I’ll bet most folks are happy about their $2.99 gas. They might even like it enough that they forget that back in 2000 it was only $1.00 a gallon. Despite my continuing belief that the price of a gallon of regular in the U.S. is going to shake out between $5 and $10 in the next five years, the world of analysts and short-term economists seem to be of the mindset that lower fuel prices are at least semi-permanent. And that makes OPEC very nervous. Lower demand makes lower prices, that makes lower profits, and the result of that is fewer shiny exotic cars. The New York Times reports today that OPEC is working on strategies to put their monopolistic cartel to work for the good of the world their profits. While they would like to cut production levels, the problem (and this is always the problem with cartels) is the risk of cheating. If everyone else cuts production and prices go up, an individual member has an incentive to produce and sell more. Considering that many of the OPEC member states (and oil producing non-member states like Russia) depend on oil to balance their budgets, it’s hammer time for oil countries. Or, as the terrorist nation Iran’s oil minister said, “The era of cheap oil is finished.”
Justin,
What’s the basis of your belief in $5-$10? Dan Sperling says nothing over $4 on a sustained basis–too many options for more supplies at that price.
IMHO anything under European prices is dirt cheap. We don’t know how lucky we have it, even at $5/gallon.
I actually think price dropping to “$3” (and I say that with double quotes as I actually haven’t seen it with my own eyes) is bad because if it stays that way for 6 months people will forget $4 gas and we will go through the “pain” and excessive news coverage all over again. People will start complaining again when it costs $100+ to fill up their 3ton behemoths.
It is already starting, as I can honestly say I’ve seen more large vehicles with temp plates than small in the past couple weeks. Cheaper gas + domestics giving trucks away = people with new trucks.
I have mentioned a couple times before in various threads that I’ve thought of getting a pickup for utility purposes, however I have decided against it. I honestly don’t have a place to put it since I’m in an apartment with a 1 car garage and I already have 3 vehicles.
I actually think price dropping to “$3″ (and I say that with double quotes as I actually haven’t seen it with my own eyes) is bad because if it stays that way for 6 months people will forget $4 gas and we will go through the “pain” and excessive news coverage all over again.
CNN said today that demand and miles driven are increasing…yup, people will forget and start buying tanks again.
John
CNN said today that demand and miles driven are increasing…yup, people will forget and start buying tanks again.
Not I. Fool me once, etc. etc.
I really think if I hear “pain at the pump” one more time I’m going to involuntarily smack my head into the nearest wall multiple times.
David Holzman:
What’s the basis of your belief in $5-$10? Dan Sperling says nothing over $4 on a sustained basis–too many options for more supplies at that price.
Well, my belief isn’t scientific. But neither is what we hear from most of the economists, despite their wishes to be thought of as scientists.
Sperling’s argument about alternatives when gas rises over X price is one half of the “gas will top out around 4-5 bucks a gallon” contention. The other half is that global demand will throttle the cost by slowing down whenever the price of oil goes too high.
Okay, so I think that at it’s core, everything these folks say has truth. People will continue to turn to alternative sources of energy/transportation when the costs get high enough. And yes, higher costs will lower use, lowering demand and lowering costs.
1. US hegemony is declining in the world.
2. The US is going to need to levy taxes in a big way, very soon, on everything we do. Since we’re
out of money and all.
3. Inflation. I have a suspicion the US is going to be seeing a lot of it.
4. Deflation. If the inflation doesn’t happen, we might end up in a deflation scenario (economists are already talking about this as a possibility), which would just make gas *feel* like it costs 6 bucks a gallon.
5. I think OPEC really is going to try to cut output.
6. Global growth is still going to happen a lot, even when the economy is not great.
I fixed this problem the only way feasible: I make my own fuel. Energy independence can only be achieved today at a personal scale. I chose to be a part of the solution.
–chuck
Some countries are running out of oil. Others have vast amounts of oil. Venezuela has six yes six times the oil the Saudis do, but since it is heavy oil, and costs – get this – $40 per barrel to produce, much of their oil is not counted. They want the oil counted, so they can pump more under Opec rules. Brazil has just discovered they have more oil offshore than all the Venezuelan oil.
Because of 1) global warming 2) trade deficit we need to become independent of oil, which is difficult, because oil is not just used for cars – it makes all our fertilizer and all our plastic. So a tough task, but yes we need to start, but the reality is, the price spike this year was due to speculators. No shortage, not yet. Someday, but not until Venezuela, Brazil, Africa, Siberia, Caspian Sea, Arctic Ocean, and most of the rest of the ocean floors, are drained.
As US enters a depression, expect the price to drop further.
Gas is expensive in Europe because the governments over there tax the living crap out of it, not because it has to be that way.
toxicroach:
Gas is expensive in Europe because the governments over there tax the living crap out of it, not because it has to be that way.
Yeah. But if you counted all the hidden costs (environmental, social, health, road, rapid-heart-rate-syndrome-for-leftists-with-pensions-invested-in-Exxon-Mobile) costs, gasoline would really be $7.42/gallon.
toxicroach>
It doesn’t matter how the price gets there, it is what is is. I still think we are super lucky then, that our gas does not cost what it does in europe.
I completely agree with gasoline over $5 starting in about 2012. Mostly due to supply side. The main reason is that any of the new major oil finds require oil to be in the $70bbl, to $150bbl to be profitable to produce. That in conjunction with worldwide 4-5% YOY geologic production declines will force oil prices upward.
Economically we will have some cheap prices in the next year or so as OPEC tries to control a $90bbl floor price. A low price will force aging infrastructure cut backs and make the industry unprepared for the future, again.
Examples of terminal production declines despite using the latest recovery technology. Indonesia became in oil importer last year and exits OPEC this year, mostly due to their consumption out stripping supply. UK, becomes an oil importer next year. Mexico becomes an oil importer in 2015. Russia has had 10 consecutive month production declines.
Always remember: Oil reserves do not equal Oil Production do not equal Oil Exports.
I fixed this problem the only way feasible: I make my own fuel. Energy independence can only be achieved today at a personal scale. I chose to be a part of the solution.
Out of curiosity, how are you doing this? The reason I ask is because I looked into home-grown biodiesel (a few years back) and I found out that it’s often not energy-positive to produce, while the cars that can use SVO are quite old, dirty and lacking in safety equipment.
Gas is expensive in Europe because the governments over there tax the living crap out of it, not because it has to be that way.
In Europe and Canada they tax. In the US they toll. You pay more or less the same, but you don’t notice it in the US because they take it out of you a nickel-and-dime at a time.
Either that, or they just don’t fix the roads. Driven through Michigan recently?
Guys like Hugo Chavez are sweating because they maintain their power with petro dollars.
Gas here in Indiana is down under $2.40 in places. That, combined with recently moving and cutting my commute in half, is adding to my savings. It’s nice not even being able to spend $30 filling my car unless I spill it on the ground.
Guys like Hugo Chavez are sweating because they maintain their power with petro dollars.
So does Steven Harper.
I can’t see oil prices dropping much further. It is getting close to the break-even point for all the oil sands producers in Alberta, so much lower and they will start to curtail production until the price stabilizes.