Price of gas was 1.50 when Obama took office, what happened?

I do not like high costs when they are artificially inflated only to squeeze the public until they bleed oil. Whenever any large companies take advantage of any situation and they know there's a recession happening to everyone, they should think about their pricing and try to help lower costs not increase them to help themselves not others that can't afford the higher costs.

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Oil is still cheap compare to the what it was in 2008. Oil topped 140 dollars per barrel in 2008 and then dropped to $40 dollars per barrel in 2009 during the worst of the Great Recession.

http://en.wikipedia.org/wiki/File:Brent_Spot_monthly.svg

And now oil is just under $110 a barrel due to speculation regardin the safety of Arab oil reserves. And that has nothing to do with President Obama.

 

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Ethics? In capitalism?

First, again, they don't set the price, the world does. So if the price goes up, why would they not pass that to the costumer? The only way they would give a break if they were afraid of their costumers switching to alternatives(see demand destruction), but most of them can't...

Second, nobody ever said no to more profits....

Third, since there are shipping involved, their cost also goes up when the price of oil increases...

 

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But here's the rub. When the price of oil jumps say 5.00 from one day to the next and the gas companies already bought a super tanker full of oil three days before, that oil will now be making more money becauuse as soon as the prices change day to day on the oil market, the prices of gas at stations goes up as well. So oil bought two weeks ago at say 100.00 a barell is now costing the coinsumer whatever the cost todays prices are, not yesterdays or two weeks ago.

 

That is true, but when the opposite happens, they have to swallow the difference, that they shipped expensively, but sold cheaply....

 

Yes. You forgot to state that is the average price, before federal and state excise taxes are added. On the West Coast for the week December 31 gasoline was $1.81/gallon before federal and state excise taxes, and in New York it was $1.79/gallon before federal and state excise taxes.

Also, it is quite silly to suggest that lower oil prices will result in lower gasoline prices on a broad scale.

If oil was selling for $0.000000038/per barrel, you would still be paying well over $1.00 plus state and federal excise taxes, probably an average of $1.85/gallon.

Who on this forum would like to know why?

Because the Supply of Gasoline in the US is fixed and can never increase.

You have 49 operating oil refineries, but only 17 produce gasoline.

Who on this forum would like to know why?

Because the other 32 refineries are producing your life-style, that's why.

For example, the Royal Dutch Shell refinery in Saint Rosen, Louisiana does 30,000 barrels of Bonny Light from Nigeria every day, but produces no gasoline. What it does produce is organic alcohols and other chemicals so that you can have liquid laundry detergent, because powdered laundry detergent is like, um, so passé.

So you only have 17 refineries producing gasoline and running flat-out in production there is a maximum amount of gasoline they can produce and they have been running flat-out for more than a decade.

That means the Supply of Gasoline is fixed and can never exceed X-gallons of gasoline. Therefore, Demand for gasoline will adjust the price upwards or downwards irrespective of oil prices.

There are also seasonal factors which can affect the price of gasoline on a short-term basis. Refineries produce finished gasoline for the winter and stock-pile it. Those stock-piles, plus replenishment is the Supply. At some point, refineries switch over and start producing reformulated gasoline for summer, because some state (not federal) EPAs demand it. If gasoline demand is high, that can deplete the stock-pile of conventional gasoline and cause the price to rise, but that is short-term, only until reformulated (summer) gasoline starts to hit the stock-piles.

There is no Real Inflation.

There is Cost Inflation. The difference between Real Inflation and Cost Inflation is readily visible, because when Real Inflation occurs, the price of everything rises, and everything means every thing, and yes, that includes wages and salaries.

Since the price of several hundred thousands of goods and services, and wages and salaries are not rising, there is no Real Inflation.

I suspect that, aside from not understanding basic economics, you haven't been on this Planet long enough to have ever experienced Real Inflation. Some of us have, and we know the difference.

Cost Inflation occurs when there is a sudden increase in Demand and Supply remains constant, or when production declines, resulting in a lower Supply, while Demand remains constant or increases.

Note that the cause of Real Inflation is vastly different than the cause of Cost Inflation, and because it is, the solutions to each are vastly different.

The solution to Cost Inflation is quite simple: Stop consuming.

Those people would be correct in leading you to believe that.

No, the recession began in the 4th Quarter 2008 (as I had predicted).

No, prices decrease when there is deflation. Deflation can occur at any time, not just during a recession, and sometimes inflation occurs during a recession.

It's some kind of voodoo thing. He has a small figurine resembling a barrel of oil and he stabs it with stick pins. At least I think that's how voodoo works. Well, that's how it works in the movies. Maybe he dances or chants as well.

True, but Es Sider (that is the name of the Libyan oil in question) is a high grade intermediate, a lot like WTI, but not quite as good.

The world is drowning heavy oil (which is totally useless for producing gasoline -- at least in the US), but intermediate and light grades are very important, especially for the petro-chemical industries.

Because of that, a substantial reduction in supply will drive prices up. Now if this were happening in Alaska, Canadians would be thrilled, because Canadian Hardisty (a heavy oil) might actually sell for more than $100/barrel.

I guess I should probably point out that Canadian Hardisty is only selling for $78/barrel now (which is better than the $65/barrel it was selling for the week prior).

You are not in the "middle of a recession." You have been in recovery for more than 6 quarters.

That depends.

"Superlow" interest rates will cause Interest Inflation and the result is that those things tied to interest rates will inflate in price. As a consumer, what would concern you is housing values and auto prices. With low interest rates, you pay more for each. Don't be stupid enough to think that just because Honda or Toyota offer "0% Financing" that you aren't paying interest, because you most certainly are.

They have merely engaged in gimmickry by inflating the price of the car to hide the interest rate you're really paying.

You haven't seen jack squat from QE, and you won't for a while. A long while. It takes years and years and years for that to wend it's way through the system. Generally about 8-15 years.

That is why you will not see Real Inflation until about maybe 2022-2023 or so.

During the 1st Great Depression of the 19th Century, the government dumped a lot of money into the economy, and the end of that recession was the start of the Civil War, so the government dumped large quantities of money into the economy quite suddenly. The result was that by 1862 you had serious Real Inflation on the order of 50%.

It wasn't the fact that the government dumped a lot of money into the economy, it is the amount in relation to the money supply and the GDP.

You had Real Inflation again because of government spending during the Panics in the early part of the 20th Century, and the war-time spending for WW I. That was rather mild, about 15%-20%.

If the government spent enormous amounts of money during the Great Depression and during WW II, why was there not Real Inflation?

Simple. What happened after WW II? You had the Bretton Woods Agreement, plus the US Dollar became the de facto international reserve currency and the de facto international currency of commodities trading.

So where did those US Dollars go? They got sucked off the market by everyone, and that's why there was no Real Inflation.

You had Real Inflation again because of government spending for Vietnam and LBJ's Grotesque Society and the gold standard SNAFU. That was relatively mild too, only about 10%-12%. Reagan and Volker spend the first four years of the Reagan Administration trying to get that money out of the economy, and they were largely successful and it eased up about 1986 or so.

Again, when looking at QE and the Stimulus, while those appear to be very big numbers (and I note Americans are confounded by big numbers), you have to view them in relation to the GDP and money supply, and it really isn't a lot.

Also, this is macro-economics, not a video-game or text message. Things do not happen instantaneously.

The government will continue spending, especially a few years from now when there really is a depression and by 2022-2023, you'll start to see Real Inflation and it will take a long time to get that money out of the system.

It doesn't work that way. Oil is a commodity and the price is by futures contracts, which has nothing to do with the oil companies.

If you want x-barrels of oil 6 months from now, then you need to buy it now, and that's what a futures contract is. If the price of oil is higher 6 months from now, then you made out okay, but if it drops, you got stuck. But understand you're buying oil for your business. If people are speculating, then things can get out of hand.

And he is absolutely correct.

When there is Real Inflation, you will know, because you will be getting regular pay raises. When Real Inflation gets bad, your pay raises will be coming monthly and if it gets really, really bad, like Wiemar Republic bad, your pay raises will be weekly.

Note that if your pay raises come to quickly, that will result in Wage Inflation.

Rising wages cause rising prices.

As incredible as it might sound, rising wages during the Great Depression induced Wage Inflation. FDR enacted a Wage & Price Freeze. That is why your "health insurance" is tied to your employer.

Rising wages during the early 1970s caused Wage Inflation on top of the Real Inflation and Cost Inflation that already existed and there was a vicious wage increase/price increase cycle. Nixon implemented a Wage & Price Freeze then as well.

If you want to learn more about Wage Inflation, you can read Adam Smith's The Wealth of Nations where he elaborates on it.

Food prices suffered deflation for six consecutive quarters in 2009 and 2010.

Why weren't you upset about that?

You stopped growing food to grow non-food crops; you use food crops for non-food things; you use food crops for useless food things that you don't need.

So when weather causes poor harvests, or storms cause widespread crop destruction, that decreases the Supply, and since Demand is obviously constant or actually increasing, guess what? Prices rise.

When cotton crops suffer poor harvests are destruction by storm, the price of clothing rises.

You going to blame that on Obama and Bernanke? Is that some kind of voodoo weather thing? How does that work exactly?

Capitalism has nothing to do with it. It especially has nothing to do with Libya, since the oil company is a state-owned enterprise (ie that is Socialism -- it isn't Communism because I think Total and another European oil company -- maybe Elf or Aquataine -- actually run the fields and derive profits).

Capitalism has nothing to do with Economic Systems, this is the Market System in operation.

Capitalism is an Economic Theory asserting a certain position on the ownership of Capital.

That would seem to be the case. Granted, there were Supply and Demand issues, but the situation did not warrant those price levels, so you could attribute at least some of it to sheer speculation.

Not really. There are 49 operating refineries in the US, and the vast majority are owned by non-oil companies, like Valero, or by very small oil companies you've never heard of in your life.

Very few of the major oil companies you may have heard of, like UNOCAL (defunct), Chevron, Shell, Standard Oil of Ohio (now BP), Standard Oil of New Jersey (now Exxon), Mobil, Conoco, Texaco (defunct), Phillips (merged with Conoco), Amoco (now BP) actually have refineries.

Most of the gasoline stations are independently owned and operated as well. Royal Dutch Shell sold off all of their gasoline stations. Some stations are company owned. Hess and Luxoil come to mind. Luxoil is a Russian company and Hess is a really small oil company that also happens to own a few refineries. Marathon would be another that owns the refineries and the stations.

Alternative energy?

I'm rolling on the floor laughing.

Aside from Hawaii, name one state in the United States that has an oil-fired electric power plant.

You can't do it.

What next, coal gas? Oh, sure, 1 ton of coal is 1 gallon of gasoline. The initial reason for importing foreign light oil is that heavy oil yields 9 gallons of gasoline per barrel, light sweet oil yields 22 gallons of gasoline per barrel.

Is there anyone who doesn't see something wrong with that picture?

I'll explain it. In the early 1970s (just before the OPEC embargo), the Departments of Energy and Commerce and the newly formed EPA worked with the oil companies on future consumer demand for gasoline.

The issue was the hundreds of oil refineries built in the 1880s and 1890s that were now smack in the middle of urban and suburban areas. Those refineries were old and decrepit, and despite constant refurbishment and modernization, they were done and many were still unsafe.

So the goal is to close those hundreds of small refineries with capacities of 3,000 to 5,000 barrels per day and replace them with modern safe refineries with higher capacities in the 150,000 to 300,000 barrel per day range.

In order to meet consumer demand for a projected population of 290 Million in 1995, a certain number of new refineries would have to be built in addition to the new refineries being built to replace the out-dated refineries.

At that time, heavy oil only yielded 6 gallons of gasoline. They had quite yet figured out how to tweak the heavy oil to get an additional 3 gallons (and when they did it was expensive).

A decision was made to go with light oil refineries.

Anyway, by 1995 your population was at 295 Million (oops) and now it's 308 Million, so your population is way beyond the projected demand for gasoline.

And you're going to do what, make gasoline from coal? Right.

What do you suppose will happen as soon as an intense demand is made on coal? The price is going to go up, and so is the price of your electricity and the price of all goods you purchase, since they require electricity to produce them.

Bio-fuels? Sure, let's divert even more corn and soy from the food market to the fuel market, and let's plow under the rice, wheat and cotton crops to grow saw grass, corn and soy for fuel. That will cause food and clothing prices to rise.

There's no way out. Every end is a dead end. The only solution is to alter your life-style. If you deflate your ego enough, it'll fit through the doors on the bus or subway. If you avail yourself of mass transit, and you'll have to sooner or later, probably sooner than you think, you can end a lot of the angst.

Of course. That's why you're in Afghanistan. If you can control the supply of oil and natural gas in Central Asia, then you can control it's sale on the world market, which means you can't ensure it is sold in US Dollars.

And if the US loses in Afghanistan, then the oil and natural gas pipelines (and the rail lines and highways trucking out all the metal ores and non-metallic minerals) will go through Russia, Iran and China (there already is a natural gas pipeline being built from Kyrgyzstan to China much to the chagrin of the US) if it isn't sold in US Dollars, then the Dollar weakens and the Euro, Ruble and Yuan gain strength, because the oil and natural gas will be sold in those currencies.

The country is not in a deep recession.

And as far as ethics, you've been standing on the backs of people and oppressing them for decades, so you can dispense with the false piety.

And what do they do with those profits?

You think oil and natural gas exploration is free?

Wrong answer. You have to pay for the privilege of going into a country and searching for oil and natural gas. The PhD geologists, chemists, chemical engineers, petro-chemical engineers, and paleo-geologists and botanists do not work for free, nor do they pay their own travel and living expenses when they're spending 3 years in a country searching for oil and natural gas.

The oil companies are putting up $15 Billion to expand production in the Bakken Fields. Where do you think that $15 Billion came from? You think it fell out of the sky? No, it came from oil company profits.

You want oil, you want more oil, you want a safe well-maintained infrastructure that is modernized, you more gallons of gasoline per barrel, well that stuff ain't free. It costs. And that's what companies do with their profits.

Well, again, Capitalism is an Economic Theory, not an Economic System. The Economic System is the Market System. The Market Economic System is compatible with Capitalist Theory and Socialist Theory.

It is also compatible with Communist Theory, although we have never really seen that applied, but I suppose you could make a case for China.

Capitalist Theory merely posits that private individuals should have ownership of Capital, ie the means of production.

Why?

Because when you throw a temper tantrum because you want an MP3 Player, the Capitalist is going put up the cash or get the credit to do the research and development, design and purchase the machines, and hire and train the employees to operate them, so you can have your MP3 Player.

The Socialist? Well, he ain't got no cash, and he can't get credit without permission from the government, so he has to go to the government first, and there will be lots of hand-wringing and gnashing of teeth and putting on sack-cloth and burning of incense and general angst while the requests snakes it way at a snail's pace through various bureaucratic committees to decide if money should be spent to do the research and development and purchase the machinery and equipment to make the MP3 Players.

Maybe 10 years from now the Socialist will get limited funding to do limited R&D and then maybe 10 years after you'll have your MP3 Player.

The Communist? He has to go to the government first, too, but he'll get an answer faster, and the answer will be "no," because it's not a good use of resources.

Want to see an excellent example of Socialism in action? Just go look at British automakers. Because the British government owned interest in all the automakers, they where hamstrung and couldn't compete on the world market or even in the local market and most of them went out of business or had to allow themselves to be taken over, often by foreign automakers, to keep operating.

And that is the Market Economic System, not Capitalism.

The whole world is not Capitalist, but it is Market-oriented.

They would be foolish not to do so.

Demand destruction is very complex, but suffice to say the reason none of the oil companies will build a new refinery for gasoline, which would increase gasoline supply and lower gasoline prices, is because gasoline demand in the US for the most part has been relatively flat.

The reason it has been relatively flat is most likely because you are at the margin of demand destruction. Like oil prices, gasoline prices are elastic in the short term but inelastic in the long term. In other words, people will grin and bear it for a while, but then they'll start seeking alternatives, like altering their driving habits by combining trips, car-pooling, using public mass transit, and other methods.

That would be like saying "no" to a pay raise.

That would be an excellent example of Cost Inflation.

That's sort of right. That's how it works for all commodities, meaning corn, soy beans, wheat, cotton, iron ore, bauxite, natural gas, coal, gold, silver platinum, phosphates and every thing else, including pork bellies and frozen orange juice.

If I see a hurricane heading for the Florida orange groves, I'm going to be buying frozen orange juice futures, on speculation that the hurricane will destroy most of the crop and the price of frozen orange juice will rise.

I'll make money. Funny you aren't too upset when that happens (and it happens every year -- if they aren't speculating because of hurricanes, they're speculating because of early frosts or bad weather).

 

Mircea-

Thanks for posting, I really enjoyed reading that..

 

You mean the multinational, house of Saud friendly, News Corp?

what exactly do you mean by "the media" It seems to me that the "media" are controlled by the same right wing zealots that co-singed war in Iraq with embedded journos cheerleading all the way

or are you really trying to infer that the multi-millionaires that run GE(NBC), Disney(ABC), News Corp(FOX), and CBS are actually liberal left wingers?

http://www.freepress.net/ownership/chart/main

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Finally, there is no left/right wing in Washington, they all eat at the same table and they are all bought and paid for via legal bribery (campaign contributions)

 

That doesn't happen to often but as I said before they made over 200 BILLION dollars in NET PROFITS during last year so they aren't hurting very much.

 

CT gets it.Think about it,no matter what percentage of the 100-200 Billion Dollars of profit gets reinvested back into the company(s) you can be sure a handful or more of the top wigs,take a sizable chunk for their pockets.

Some here would have you believe it goes something like this:

CEO/Chairman to Accountant-I told you Harry I'm perfectly happy living in my mobile home.We need to reinvest all the profits back into the company.

 

Obama is not in charge of gas pricing.

 

Do you read before you write? Officially the recession started in 2008. I wrote that when President Obama assumed office we were in the middle of a recession, and that is true.

Again, that is what I said with one exception. I did not say that "deflation can occur at any time, not just during a recession." On that one you are out on a limb by yourself. Deflation increases the value of money and inflation lessens the value of money. You cannot have both occur in the macro economy at the same time. You can have price swings. But that is not inflation or deflation.

You really need to start reading before posting my friend.

And please show me where I wrote the following which you have attributed to me,

"Originally Posted by joepistole
All food products have increased, clothing as well and these are things we use everyday."

The bottom line, I never wrote this line that you have attributed to me. It was written by Cosmictraveler.

http://www.sciforums.com/showpost.php?p=2703924&postcount=16

I think your loose attention to details requires an apology friend.

 

Missing from that otherwise informative essay were certain inconvenient circumstances, which undermine the thesis.

Oil and gasoline prices stopped correlating with supply/demand considerations in about 2000. The huge oil price bubble in 2008 was not caused by a supply crunch, and therefore it had little or nothing to do with refinery capacity or anything else of that kind.

The major circumstance correlating with the modern era of price bubbles - we're seeing one now in wheat and corn after record harvests, as well as oil - is the recent deregulation of the US commodities markets. Speculators - whose only legitimate market role in a well-regulated capitalist setup is to ensure continual smooth operation across demand and supply cycles - have been allowed to take over the US commodities markets. We will see price bubbles and such, which are inevitable in speculator dominated markets, until that situation is rectified.

Changing our lifestyles is unlikely to free us from dependence on commodities, so the damage from these bubbles will follow us around through whatever adjustments we make (mass transit being among the least likely, unless the suburbs and exurbs simply depopulate).

 

The data proves otherwise.

Total World Oil Production: 84,365,095 barrels/day
Total World Petroleum Consumption: 84,249,000 barrels/day

 

And so it begins

Not quite famous, and not quite last:

I would expect we'll start hearing about this issue by the end of May.​

Okay, so it's not the end of May. Hell, it's not even May, yet.

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John Cole, The Times-Tribune, April 13, 2011

• • •

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Bob Englehart, The Hartford Courant, April 13, 2011​

And so it begins.

 

We need to prepare for and manage our contraction. If higher gas prices make us do that, it's good. I would rather see it in gas taxes that benefit the nation or fund our schools, most of this is speculation. But the gas won't last forever, we are about at the point of peak production. After that it's a bumpy road.

 

last I heard government forces are winning. and even if it did pan out properly there are still many places that need to be helped shed off oppression and be allowed to have true democracy in their country.

 

By the way that $1.5 was way too cheap. Oil futures overreacted when they started to fall from $140 and ended down to $30 per barrel.

So as to the original question: That price 2 years ago was too low, not today's price too high.
Oh yeah, and weak dollar happened...

 

When futures "overreact" on that scale, repeatedly, and drive the current market price, the market is dominated by speculators.

That used to be illegal, in commodities, in the US. The New Deal legislation forbade it, from before WWII up until Clinton was impeached. Then the Gingrich Congress took care of business.

 

What planet do you reside on? I'd like to come live there. I've seen everyting on the rise, some way more than others. But the fact remains everything is going up , just how much depends upon the product and how much it is needed.