eventually.

5. China's rapid economic growth is massive. Their economic expansion has been 10% per year for the last five years. Last year, they passed Japan to become the #2 largest importer of oil. Of course, the US is #1. Their expansion in oil importation was ~ 35% for the first quarter of 2004 compared to 2003. If they keep on expanding at anywhere near this rate for a few years, they probably will surpass the USA on imported oil consumption. India is rapidly growing too and both India and China are moving in the direction of increased auto ownership. Thus, price of oil is also rising because of supply and demand.

6. The cost of pulling oil out of the ground has gone-up significantly in the last decade. We are rapidly depleting the "easy to remove" oil and are now having to spend significantly more money to pull "tough to get" oil out of the ground. Much of this "tough to get" oil requires much higher energy input to refine into useful products. We are heading into the "Peak Oil" Era gang! Do a search on the internet under the terms "Peak Oil" and "Hubberts Peak" and it will chill your soul as too what looms on our horizon.

7. The EPA requires all sorts of exotic gasoline blends for specific regions of the country to suppress pollution (smog/ozone). This adds cost because the oil refineries do not achieve the economy of scale that they would get if they only had to make one version of 87, 89, 91, ect. gasoline. The result is higher manufacturing costs that get passed onto the consumer.

8. Many people also just point their fingers at the oil companies and say that gas is overpriced because of corporate greed and profits. This is partly true. However, you must remember that nearly all oil companies are publicly owned (stock market). The board members are pressured to make the companies profitable by the stock holders. The general public is an enormous block of those shareholders who are counting on profits, growth in share value, and growth in dividends if available to fund their living conditions and eventual retirement.

In the very near future, the Peak Oil effect will kick-in and our economy will collapse under stagflation, shrinking GDP unable to fund the national debt and all the welfare/medicare/medicaid/social security benefit payouts due to the retiring baby boomers. The stock market will permanently collapse at some point wiping out any chance or retirement for probably 99% of the public. Freezing to death in winter and starvation will be a bigger concern than the current increase in gas prices at the pump. The only people in the USA best set-up to cope with this oncoming change in industrial society are The Amish.

So, the question is "Given what looms on the horizon, does the increased price of gas at this moment really bother you as much after learning all this?"

Mr. Spindlelegs

Oh don't get me started here...

[edit]
Oh well...

How's this all Bushs fault?

Defend OPEC all you want. They are greedy panzies if you ask me!

And as far as taxes go... I pay enough taxes thank you and don't want anymore! From here, I tend to go off more my dictactor ruled state government and that would be off topic, so...

Couple observations--

Another issue is the consolidation of the already-oligopolic multinational oil companies. Exxon and Mobil obviously don't compete with each other on price any more, for example.

Hubbert Peak is an idiot.

If you think gas prices are high, go to the U.K., rent a Mondeo, and fill its tank....

Or do what I do and commute to work by bus and subway.

The only hope for the survival of the internal combustion engine is hydrogen fuel cells. Anyone ever try to do a burnout in a hybrid?

I haven't kept current on it, but I believe that Venezuela also cut production/shipments to the US over political matters, which has had an effect as well...

Gas prices are almost 73.9 Cents per L.
if worked out currently I think thats around 3 bucks a gallon. LOL

and did you hear what happened in canada? about $400 Million tax paying dollers dissapeared. and no body know's who did it [censored] paul martin.. and kick that fagget out!

I'm sure since all that money dissapeared.. its gonna rise even more now

Yeah well....[censored] happens....gotta live with it for now at least....we all do