Oil prices swept past $75 a barrel Friday and it looks like there is no relief in sight. Could we see $100 a barrel this year? Personally, I think it’s quite possible—even probable. Could this be the catalyst for the eventual downturn of our economy? The potential is significant, as most Americans are strapped and are currently spending more than they earn just to keep their heads above water.
With consumer spending making up 70% of the US economy, what do you think will happen when people have to make difficult choices? (Choice 1) $60-120 of gas for the car to get back and forth to work this week or (Choice 2) take the family out to dinner on Friday night or (Choice 3) buying that brand new widget they really don’t need. Personally, I think it’s a no-brainer and consumers WILL pull back on their discretionary spending—to keep their cars on the road. This reduction in spending will eventually begin to drag on our economy like boots on a swimmer.
In addition, everything we buy (food, clothing, gadgets, etc) has to be transported via Air/Train/Ship/Truck/etc. As fuel cost rise, these increased transportation costs will eventually be passed on to the consumer. Can you say INFLATION?
So what is going on, why are oil prices so high?
Worldwide oil prices are up due to (1) anxiety over civil unrest in Nigeria, (2) political instability in Venezuela, (3) the fact that major oil-production facilities in the Gulf Coast are still out of commission, and (4) the looming threat of a war with Iran…
OK, I grasp oil thing, but why are gas prices so high?
The reasons for the recent run up in gas prices are many:
(1) The price of crude oil topped $75 per barrel last week.
(2) Refinery maintenance—due to Hurricane Katrina refinery disruptions, routine maintenance was delayed at many refineries to keep supplies flowing. It’s now close to peak driving season and this maintenance is severely overdue. In addition, shutdowns are also in order to allow a switch from winter to summer blends. Bottom Line: some of the largest refineries in the US are scheduled to be shutdown soon. When these shutdowns do happen, US gas inventories will decrease.
(3) Switching from MTBE to Ethanol. An industry shift from methyl tertiary-butyl ether to the clean-burning gasoline additive ethanol is currently in the works because MTBE was found to pollute water supplies. This switch requires refineries to completely empty their tanks to flush out MTBE residues before they begin to use the new additive--which is in short supply. Compounding the problem: Ethanol cannot be shipped in pipelines (due to its water absorbing characteristics) and it must be trucked in to the refineries—this is increasing requirements & utilization of tanker trucks, thus reducing those available for shipping gas to local gas stations.
(4) April and May historically are peak months for fuel prices.
OK, I think I understand now, but how high can gas prices possibly go?
With Iran in the crosshairs, the Sky is the limit. If bombs start to drop, IRAN could create a chokepoint (blockade) off the Strait of Hormuz (where two-fifths of the worlds oil passes through). If this is allowed to happen, $10 + a gallon gas at the pump is not out of the question.
Would $10 a Gallon gas be enough of a shocker to throw the world into a depression?
Your guess is as good as mine, but I'd hate to find out the hard way… What do you think?
7 comments:
Just saw the video about the Fed reserve...VERY INTERESTING. Funny, the same premise is in the book None Dare Call It Conspiracy written back in the 70's which coincidentally is now out of print.
Would be great if one of the networks had the balls to air the Fed movie during primetime. Oh, but wait, we're all too busy watching American Idol:) STUPID AMERICANS!! Keep allowing this rotten government and big business to kill us slowly and painfully.
If you search for "pawn gas" in Google News (not Google Search), you will see a few articles about people pawning off items to pay for their gas.
Consumers keep figuring out ways to prolong the tougher choices.
I'm one week away from being TV free for six months. I've been able to get more sleep with no reception.
scary indeed. The US govt. needs to be much more proactive on reducing dependency on foreign oil.
I did not particularly enjoy Ursula K. Le Guin's book "Always coming home". Someone else might.
The book draws a picture of North California area maybe a couple hundreds years of now. The idea is intriguing but the amount of poetry and aesthetic + such stuff in the book is a turnoff for me.
too lazy to log in,
Hogbert
I read recently that several of the shallow water platforms destroyed by Katrina will not be replaced. Those oil fields were pretty much depleted, although still producing.
You can add that to your list. Forget about ever getting that oil capacity back.
Thanks to all for posting up!
Anon--Completely agree. Wish it was a MANDATORY watch for all Americans. For those of you who haven't seen it, please click on FED video--must see on right side of my Blog or cut & paste the link below:
http://mises.org:88/Fed
Peak--Kind of funny now(pawning for gas), but it could become common & quite the mainstream in our future. BTW: Congrats on the "TV Free" thing. About the only thing I watch is History Channel, Discovery, Weather or the News (I'm even hating the so called News these days)... Anyway, My wife absolutely hates my channel choices so we watch separately in different rooms--She's a big Idol &/or any other Brain mush TV fan.
David--I completely agree, but don't foresee any significant changes taking place before we reach a major crisis point.
Idaho--Yes,I am aware of that. According to the stats I've read, Gulf Oil production is currently running 6-10% less than pre-Katrina levels.
Wonder how much additional damage we'll see this year (another above average predicted Hurricane year)
Why don't we standardize the types of gas products that refineries produce? That will increase refinery production and capacity and help to lower prices?
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