Soaring Fuel Prices Hit Americans Hard

Guest Post:
By Nick Barile

If you’ve glanced at the big numbers on top of the gasoline pump recently, you’ve undoubtedly noticed the slow, dreadful escalation of fuel prices.  The majority of Americans are now paying close to $4.00 per gallon of gasoline, which has threatened the economic recovery and pushed many families closer to the brink. Why? Because, like it or not, our world runs on sweet crude oil.

Everything you buy, eat, or interact with is in existence because of oil. Your groceries, your school commute, your laptop- even this article that you’re reading right now- all have a relationship with oil that’s not going to end well. It’s important to understand why fuel prices are so high, and what you- and our country- should do to combat them.

Oil, natural gas, and other commodities’ prices reflect the speculation of investors based on the current environment. Almost all consumables are based on the centuries-old theory of supply and demand. If America is on the road-trip to recovery, then she’s going to have to fill the tank more than sitting idly in the depths of the Recession.

It seems that along with our own economic expansion, we have witnessed a dramatic uptick in the world’s consumption of oil. China and India have been rapidly expanding economically, and population growth has resulted in more vehicles being on the road than ever before.

The instability of the Middle East has also been the culprit for the theft of more American dollars. Revolutions of the Arab Spring have caused fear of a supply disruption, which would bring back the gas shortages of the 1970’s. Even more so, the United States’ increasingly hawkish foreign policy with Iran has led investors to become wary of yet another war fought within sight of oil wells, further causing fear of a drop in supply.

But our government isn’t doing that well in easing tensions. Our continued presence in the Middle East has led to many outbreaks of violence, stressing any political stability to be had. And the Obama Administration’s belligerence towards Iran has caused many near-panics for speculators, as Iran has retaliated with threats to stem the flow of oil out of the Middle East.

Our current policy is the equivalent of throwing water on a grease fire. It may seem the correct thing to do, but in reality, all it does is further spread the flames and result in more problems. If the United States wants to truly prevent political instability, then the government needs to dramatically re-think the interventionist foreign policy it has maintained for the past decade.

Even so, there are countless things to be done at home in order to hopefully quell gas prices’ jumpiness.  The first is a relatively obvious answer: more domestic production. Few will deny the risks of oil exploration. There have been catastrophes, no doubt, but we are on the verge of an economic one if Americans see gas prices upwards of $5 a gallon (not a far-fetched thought at all, as gas prices in Europe hover around $9 per gallon).

Although many advocate higher efficiency standards, it’s important to consider the feasibility of such requirements. The Chevrolet Volt, for instance, a poster-boy for President’s push for alternative energy, has been a spectacular marketing failure because of its price and ROI factor.

Consumers will simply not pay ridiculous sums of money for a car just to lower annual gasoline bills- that would take 27 years to recoup the investment. Even though Europe is a horrible example to follow in terms of production, they have been able to raise their efficiency by using two things: diesel fuel and small scooters/”Vespas”.

Diesel provides for much better fuel economy than its counterpart (capable of hitting near 50 MPG on the highway), and most gas-powered mopeds/scooters can achieve near 100 miles to the gallon. If America were to adapt itself to these things, gas consumption would fall dramatically than our current plans of driving 8 cylinder SUVs to work.

 


While we generally agree with Nick’s pov, we here at DataAnalytics

disagree with a few key points the author made.

Demand for gasoline the U.S. is at a 17 year low, while Europe is at a
decade low. Which more than off-sets the increases in China and India.

Also, the False Inflection points that are utilized by the traders are convenient ‘triggers’ that enable them to raise the prices without any accountability or real proof. The Iranian ‘issues’ were all media and government created, in order to allow the street to drive the prices up during that supposed ‘tense’ period.

Middle-East tensions with regard to oil supply has been something the
market has had to deal with for about 40 years, this is not something new.
But because the media and the government made so much noise about it,
it in turn gave the green-light to speculators, to panic investors and drive
up the Nymex/Cushing contract prices under false pretenses.

DataAnalytics findings reveal that Speculation accounts for approximately (+/-)28% of the price of a barrel of Brent Crude. NOT the 15% the St. Louis Fed came up with. Kevin G. Hall, of McClatchy states, “Oil and gas prices were soaring thanks again in no small part to rampant financial speculation on top of (exaggerated) fears of supply disruptions.”

Hall’s March report highlights the fact that despite rising prices at U.S. gas pumps, demand in the U.S. was so low it has “become a net exporter of gasoline, unable to consume all that it generates.”

We also believe that Europe is not a ‘horrible’ example of production, as
Europe’s GDP is not much different than the U.S.’s over the past4 years.
We also would really like to see the U.S. government and State governments seriously adapt alternative transportation methods, such as bicycles and scooters much more widely than it is. Our roads and highways are in general, not bicycle/scooter friendly at all. Especially on the east and west metro coast areas.

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Gasoline Prices Soaring Again

By DataAnalytics

Monthly Gasoline prices SPIKE one more time.

Now $3.65 per gallon (2/24). THAT’S THREE DOLLARS SIXTY FIVE CENTS.
Up $0.08 cents within the week. So far gas has RISEN from $3.23 to $3.65
per gallon just since January.

(2/20)
The average pump price of regular gasoline in the U.S. has
now risen to $3.57
from a month ago at $3.385 p/gal., and
up from $3.171 p/gal., just a year ago. A hefty 12.6% rise.

Price Chart
Here is what the main stream media, the Street and the
department of energy are reporting:

Both Brent and WTI are trading well above $100 per Barrel.

WTI   Brent

The burning question is why.

Here are the corporate owned media ‘talking-points’:

  • Geo-political tensions
  • Possibility of supply interruptions
  • Decreased crude supply from Nigeria and Libya.
  • Decreased capacity from Cushing/Midwestern refinery’s
  • Higher demand from India & China

Nigerian production

 

In turn, this is what investment firms and traders use as
a so-called “inflection point” or “trigger” to artificially drive
prices up, of both crude oil and retail gasoline.

However, here are a number of facts uncovered by DataAnalytics.

Most of the previously lost Libyan production is back to
750-800K/per day.

Nigerian production of approx., 2 mb/per day has been relatively
stable for the past 15 months.

The supposed Geo-political issues in the middle east have been
on-going for the past 40+ years. This is nothing new.

The prospect of supply being disrupted is slight.

U.S. Gasoline demand is at its lowest in 17 years.

E.U. Gasoline demand lowest in a decade

  • The level of supply is elevated
  • The level of demand has decreased

Gasoline supply has increased 9.7% from January.
Refinery utilization has declined from 85.6% to 84%
per day or only 0.4% which equates to -218K per day.
(this is basically a negligible amount)

Other than geo-political rhetoric and wild, unregulated
speculation, the mostly normal and broadly acceptable model
of demand and supply, based on consumption, appears to have
no place in the current price  ‘controls’ established by Wall Street,
OPEC and supposed government regulations.

The fact is that the current and wild speculation is unfounded
and is in the process of creating a gasoline bubble. Just last week,
traders bought 90 million barrels of futures contracts for themselves.

A major consequence of course is increased consumer inflation
and the further erosion of discretionary income and spending.

The most perilous potential result could be a Double-Dip Recession.
The bottom line is that the average consumer will suffer the
most, while only a very select will benefit and benefit enormously.

When supply is up and demand is down, but prices keep rising,
it does not take a PhD to figure out the causation. Which is
neither one of a geo-political, mechanical or physical supply issue.
In short, it is simply the underlying ambition of unreasonable profit,
by baseless speculation, at the great expense of the consuming public.

We are working on a more in-depth story regarding crude oil
and gasoline commodities. Stay tuned.