Supply and Demand of Gas(oline)
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Fooger expanded on several points. I would probably refine a few of them: Saudi is price setter for now more than OPEC as a whole; Saudi is conscious that raising prices to the point of tipping countries in to global recession is not good for their profit; the size and consumption of the USA gives us more pricing power as purchasers vs other nations; no mention of the WTI vs Brent relationship; there is more demand elasticity than he gives credit for over intermediate-to-longer time periods.
I'll try to cite sources later but it is Monday.
I'll try to cite sources later but it is Monday.
#22
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Not a sporty one, but it hauls engines and other vital stuff.
$2.36 per liter currently...
Taxes "shield" us from the market changes (only about 50% increase the last 12 years, compared to close to 400% in the US)
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It is a fundamental tenet of supply-and-demand economics that as the demand for a certain product rises relative to supply, the cost of the product goes up. And as demand decreases relative to supply, the cost goes down.
Think about what happens to the price of orange juice when there is an unseasonably harsh winter in Florida. The amount of OJ available goes down, and so the price of price of OJ starts to rise until a point of equilibrium is reached at which the higher price of the OJ depresses consumer demand for OJ to the point where demand no longer exceeds supply.
When this is not permitted to occur (such as when a government imposes price-controls), the result is that shortages occur. (eg: people who are willing to purchase the commodity at whatever price it is selling for are unable to do so, as there is no more supply, or because the remaining supply has been rationed, etc.)
Of course, the actual pricing of gasoline is rather more complex, and is tainted by emotion, speculation, and the existence of the futures market. But invariably, whenever some event occurs which either causes or threatens to cause a reduction in the supply of gasoline (hurricane in the gulf, pipeline rupture, war, embargo, OPEC nations agreeing to decrease production volume, etc), the result is an increase in the price of gasoline.
#26
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The idea is that Oil is a natural resource with a finite limit, but who owns the oil?
In property law, the owner of land legally owns everything beneath the land, all the way to the core of the earth, and everything above the land, all the way to the edge of the universe. There are limits with what can be done with that property, but in theory, that's property ownership - if there's an oil deposit beneath a piece of land, and you own the land, then you own the oil.
The social theory of the resource works like this: The government owns the oil - no ifs, ands, buts about it. In order to get the oil out of the ground, the government holds an auction on that oil. The bidders are the oil companies bidding on how much "profit" they will keep for themselves per barrel of oil pulled out of the ground. The lowest bidder wins rights to the oil deposit. Since there is no incentive to make an additional profit on the oil, the government owns the oil completely as soon as it is pumped out of the ground, and therefore the government would have full say over where the oil was sent (via. tanker/pipeline/etc.) Since it's in the govt's interest to make as much money out of the oil as possible, they too will begin "maximizing profits" by sending the oil to the highest bidder, except instead of generating "profits", the government generates "revenue", which in theory reduces the tax burden on U.S. citizens by that amount of money. Now, since "we the people" would LOVE this, we would have 300 new major drilling projects completed within the next 18 months, and our effective tax burden would be paid by the global population (not realistic, but in theory, work with me here) in ten years, we would run out of oil because we weren't limiting our production - which made oil cheap for the entire world and increased global dependence on oil. Cheap oil means that all of the developing countries significantly increased their oil consumption, and they now rely on oil far more than before. After that glorious 10 years of cheap gas and no taxes, we would be forced back to paying taxes, and the extremely high global demand for oil means that we'd be paying $10/20/30 per gallon of gas for a few years before demand came back down. Our government, having saved no money during those ten years, goes nearly bankrupt trying to figure out how to continue paying for the newest worthless programs and expanded agencies that it was able to afford during the oil bubble.
Could we limit production and make 50 years on our oil reserves? Absolutely, it would be easy - but will the "intelligent" voter choose the candidate that says we need to "increase taxes", or will he choose the candidate that says we need to "increase oil exports"?
In reality, only offshore oil could be produced by government, and even then, since it's offshore, government has to compete with other countries for that oil - and private companies who are going to drill for themselves instead of for government because they can make real profits for themselves vs. the $2.13/barrel they bid when the government offered the oil reserve on contract. On-shore oil can only be drilled by the government if the government already owns the land that the oil is beneath. The 5th amendment, combined with property law, makes it illegal for the government to take the oil beneath your property without fairly compensating you for that oil - which means that the government would have to pay you market price for the oil that they take, which means that the gov't would be allowed to make $0 profit on that oil, completely nullifying the purpose of making that oil a national resource in the first place...
#27
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Not every land owner owns the land to the center of the earth. There are mineral rights separate from land rights. Oh, there are water rights too.
At the 50,000 foot level, the current boom we see at Bakken is through private lands, as energy production on federal lands are being slow-walked. If you want coal from federal lands or oil off the coast of Louisiana, fuggedaboudit.
The evil and stupid Sarah Palin restructured oil revenues in Alaska during her short tenure as governor, as in that state the land belongs to the people. While private companies take the risk and are entitled to the reward, they had to do so in a responsible manner, and they had to pay the land owners (the people of Alaska) a percentage of the profits. I like that business model.
At the 50,000 foot level, the current boom we see at Bakken is through private lands, as energy production on federal lands are being slow-walked. If you want coal from federal lands or oil off the coast of Louisiana, fuggedaboudit.
The evil and stupid Sarah Palin restructured oil revenues in Alaska during her short tenure as governor, as in that state the land belongs to the people. While private companies take the risk and are entitled to the reward, they had to do so in a responsible manner, and they had to pay the land owners (the people of Alaska) a percentage of the profits. I like that business model.
#32
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I got an A at the time. I'm off with the supply/demand reasoning, but my theory seems to hold true. In terms of North American gas and oil exploration, there are obviously break even points. 5-10 years ago there was so much pressure on the market that many projects got shelved for years. Now that the economy (or investors at least) has turned around, at least on paper, I believe the flattening/reduction in domestic demand has justified the increasing prices. If the prices are left to fall, domestic production will lose the extra capital to finance the projects which are setting up the higher paying future exports.
#35
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You have two choices. Pay it or use another form of transportation. They don't force you to buy fuel. I just choose to pay for it. I bought a less fuel thirsty car and watch random trips. In the Miata, I just swipe the card and look away since it never seems to get over 14mpg (though its all in town and I can't keep my foot out of it). I also jog to the drug store when we need something unexpected. Don't like the price? Quit buying tanks designed to move 18k pound trailers just to go to the store.
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There's more to oil consumption than just SUVs.
Amurikah is a big place. It's got lots of land, and wasn't settled (in the European fashion) until very nearly the advent of the industrial revolution and the steam locomotive, so our cities were not designed around the meideval concept of clustered fortification and travel distances being judged by the pace of a man on foot.
So we have suburbs and long commutes. Travelling 40-50 miles per day in a Prius is less fuel efficient than travelling 5-10 miles per day in a Ford Excursion.
We also have a culture of convenience. I'd wager that Americans probably consume more petrolium-based plastics and related items per capita than most Europeans. Why bother washing a metal spoon when you can just throw a plastic one away and replace it?
A lot of the US is located at latitudes which would be uninhabitable (or, at least, very unpleasant to inhabit) without the significant use of air-conditioning nearly year-round. Couple this with housing trends driven by the aforementioned suburbification (large numbers of large, cheaplyl-built and poorly-insulated homes) and that's a lot of power consumption. Granted, most of our energy is not (and never has been) petroleium-derived, but it certainly consumes fossil-fuels which could otherwise be used as substitutes for petroleium in other applications.
We're also pretty damned lazy. Spend some time hanging around any town in Germany or The Netherlands. One thing you'll notice is lots and lots of people commuting by bicycle. It's not because they're poor, it's just because that's the way things are done there. By comparison, even here in SoCal where the weather is perfect 367 days a year I see relatively few bicycle commuters.
I travel a lot. And I stay in lots of hotels. I honestly can't recall the last time I entered a hotel room in the US and the aircon wasn't already cranked down to "Fargo." Is it really necessary to be able to liquiefy helium at "room temperature" in an empty hotel room? Multiply that by however many million hotel rooms we have and it's a big number. By contrast, go into a newer hotel room in Germany, and you'll find that you need to stick your keycard into a slot in the wall in order to energize the HVAC system and most of the lights. When you leave the room, you take your card with you, and everything shuts off.
Lots of simple little **** like that.
And on and on...
Simply outlawing SUVs isn't going to fix anything. We'll find other ways to squander energy resources- it's in our nature.
Amurikah is a big place. It's got lots of land, and wasn't settled (in the European fashion) until very nearly the advent of the industrial revolution and the steam locomotive, so our cities were not designed around the meideval concept of clustered fortification and travel distances being judged by the pace of a man on foot.
So we have suburbs and long commutes. Travelling 40-50 miles per day in a Prius is less fuel efficient than travelling 5-10 miles per day in a Ford Excursion.
We also have a culture of convenience. I'd wager that Americans probably consume more petrolium-based plastics and related items per capita than most Europeans. Why bother washing a metal spoon when you can just throw a plastic one away and replace it?
A lot of the US is located at latitudes which would be uninhabitable (or, at least, very unpleasant to inhabit) without the significant use of air-conditioning nearly year-round. Couple this with housing trends driven by the aforementioned suburbification (large numbers of large, cheaplyl-built and poorly-insulated homes) and that's a lot of power consumption. Granted, most of our energy is not (and never has been) petroleium-derived, but it certainly consumes fossil-fuels which could otherwise be used as substitutes for petroleium in other applications.
We're also pretty damned lazy. Spend some time hanging around any town in Germany or The Netherlands. One thing you'll notice is lots and lots of people commuting by bicycle. It's not because they're poor, it's just because that's the way things are done there. By comparison, even here in SoCal where the weather is perfect 367 days a year I see relatively few bicycle commuters.
I travel a lot. And I stay in lots of hotels. I honestly can't recall the last time I entered a hotel room in the US and the aircon wasn't already cranked down to "Fargo." Is it really necessary to be able to liquiefy helium at "room temperature" in an empty hotel room? Multiply that by however many million hotel rooms we have and it's a big number. By contrast, go into a newer hotel room in Germany, and you'll find that you need to stick your keycard into a slot in the wall in order to energize the HVAC system and most of the lights. When you leave the room, you take your card with you, and everything shuts off.
Lots of simple little **** like that.
And on and on...
Simply outlawing SUVs isn't going to fix anything. We'll find other ways to squander energy resources- it's in our nature.
#39
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Also understand that projecting current trends 10 years in to the future is like making a 1000 yard shot with a rifle: a small change in trajectory on the near end can make a huge difference on the far end.
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If I elect to eat nothing but McFoodstuffs and bacon-wrapped lard, I'm going to get fat and develop heart disease. And if I choose to over-extend my purchasing ability by maxing out my credit cards to buy a bunch of stuff I don't need, then I'll probably wind up facing collections agencies and maybe file bankruptcy.
But what happens when the decicions of a large group of individuals have consequences which affect an entire society?
If a hundred million people eat their way into poor health, then the whole insurnce and healthcare industries become overtaxed. And if a hundred million people over-extend themselves financially, then you wind up having a "mortgage crisis" or a "financial meltdown."
It's much the same when discussing the allocation of finite commodities.
I choose to live close to work and commute by bicycle. If everyone did this, then we would all enjoy clean air, zero congestion, and no wars / political hand-wringing over gasoline. But since I am in the minority, and most of the people around me do not elect to do what I am doing, I have to suffer the consequences of their actions (traffic congestion, smog, oil wars, etc.)
Out here in the southwest, the same story plays out with water. It's all well and good if I am extremely conservative about my use of water, but if the 30 million other residents of southern California, Nevada, Utah and Colorado all burn through as much water as they can, we're all going to wind up with shortages, in addition to the poor bastards down in Arizona and New Mexico.
So it's sort of a prisioner's dilemna. Why should I conserve if the people around me aren't going to?