2012 Gas Price surge is likely over

Who is the source of the black book? Galves uses auction prices.

 

The average price to extract oil world-wide is $11/bbl. The rest is transport, mark-up and speculation (40%)

source: nytimes

 

That only tells a little of the story. The bulk of the places you can stick a straw in the ground and get oil out are OPEC countries. Believe it or not they think its their oil and want money for it, so the cartel limits production to set the price. In the US the cost of production on an old well is around $30/bbl the oil sands in canada twice that, but they can't produce enough oil to bring the price down, so they sell it at the opec price.

There is speculation that is captured in the futures market, and that may be adding as much as $10/bbl. The speculation is related to risk of an oil boycott in Iran and situations in Sudan and Libya. This speculation on production risk has gone down so the price has stabilized. Oil companies and oil extraction costs have very little to do with the price of oil. It wasn't always this way, under Nixon and Carter there were oil price controls. These for short periods of time caused higher oil imports and domestic oil to be sold cheaper than imported. The results were gas lines and higher spikes in oil prices. Hindsight shows these were failed policies, that gave OPEC even more power than it has now.

 

Different company called Black Book that publishes it's own data based on EC auctions from NY/NJ to FLA.

Used Car Trade-In Value from Black Book

 

Gas lines and higher prices were due to 1973 and 1979 oil embargoes by Middle East oil producers against US.

 

While itis true the oil embargo in '73-'74 raised prices, it is untrue that this caused an oil shortage. While US, Japan, and most of Europe had restricted direct imports, UK and france were not embargoed. The US could buy as much oil from non-embargoed countries.

Global Oil and Gas Markets, Our Best Energy Security | Jim Powell | Cato Institute: Commentary

The shortages really started in 1972 and were entirely attributable to Nixon's policies.

If you get through that and are confused about the 1979 shortages I'll provide you more links. OPEC is not our friend, but Nixon caused the gas lines. Sure if opec wanted to continue to provide oil at $3.50/bbl they would not have existed either, but let us learn from history and not repeat the same mistakes.

 

^^^ This...

Government price controls and redistribution of wealth are always a surefire method to quick failure at all levels.

 

CATO Institute is not a reliable or factual source for anything.

Their ideology, from the Laffer Curve to Reagnomics, has been debunked over the last 30 years.

Cutoff of 5% of US oil supply in '73 and '79 and the disruptions in supply routes resulted in price spikes and lack of supplies. The one thing Nixon and Carter agreed upon.

The other thing Nixon and Carter agreed on was the strategic and economic threat imported oil represented to the US and the energy policy of both was heavily geared toward increasing US energy efficiency and cutting US oil imports. This resulted in higher prices in the US which, as we see with Europe's 50% greater energy efficiency, would have worked in the US. Reaganomics and CATO ideology intervened, US oil imports soared, US oil use soared, US budget deficits soared, US debt soared, US oil wars began.

But here we are, 50% less energy efficient than Europe, which is good news, bad news. The bad news is we are 50% less energy efficient. The good news that US can easily increase its energy efficiency with current, proven technology and policies, completely eliminating oil imports, cutting US trade deficit by 70%, cutting US greenhouse gas emissions by 50%, eliminating the single biggest threat to US national security, reducing US military spending by 50%.

 

One thing certain in life nothing stays the same. Things that go up will go down. Things that go down will go back up. Trends and popular ideas will change in time also. The nice thing is because we live in America we will always have lots of choices both good and bad.

 

It was a coherant piece that most historians agree.

Do you disagree with the facts
1) oil imports increased both before and after the embargo and did not drop much during it
2) Price controls increased oil demand
3) Price controls reduced domestic supply and refining.
4) increased demand and reduced supply causes shortages

Then the only thing you can do is understand the US policies in 1970-1974 caused the first oil shortage. Without the controls and with refining capacity the us could have easily imported enough oil to avoid shortages.

They actually agreed on quite a lot. I'm sure you must agree with the carter doctrine of war for oil, and disagree with cato on that too. Imports of oil increased greatly from 1972 to 1979. Check out a source you trust, not your memory. The government and news did accurately tell you what was going on at the time, but .... I have the advantage of learning if through history instead of direct experience.

Carter did understand that the Nixon price freeze was wrong, but was doing a phased deregulation. It was not fast enough to prevent the panic lines for gas. And that is what they were, panic lines, OPEC only decreased production 4% during the Iran crisis. Certainly in a free market, and a less jittery president, there were no needs for oil lines then either.

I'm not sure you understood the policy. The oil price controls kept the price of gasoline and oil artificially low which increased demand. How does that help efficiency? The price controls and windfall profits tax made domestic oil less profitable than imported oil, which again favored increasing imports from OPEC. Do you understand these policies?

You seem to have a problem with higher and lower. The policy worked to make us gas and oil prices lower encouraging consumption in the early 70s. In the mid and late 70s it decreased domestic production, making foreign oil "cheaper" than domestic. This did not affect average price, but created spikes and shortages. Consumption decreased 1 year under carter due to recession, but increased greatly under his term. Consumption decreased many years under Regan but low prices at the end of the second term increased consumption to almost as high as carter levels. Part of the reduction was due to carters policy to favor coal power plants and increased costs of oil. Another part was due to CAFE standards enacted under Ford. Removing the price controls along with natural gas regulation, along with Fords CAFE standards would have been much more effective in reducing oil consumption sooner.

Please attend a class on economics. Reagan unwound the price controls. These allowed prices to rise and more domestic production to take place. At the same time consumption fell. OPEC needed the revenue and dropped the price of oil. Nothing was stopping nixon or carter from taxing oil, they kept it lower but caused artificial shortages. Carter created the Carter Doctrine and did much to shape the foreign policy that lead to Iran/Iraq war and the 2 gulf wars and afghanistan. Reagan followed that bad foreign policy. Both are against what was written in the piece I presented.

Europe doesn't make anything, why are you using them as an example. Price controls are wrong. An oil tax might help reduce imports, but I would not want to just put a huge one in like europe has. Next you'll be saying england has a queen we need one.

Sounds good, but I don't follow. Why not cut military spending by 90% to a defensive military. Why do we have bases in korea or germany? An oil tax will likely only lower consumption by 10%-15%. Technology and shifts to things like electricity and natural gas are needed to get off opec oil.

 

CATO Institute is an ideological organization and its ideology from Laffer Curve to Reaganomics has been completely disproven by historical events. There is not much to add to it.

Analyzing their dogmatic stuff is as pointless as arguing evolution with a Tennessee legislator.

The '73 and '79 oil embargoes resulted in huge price spikes and supply disruptions. This is why US military planning since that time has focused on disruption of Middle East oil supplies as the No. 1 strategic threat to US and the focus of 90% of Pentagon budget. The resulting oil wars were a self fulfilling prophecy when Reagan went with a pro-Saudi oil policy vs the pro-US oil policy of Nixon and Carter. Instead of US following the European model of energy efficiency it went the oil company/Saudi/Pentagon policy of cheap oil and military occupation of Middle East oil fields, befriending people like the Shah, Saddam and Bin Laden to secure the oil at any cost.

Which leads to current situation where US is 50% less energy efficient per capita and per GDP dollar than Europe. US is the world's largest consumer and importer of oil, costing the US $500B oil import tax every year and $500B military tax each year, involved in decades of oil wars in the Middle East for additional $3T in war "supplemental" costs.

The CATO Institute "drill baby drill" policies have failed for last 30 years with horrendous economic, national security and environmental costs.

We need to pursue the successful and proven policies of Europe, upgrade the technological base of the US to current energy efficiency standards eliminating US oil imports, eliminating $500B oil import tax, eliminating 50% ($500 billion in non-productive military spending, eliminating the No. 1 strategic threat to US, reducing US greenhouse gases by 50% in 10 years, well on way to Kyoto standards of 80% reduction by 2050.

Russia military spending $100B
China military spending $150B
US military spending $1.3T

Consider that US European allies spend as much as Russia and US Asian allies spend almost as much as China.

What is US defending from exactly? Invasion of Europe? Invasion of Korea? Japan?

What do you we have ANY overseas bases? Overseas bases are aggressive not defensive in nature.

Only justification is control of Middle East oil fields. Eliminating US oil imports eliminates needs for all but $250B (Russia and China combined) in military spending. Even that amount is questionable given the military spending of our allies whom we are defending.

US could eliminate the No. 1 strategic military threat to the US, the cause of 70% of US military spending over the last 30 years, the cause of 70% of US trade deficit over the last 30 years...all by simply retooling to European levels of energy efficiency. They demonstrate how to do it. It is all current technology.

 

:violin:

:crazy:

:wacko:

 

So why do you drive a Prius?

 

Wow so much wrong here. But how about EPA for its view in 1974, which seems to agree with historians and not your fanboism to Nixon's policies.

EPA's Position on the Energy Crisis | About EPA | US EPA

hmm. EPA like everyone else that is not a fan of government mandated shortages, realized the shortages was caused by policies not just the embargo. Is any of this getting in. What are the policies?

You leans this stuff in economics 101 -

What about supply?

You can read above that the nixon, and by not dismantling them carter policies caused a great deal of more OPEC oil to be imported. If you look at the numbers, oil imports rose greatly in the 70s but did not during Regan's term. The policy of US involvement for oil is called the Carter Doctrine, not the Regan doctrien. Carter was the one that started arming jihadist in afghanistan and made friends with Saddam Husein. Carter was the president that green lighted Saddam's invasion of Iran. None of this nasty policy helps the US with opec. Regan unfortunately continued many of carter's foreign policy mistakes, but at least he let oil prices rise to close to their natural levels. If Regan was more of a free market guy, he would have ended oil subsidies too.

http://www.fpif.org/articles/repudiate_the_carter_doctrine

 

You will find no more diametrically opposed organizations than the science based EPA and the faith based CATO Institute.

As for Nixon, trust me, I'm no fan but he Nixon was a realist and a patriot and put US ahead of oil companies and after the first oil embargo of price jumps and supply shortages, he implemented policies to CUT US OIL USE as the answer. Carter continued those policies. Reagan killed them in favor of the pro-Saudi, low prices oil plan. US oil use went up. Europe continued with the energy efficiency policies of Nixon and Carter.

Result.

US with Reagaonomics 50% less energy efficient than Europe. $10T over 30 years spent on military to prepare for and fight oil wars which US has been fighting continuously for 20 years now.

Europe 50% more energy efficient than US.

CATO and the Reaganauts never did, that is why you see the disastrous Debt/GDP results for Reagan/Bush years. No one disproved Reaganomics (tax cuts for rich will pay for resulting deficits by creating GDP growth) more than Clinton, who raised taxes, ran budget surpluses due to higher GDP growth.



Bottomline, Reagan's energy policies (CATO Institute) of cheap oil were wrong. Europe's policies of expensive oil and funding for alternative energy projects were right.

History has spoken. Time to move on. US should adopt the proven policies of Europe, rebuild US economy and achieve the results and benefits, 50% more energy efficient, cut oil use by 50%, eliminate $500B per year oil tax trade deficit, eliminate $500B per year oil war costs, eliminate 50% of US green house gases, create 20,000,000 jobs doing it, refitting homes, factories, investing in new technologies and products.

That's what we are all doing in our small way by buying a Prius, promoting high tech jobs and products, cutting our oil use.

 

speculation is adding more like $40/bbl

http://www.nytimes.com/2012/04/11/opinion/ban-pure-speculators-of-oil-futures.html

 

Nixon put in oil price controls that raised oil consumption and oil importation please read the graph

U.S. Imports of Crude Oil (Thousand Barrels)

When Nixon became president the amount of persian gulf oil imported was a rounding error and the US imported 0.35 BBbl of oil mainly from north america. In 1974 when he resigned the US was importing 1.3 BBbl of oil mainly from Opec. Carter came into office importing 1.94 BBbl of oil and left importing about the same 1.93. Regan came into office importing 1.93 BBbl of oil and left importing 1.87, and averaged much less than Carter but could have done better.

Carter acknowledged these were bad policies but continued them. There was a dip because of recession.

Read the graph. Above. You are really confused if you think deficits are the same as importing oil. I have no idea what per capica energy efficiency was in europe in 1970, but the gap was definitely their when Regan took office. You are flashing up statistics without understanding them, and that makes it impossible to hold a discussion.

Ending oil price controls is just a sound economic principle. What ever problems there are with Reaganomics that is not one of them. Can you name one economist that believes that price controls on oil actually reduced its use?

 

Its hard to pin down an absolute number. Definitely a good futures market is needed to reduce risk, but this should be well regulated. The futures market is out of control exacerbating price swings instead of reducing risk. Regulation is needed.

The point is pretty clear though opec and speculation in the futures market control the price of oil not the president or the oil companies. The government can do things to reduce the speculation though. That includes policies like keystone pipeline and cafe standards, and regulations on trading of oil futures and derivatives.

 

Gas prices would be at least a buck a gallon less if they stopped all the speculation in oil futures. Buying paper speculating oil prices will rise actually raises oil prices--by 20-30%.
The financial pages in newspapers are finally starting to talk about this. It's been known for years.

The other thing that has happened recently is utililies power (electricity) is now indexed quarterly to the oil futures price. My rates are up 25% from a year ago.

What this means is the price of energy in this country is now dependent on oil futures speculation. Gambling on derivatives. A built-in factor against economic growth.