At Least Have The Grace To Oil Up First

Good ol’ West Texas Intermediate has been hanging around the $100 a barrel mark for quite some time now, but the real issue is gasoline prices have hit the $3.50 average well before the summer driving season.  What’s driving the price up?  It sure as hell isn’t demand.

Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.”

Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.”

Somebody’s making huge bets that gas prices are going to be through the roof, so much so that hey, gas prices are going through the roof.  Record  long futures this early in the year when demand is at a 15-year low seems like a lousy bet on paper, but a lot of people are betting a lot of money that the country will have to deal with $4.50 a gallon soon.  And lo and behold, up goes both crude and gas as the long money becomes a self-fulfilling prophecy.  All canoodling aside in the Straits of Hormuz, this is very much looking like what happened in 2008.

Funny how that works.

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100 replies
  1. 1
    redshirt says:

    This has been my one fear about Obama’s re-election – the money boys might decide to crash the world’s economy just to prevent it.

    What’s to stop them?

  2. 2
    Comrade Dread says:

    Don’t come round here wit yer fancy E-co-nomics, mister.

    We all knew from the feller on Fox News that it’s because that Kenyan, Marxist, soshalist Barrack Hussein Obama nixed that Keystone pipeline which would have brought a 1,000,000,000,000 new jobs to ‘Merica.

  3. 3
  4. 4
    Linkmeister says:

    I paid $4.07/gallon for regular unleaded on Monday.

  5. 5
    Someguy says:

    I fail to see what the problem is here.

    Prices go up, people use less of this greenhouse gas creating menace. Shoot, if prices were $6 or $8 a gallon, so much the better. It’d result in the introduction of a new word to the U.S. vocabulary: car pool. Or better yet this totally foreign concept, “walking.” Or “Bus,” from a latin term for “energy efficient transportation.”

    That there’s a profit incentive is a bonus. Now let’s tax the speculators.

  6. 6
    Zandar says:

    Peak oil rich people screwing the market?


    What.

  7. 7
    JPL says:

    The oil companies receive major subsidies to refine oil and then sell millions of gallons outside of the United States. They are allowed to sell to whoever because that’s our free enterprise system but should they continue to receive tax breaks. Demand has risen in South America.

  8. 8
    PIGL says:

    I don’t think speculators alone can raise prices for long. An alternate explanation is that global oil prices are not dependent on demand levels in the US, because other places use it too, in increasing quantities, and world production capacity is at peak.

    American are going to be paying $5 a gallon for gas soon enough, like almost everbody else. They’d best get used to it, and forget about the incessant whining for “relief at the pump.”

  9. 9
    Rawk Chawk says:

    Funny how that works.

    And funny how nothing has been done about the twisted effect speculation has on gas prices, since Obama’s election; nor has he made a major issue out of it in four freaking years.

    Funny how that works.

  10. 10
    Soonergrunt says:

    @redshirt: You beat me to that very thing. This was the thought that occurred to me while driving into work this morning listening to NPR talking about oil and gas prices going up. I thought that I might even post about it, but I knew that one of the other front pagers, all of whom are smarter than me, would do a better job.
    @Rawk Chawk: Of course, some of the commentariat don’t let their ignorance get in the way, like Timmy here. Say, don’t you have a well to fall down?

  11. 11
    chopper says:

    jesus, i forget who started as a front pager years ago saying he was going to concentrate on energy (i was overjoyed) and it never went anywhere (boo!).

  12. 12
    MattF says:

    I agree that hedgies will pick your pocket, given the opportunity. However, also, if I was in Yurp, I’d be feeling edgy about gas prices:

    http://www.nytimes.com/2012/02.....ns.html?hp

  13. 13
    Rawk Chawk says:

    Oh good lord.

    We’ve been thru this cycle a hundred times.

    Speculators and artificial market manipulation drives up gas prices. Media pretends they can’t figure out how this happens.

    Anti-car lefties say “good, people will walk!” Hey, I’m happy to walk and carpool as long as Donald Trump has to do likewise.

    There will be much strum und drang about prices, we’ll all get raped at the pump again, and then mysteriously enough, prices will drop again just as something is about to be done about it in congress, and then nothing will change.

    rinse, repeat.

    I’m of the opinion there is probably enough oil in the ground to last centuries, but government and industry will keep pretending otherwise. When I was in high school 35 years ago we were told oil was running out. Hmmm…here we are all this time later and there’s a glut.

    Funny how that works.

  14. 14
    ant says:

    folks over at the oil drum claim speculation can’t artificially drive up the price like that.

    peak oil they say.

    I think it’s good news to hear that demand is down.

    High gas prices are bad news for Pres Obama.

  15. 15
    Rawk Chawk says:

    @Soonergrunt:

    but I knew that one of the other front pagers, all of whom are smarter than me, would do a better job.

    True, that.

  16. 16
    Suffern ACE says:

    I thought oil prices were going up because Iran and Israel are threatening each other. Also, since we have been a bit more successful in putting sanctions in
    Iran, Iran has an incentive to saber rattle to increase the price of its chief export. The long bets are that the saber rattling will lead to higher oil prices if rattling sabers actually strike something.

  17. 17
    r€nato says:

    anybody got the stomach for another electoral season of ‘drill baby drill’?

  18. 18
    FNWA says:

    Perhaps the speculators beleive the US or Israel is going to bomb Iran and then there will be na oil shortage.

  19. 19
    JPL says:

    @PIGL: We posted at the same time. South American demand is high and they are paying the American refineries more per gallon. Why wouldn’t they ship there. It’s time to end the subsidies to companies that ship overseas. That’s what is so comical about the Keystone pipeline. There is no guarantee that oil will be used in the US.

  20. 20

    @chopper:

    Jesus, I forget who started as a front pager years ago saying he was going to concentrate on energy (I was overjoyed) and it never went anywhere (boo!).

    I remember that. I asked him for his take on the question of peak oil and he said that he always assumed that Technology would come up with a substitute and everything would be wonderful.

    Reliance on Progress is a form of religious faith, you know.

  21. 21
    Bobby Thomson says:

    No one could have anticipated that a cartel with a vested interest in preventing the re-election of a Democratic president would hike up gas prices in the months immediately preceding an election.

  22. 22
    ant says:

    @Rawk Chawk:

    Hmmm…here we are all this time later and there’s a glut.

    LOL

  23. 23

    Time to start a We are the 100%ers movement. Flood Congress with calls demanding an end to oil and gas contract speculation and impose limits as to how many you can purchase. The globe gets fucked by this yet remains silent all the while financial blogs all echo the same bullshit higher demand crap over and over again.

  24. 24
    Downpuppy says:

    It’s a world market. US consumption is down to about 20% of it.

    Sure, we’re importing a lot less, but China & India are importing a lot more, and total exports are shrinking.

    European stocks are still quite low, which is why WTI is $17 cheaper than the OPEC basket price.

  25. 25
    PIGL says:

    @Rawk Chawk: your view is that there is probaby enough oil in the ground to last hundered of years? At what level of demand, and where do you suppose it is hiding?

  26. 26
    chopper says:

    @Linda Featheringill:

    demand in the US has been low, but places like china and india have been sopping up excess world demand. also, easy cheap light sweet has basically plateaued and any growth in production has been borne by expensive heavy crude, bitumen, NGLs, biofuels etc.

    the futures market and turmoil in the mideast is part of the high price, but the biggest reason oil itself is expensive is because oil itself is getting fuckin expensive.

  27. 27

    @chopper:

    the biggest reason oil itself is expensive is because oil itself is getting fuckin expensive.

    I agree. And it will probably get worse.

  28. 28
    chopper says:

    @Rawk Chawk:

    I’m of the opinion there is probably enough oil in the ground to last centuries

    there’s enough oil in the ground to last a million years if you lowball the extraction rate enough.

    the thing about ‘peak oil’ isn’t URR or even proven reserves. it’s about extraction rate, and with regards to us importers peak oil’s bastard brother is ‘export levels’.

  29. 29
    MikeJ says:

    @PIGL: I’m sure that’s an absolutely true statement, because much of the oil that’s left is *never* going to be pumped. It will just cost too much to do it.

  30. 30
    redshirt says:

    @Linda Featheringill: Technology will come up with a solution – there’s lot of promising leads. The question instead is: How painful will the transition be?

    I’ve seen solutions that use the existing infrastructure – not that painful. Other solutions (electric cars for example) require a new infrastructure and cause other issues.

  31. 31
    Hill Dweller says:

    @Rawk Chawk:

    And funny how nothing has been done about the twisted effect speculation has on gas prices, since Obama’s election; nor has he made a major issue out of it in four freaking years.

    Were you in a coma last year? Obama was railing against speculators in April/May last year. The CFTC sued two big traders for their conduct in ’08, and the Justice Dept. formed a task force on oil speculating. It was characterized as one of the biggest crackdowns in US history.

    One of the CFTC’s new, stricter regs on speculating is now being challenged in the US Appeals Court in DC by Wall Street groups. The CFTC has until Feb. 17 to respond, and a hearing is scheduled for Feb. 27th.

  32. 32
    Hoodie says:

    Lighten up. Even after cash for clunkers, average fleet age in the US is pretty high and we’re in the early stages of a replacement cycle. Higher gas prices could increase demand for fuel efficient cars and, this time, US manufactured vehicles are better positioned to meet that demand here and abroad. In contrast, in 2008 the economy was overheating and we not only had a glut of McMansions, we had a glut of guzzler SUVs and US manufacturers that were tooled to produce nothing much else. Our private debt position, while not great, is better than it was then.

    In other words, this isn’t necessarily bad news, because long terms bets on oil can also be long term bets on increased economic activity that fuels consumption, and traders aren’t necessarily looking to go long on assumptions that demand will soon collapse. Don’t assume it’s 2008 repeating.

  33. 33
    RalfW says:

    Not only funny how that works, but this just goes to show that the whole supply side economics fail of the GOP is bad for consumers.

    There is too much cash awash in the markets, so speculators are rooting around looking to make a buck (or billion). Since there’s not that much demand for goods, there isn’t an angle to making money investing in manufacturing, housing, retail, etc.

    Hence commodity bubbles. Too much cash seeking too little return.

    The GOP answer to the recession? Tax cuts. So that the ‘job creators’ will invest in new, erm, jobs. Yeah, jobs, not commodities futures. Nahh not that. Trust the overclass!

    Hah.

    Freeing up more cash for the rich will just make even more dollars loose in the market to rampage around and play musical chairs, hoping the less savvy are holding the bag when the music stops/bubble bursts.

    If the hedge-funders can’t find enough suckers to take the bad side of the bet when the collapse in oil/gold/wheat comes? Bailouts!

  34. 34
    Zandar says:

    @Downpuppy:

    There’s also the issue of the fact we’re now a net exporter of refined petroleum products.

  35. 35
    Scott Supak says:

    http://articles.chicagotribune.....re-barrels

    “U.S. refineries exported a record amount of refined fuels in 2011 to markets in South America, Central America and Europe. It was one reason why Americans spent a record amount on gasoline this year: Supplies that might have helped lower prices here had been shipped abroad.”

  36. 36
    different-church-lady says:

    And of course, back in 2008 we were told repeatedly and relentlessly that speculation had absolutely nothing to do with it, NOTHING!

    Meet the new assholes: same as the old assholes.

  37. 37
    barath says:

    @Downpuppy:

    It’s a world market. US consumption is down to about 20% of it.

    This.

    Jeffrey Brown has done extensive analysis of how the U.S. is slowly getting priced out of the oil market: oil production globally is flat and will soon be declining, and meanwhile demand in the BRICs has been growing all the while oil exporters are exporting less (because their internal demand is growing). That leads to less oil on the global market and even less for the U.S.

    http://www.aspousa.org/index.p.....k-exports/

    http://www.aspousa.org/index.p.....t-exports/

  38. 38
    TK-421 says:

    Oh great, now we have to worry about bailing out the pathological gamblers Wall Street a–holes investors who continue to believe in the Greater Fool strategy.

    Can we please let them fail this time? Pretty please?

  39. 39
    Hill Dweller says:

    The two Wall Street groups are asking U.S. District Judge Robert Wilkins to delay the CFTC reg on speculating, not the court of appeals, which already dismissed it.

  40. 40
    barath says:

    Also, James Hamilton did many good analyses on whether speculation is the root cause of high oil prices and concluded that they were not. His concern is that speculation and concern about speculation will cause people to miss the 800 pound gorilla in the room, peak oil:

    Although I remain open to evidence on a possible short-run contribution speculation may have had, one aspect of the debate over this issue worries me. The plots above of oil production over time in my mind highlight what has been a significant economic challenge over the last few years and very possibly an even bigger challenge in the years ahead. I would like to see more consensus on what seems to me to be a very clear statement of fact, which is, stagnating global production is by far the most important reason for a rising price of oil.

    http://www.econbrowser.com/arc.....ls_sp.html

  41. 41
    barath says:

    @Zandar:

    There’s also the issue of the fact we’re now a net exporter of refined petroleum products.

    Unfortunately that story (originating from the WSJ) was the biggest nothingburger in a while:

    http://www.energybulletin.net/.....r%E2%80%9D

  42. 42
    Jewish Steel says:

    @redshirt:

    This has been my one fear about Obama’s re-election – the money boys might decide to crash the world’s economy just to prevent it.

    Not an effective strategy if the poster boy of money boys is running against him. It gives Obama one more set of assholes to contrast himself against. Congress, the .01%, and now, possibly, Big Oil.

  43. 43
    JGabriel says:

    OT, but kinda funny. MoDo:

    After languishing in the Catholic Church, exorcisms are back in fashion. … Father Thomas thinks the time is ripe for exorcisms because “our country is at war with itself culturally over whether or not it believes in God” and because “there is a growing amount of paganism — New Age practices like crystals, reiki, witchcraft, black magic, tarot cards, Ouija boards, seances.”

    See, this is what most people don’t get about Jesus. When he was overturning tables in the temple, it was because those guys were selling Ouija boards and quartz lattice clusters.

    I know it’s true because the priest tells me so.

    .

  44. 44
    El Tiburon says:

    Obviously this is all because Obama retreated from Iraq and refuses to bomb Iran.

  45. 45
    Marc says:

    World energy usage rises a lot if living standards in China and India rise. You get price spikes when you combine rapidly increasing demand with finite (and slower to respond) supply. Speculation can contribute to some artificial price bursts – but the basic ingredients for recent behavior would be there even with the speculators. Basically, you have break the link between energy use and living standards to deal with the long-term problem.

  46. 46
    RalfW says:

    @JPL:

    That’s what is so comical about the Keystone pipeline. There is no guarantee that oil will be used in the US.

    I’m fairly confident that, baring a marked increase in US refined products demand that indeed much if not all the Keystone oil (or it’s fungible equivalent) will get refined in the massive Houston-SW Louisiana area refining megaplex and shipped to Latin America.

    I’d bet if I was still in the tanker charter market (been out of that a long, long time) there’s good spot rates on tonnage to move the gas/diesel/jet A south these days.

    The big refiners have invested billions in capacity, they’re not gonna let it idle or let overcapacity in products create another price slide.

    Keystone is about export. That’s why Canada is threatening to build west to export to China if building south to export to the Latins doesn’t work out.

  47. 47
    JGabriel says:

    Zandar @ Top:

    Somebody’s making huge bets that gas prices are going to be through the roof, so much so that hey, gas prices are going through the roof.

    I wish I had enough money to make shorting people/companies like that a self-fulfilling prophecy.

    .

  48. 48
    Downpuppy says:

    @barath: Product exports – up to 3 million barrels a day in this mornings report – are pretty important if you own stock in a refinery.

    Otherwise, yes, not so much. It’s a filthy business with unstable margins, but we’ve built the plants for a 20 million barrel a day economy, so now that we’re running on 18 might as well use them.

  49. 49
    Zifnab says:

    I was going to say – I’m not really sure if speculation is a bad thing here. We have a limited supply of oil, and everyone recognizes that fact. The speculators want to make a profit. The environmentalists want to reduce consumption. And alternative energy markets want a higher price point for traditional gas so they can compete more easily.

    And what has happened in the US? We’ve reduced consumption and begun a major switch to green energy infrastructure. All I see here is win.

    Admittedly, when I fill my car up at the pump, it hurts. But let’s get real. I was contributing to the problem. Now I’ve got a large financial incentive to become part of the solution. Score one for the free market.

  50. 50
    Raven says:

    @Zifnab: I’m sure that helps people making the minimum wage feel better.

  51. 51
    barath says:

    @JGabriel:

    The thing is, the math doesn’t quite work out.

    Consider the story, which says that over three weeks $11 billion of new speculative longs were added. Over that time period it’s not all that much. This is how much oil was sold in that same amount of time:

    3 weeks x 7 days / week x ~85 million barrels / day x ~$100 / barrel = $178 billion dollars of oil.

  52. 52
    Suffern ACE says:

    Of course we’ve had this trade deficit issue for quite some time, and since $$$$s actually aren’t in short supply abroad, it makes sense for those $$$$s to buy refined petroleum products. What else are they supposed to buy? Our real estate and health care system?

  53. 53
    redshirt says:

    @Jewish Steel: You’re using regular human logic. Wingnut logic will declare that high gas prices “are cuz of that OBAMER!”

  54. 54
    Another Halocene Human says:

    Good. I needed to sell my long oil position anyway.

    It is funny about oil demand… mebbe that is why republican congress is trying to roll back the last 30 years with their transportation bill…NO RAIL PRECIOUS WE HATES IT WE HATES IT.

    I was watching teevee the other day and all of the car ads were pimping how little gas they used/or that they didn’t run on gas, thus implying the car was cheap to operate. The cars they were pimping were smaller, too. I’ve been waiting for a moment like this for twenty fucking years. Maybe after two years I can finally sell my ’99 Toyota and get a car I like.

    (I used to ride a bike to work. Then I got really, really ill and lost a bunch of muscle mass. I want to start riding again but in the mean time, I’m glad I can afford wheels.)

  55. 55
    barath says:

    @Downpuppy:

    You’re right. But the unfortunate thing is that the story got reported by the media (such as CNN’s breathless reporting) as “U.S. exports oil”, continuing the horrible reporting on energy that we’ve had since, oh, the 1980s.

  56. 56
    Martin says:

    This is why the US energy policy needs to take a similar view as Californias. In CA, the per-unit price of energy tends to go up roughly inversely proportional to the per-capita consumption. So, for gasoline, sending the price per gallon upward is a reasonable tradeoff if you are getting consumers to use less. So while you used to spend $50 filling the tank of your Hummer back when prices were $1.50, now you’ll spend $50 filling the tank of your Prius at $4.50. Either way, the cost to YOU is $50. The per unit price may have gone up, but the per-capita price has remained flat.

    And this is how it inevitably is going to have to go. The folks who lose are the ones that fail to recognize that the only path is them choosing a Prius as their next car instead of a Hummer. They can fight that as some kind of liberal tyranny, but it’s unavoidable. Unfortunately, cars are large capital expenses and people can’t adjust their autos as fast as the market can crank up the price of oil.

  57. 57
    Another Halocene Human says:

    @Someguy:

    Or better yet this totally foreign concept, “walking.” Or “Bus,” from a latin term for “energy efficient transportation.”

    Too late, those a-holes in Congress are trying to cut both public transportation in general and rail transit in particular. This will be the second round of the “transit ridership goes up, transit funding goes down” shtick.

    Out of desperation, localities are raising gas taxes (lol) and raising fares, but they also end up cutting service (boo). Congress could fix this but not only won’t, they are charging hard in the opposite direction.

    They ain’t nothin’ what ails ye that moar HIGHWAYS cain’t fix, son.

  58. 58
    RalfW says:

    @Hoodie:

    this time, US manufactured vehicles are better positioned to meet that demand here and abroad.

    I just rented a 2011 Ford Focus 4dr and drove the heck out of it up and down the Rockies, getting 37 MPG in a mix of 65mph hillclimbs and Denver traffic.

    It drove nicely and had the bells and whistles I like. I/we’re a year or two from replacing my partner’s 12 year old Corolla. He’s been shy of US cars, but I think the Focus could actually be a decent buy. We’ll look at other cars including US built ‘foreign’ cars (He really liked that his Corolla was US assembled, I gather that’s over with now).

    Though our ‘fleet economy’ won’t improve much till I replace my Volvo 5000lb sherman tank. I’m hoping for a nice hybrid mid-size 5door or wagon to get on the market.

  59. 59
    Martin says:

    @barath: Oil is an inelastic market around the supply max. You don’t need to inject a lot of artificial demand to create a huge spike in price. People will pay almost anything to keep the heat on and put gas in their car to get to work, and that is easily exploited.

  60. 60
    barath says:

    @Zifnab:

    I was going to say – I’m not really sure if speculation is a bad thing here. We have a limited supply of oil, and everyone recognizes that fact. The speculators want to make a profit. The environmentalists want to reduce consumption. And alternative energy markets want a higher price point for traditional gas so they can compete more easily.

    Hmm…so it seems likely that speculation is only affecting things at the margins and isn’t the primary driver of price. (Lack of supply + growing Chindia demand + the export land effect is.)

    But the problem with high oil prices is that they lead to low oil prices by causing a recession. In doing so, they cause alternative energy projects to look like bad investments (those projects started when oil was high get abandoned soon afterwards once oil plummets). This happened in 2009, and will probably happen again. What we really want is some sort of counterbalancing effect to dampen swings and keep prices artificially high. (I wrote a somewhat crazy blog post about using the SPR for this purpose…I’m not sure it’d work, but we need something to fill that gap.)

  61. 61
    barath says:

    @Martin:

    That’s true, but it doesn’t appear we’re at that point at the moment. I agree that it has happened in the past, but only temporarily – such as in Spring 2008. And that’s what Hamilton concluded in his analysis.

  62. 62
    Democratic Nihilist, Keeper Of Party Purity says:

    folks over at the oil drum claim speculation can’t artificially drive up the price like that.

    @ant: Horseshit. Late 2007, oil hit over $140/bbl, gas hit $5.00 per gallon. Bush got on the teevee with that dumb befuddled expression on his face and insisted that speculation had nothing to do with it. One week later, the bubble popped. One month later, gas had gone from $5/gallon to $2/gallon, and at the end of the quarter, every oil company had shattered profit records with figures that still stand today.

    It is nothing but speculation.

  63. 63
    Downpuppy says:

    @barath: OK, so let’s recap the last 4 weeks average.

    Crude – net import 8.7 mmbpd
    Products – net export 0.8 mmbpd
    Total – Net import 7.9 mmbpd

    A bit under or over 50% of our consumption, depending on what liquids you include in the definition, comes from imports.

  64. 64
    Another Halocene Human says:

    Also, too, not sure if snark, but “bus” actually is short for “omnibus” which means “directed at everyone”, which is of course anathema to small government social darwinist libertarian intellectual giants.

  65. 65
    barath says:

    @Downpuppy:

    Yup.

    The good news in that data (if there is any good news in that) is that unlike much of Europe, we actually produce a large amount of oil (it’s just that we use it wastefully). So in a crunch like what we’ll experience later this decade as a result of declining global oil production we might actually be able to cope somewhat okay if we start putting into place aggressive efficiency policies now.

  66. 66
    Judge Crater says:

    High commodity prices could also result from all the funny money (QE 1, 2 etc.) that the Fed and the ECB (European Central Bank) are creating to keep the financial system liquid, i.e. afloat.

    The Fed balance sheet is already near $3 trillion dollars. Too big to fail hasn’t gone away and its costs are rolling downhill into the real economy and the 99 percent.

  67. 67
    RalfW says:

    @Another Halocene Human: In that regard, I hope that either: no friggin transportation bill moves or that the two year bill being worked up is the “winner.”

    I do wonder what the price of gas needs to be before rail appeals to more than just effete liberals like me? Not that I can use rail much here in Minneapolis.

    Yes I use LRT a bit, and will use it more once the second line opens so I can get over to St. Paul to yell at legislators regularly, but AmCrack is not very useful here, and Scott Idiot Walker blew up regional HSR for the foreseeable future. He and all his Koch pals are such disastrous d*cknobs.

  68. 68
    wrb says:

    @Linda Featheringill: take on the question of peak oil

    A brilliant bit of industry ratfucking.

    It leads to the conclusions that:

    All that is good comes from oil

    We must drill at any price, otherwise everything good will end (think of the children!)

    Oil should be very, very expensive.

    Alternatives are a dangerous distraction

  69. 69
    pragmatism says:

    i was misreading adam smith all along. the “invisible hand” of the free market are the speculators. they get monetary and election benefits from this course. somewhere, free market jeebus is riding a dinosaur and smiling about this.

  70. 70
    RalfW says:

    @barath:

    we might actually be able to cope somewhat okay if we start putting into place aggressive efficiency policies now.

    Haha Ha Ha Haha.

    I mean, you’re correct on the merits. But the politics look impossible at this moment. I hope that can change.

  71. 71
    Downpuppy says:

    @Democratic Nihilist, Keeper Of Party Purity: Your recollection is a bit off.

    The price peak was in summer 2008. The decline took about 6 months. Crashing the entire world economy can have a fairly severe effect on commodity prices.

  72. 72
    barath says:

    @RalfW:

    Yeah, I know. It’ll never happen. So what’s more likely is that declining oil production will hit us like a ton of bricks for a couple of recessions until leaders get it (maybe around the 2020 presidential election) that global oil production isn’t going to go up again. At which point they’ll do something…only four decades too late.

  73. 73
    barath says:

    @wrb:

    Um… The first Jeffrey Brown link I posted above discusses how oil peaks happen due to geology, and nothing has been found to get around that:

    Figure One shows the 1972 Texas oil production peak lined up with the 1999 North Sea oil production peak (crude + condensate in both cases). These two regions were developed by private companies, using the best available technology, with virtually no restrictions on drilling, yet both regions show clearly defined production peaks. Furthermore, the initial declines in both cases corresponded to sharply rising oil prices. These two examples, which jointly accounted for about 9% of global cumulative crude oil production through 2005, show that, contrary to conventional wisdom, Peaks Happen, even in the best of circumstances.

    Geology is the driving factor.

    Add to that the fact that most oil sold today is sold by nations (state-run oil companies), not Big Oil, and demand in Chindia is growing, and that oil exporters still subsidize oil domestically (which makes sense – why should they pay global market rates for their own oil), and you get the situation we’re in.

  74. 74
    Brachiator says:

    @Scott Supak:

    “U.S. refineries exported a record amount of refined fuels in 2011 to markets in South America, Central America and Europe. It was one reason why Americans spent a record amount on gasoline this year: Supplies that might have helped lower prices here had been shipped abroad.”

    I suppose that someone should ask the Republicans about this economic fact. Oil is a global commodity. Every nation, every person in every natiion, competes with everyone else to get it. There is no law or rule that says that “American oil” belongs to Americans first.

    Hell, you can’t even say that oil extraction profits belong to American companies first (BP).

    @Martin:

    Oil is an inelastic market around the supply max. You don’t need to inject a lot of artificial demand to create a huge spike in price. People will pay almost anything to keep the heat on and put gas in their car to get to work, and that is easily exploited.

    There is all manner of rigging the oil markets that has little to do with supply and demand. You can begin with artifiicial increases by OPEC.

    Then there is the manipulation of refining capacity.

  75. 75
    Another Halocene Human says:

    @RalfW: What is really, really sad and ugly about the proposed 25% cuts to Amtrak is that plenty of Amtrak riders are price insensitive. They can no longer drive long distances or realistically drive at all and can’t fly due to health problems. And that demographic is only going to grow.

    Students are already being priced out of Amtrak. They are using the mushrooming intercity coach services.

  76. 76
    dmbeaster says:

    @redshirt:

    This has been my one fear about Obama’s re-election – the money boys might decide to crash the world’s economy just to prevent it.

    What’s to stop them?

    Well, anyone making these large bets on a further increase in gas prices is certainly not betting for a recession this year.

  77. 77
    Another Halocene Human says:

    @RalfW:

    AmCrack is not very useful here, and Scott Idiot Walker blew up regional HSR for the foreseeable future. He and all his Koch pals are such disastrous d*cknobs.

    You and me both, brother–I’m in Pink Slip Rick Scott land. HSR would have been huge for the economic development of Florida–in much of the rural part of the state people cannot get from town to town without a car and guess what, there is widespread poverty, so a lot of unmet demand for travel and a negative effect on commerce and the local economy. HSR would have been FREE to Florida but Rick Scott killed it anyway.

  78. 78
    jehrler says:

    @RalfW:

    We have the Fiesta with the 6 speed automatic manual and love it. 40+ even during a Minnesota winter (granted, it has been a *warm* winter).

    What I have read is that the reason gas prices have spiked is that 3 (or was it 4) of the big refineries shut down early this year to switch from winter gas to summer gas. Which, given the unseasonably warm weather, makes sense.

    Anyway, this changeover has resulted in a bit of a short term supply crunch.

  79. 79
    barath says:

    @Another Halocene Human:

    Students are already being priced out of Amtrak. They are using the mushrooming intercity coach services.

    The screwed up part of that is that the bus services are taking advantage of a hidden subsidy that Amtrak doesn’t have—the roads and bridges that are maintained by the government. Plus some of them are terrible bus lines (Megabus for example, where I’ve had all sorts of crazy experiences, such as having the bus take 4 hours longer than it was supposed to for a 4 hour journey, and having the driver pull over in the emergency lane on the NJ turnpike and have us sit there because their shift was done…there’s a reason they’re cheap.)

  80. 80
    chopper says:

    @Martin:

    it’s not just that, it’s also the lifeblood of the world economy. something that central to, well, pretty much everything hitting a ceiling is a pretty scary idea.

  81. 81
    Rawk Chawk says:

    @Soonergrunt:

    Say, don’t you have a well to fall down?

    Tell me again why you’re a front pager?

  82. 82
    Zifnab says:

    @barath:

    But the problem with high oil prices is that they lead to low oil prices by causing a recession.

    High oil prices only lead to a recession because everyone is consuming oil. Assuming repeated oil spikes and unstable oil markets, alternative energy starts looking like a much better investment from a consumer perspective.

    Why do you think frakking and other natural gas exploration have exploded in the last ten years? People are looking for gasoline alternatives – and we’re finding them. As the US converts to non-oil alternatives, price spikes won’t have the same economic impact they did. And as consumers transition to non-oil energy users (electric cars, natural gas heating, etc), oil price declines won’t lead to renewed consumption.

    The question in the meantime is what alternative to switch to. That is why debates over Keystone XL and frakking and coal strip mining are so important right now. If we continue to subsidize fossil fuels by allowing unlimited waste without producer expense, we will cement these energy sources as our primary demand for the next generation. If we kick over to renewables, we can cement ourselves in a green energy industry going into the future.

    What we really want is some sort of counterbalancing effect to dampen swings and keep prices artificially high.

    What we really want is fewer technological consumers of fossil fuels. If I have a heater that takes oil, I’m going to consume oil until I get a new one. But once I have a plug-in electric heater, I’m never going to buy heating oil again no matter how cheap it gets.

    Likewise, if we transition to fleets of hybrid/electric vehicles or we get a solid HSR infrastructure, gasoline consumption will stay in decline because the tools we use consume that much less of it.

  83. 83
    jl says:

    I think structure of US refinery industry, and increasing concentration and vertical integration down from big oil companies, that is important to consider, in addition to prices of crude oil. Probably more important for short run bumps in gas prices than crude oil prices.

    Also need to separate short from long run fluctuationa and trends. There is evidence that index funds investments in futures market, and interaction of futures and spot prices can increase volatility and increases prices in short run, but not over long run.

    But, I would look at what is going in with US refinery industry too. Though, difficult to find much info or published research on that for some reason.

    Edit: there is robust evidence of causal effect of futures market on contract and spot markets, but too weak and variable to tell reliable and detailed stories about sources of short run fluctuations in gas prices. I want to know about refineries, though frustrated that info is hard to get.

  84. 84
    barath says:

    @Zifnab:

    I mostly agree with what you’re saying. Though given how far along we are in the peak oil trajectory, it’s highly highly unlikely we’ll get out of this mess with technological fixes and alternatives alone. There’s a fair amount of “demand destruction” (a terrible euphemism) in our collective future.

    Given that governments seem to be very reactive on energy issues rather than proactive, and usually only in presidential election years, it seems likely to me that policies to respond directly and forcefully to peak oil won’t be even discussed until the 2020 presidential elections.

  85. 85
    Schlemizel says:

    Back a few years ago when prices spiked to their highest point yet I guy I know who works in investments gave me an estimate of how high per BBL prices would go. When I asked him how he could be so sure he told me “Because of the amount of unused storage around the world”. A short time later he predicted prices would star falling because there was no surplus storage capacity any more, it was all full, he predicted the coming BBL price.

    He was dead on with both predictions. My guess is there are plenty of people who know this stuff but we are not allowed to find out.

  86. 86
    chopper says:

    @Zifnab:

    converting to non-oil alternatives is easier said than done. we should have started 30 years ago but didn’t.

    we have no real infrastructure for electrifying our fleet, nor especially for converting it to operate on natural gas (neither do we have anywhere near enough gas to do so). at least not within the time frame we’d need to to avoid a severe energy crunch.

    likewise, oil does much more than make gas, diesel and kerosene. it’s the basic feedstock for a large part of our material and chemical industry. you can’t make plastic, tires, roads, herbicides or pharmaceuticals from electricity.

    petroleum really is a miracle substance. there’s no real substitution for it, only pale imitators. further as to natural gas, fracking isn’t nearly the savior the industry claims it is.

    not to sound like a downer, but it really sucks.

  87. 87
    wrb says:

    @RalfW:

    AmCrack is not very useful here

    The five hour drive to the nearest station reduces its efficiency.

  88. 88
    Benjamin Franklin says:

    I don’t think it’s the speculation of the hedges, alone…………

    There are a Legion of ways the petro aggros can manipulate the markets, and refinery production is definitely a suspect. But, what I worry about, is what I don’t know.

  89. 89
    Chris says:

    If you’re going to have two cars, make one a Leaf.

  90. 90
    ruemara says:

    Sounds like this law needs to pass.

    American Resource Reclamation
    This portion of the bill addresses the lack of American citizenry profiting from the use of American resources.

    No company can drill in American waters without hiring from the local area of business at least 80% of it’s workforce.
    No company can get a permit to extract resources from American waters or land without agreeing to reserve 30% of all materials extracted strictly for the American market.

  91. 91
    revrick says:

    I have to agree with Linda Feathergill here… it’s peak oil! World crude production has been essentially flat since 2004 and with demand exploding not only in the BRIC countries but also in the oil-exporting nations as well, wild price swings are baked into the cake. Saudi Arabia, for instance, is building a huge desalinization plant that will need several hundred thousand barrels of oil every day to run!
    While I’d love to blame big oil and speculators, they’re only bit players on the stage nowadays. For speculators to affect price, they’d have to hoard crude… and there’s no evidence of that.
    Time to get used to this and build your life on a much more constrained energy future. Backyard gardens, anyone?

  92. 92
    amorphous says:

    @chopper: MMonides

  93. 93
    Chris Andersen says:

    What’s to stop “The Money Boys” from crashing the world economy in order to defeat Obama? Their own greed. As much as they might like to coordinate, they also know that each of them would be more than willing to sabotage “The Plan” in order to make a quick buck themselves.

    In other words, they don’t trust each other any more than they trust Obama.

    (btw, this is why I always laugh when people take seriously the idea of a world-wide coordinate “Money Boys” conspiracy. The idea that the paranoid set could actually cooperate enough to pull it off is laughable.)

  94. 94
    ornery_curmudgeon says:

    @revrick: “For speculators to affect price, they’d have to hoard crude… and there’s no evidence of that.”

    That’s why they’re called derivatives. Hoarded assets are bet on, not owned.

  95. 95
    pjcamp says:

    I hate to drop the phrase “gas bubble” into this conversation, but here it is.

  96. 96
    Tehanu says:

    I work for a utility company in their energy efficiency department. I also have a 30-mile freeway commute (one-way = 60 miles a day) … and I live in Southern California so public transportation is more or less a joke. I’ve been signed up for a vanpool for months but nobody else who works within 10 miles of me lives in my neighborhood. Gas prices for regular are already approaching $4/gallon. Oh, and my boss just told me that his micromanaging new boss* doesn’t like the fact that I work at home (telecommute) one day a week, so I’m looking at 300 miles a week instead of 240 … and now they’re talking pay cuts as well. Not asking for suggestions; just wishing I’d had the good sense to be born rich.

    * The one who wrote all the employees the e-mail about how our e-mail signatures had to be in black ink, not colors.

  97. 97
    redski says:

    @pjcamp: ding! let’s not build out too fast with a methane economy, the umptillions of cf being tossed around like so many manhole covers may just go poof!

    and in fact, the surfeit of natural gas and its crash in price is being used for arbitrage; the price of a barrel of Alberta tar sauce is about 50 times that of a barrel of GTL of equivalent energy density.

    there’s no fix in. other than the old fix of people wanting all your fucking money.

  98. 98
    bob h says:

    Gas at $5 probably is something we should worry about. China’s demand is driving it, and Republican hyenas will be in full cry.

  99. 99
    rumpole says:

    Tough to say whether this is peak oil. A lot of economic sources (see ritholtz’s blog for a bunch of different ones) suggest that, housing issues notwithstanding, there’s quite a bit of pent-up demand. Stuff wears out, and needs to be replaced. The result is economic activity.

    That means more people driving, running factories or air conditioning units, etc. If you think that’s going to happen and leverage the s–t out of it, voila-artificial scarcity. If there’s real scarcity plus artificial scarcity, then profits go through the roof.

    Yay.

  100. 100
    chopper says:

    @redski:

    it’s hilarious to see all the fracking wells closing up shop because their own lift in supply dropped the price of gas to the point where fracking isn’t profitable anymore.

    then again, they tend to dry up within a year anyways. one of the dirty little secrets of the industry.

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