The day before I left in my jet for an exercise in Goldsboro, North Carolina on the 18th of this month, I filled my ancient Audi Quattro's 25 gallon tank to the tune of $98, with gas on-base hovering around $3.94. I then staggered into the station to get Swedish Fish and Tequila to drown my sorrows, as a 25 year-old Audi with AWD only gets 25mpg at best. Upon landing yesterday, the 30th, I drove past the pumps, and saw prices are now $3.34, a drop of $0.60 in 15 days. I would have only saved about $13 or so, but that buys at least three overpriced coffees at Starbucks. Are the plummeting gas prices in the most oil-cheap of states a portent of things to come? I believe so, as my father, an engineer for Occidental Petroleum in Texas has started analyzing all oil wells that cost more than $100 per barrel to extract the dino-juice from the Earth. Oxy is starting to prepare for a crash, as are the other oil companies (per rumor). The rumors flying around the offices in Midland, Texas are saying middle of 2009 to early 2010. Regardless of whether an oil crash occurs, who ever predicts the crash, or the rise in prices will surely make a lot of money.
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GM, Ford, Chrysler, quick, shift production back to Trucks and SUVs.
I don’t know much about the financial markets and oil speculation and all of that. What I do have some measure of knowledge in is basic math and science from my junior high days: Oil is a nonrenewable resource, and someday we will run out of it.
I can appreciate the break in price, but I should hope we’re smart enough to know that prices are going fluctuate again, and most likely upward.
I’ve said repeatedly on this site that Oil Prices as constituted two weeks ago were not based in any type of reality, but based purely on hundreds of billions of dollars in long positions taken by the Goldman Sachs of the world.
People here were telling me how I was crazy, that the angels in the oil commodities markets were simply bulwarks of supply and demand.
Well, when you build your house on quicksand, eventually you sink. Demand in the U.S. is at 2003 levels, China has lowered subsidies, 100 Billion new barrels of Oil are underneath the Artic continental shelf, supplies are above their 5 year average, etc. etc.
When the bulls try to start a rally like they did yesterday only to see it fail miserably, you know that it the Gold Rush is over: Fundamentals have finally taken back hold of this market.
Just like I’ve said all along. Oil will go back beneath $100 in the next 60 days if not sooner. I would not be shocked if it gets back under $70 by the end of the year.
If the gasoline price crash happens in 2010, I bet only Toyota will be ready with a full line of gas guzzlers.
I do have some measure of knowledge in is basic math and science from my junior high days: Oil is a nonrenewable resource, and someday we will run out of it.
If not one single drop of oil is discovered from this point forward, if not one single drop of oil is ever produced from shale, we have a 45 year supply of oil for the entire world, in PROVEN RESERVES.
But, of course we are going to discover more oil, 2 years supply was just discovered in the Arctic. If there is one thing I am glad about the recent runup in oil prices, it is that we had a swift kick in the pants to get going on alternatives.
Otherwise, this mess that started with Hurricane Katrina is just another bad example of under-regulated commodities markets.
So we are talking about prices dropping alot? Yep – whatever wisdom we might have gained from these high prices will disappear in about 18 hours…
Big three – don’t throw away your large vehicle production just yet…
Damn – hated paying the high prices but thought America might wise up.
Mike Solowiow: 25 mpg, especially for an “ancient” Audi Quattro, is quite good. My shiny new RWD nissan gets about that much, although your gas tank is larger by 5 gallons!
If the gasoline price crash happens in 2010, I bet only Toyota will be ready with a full line of gas guzzlers.
LOL!
Busbodger, X2. I grit my teeth and adjusted my life style to 4$ a gallon gas. But I was not looking forward to spending 4k$ heating my house with oil this winter. If the oil thing blows over, I hope ground isnt lost developing alternatives.
Poor Exxon and Chevron. I hope they can borrow one of the 2.8’s sob story writers to help them beg for low interest loans while their profits go to the toilet.
http://www.businesswire.com/portal/site/exxonmobil/index.jsp?ndmViewId=news_view&ndmConfigId=1001106&newsId=20080731005690&newsLang=en
Oh, never mind….
The run up in prices over the past months looks just like a bubble. Remember dot coms in 2000 and housing prices a year ago. Maybe the bubble is starting to burst.
I gassed up 3 days ago in Chicago for $4.41/gal premium. Are the stations just sticking this in their pocket?
I’m lucky if I get 25 mpg from my 06′ A4… Although my foot is heavier than lead.
Fundamentals have finally taken back hold of this market.
I’m a subscriber to the oil bubble theory, but I think you’re too early. Long story short (and it’s a long story), there has been a trade off as of late between oil and the financial stocks, and the financials are due to run out of steam, at which point oil should get another bounce, IMO.
Local gas prices (Wichita, KS) dropped from $3.89/gal on July 11th to $3.48/gal yesterday, but were back to $3.65/gal this morning. Wonder if this has something to do with Congress getting ready to break for the summer recess putting off any investigation into oil price speculation?
Hey, what do you know… oil closed up $4.26 a barrel yesterday. Sure didn’t take long to get to the pumps.
I don’t really follow gas prices, but this story made me check, and there’s one station near me at exactly 4.00 for regular, and another station in the next town that’s under 4. This is a bit north of Seattle, where prices have been around 4.30 for a while. Not bad, not bad at all.
Alex
“If not one single drop of oil is discovered from this point forward, if not one single drop of oil is ever produced from shale, we have a 45 year supply of oil for the entire world, in PROVEN RESERVES.”
1.) Prove it
2.) The problem is not about oil in the ground, its about the rate of supply, getting it out of the ground.
3.) http://www.theoildrum.com/node/2693#more
“If not one single drop of oil is discovered from this point forward, if not one single drop of oil is ever produced from shale, we have a 45 year supply of oil for the entire world, in PROVEN RESERVES.”
1.) Prove it
He didn’t make a controversial statement. Known reserves data is posted right on the EIA website. Divide that figure by current demand, and it works out to be about 45 years.
What Mr. Rodriguez failed to mention is that relative to demand, reserves have actually increased since 2003. The Oil Drum never seems to mention it, of course, but that sort of data doesn’t support the peak oil story, so it’s better to just ignore it, I guess.
“He didn’t make a controversial statement.”
I didn’t say that he did. People should be able to back up what they say with some kind of evidence, a link would help. I can look it up but he is the one who made the claim.
Reserves may increase but that says nothing of the rate at which they would extracted and EROEI once extracted.
I personally think gas @ $4’ish should hang around for a while. Let the industry have some time to shift (2-5 years) and get some fuel efficient options (in stick hopefully) available for us here. Options for small vehicles are extremely limited right now (both in availability & overall choices) compared to even 3rd world countries.
Mike mentioned the price of gas “on base” (Tinker AFB, I assume; lots of AWACS traffic there) so it may be a little cheaper due to no state tax. I saw $3.39 or so today but most stations are selling adulterated gas. The real stuff, alcohol-free, is typically twenty cents or so higher.
It’s amusing to read these threads and see that no matter what happens–price up, price down–folks stubbornly try to fit it into their pet theory of who’s to blame. Most popular villains: evil speculators. (Um, would that be the speculators on both sides of transactions, or just on one side?) Or there’s the Gnomes of Zurich, Big Oil, grasping service station operators (yeah, that’s a way to make a fortune–if you sell enough soda and chips), the Illuminati, Elders of Zion, Russian Mafia, whoever. Apparently prices have nothing to do with the independent actions of hundreds of millions of producers, brokers, investors, consumers, etc., all trying to pursue their own best economic interests. And oil changes hands when a willing seller and a willing buyer agree on the price.
Peak Oil is pretty much total bunk.
We have vast reserves in shale, the ocean, etc. At 125 a barrel, it is economical to tap pretty much all of it. Hell, shale oil is on the table if the prices look like they will permanently be up there.
2nd, you will see whats happening now. As prices go up, demand goes down or is diverted into alternatives. I.e. People drop their H3’s and get into Priuses. People start pumping money into EV’s so that in 10 years they might not suck. Etc… Shocks aside, demand and supply will roughly mirror each other over the long term and there won’t be a shortage of oil; people will just stop using it when it becomes uneconomical to do so.
One of the founders of Opec said something along these lines: “The Stone Age didn’t end because people ran out of stones. The Oil Age will end, but it won’t be because we ran out of oil.”
We will move away from oil as fuel eventually. But the people envisioning the oil running dry in our life times are being a bit too Malthusian.
But an interesting factoid that is often missing from discussions like this— only 45% or so of the oil we use is turned into gasoline. If you replaced every gas powered engine in the US with magic engines fueled by the power of hope, we’d still need 55% of our current demand for other uses. The media tends to present oil issues as gas issues, but really a product that is pervasive in damn near every product you own.
So if you want to attack oil dependence in a serious way, you can’t just get excited about EVs. You need to develop a way to make plastics without oil, and god knows all of oils uses that will have to be replaced.
In short, I wish the oil independence guys well, but personally I’d rather be in charge of world peace and racial harmony. Probably be easier.
“Swedish Fish and Tequila”
eeuuwwww!
toxicroach “But an interesting factoid that is often missing from discussions like this— only 45% or so of the oil we use is turned into gasoline. If you replaced every gas powered engine in the US with magic engines fueled by the power of hope, we’d still need 55% of our current demand for other uses. The media tends to present oil issues as gas issues, but really a product that is pervasive in damn near every product you own.” – Exactly
These are the same people that forget to mention that mankind is only responsible for 3% of global C02 emissions, and that cars only account for a quarter of that.
Heating oil is the real problem, $ wise, lots of people use it including the poor who simply don’t have the $ looking forward 20 weeks to heat the way they used to.
Myself, I think 45 regulated degrees fahrenheit inside in winter is a modern miracle and I wear layers with meter set low, I don’t walk around in skivvies and 72 or 68 degrees when house is buttoned up for the winter.
My dad spends $800 a month year round for household energy, I spend about $100 all in. He will bump to $1,200 monthly this year no doubt.
Thats just me, I would take a free Yaris over a free F350 for personal commute vehicle.
toxicroach, you unwittingly killed your own argument. Most people that actually pay attention to the issue of peak oil are quite aware that a substantial amount of crude production goes to uses other than gasoline. Which is precisely why peak oil, whether you believe it to be bunk or not, is a serious problem.
There is no question that we will not run out of oil in the next ten years. The problem is not about running out, it is about year-on-year production decreases in the face of steady or increasing demand. It doesn’t take a rocket scientist, a Harvard economist, or a Chicago commodities trader to figure out that that is a recipe for increasing prices. And because so much of that oil is needed for things like plastics, fertilizers (and industrial agriculture in general) and the like, it will have a massive effect on the entire economy. It isn’t just about our ability to fuel up our cars.
I don’t think you actually believe that Peak Oil is bunk. I suspect that you choose not to believe the doomsday scenarios that Kunstler et al postulate. And that’s fine. But be honest about it.
Peak oil is bunk. The reserves continually increase despite the consumption. The problem is the environmentalists have stopped most of the new production of energy. If you want to see why gas costs so much look at the enviros.
You’re dad needs to invest in some insulation.
And I hear what you are saying about peak oil.
But what I am saying is that we have gigantic reserves that can be tapped. Those will last for centuries at current demand levels. And those resources are economical to tap @ current prices.
While I would grant the premise that Peak Oil would happen if the world continued to use oil for centuries, I believe that the rate of technological advancement will beat the consumption rate, and that eventually oil will be the nasty, smelly nuisance it was seen as 500 years ago, much like whale oil is today.
By the time they run out of oil I’ll be long gone so I’m not unduly worried. However the current price of fuel is of great concern. If there is no shortage of oil then Joe Public has been conned once more and the mnarket has been manipulated in favour of the big corporations at the expense of the little man in the street
If/when the price of oil goes back to $70 a barrel, am I going to be the only one investing heavily? I really can’t see a reason not to. Back when it was cheap last fall, I really wanted to invest, but I didn’t have the extra cash floating around. I would have been laughing to the bank right now if i did
Oh wait…
I forgot that whenever Mahmoud Ahmadinejad takes a dump, the price of oil goes up $10 a barrel. It’s all supply and demand you know [/sarcasm]
@bluecon:
Peak oil is bunk. The reserves continually increase despite the consumption.
So reserves will just continue to increase into infinity? I don’t think there’s much debate on whether or not oil is a finite resource.
The problem is the environmentalists have stopped most of the new production of energy. If you want to see why gas costs so much look at the enviros.
Really? So huge increases in consumption year after year by developing economies such as China and India (which also happen to be the first and second most populated countries in the world) had nothing to do with it? It’s all the environmentalists’ fault.
So hypothetically, let’s say we let oil companies drill wherever they want in the USA–offshore, ANWAR, a baby seal birthing ground, wherever. When that oil gets to the global market in say, another seven to ten years, what impact do you think it will have on prices then? And for how long? And after that oil’s gone, then what? And in the meantime, what will be the environmental cost, both in terms of CO2 and the inevitable damage from extraction? Clearly, the oil companies are the ones who have the most to gain from opening up more areas for drilling. What we see in terms of prices at the pump will most likely be negligible.
So huge increases in consumption year after year by developing economies such as China and India (which also happen to be the first and second most populated countries in the world) had nothing to do with it?
There are over 160 countries in the world, and some of them have declining oil demand.
During this oil price run up, global oil demand has grown at a below-average pace in historical terms, and despite the drama you read on peak oil websites, supplies and stock draws have been sufficient.
Stock draws and inventories have been at historically normal levels. If there was a supply problem sufficient to drive price increases of this magnitude, then stock draws should be off the charts and inventories should be plummeting. But they aren’t.
Much of the demand in Asia is essentially a shifting of demand from western countries to Asia, thanks to offshored industry. If you shut down a factory in the US or Europe and send it packing to China, it doesn’t just transfer the jobs, but it also transfers the energy consumption.
It’s not as if empty US factories use the same amount of energy as they did when they were operating. But since that reality doesn’t help the peak oil fear mongers or the analysts who work for funds managing speculative oil investments, that bit of reality gets lost in the shuffle.
There are some issues with fundamentals that justify prices above the $10-15 that we used to have, but a lot of the recent price increases are due to the flood of capital into the futures markets, where speculators now set the price instead of the hedgers who actually do care what they pay for the end product.
The hedgers are outnumbered, and since the spot market borrows most of its price from the futures price, they end up paying the freight. Now, you are seeing early signs of demand destruction, which should eventually send the speculators fleeing from the market in search for a different volatile investment.
The drop in prices is known as “Election Gas.” As soon as the November election is over, prices will rise again.
It doesn’t matter if it costs more than $100 per barrel to drill some wells in Texas. That oil is going on the world market anyway, to be sold to the highest bidder.
That is the fallacy with the argument that off-shore drilling will bring down gas prices: India and China’s demand is ever growing, and they subsidize the cost of oil to their population. Two percent more oil in a global market where there is more demand than supply, will not impact prices.
Now if Congress were to legislate that any oil extracted from public lands must be sold nationally; that could have an impact. Also, it is worth noting that there was massive spillage from Katrina, contrary to what the Bush Energy Secretary just said. Who is going to pay if there is a loss of tourism and fishing after a coastal oil spill? Will the oil companies create a cleanup fund?
The drop in prices is known as “Election Gas.” As soon as the November election is over, prices will rise again.
Sorry, but that explanation sounds like “earthquake weather.” Urban legend, not grounded in the economics.
No matter who the president is, the administration can’t just wave a wand and magically change oil prices through telepathy or divine intervention.
There’s a lot going on the markets at the moment that has created a lot of short-term volatility and technical trading. You see money shifting backing forth between oil and financial stocks, plus mixed messages coming from the bearish side (demand erosion) and the bullish side (political instability in the Middle East, including Iran’s regular displays of drama.)
You also have a dollar compromised by the war-induced budget deficit, but that is flirting with a rebound as Europe moves toward recession, which should help the dollar.
The end result of all that is a lot of movement in both directions. At some point, one of the trends is going to dominate, and that’s when you’ll see a real shift in direction. I’m betting on the bears myself.
The drop in prices is known as “Election Gas.” As soon as the November election is over, prices will rise again.
There were also two shooters at the book depository and 9/11 was an inside job.
Back to reality, not even Mahmoud’s big dump today could sustain a rally. The bulls got the price up $5 a barrel in early trading, but unlike the past 3 years, the balloon popped and now oil is up only 90 cents for the day.
This is even more confirmation for me that the bull market is over and one more good bit of bearish news is all it is going to take to send the price below $100.
@Mike Solowiow :
As a fellow Oklahoman, I would like to know which gas station is skirting our restrictive liquor laws and selling tequila and such.
But seriously, “cheap” gas is one of the good things about living in the Sooner State.
Okay let’s hold the national price of gasoline at $4 and do good things with the difference between real gas prices and that $4 like pay down our national debt or invest MORE into gasoline alternatives.
Oh wait – I was out of my mind there for a minute. It’s not like we have a gov’t that can properly manage money for more than a day or two. Somehow that money would get diverted into somebody’s pocket.
How about we investigate all the cheats in our gov’t and deport all guilty parties to Iran or China or Russia or someplace similar – or sign them up for the first mission to Mars.
Then we start over with the Bill of Rights and the Constitution in hand.
Here is a link to an interesting article about gas price manipulation.
http://www.lewrockwell.com/orig7/stojan1.html
I don’t usually agree with the libertarians, but the information about how Goldman Sachs sold $6Bil in oil futures right before the Nov. 2006 elections, is interesting.
I don’t think we can be certain there is no manipulation considering Hedge Fund transactions are not transparent to the public.
There is no question that lower gas prices help the Republican party. Dumping some futures contracts in order to assure a victory, seems like a backdoor way to contribute to a campaign.