Six dollar a gallon coming up?
With the greenback coming under increased pressure from Federal Reserve policies and investor appetite for more risk, there seems little direction but up for commodity prices, in particular energy and metals.
Weakness in the US currency feeds upward pressure on commodities, which are priced in dollars and thus come at a discount on the foreign markets.
One result has been a surge higher in gasoline prices to nearly $4 a gallon before the summer driving season even starts, a trend that economists say will be aggravated as demand increases and the summer storm season threatens to disrupt oil supplies.
“All we have to have is a couple badly placed hurricanes which could constrain some of the refinery output capacity in some key locations,” says Richard Hastings, strategist at Global Hunter Securities in Charlotte, N.C. “If you get weakness in the dollar concurrent with the strong driving season concurrent with the impact of one or two hurricanes in the wrong place, prices could go up in a quasi-exponential manner.”
Using a model that combines “subtle rates of change” with movements in the dollar index and commodity prices, Hastings figures the low dollar is responsible for about one-third, or $1.31, of the total gas-at-the-pump cost. Regular unleaded Wednesday was $3.84 a gallon nationwide, according to AAA.
While there’s far from unanimity about the dollar’s future course, the proportionate contribution that currency weakness makes to oil prices is clear.
…Hastings sees gasoline having “no problem” getting to $6.50 a gallon over the summer after increased demand and storm disruptions come into play.
And what is Obama doing about it? Why, he’s forcing oil companies to give up on drilling:
Shell Oil Company has announced it must scrap efforts to drill for oil this summer in the Arctic Ocean off the northern coast of Alaska. The decision comes following a ruling by the EPA’s Environmental Appeals Board to withhold critical air permits. The move has angered some in Congress and triggered a flurry of legislation aimed at stripping the EPA of its oil drilling oversight.
Shell has spent five years and nearly $4 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas. The leases alone cost $2.2 billion. Shell Vice President Pete Slaiby says obtaining similar air permits for a drilling operation in the Gulf of Mexico would take about 45 days. He’s especially frustrated over the appeal board’s suggestion that the Arctic drill would somehow be hazardous for the people who live in the area. “We think the issues were really not major,” Slaiby said, “and clearly not impactful for the communities we work in.”
The closest village to where Shell proposed to drill is Kaktovik, Alaska. It is one of the most remote places in the United States. According to the latest census, the population is 245 and nearly all of the residents are Alaska natives. The village, which is 1 square mile, sits right along the shores of the Beaufort Sea, 70 miles away from the proposed off-shore drill site.
And making the oil companies out to be the big bad guys:
if you’ve got to drive 50 miles for your job, and you can’t afford the new hybrid, so you got that old beater giving you eight miles a gallon — (laughter) — and your budget is already strained, I mean, that’s tough. But let me tell you something, we’re already making a difference.
We have increased oil production (what?), but more importantly we’ve also said to ourselves how are we going to find the kinds of alternative energy sources, the new energy sources that will reduce our dependence on foreign oil but also clean up the planet in the process. That’s something we need to invest in. (Applause.)
Because of you we used to only have 2 percent of the world’s advanced battery manufacturing in this country, a whole new industry. These are the batteries that go into these new electric cars. In five years, we’re going to have 40 percent of that market. That’s because of you, because you were able to get us in a position to make those decisions. (Applause.)
Because of you we’ve increased fuel-efficiency standards on cars that will save 1.8 billion barrels of oil. (Applause.) But we’ve got to do more. And to help pay for it, I don’t know about you but I think it’s time we eliminated the $4 billion in taxpayer subsidies that we’re giving to oil companies. (Applause.)
Now, they are making — keep in mind that the top five oil companies over the last five years, their lowest profits were $75 billion; their highest profits were $125 billion. That’s money coming directly from your pocket into theirs.
But you know what…people don’t care. They don’t care who the President believes are the bad guys, they want the price of gas to go down: (about the 30 second mark)
“Maybe President Obama will step down and let someone else takeover”
I wish lady, I wish.
Instead of allowing oil companies to get our OWN damn oil, he vilifies them and offers up idea’s like this:
Wood chips and algea?
Holy bejesus man….work to get those things made, but let us get our own damn oil NOW! Not next week, next year, or 5 years from now. Right now and watch the prices go down.
No one is saying don’t go looking for alternative sources of energy but we have a HUGE supply of oil and natural gas under our feet so let us use it dammit.
But why should he, especially when the MSM gives him a pass on this whole thing.
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When is someone in the senate or congress going to get enough fortitude to start impeachment proceedings? This man is doing everything he can to destroy this country. I can afford the gas increases IF I do without other things, however it is just not the price of gas. Consumer goods are going to escalate. Farmers and truckers require gas/diesel. Manufacturers require gas and all of this is going to be passed onto the consumer. Barack, barry, steve or whatever the hell his name is just sits in his counting house just waiting for the day when he can be crowned king. God help us.
Nothing would bring down oil prices faster than a stable domestic supply of oil for the US.
Nothing.
@DrJohn:
We’re getting a stable supply … soon. Doncha remember Mr. President himself consigned that to a South American outfit in OUR waters.
/sark off
Is Barry upset that the price of energy has gone up to the levels that he had promised to accomplish, presumably with taxes. Don’t fret BSA (Bull Shit Artist), the Middle East is draining off all our money while you play at war games and lament the loss of tax revenue. Yes BSA, with these energy prices the binders are being applied to the economy and the tax revenue tap is being slowly shut off. What’s the matter didn’t your Large C Communist mentors teach you the basics of macro economics; drain or divert enough money from an economy through taxes or oil dollars being shipped to the Middle East and you will strangle an economy.
The only upside to this disaster, is that you have inadvertently set in motion is Americans will now realize the dangers of Socialism and of useless nitwits like you. If this economy can be corrected in my lifetime I will be surprised and happy: if it doesn’t, I will enjoy the venom and invective directed toward you and what you stand for during the rest of my days and you will have earned it all for destroying the greatest country in the world.
Algae and wood chips my ass.
Wood chips???????? Don’t you have to cut down trees to get wood chips? He stated we have 2 to 3 % of worlds oil reserves. We would have a lot more if he and his prog friends would allow the development of the natural resources in the US. The US has more natural resources than any other country in the world. He stated we have finite resources when it comes to oil. Definition of finite 300+ years. This community organizer lies and misspeaks every time he opens his mouth.
From Fact-checking the Washington rhetoric on oil, drilling and energy, an article that appeared in The Hill on 04/23/11:
Too little domestic drilling hasn’t caused high U.S. gasoline prices. An increase in domestic drilling won’t bring U.S. gasoline prices down.
It’s useful to some people that the public should believe otherwise, but that doesn’t change the facts.
You labor under the misconception that only the price of crude has an effect on prices at the pump, Greg? Way too simplistic for reality, but a handy talking point for the less than curious.
Crude prices have many variables affecting the going rates.
Supply and demand is one… and that is where having additional oil fields developed makes a difference. For example, do you believe that Brazil, developing the two largest finds in decades, plus drilling in the GOM, will have no effect on market prices when they get closer to coming online? If OPEC has major competition for their prime export, do you think they will wield as much power to control pricing via controlling the output, as is done in the diamond market to keep their value high?
Another effect is speculation, which is where politics and policy come into play. I have to say, nothing makes me laugh more when someone solemnly parrots “it’s the speculators doing it!” to me. I always ask, “who are the speculators?” When they can’t name who the speculators are, I then ask “what are speculators?” Right about that time, if they have a brain cell functioning, they tell me it’s people who are betting that crude goes up, or down… and they are driving up the price.
Well, duh… that’s every thing in the stock market. Playing the market is nothing *but* speculation…. betting whether a stock will rise or fall, based on demand, inventions, economic and market trends, etc. What is it that makes people think only commodies have “speculators”? That’s like going to a casino, and saying only the people at the roulette wheel are gamblers.
Speculators… i.e. everyone betting on some traded stock… place those bets based on whether that product provided by the firm will become more in demand, but less available in abundant supply, thereby driving the price up. So when you have countries like Brazil, China, and pretty much every advanced nation – other than America – engaging in E&P for oil, you know that there will be additional sources that pad the ME/OPEC supply. But when you have America, sitting on their thumbs and not developing domestic sources… which would save quite a bit of costs for transportation to the few refineries we have… speculators figure that the largest user of crude are inhibiting the supply while simultaneously increasing the demand.
Lastly, one of the most important factors on the price of world crude has to do with the health status of the dollar…. cough, cough. As the dollar devalues, oil becomes more expensive since much of the world trades oil in US dollars. Therefore our pols spending frenzy, and the Fed Reserves QE endeavors, are also culpable in the rise of the price per barrel.
So there’s some “facts” you leave out, Greg. And those aren’t the only ones…. But tell ya what, Greg. If it makes you happy to think in such simplistic terms, have at it. Just don’t expect me to buy your argument.
@Greg:
Richard G. Newell.
EIA Admin. (U.S. Energy Information Administration)
He runs it.
BUT……
In Feb there was a conference entitled Intelligent Infrastructure.
Newell spoke.
He spoke about the future of energy in the United States.
The biggest promotion he made was, in fact, for something called Shale Gas.
If you don’t know what this is, the basic explanation is that it is a type of Natural Gas, embedded between rocks, deep in the Earth. There might be a lot of it. And it’s tough to get out, if we hadn’t discovered a way to do it — via hydraulic fracturing, or what you might know as hydro fracking.
Newell was saying that when it comes to alternative sources of energy (from that of crude oil), this gas is the next best step.
There is a lot of controversy about its extraction, in that it takes more than 300 chemicals and pumping water into the shale in order to extract the gas, potentially polluting the groundwater of the people who live in the area. Alas, when an audience member asked how safe retrieving said gas from said shale, Newell’s answer sold me on his failure to understand what he was promoting.
His response went something like this: I don’t know the environmental impact of extracting shale gas. That’s a question for the Environmental Protection Agency.
Wait…I thought he worked for the Energy Information Administration? Isn’t the crux of information knowing the context? If he is supposed to be supplying information about energy — is it not correct to assume that he would understand the pros and cons around said information?
What an ”expert!”
Obama’s biggest problem is that the same people who voted for him because they thought he would fill their gas tanks and pay off their mortgages are not about to listen to his high-falutin’ rhetoric. He was supposed to take care of them and he ain’t doing it. End of story.
Somehow I don’t think the Harley is going to run very well on wood chips….I’m going to need a lot bigger fuel injectors to get those into the cylinders…
It’s hard to fathom how much more damage this guy will be able to do to this nation over the next 2 years but I have no doubt he will continue to try, regardless of what his motivation is….
Somebody has put together a terrific poster!
Ironically, Obama opposed wood pulp when used by paper makers to fuel their manufacturing plants.
A 100% bio-fuel.
But because it was best used to fire the paper-making process he was against it.
Oh, but in another of Obama’s famous flip-flops he now allows paper makers to use their own wood pulp by-product to fire their manufacturing of paper.
(I guess he didn’t realize just how much paper the US government would need!)
Many of the comments here are correct. There is not one single thing that drives any market. Going after shale oil depends on gas staying over 80$ a barrell and that price is also predicated on the value of the US dollar as well. We have huge reserves of this type of oil and many countries including Canada and Russia and China are going after all reserves. Another factor for the USA is unlike those other countries, we have an EPA contolled by eco freaks that are against anything concerning oil and will put in regulations that will drive up costs and also a very litigious society that the greenies use to also drive up costs, neither of which other countries face. What would take months in other countries to approve can take a decade here in the USA. One of the things that hurts the dollar is massive trade deficits and if we can import less oil by going after all forms of oil in the USA, we help in a very dramatic way those trade deficiets keeping more money in the USA. But we have to insure that oil stays at a price that does not tank the shale oil industry if we go that route. If we start, the price of oil will drop with the announcement as the other countries increase production to make the price drop. I think this is a place where we need to keep the prices up to at least $3 a gallon and use the extra funds to pay for better technology to refine the oil and make the USA the world leader in the use of shale oil since we have centuries of supply. We should also be drilling anywhere possible to get oil to make sure in a short time we do not need offshore oil or at least that from countries that are anti USA or could become so with the ongoing turmoil in the middle east. This is a mater of national defense and as such it should trigger a very agressive program and use this to blunt delays by the eco freaks in courts.
With gas this high and other prices for things like food going up, we are well past the point where we can sit back and do nothing except go after wall street and big oil and talk of wood chips. Obama is worse than Carter and I never thought I would see that day.
He reminds me of college students who drink coffee all day in the student lounge instead of going to class or joining the Army or applying for a real job. They can then solve the world’s problems with hypothetical solutions that are gleaned from the Socialist intellectuals who become professional students until a teaching position opens up. Unfortunately, we have elected one of these dilettantes to the presidency.
@MataHarley, #11:
The assertion that if we would only drill more wells domestic gasoline prices would drop is based on some seriously simplistic thinking, in my opinion. It’s a simplistic assertion repeated to appeal to gullible voters by politicians who should know better–assuming they’re not simple-minded themselves.
Agreed that it’s not the only component, Greg. However to issue permits and actively develop our domestic resources would quickly affect speculation, as well as future supply. Also to invest in pipelines for the new western energy sources (oil, gas, shale) and building refineries close to those fields would also cut down costs that would affect future prices at the pump.
However to stubbornly cling to a refusal to utilize all the nation’s assets, as this admin does, and pour money into expensive and inefficient “green” power is the kiss of economic death.
It became apparent today that someone on Obama’s payroll reads FA.
Why do I say that?
Because a NEW White House TALKING POINTS MEMO came out as to how to respond when high gas prices are brought up.
The White House and Obama’s political operation is distributing a new set of talking points to outside allies and TV surrogates, instructing them.on how to discuss the increasingly volatile issue.
The talking points, sent over (to the Washington Post) by a source focus ire over high gas prices on oil companies and the tax breaks they continue to enjoy:
White House Talking Points: Protecting Americans at the Gas Station
Well, don’t you feel better?
Now you know that you are struggling,
suffering a burden,
subsidies will be ending for gasoline….but just getting started for ”green” goo,
but nothing will make prices better OR our economic outlook better if Obama has anything to say about it.
Even though Spain failed as a green country Obama seems determined to copy it’s failure.
@Greg:
As if the assertion by liberals, that drilling more WON’T affect oil prices is any less of an “appeal to gullible voters by politicians who should know better–assuming they’re not simple-minded themselves. ”
Do you see your mistake here, Greg?
Just as Larry’s simple assertion on taxes, involving fed. revenue as a percentage of GDP, you are leaving out some very important components in the equation, which have been pointed out here before in similar topics.
One of the most simplistic ways of looking at this is to look at simple economics, which, while never able to predict any accuracy in a market, is very useful for predicting trends within a market. Think of a company, making a thingamajig. In order to make the thingamajig, they require widgets, but one source cannot supply all the widgets they need, to meet the demand of their thingamajig. This company has a department whose job it is to supply widgets from their own factory that makes widgets, but they also purchase widgets from other companies, in order to supply their demand. Now, what if some enterprising worker for this company has figured out a way to make more widgets of their own, requiring less dependence upon other companies for their widget demand. Do the other companies keep their prices the same on their widgets, believing that a lower demand from outside widget makers by the thingamajig company will still maintain their previous profits, when the demand was higher, so their prices were higher? No, the widget companies, seeing the reduced demand from the thingamajig company, are going to lower their prices to a point that they can compete with the internal widget maker component of the thingamajig company. Higher internal widget production will lower the prices the thingamajig company pays for their external demand.
Now, oil is a world wide commodity, I grant you, but it still plays within the same laws of supply and demand in simple economic theory. And yes, other countries would benefit as well from our own increased drilling for oil. I grant you that as well. And an increased demand from another country, for oil, such as China, is going to impact world oil prices as well.
The truth is, Greg, that simply telling people that any increased drilling on our account won’t affect worldwide prices on crude oil is wrong. No economic model ever devised, with that being the sole factor changing, would ever agree with your assertion.
@Nan G:
Those WH points leave out a lot.
For example;
What isn’t mentioned is that any cut in relief for oil and gas companies from taxation won’t be placed solely on the shoulders of those oil and gas companies, but sent down the pipeline to become even more of a burden on consumers, in the higher prices we will pay at the pump and for any other item we purchase requiring transportation to get to the market, which is just about everything.
Maybe that’s why Obama has tasked Holder and the DOJ with identifying ‘price gougers’. Nothing like getting the government even more involved than it already is into our daily lives.
And the thing is, that I agree that subsidies for oil and gas companies should be ended, the difference being, that I believe that all subsidies, for any group, whether it’s business, taxpayers, or consumers, should be ended. Let them stand on their own, without government intrusion and arbitrary guidelines determining winners and losers.
As for changing the subsidies from the oil and gas industry to the ‘green’ industry, that is simply changing the game to artificially create new winners and losers, at the expense of free market principles, and at the cost to the taxpayers. How is it that people who have never run a business before, somehow believe they know what is best in how to run our businesses?