Decreased demand may not lower oil prices because investors have flocked to oil over the past few months as a hedge against USD weakness. With the printing presses running at full steam to affect the myriad of bail-outs, don't expect the USD to strengthen anytime soon.
Even if the miles driven are getting less, the cost of oil is going up. You need to look at miles driven globally (going up), espically in India and China, to understand why the demand side is so strong.
Well,I still plan to spend a few day flyfishing in Alpine county.I won't be staying at sorenson's this year,and won't fill the tank at kirkwood where gas is $7.50 a gallon.
IMO, this is not demand destruction (i.e. a shift in the demand curve), but rather a reduction in the quantity demanded. I expect quantity demanded will start to increase again shortly, all things being equal.
Hey Krugman bashers, you should at least enjoy this post.
Krugman's an ok guy sometimes when he's not trying too hard to be a communiss:
Bens got the whole world on a string
Unfortunately, hes pushing on it. I find this figure amazing: thanks to the credit crunch, a stunning decline in the Fed funds rate has had no effect at all on mortgage rates and borrowing rates for many businesses the interest rates that matter to the private economy.
What will the government do next to try to force people to take on bad debt to stimulate the economy?
Nothing like success through forced destruction of trust.
The amount of U.S. investment-grade bonds trading at distressed levels has risen close to an all-time high, a sign that a wave of mega-bankruptcies is likely on the way, a veteran high-yield strategist said.
The bad news is that transportation projects--including public transportation--are supported by gas taxes that are generally collected as cents per gallon, rather than as a percentage of money spent on gas. Less gas purchased means less money for transportation, including alternatives to the car. We need more money for transportation infrastructure. Not less. Too bad for us.
how in the world does the DOT know how many vehicle miles were driven?
Larry | Homepage | 07.28.08 - 10:22 am
Good question Larry. Does anyone have the answer?
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
Also, this is not even driving out all speculators yet, this is just the big/impatient speculators.
I firmly believe that we're in a oil bubble and someone will get burned.
Great graph CR, an overlay with gas or oil prices on the right hand scale would make it even better. Looks like it takes a heck of a lot in terms of higher gas prices to bring miles travelled down, looking at current dip and the dips of 73 and 80. If you tell us where you got the raw data or e-mail it to me, I could probably put together the graph, although frankly you do a much better job with graphing than I do (which is one of the reasons I poach your graphs so often).
The Traffic Volume Trends (TVT) report is published monthly by the Federal Highway Administration (FHWA). The report estimates the vehicle miles traveled (VMT) by state and several functional classes of roads. The estimates are based on two sources of data:
* The Highway Performance Monitoring System (HPMS), and
* Monthly traffic counts from automatic traffic recorders (ATRs).
The HPMS compiles data from the states annually concerning the condition and performance of all roads in the United States. HPMS includes the annual average daily traffic (AADT) by road segment. When these AADTs are multiplied by the length of each road segment and summed for all road segments and days of the year, they yield the annual VMT.
The states submit to FHWA traffic counts from their ATRs each month. These ATRs are permanent traffic counting devices such as inductive loops in the roadway. There are about 4000 ATRs that are reported to FHWA each month.
ATR data are submitted and processed using the Travel Monitoring Analysis System (TMAS). The FHWA runs quality control checks on all data received. Only data passing the checks are used for the TVT report.
Monthly average daily traffic (MADT) is computed from the ATR traffic counts. Each MADT is compared with the MADT for the same month the previous year to yield a change rate. The change rates are averaged by functional class of road. If a state does not provide traffic data in time, their change rates are estimated from the surrounding states.
TVT estimates monthly VMT by combining the change rates for each month with the most recent annual VMT from HPMS. The TVT report is available to the public within 60 days after the close of the month. Data that covers a minimum of 30 states and 70% of the VMT is required for publication. The next month's TVT report will include an update which covers more data.
The December TVT provides the first estimate of annual VMT for performance measures such as crash rates. When the annual HPMS data are available, they will supersede the total VMT from TVT.
Further reductions in these subsidies would reduce demand, and lower world oil prices.
These subsidies are occurring in developing, fast growing economies. Their reduction will only slow down the rate of increase in the energy needs of those countries. So even with demand destruction occurring over here, I find the conclusion of this statement, lower world oil prices, a bit too optimistic, since the change in demand for the whole world may still be positive.
The problem that I foresee is that net oil exports worldwide are declining faster than demand, in some areas, is declining.
Shown below is a link to a presentation I gave on July 14th, at Sandia Labs in Albuquerque, New Mexico, which was also video linked to two other national laboratories. The title of the talk was "Peak Oil Versus Peak Exports: What's the Difference and Which Should We Be More Concerned About?" Between the presentation and the following Q&A (about an hour in total), we covered a good deal of ground. The bulk of the presentation was an explanation of the Export Land Model and a presentation of the excellent quantitative modeling that my coauthor did on the top five net oil exporting countries.
Hangtown:
My friend who works for a federal agency estimates that half their budget is spent on spinning and lying. I guess the other half is just wasted.
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
No, we've pretty much confirmed on this site that it's all legitimate supply and demand.
What's happening now is that well over a quarter of a billion people have mysteriously gone missing in China and India in the past couple of weeks.
The governments there are still denying it, but reliable inside sources confirm this is the case and that we're seeing legitimate fundamental pressure on the supply/demand equation for oil.
Thwe first, say, 5% of demand will be the easiest to curtail -- true discretionary driving. (Combining trips, etc.) The family vacation--if it is seriously curtailed--could allow let's say another 5% of easy demand. Beyond that you get into non-discretionary: commutes, trucking. Though if there is a big recession, there'll be a little leeway there.
The problem is, what do we do once this "easy" demand destruction is done with? We're back in the same mess in a couple years ASSUMING flat production (err.. exports Westexas). A 4% decline in exports means we're racing to stay in place until we're still racing a la Wiley E. Coyote off the cliff.
This demand destruction amounts to 1.1 MBpd less this year compared to last year. Total world increase last year was about 0.9 MBpd. In other words, we have cut our oil use more than the rest of the world has increased theirs...
"And let me tell you the final nail in our coffin: In the last five years construction costs have gone through the roof. Petroleum, asphalt, concrete, steel have increased at least 50 percent, some times four times," Horsely sai
Drivers only can use the shoulder to get through because both northbound lanes of Parker south of Belleview are closed, said Mindy Crane, spokeswoman for the Colorado Department of Transportation.
In the 70s, the problem had less to do with the price of gas than its availability. Sadly, Americans will resume their driving habits when the price issue becomes old hat. If you graph the price of gas to the average wage, I believe the prices are in line--or cheap.
U.S. Treasury Secretary Henry Paulson will join officials from the Federal Deposit Insurance Corp, other financial regulators and some major banks to discuss the guidelines at 2:30 p.m. EDT (1830 GMT) in Washington, the Treasury said.
Re: Treasury Secretary Henry Paulson, aiming to create a new source of U.S. mortgage financing, wants banks to start issuing covered bonds without waiting for legislation from Congress.
Regulators can provide the guidance that lenders are asking to be set in law, said a Treasury official working on the issue who declined to be identified. Banks want a standardized definition of a covered bond, which requires the lender to make good on payments if homeowners default, and guidelines on bondholder protections.
Ok, Covered Bonds, as an unregulated solution to fixing banking mis-management is VERY Retarded! This is a way for SIFMA to sell unregulated bonds between a few friends of Paulson, Friends Of Angelo -- This is far more corrupt than Bear Stearns Bailout ---- PLEASE wake up!!!!
a 17% decline over ten trading days is huge, but not uncommon commodity futures. See prices cut in half, and sustained, and you can cite effects of demand destruction. At that point the question would be whether this would be the beginning of the end of the world as we know it, or a new age of consumption until mad max days. Only the players changing.
Oil at $70/bbl. The average Chinese motorist at that price would never in his life seen prices so cheap.
Not only are people driving less, they're driving slower. Hell, I almost rear-ended some guy in a Prius this morning who was going about 40 on the 10 east.
charlie writes:
I wonder what the impact will be on toll booth collections. Another potential problem for local budgets.
charlie | 07.28.08 - 10:12 am | #
The two toll roads I use most - the Chicago Skyway and the Indiana Toll Road - were leased to private equity groups for multi-billion dollar upfront payments within the last two years. City-owned parking lots in downtown Chicago got the same treatment. This stuff was very hotly contested back when it happened, but it's starting to look like a very smart move now.
The USA has the most subsidized oil in the world. In fact if we factored in and properly taxed gas for the cost of our policing the middle east, the pump price would be about $22.00 per gallon. Instead we borrow that money from China.
Kona:
Well gee, look at how fast and how casual these crooks are about starting up a new, national mortgage market, through covered bonds, telling the banks "Lend now, ask questions later".
Suggests to me how badly the GSE financials may be deteriorating. Bad GSE news within weeks will confirm my suspicions.
JimInPortlandOR,
Your suggestion brought up an image in my mind of Hwy 99 and 395. WooHoo! I saw a 1000 miles of potholes and bumper to bumper 18 wheelers.
We have a cabin on Donner Lake and I get to watch what it takes to feed and supply California as the 18 wheelers climb over the pass.
Last summer there was a small fire near 80 that shut down the highway for about 6 hours. The truck traffic was backed up almost into Nevada. That night around 12 midnight the trucks were still crawling up the pass. Cars were allowed over the old Donner Pass road so what I saw was only trucks.
This view was a graphic example of the size of the California economy and our dependence on oil.
There are big changes coming no matter if more oil supply is found. The developing world wants what we have and that means they want the cars and freedom to travel.
No, we've pretty much confirmed on this site that it's all legitimate supply and demand.
What's happening now is that well over a quarter of a billion people have mysteriously gone missing in China and India in the past couple of weeks.
First, I am not a peak oil apologist, or an oil-bull apologist... however, we cannot use significant changes in price to rule out supply and demand.
imagine this:
100 thirsty people in a room and 100 gallons of water.
what would the price be:
answer: cheap.
now:
100 thirsty people in a room and 100 bottles of water. what would the price be?
answer: relatively cheap, but maybe more expensive
now:
100 thirsty people in a room with 90 bottles of water. the price?
answer: much more expensive since 10 people have to go without.
now:
100 thirsty people in a room with 50 bottles of water? the price: astronomical.
now:
100 thirsty people in a room with 50 bottles of water, and the possibility that the culligan man will be here in an hour. the price: plummets.
now:
100 thirsty people in a room with 50 bottles of water, and they just found out that the culligan man got killed by Nigerian rebels. the price: skyrockets again.
the point:
the demand curve could be start out extremely steep and then flatten out. small changes in supply would equate to large price movements.
"Due to general market conditions and the specific mechanics of the inter-dealer market making it even seems possible that inter-dealer market making will not be resumed this year," Anhamm said.
My Comment: Halted for the rest of the year? Sheesh. Do they think asset quality is supposed to improve in the next month and a half? I don't. There will likely be a flood of sell orders in January if they freeze the market this long.
European credit spreads have widened significantly in the last couple of weeks on growing concerns about bank writedowns on subprime-related exposures.
But increased market volatility this week has prompted Ireland's AIB Mortgage Bank, a unit of Allied Irish Banks Plc, and Britain's Abbey National Treasury Services, part of Spain's Santander to postpone covered bond issues.
My Comment: As I said earlier today in Citibank SIVs Hit Norway Townships, ABCP problems are turning up everywhere. Now we see they have completely locked up European Interbank Covered Bond Trading.
And if Americans hadn't ever used SUVs as basic tranportation gas prices would be lower too. Why should Indonesia have to pay for our gas guzzling SUVs? Let them have their subsidies.
Americans will discover I suspect that driving less doesn't have much effect on the price of gas. If they stopped driving altogether that might make a dent. LOL.
The U.S. subsidizes gasoline and always has -- indirectly, through the interstate highway system and through federal funding for state and local road projects, pork-related or otherwise.
Imagine if everyone was still driving cross-country on old Route 66, or the equivalent. Wouldn't be so cost effective.
Think of the huge negative subsidy provided by all those countries by keeping the dollar peg. If they allowed the dollar to fall oil would be cheaper and they wouldn't have to provide a subsidy. Watch out for oil prices (in dollars) if this actually happens.
On covered bonds and subprime mortgages
(FT Alphaville) Hank Paulson has been singing their praises for some time now: covered bonds. But it was only in a speech yesterday when he outlined their potential for the US mortgage securitisation market that theyve got much shrift. The WSJ covers some of the Paulson speech:
Speaking at a mortgage lending forum in Virginia, Mr. Paulson said he is working with the Federal Deposit Insurance Corp., the Federal Reserve and other federal offices to explore the potential of covered bonds, which he described as a promising vehicle to speed up the availability of mortgage financing.
Paulson - notably - also touted the benefits of subprime and the need specifically, for the subprime mortgage market in the US to start rolling once more. From Dealbreaker:
another way of looking at it is that the subsidy becomes cheaper every day (in local currency retail price) and easier to maintain.
You can say it never makes sense to subsidize a primary commodity, but the Chinese run on cheap energy. U.S. runs on cheap credit and asset shuffling (as well as cheap energy). Which subsidy burden is greater in absolute terms? no question.
but it's starting to look like a very smart move now.
Well, I don't know anything about these agreements but I wouldn't get your hopes up. Remember we live in an age of private profits/socialized risk, so I bet somewhere in the double-extra fine print that the state will have to chip in if things don't work out the way the new owners envisioned them.
I mean, in the final analysis of these thing you gotta wonder what is the state going to do if they say "hey, we don't have the money to fix this road, sayanora"?
"If you graph the price of gas to the average wage, I believe the prices are in line--or cheap"
Real wages have not gone up since 2001.
Inflation adjusted, 70s 'till now, $136/bbl is not unreasonable. Nor is $4.50/gallon.
Subsidies do not increase demand it merely modiies the value. On the other hand, once these are removed, the demand curve usually falls or consumption is postponed.
So what does the 9.6 billion fewer vehicle-miles traveled do to the economy? I mean not just the fewer number of gallons of fuel purchased, it must translate into a lot of other goods and services not purchased........
That's the equivalent of about 43.5k fewer driving trips to the moon. Note this is just for illustration purposes, as there are no gas stations on the way to the moon so you couldn't drive there even if you wanted to.
The two toll roads I use most - the Chicago Skyway and the Indiana Toll Road - were leased to private equity groups for multi-billion dollar upfront payments within the last two years. City-owned parking lots in downtown Chicago got the same treatment. This stuff was very hotly contested back when it happened, but it's starting to look like a very smart move now.
You won't think it's so smart when you have to pay fifty bucks to ride the Skyway.
"...The bulk of the presentation was an explanation of the Export Land Model and a presentation of the excellent quantitative modeling that my coauthor did on the top five net oil exporting countries..."
-Jeffrey J. Brown
Jeffrey, that was a very interesting presentation. I generally agree with what you are saying, but I've got a few quibbles. I believe you are portraying the worst-case scenario regarding consumption estimates for the oil exporting countries-especially in the case of Saudi Arabia. The lower population exporters such as Saudi should experience some kind of "saturation effect" at some point with respect to consumption that would be a natural limit. So, I think the projection of their consumption is overstated.
Also, I believe that some of the conclusions drawn from the production graphs are overly pessimistic. The historic production curves that you showed for West Texas vs. North Sea production are large-field depletions. Wouldn't higher prices make a larger number of smaller fields profitable to extract which could offset the depletion from the larger known fields?
That said, I fundamentally accept your hypothesis, I just believe there are positive feedbacks that are hard to model and anticipate that will ameliorate some of the dramatic conclusions that you are drawing.
So what does the 9.6 billion fewer vehicle-miles traveled do to the economy? I mean not just the fewer number of gallons of fuel purchased, it must translate into a lot of other goods and services not purchased........
It means there's a lot of empty hotel rooms within 500 yards of the exits.
I wish every oil bear can just short oil so we can push it back to $10 a barrel.
Notice what wimps Americans are. In Europe they pay double the price (taxes) for gas and are more conservative. In the US they waste it driving their Hummers and SUVs and just whine about the price and have on will to raises GAS taxes. Can't wait for US to go bankrupt.
Guys think that specs rig commodity prices. don't know about that, but the fact that commodity prices are set on the margin, and so move abruptly, could make it appear as if they are.
Anyway, volatility could be seen as a product of our ignorance, plus the vaguaries of extraction and ag, times a relatively (really) thin market.
oh, and that whole dollar ain't worth nothing panic.
Last I read US oil reserves were down, gasoline reserves were up. What will happen if gasoline prices drop and everyone rushes to the pump to fill up the SUV?
hc writes:
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
maybe we should have a discussion about seasonality.
current futures are trading for september delivery, which is after the busy summer driving season.
anyone else want to help on this.
JLC writes:
"anyone who buys a prius is a sucker. you can get comparable gas mileage in several small cars that are much cheaper (my civic gets 40+ mpg)."
I agree. And you don't have the issues with the batteries. But, you aren't as cool.
Question is from a previous thread, but relevant here:
DrChaos writes:
Also on Energy.
I wonder if our government deregulates Energy Firms separating Energy production business from Energy Distribution, will it increase the competition and as the result lower the prices?
Although I dont work in the oil industry I am an engineer in the broader energy field. Think large California public utility company that went bankrupt a few years back. In our specific case deregulation worked wonders for everyone. Forcing us to sell off all of our generation facilities (save for one nuclear plant) and buying on the free market turned out to be a win/win. Lets see; we went bankrupt, the citizens of California got to enjoy energy savings through rolling blackouts, and Governor Davis lost his job to Ahnold. Im sure that was a one time aberration though as there cant be another Ken Lay/Enron in the world that would attempt to manipulate a market.
I'd love to see a graph that shows that the above is taking place as well.
Here's a great comment from our very own commenter Invisible Hand (or at least someone who plays them on Economists View):
"Invisible Hand says...
I wish I could believe that economics had arrived as a science, but I try to be an honest economist, and I can't pretend it with a straight face.
I am annually embarrassed when the Nobel Prizes are announced. The awards for medicine, chemistry, biology, etc are usually for important and impressive achievements, while the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work."
"Invisible Hand says...
I wish I could believe that economics had arrived as a science, but I try to be an honest economist, and I can't pretend it with a straight face.
I am annually embarrassed when the Nobel Prizes are announced. The awards for medicine, chemistry, biology, etc are usually for important and impressive achievements, while the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work."
Haha... an economist (which was explained to me requires a PhD) on another site asked me where I studied economics after I lectured him on some peculiar issue he thought was insightful.
I proclaimed I'd no sooner study economics to understand the economy than I would astrology to understand the universe.
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
Yearning to Learn at 11:43 am
the demand curve could be start out extremely steep and then flatten out. small changes in supply would equate to large price movements.
you are both right
world oil consumption is projected to increase 1.2% in 2008 from 85 1/2 to 86 and 1/2 million barrels per day.
despite the promising news about demand destruction, demand has been relatively inelastic while the supply curve appears steep where intersected
none the less, speculators are playing a part, as indicated by...
a 33% increase gas price increase in a year where the world growth in oil demand is less than 3% and supplies are not failing to meet demand indicates that speculation is distorting the market.
Milkman,
Given that China and India are having problems with coal prices, I'd say that world demand for oil is quite constrained by price. Coal is the last major available substitute and contract prices for coal have peaked and are off their peak. As the US found out when it tried it, controlling the price of a scarce commodity means less of it is available in the controlled area.
The US in aggregate consumed 23.9% of world oil in 2007. China consumed 9.3%. Hong Kong consumed 0.4%.India consumed 3.3%. Japan consumed 5.8%. Total Europe/Eurasia consumption share was 24.0%.
In 2007 US consumption dropped 0.1%. Chinese consumption increased 4.1%. Hong Kong consumption increased 14.1%. Japanese consumption dropped 3.5%. Total Europe/Eurasia consumption dropped 2.0%.
New Zealand and Thailand also dropped consumption in 2007.
Because of price pressures and substitution in non-subsidized economies, 2007 world demand only increased 1.1% while the Asian-Pacific region's demand increased 2.3%.
As high energy costs drift through to food and other basic consumer necessities, even grocery stores in Europe are seeing flat to declining demand. This means that demand for consumer products produced in Asia will decline, which will cut manufacturing, which will cut consumption of oil in consumer-oriented manufacturing economies. To boot, countries like Malaysia, China, India and Indonesia have had to cut subsidies which will tend to depress consumer demand. Further, consumer demand in Asia-Pacific simply cannot replace significant drops in the developed world because of the income differentials between the regions.
ME and African demand also increased in 2007, but their shares of world demand were 7.4% and 3.5% respectively.
Or you could look at the US crude inventory report. Comparing YTD 2007 to 2008, products supplied has dropped 3.3%. This will accelerate as the demand for heating oil this winter will be restrained by inability of a large number of households to pay for it.
If you bother to look at the BP report for 2007 and extrapolate through a 50% lower rate of decline in Europe/EurAsia (1%), the same increase for all of Asia Pacific, and even a 2.5% decline for the US, you get a net decrease in world demand because of proportional consumption patterns.
Oil demand in the US started busting down well below average import prices of $100. Oil has a long way further down to go, and to the extent that these other countries continue subsidies, they increase the effective tax on their economies, which is going to suppress growth and foreign investment.
I cannot understand how anyone could read Calculated Risk all that much and not understand the relationship of price and demand.
Economics is like any social science: descriptive not necessarily predictive.
The problem I see is economists have tried to make it non-social by treating economic actors as emotionless purely rational entities that fit neatly into computable formulas etc.
IMO this has rendered economics almost useless, and maybe counterproductive as a science over the past 25 years or so.
As I see it this sort of thing has been used to justify all the bubbles and abuses of the past couple of decades.
Actually, our consumption projections are below what Saudi Arabia has shown in the past two years (a +7.2%/year rate of increase in consumption). Also, on a cash flow basis many of these exporting countries are seeing increasing incomes from export sales, even as their export volumes decline--because oil prices are going up faster than their volumes are declining, which tends to drive up domestic consumption, especially where subsidies are involved Having said all of that, once an exporter's production starts declining, the rate of change in consumption just changes the slope of the net export decline.
Regarding the Texas decline, this was after an ongoing effort to develop smaller fields, and implement secondary and tertiary drilling programs, etc. The point about the North Sea and Texas declines is that they occurred despite the fact that they were developed by private companies, using the best available technology, with virtually no restrictions on drilling. So, these two case histories absolutely contradict the "happy face" assertions that ExxonMobil and CERA have made regarding conventional production.
a 33% increase gas price increase in a year where the world growth in oil demand is less than 3% and supplies are not failing to meet demand indicates that speculation is distorting the market
not speculation per se, but FEAR.
fear of having to pay $200 next year means you're more willing to lock in $140 now.
"- Fed stops cutting rates, oil and commodities stop rocket blasting to the moon."
First of all, I agree with you fully (and have argued here myself as such) that loose monetary policy has definitely pushed some stupid money (including mine) into the energy complex.
however... the argument doesn't hold well over the last decade. for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003. And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
thus, although it is certainly PART of the story, we cannot blame oil prices entirely on monetary policy given the historical oil prices from 2000-present.
I suspect that it is a combination of things. One: we have had declining oil production AND worse yet declining ability of refiners to handle the "sour" crude, as well as increased demand. two: we have a faltering economy with dumb "hot money". three: we have easing monetary policy. four: we have political instability in many places.
these all together have caused a huge surge.
I just take argument with the idea that rapid ups and downs in oil price "proves" that there is speculation... because one would see just that IF oil prices are set at the margin and IF the demand curve is steep at that margin. hence my "bottled water" scenario.
Destruction is such a strong word. I mean look at that graph, even if we go back to 95 levels demand elsewhere including W. Europe and Japan yoy I understand is going higher. No new oil field has come online and I still think we see $200 dollars a barrel before 2010 is done.
however... the argument doesn't hold well over the last decade. for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003. And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
thus, although it is certainly PART of the story, we cannot blame oil prices entirely on monetary policy given the historical oil prices from 2000-present.
If you think about it strategically though, an oil/commodity bubble would be last in line and unlikely to occur until speculators got desperate because it's basically suicide.
It's one thing to have politically popular bubbles like stocks and real estate (until the bubbles burst, of course) but an energy/commodity bubble is all but guaranteed to get the legislators on your case in a heartbeat and shut the party down.
I'm not at all surprised that more hot money didn't find its way into commodities in an extreme way until other outlets became nonviable.
for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003.
No because the spec money was going into housing.
And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
Yes, but investors don't invest in the FFR, they invest in bonds. And massive foreign purchases during this time, kept bond rates too low, so investors looked somewhere else for returns.
that's why i also think the world oil price is the result of a combination of events.
but it cant just be dollar devaluation because oil prices have increased relative to very strong currencies.
and it cant just be the intersection of the supply demand curves because the the up-tic in demand has been relatively small and while the capacity to quickly ramp up production is tight, supply has kept pace!
so i think it is reasonable to suspect that speculation is a part of the run up.
one reason? futures contracts are several times the level in volume of real production and consumptio
I went to the races at Del Mar yesterday. I paid $8 for a 10oz cup of beer. I was disgusted at what they charged, just because they didn't allow alcohol, creating an artificial supply/demand environment. As I bought my 4th beer I began to realize that there are somethings that may suffer demand destruction which simply can be made up for by higher prices. In other words, you may suffer demand destruction through higher prices, but since there is a minimum yet large proportion of the population that will pay for it no matter the price (within reason), then prices can rise in an environment of demand destruction.
Oil may be alot like beer/alcohol. You will sell a certain amount almost irrelevant of price. You can make up for a loss of demand through more price increases. Oil is not perishable like say food. Oil is thought to be finite...meaning the less volume you sell now at high prices means the longer your supply lasts...in other words, it pays to sell less for more as opposed to more for less.
I also agree that there is a degree of speculation (since I myself have speculated on oil prices, I prove by my existence that there is some speculation). however, it isn't enough to explain all of the rise we've seen IMO.
the real sticky question: how much of the rise was speculation. I think that's where we'll see some disagreement and fighting...
I myself am not sure... but I tend to think that speculation is LESS of an issue than the govt stipulates, and MORE of an issue than the traders stipulate.
and as for it being a "bubble"... all bubbles have at their roots a shred of plausibility... and that shred is used to justify exponential price increases... it's always hard to know when you've stretched from 'rational analysis' to 'bubble mentality'.
Can anyone explain this?
Mike in AZ | 07.28.08 - 2:16 pm | #
Ya - people do a whole lot more driving now. Longer commutes, more far flung domestic vacations, more kids have cars earlier & drive them more - all of the above.
Expensive gas changes all of that and more. Bring it on.
what "hot" money is left? i mean i understand that hot money generally means money that moves around seeking highest returns and sometimes pure speculation, but isn't this the big bad new world of credit crunch?
meaning, isnt the money moving around real money with real risk/reward issues and not just 'funny money' created out of thin air?
Mike in AZ writes:
"From the VMT chart - Between 1980 and 2007, total miles traveled roughly doubled. Yet the population only increased 34%? Can anyone explain this?"
Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.
As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Part of it but not all - everyone is driving more.
Where you around in 1980? I was - we drove a lot 'cause our family biz dictated it. I still drive a lot because of biz... but now I tell folks I tell folks I'm driving out east on biz... stopping at 4-5 remote locations on the way and it hardly gets a yawn anymore.
Lotsa people drive lotsa miles nowadays... rural, exurb, suburb and even city dwellers. The numbers CR posted show it as does the average miles per vehicle at a given age for used cars... go shopping for a used car and you'll see just how many 3-4 year old vehicles already have well over 100K miles on them. 25-30K/mile per car per year w/ multiple cars per family isn't that unusual anymore.
It will all change with expensive gas. I sure know it has changed my behavior.
Lot of Prius hate here. I agree that anybody who turns in a good car to buy a Prius is chasing a fad. On the other hand, choosing it as a replacement for a clapped-out old car can make sense.
And there are the many people who buy hybrids that don't "look" like hybrids -- Civics, Camrys, SUVs of various types -- just because they want the mileage. If you really need an SUV, paying extra for one that gets 30mph combined may make sense these days.
Hank is re-writing accounting rules for QSPEs with FASB, so that FDIC and Fannie can play spin the money with accounting fraud, i.e, bring part of the debt on to the balance sheet for Level 3 shit, then allow the QSPEs and SIVs and CDOs to act as conduit to taxpayers -- meanwhile these covered bonds will devalue the dollar...
"...demand for heating oil this winter will be restrained by inability of a large number of households to pay for it..."
Thank you maxxed out!
This is the key point that a lot of oil bulls are forgetting.
Oil is arriving the point where there are increasing segments of people who simply cannot pay for it.
Combine that with the fact that we also have a slowing global economy, which is the main projection of the results of housing/credit bubble as all of your have blogged about. This will further increase number of people "who simply cannot pay for it".
I hear it all the time -- price of oil can only go up! Price will go to 200, 300, 500 ,1000 a barrel!!!! Why not to infinity?
At some point, nobody can pay for it, and the aggregate demand has to fall.
Same reason why house prices cannot go up forever.
You can say oil is limited -- nobody is making more land. I can say land is limited, and nobody's making more of it too. Look where we are with real estate prices.
If you say oil is getting less in future -- I can also say land is getting less because more will be flooded by global warming!
I'm surprised how some RE bears can be so speculative on OIL sometimes.
Not to say that oil is going to drop back to $50, but I'm seriously skeptical claims that current oil prices are supported by supply/demand.
Disclaimer: I have no positions in oil/energy either way.
Or you could look at the US crude inventory report. Comparing YTD 2007 to 2008, products supplied has dropped 3.3%. This will accelerate as the demand for heating oil this winter will be restrained by inability of a large number of households to pay for it.
-- MaxedOutMama @ 1:21pm
Who cares if gasoline is at 4 dollars plus. For those of us in the Northeast, purchasing oil is gonna be a huge financial burden. It is currently 2 dollars over last winters' price
re: "Paulson said covered bonds, used extensively in Europe, represent "a promising financing vehicle" and can be used without special legislation. The Treasury published a "best practices" guide" for the securities.'
Look what happened to the covered bond market November 2007 -- they shut it down because of liquidity problems.....dumbass retard!
People have been dropping out of the oil market for several years now. Most of them have also been dropping out of the food market.
The difference now is which countries they live in; but I seriously believe there are plenty of people with cash to step in and bid up the price for some time to come.
Earlier this month, Paulson said Treasury has been working with the Federal Reserve, the Federal Deposit Insurance Corporation, and others to 'explore the potential of covered bonds' to help the US market.
'As Treasury seeks to encourage new sources of mortgage funding in the United States, improve underwriting standards and strengthen financial institutions' balance sheets, covered bonds have the potential to serve these purposes and reduce the costs for first-time home buyers, and for existing homeowners to refinance,' he said.
Re: " and others to 'explore the potential"
That refers to Goldman Sachs and Friends Of Angelo, including Dodd and other members of Congress and The Senate who will be connected to lobby funding and SIFMA related payoffs which I know nothing about...
The U.S. government and federal banking regulators are teaming up with the country's four largest banks to endorse a new way to pump money into the battered U.S. mortgage market.
U.S. Treasury Secretary Henry Paulson has unveiled a set of best practices designed to encourage banks to issue a debt instrument known as a covered bond.
The Bush administration hopes these bonds will replace some of the mortgage financing that has disappeared as investors incurred billions of dollars of losses on mortgage-backed securities.
Re: Teaming up, as in collusion and corrupt bullshit!
what "hot" money is left? i mean i understand that hot money generally means money that moves around seeking highest returns and sometimes pure speculation, but isn't this the big bad new world of credit crunch?
meaning, isnt the money moving around real money with real risk/reward issues and not just 'funny money' created out of thin air?
I think a lot of air has come out of the bubble, that said as far as I can tell we still have this massive hedge fund industry largely intact which is basically a big ponzi finance scheme that's still flooding various markets with hot money.
Remember these barely existed at all until the early 90s when proprietary trading desks began moving out of the investment banks.
As long as you're reading about hedge funds and massive trading volumes in almost every market on a daily basis, the end of hot money is a long way off I suspect.
CR: Further reductions in these subsidies would reduce demand, and lower world oil prices.
Of course, it will also create demand destruction in some other area...
Another reason not to believe a fall in oil will mitigate things here any time soon is that utility prices are just beginning to catch up to $100 oil, let alone $120 oil. Just as gas prices fall, utility prices will be rising well into the fall.
The commodity boom is not the cause of the underlying problem, just another symptom of the huge leveraging that is just beginning to reverse.
I think there's a definite the beginning of the end for Oil As We Know It.
Pure Electric Cars. 2010.
Miles per Dollar is 1/10 the price in electricity than oil. Even if electricity rates doubles or quadruples, we're looking at electricity being 1/5 to 1/2.5 cheaper than Oil.
Once available on the market, those people who use it for commuting of less than 60 miles daily becomes almost completely independent from Oil (at least from their commute). Their demand for gasoline drops to near zero, down to to perhaps occasional use or vacation use.
It'll start with a few consumers at first, but there's no stopping it. Soon it'll be 5% of commuters, then 10%, then 20%. At 20%, which is a critical stage, there'll be enough demand "released" this way that gasoline can no longer hold the whole world hostage.
By then, the biggest worry is that Middle East peace will collapse, and if Iran has nuclear weapon then -- we may be near Armageddon.
I can bike to Costco but I'm not going to be able to bring much back.
Unless I get a bike trailer -- hmmm. . . .
Troy
Troy,
I used to be a gardener in Washington, DC, and got around on my bike. You'd be amazed at what you can carry through careful arrangement. Of course, bringing a pole pruner meant taking corners in a very wide arc...
There's a big (obvious) difference between land/housing and oil. For both, you can say "They aren't making any more of it."
However, the piece of land or the house isn't immediately burned after buying it. The oil is. You can resell the same house after a period of time. No one can resell the same oil after consuming it.
mp writes:
Now you know why we're at Peak Beer. It's average Joe's fault.
Don't believe the stories about "peak beer". Beer is a renewable natural resource. If we could just convert the ethanol plants to a more beneficial use...
Suppose the world is down to it's last drop of oil. What do you think the price of it is?
Oil bull: It will be worth the whole world. Everything (in the world) will be traded for that last drop.
Oh Really?
Might I submit that the final drop is essentially worthless?
Either we would've found an alternative energy source by then, which makes owning that last oil a nothing burger.
Or
We would be force to regress as a civilization, which makes the marginal advantage of running that last bit of oil non-event.
(A third case where everyone dies is left out here, but it should be obvious that even in that case, buying that last oil is not worth it)
In each case, we wouldn't trade our entire net worth for that oil.
Now take this and regress backward, suppose it's not the last drop, it's the last 100 barrel. The last million barrel. Billion barrel. Trillion barrel.
At the very end, the price of oil is what it's maximum utility is to the world with respect to it's continued availability at that price.
If the continued supply of oil is really at stake here, you can bet that oil prices will not end up becoming infinity, instead some of the most viable alternate sources will start to become real volume drivers, and as they take off, the "max price" of oil will get stuck somewhere and then become irrelevant.
That is the most logical conclusion. You do NOT go and buy that last drop of oil, you do NOT go and invest more in oil.
It is crazy to imagine that demand do not change in the face of receding supply, but that what bulls keep citing, along with 1000, 2000 a barrel of oil in 10 years, etc.
"If the continued supply of oil is really at stake here, you can bet that oil prices will not end up becoming infinity, instead some of the most viable alternate sources will start to become real volume drivers, and as they take off, the "max price" of oil will get stuck somewhere and then become irrelevant." - hc
hc, That makes a lot of sense. One might say that oil would have a natural upper limit of say $400 a barrel in today's dollars (just as an example). Most of it would probably be used for plastics, pharmaceuticals, etc., not transportation fuel any longer. The alternatives would be cheaper than $400 oil.
From the VMT chart - Between 1980 and 2007, total miles traveled roughly doubled. Yet the population only increased 34%?
Can anyone explain this?
Temecula turned into a bedroom communinty.
Sometime during the 80s, our attitude about distances changed. I remember when a drive to the beach (60 miles from Riverside, CA) was a big deal, done rarely. Then the Santa Anna canyon freeway opened and a trip to the beach was a short, easy and frequent hop.
Any reliable stats on military miles driven? Jet fuel consumed? Recent additional stockpiling of fuel? Theres a lot of military bases where the "missing two million barrels" could end up. I'm sure it's all classified, But some military buffs might have good guesses.
Firsterist?
I wonder what the impact will be on toll booth collections. Another potential problem for local budgets.
Someday will achieve nirvana and public transportation will be the only way.
/sarcasm off
Ben’s got the whole world on a string - Paul Krugman Blog - NYTimes.com
Hey Krugman bashers, you should at least enjoy this post.
And CP spreads are on the rise again.
FRB: Commercial Paper Rates and Outstandings
The report is hardly surprising, but how in the world does the DOT know how many vehicle miles were driven?
I've always found traffic to be a good indicator of recession(s).
Decreased demand may not lower oil prices because investors have flocked to oil over the past few months as a hedge against USD weakness. With the printing presses running at full steam to affect the myriad of bail-outs, don't expect the USD to strengthen anytime soon.
Demand Destruction - Yipee!
Even if the miles driven are getting less, the cost of oil is going up. You need to look at miles driven globally (going up), espically in India and China, to understand why the demand side is so strong.
Criticism Of Medias Energy Coverage - Media - Portfolio.com
Well,I still plan to spend a few day flyfishing in Alpine county.I won't be staying at sorenson's this year,and won't fill the tank at kirkwood where gas is $7.50 a gallon.
I ve read somewhere about the debate to limit trading for Oil features, I see good times for free markets in the near future_NOT.
IMO, this is not demand destruction (i.e. a shift in the demand curve), but rather a reduction in the quantity demanded. I expect quantity demanded will start to increase again shortly, all things being equal.
Hey Krugman bashers, you should at least enjoy this post.
Krugman's an ok guy sometimes when he's not trying too hard to be a communiss:
Bens got the whole world on a string
Unfortunately, hes pushing on it. I find this figure amazing: thanks to the credit crunch, a stunning decline in the Fed funds rate has had no effect at all on mortgage rates and borrowing rates for many businesses the interest rates that matter to the private economy.
What will the government do next to try to force people to take on bad debt to stimulate the economy?
Nothing like success through forced destruction of trust.
The amount of U.S. investment-grade bonds trading at distressed levels has risen close to an all-time high, a sign that a wave of mega-bankruptcies is likely on the way, a veteran high-yield strategist said.
US corp distress could mean big bankruptcies-report
| Reuters
Uh Oh! That should lead to a little demand destruction one would think.
Some might say that the US's unwillingness to tax the carbon cost of fossil fuels is a similar demand enhancing subsidy.
The bad news is that transportation projects--including public transportation--are supported by gas taxes that are generally collected as cents per gallon, rather than as a percentage of money spent on gas. Less gas purchased means less money for transportation, including alternatives to the car. We need more money for transportation infrastructure. Not less. Too bad for us.
how in the world does the DOT know how many vehicle miles were driven?
Larry | Homepage | 07.28.08 - 10:22 am
Good question Larry. Does anyone have the answer?
I would not believe the government if they told me water was wet.
If the country is willing to have workers laid off in a downtown, why can't we just close some highways when things turn down in driving?
I nominate I-5 from San Diego to Seattle.
Does anyone have the answer?
Sign spinners are double employed as car counter for the Commerce Dept.
That's my theory and I'm sticking to it.
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
Also, this is not even driving out all speculators yet, this is just the big/impatient speculators.
I firmly believe that we're in a oil bubble and someone will get burned.
Great graph CR, an overlay with gas or oil prices on the right hand scale would make it even better. Looks like it takes a heck of a lot in terms of higher gas prices to bring miles travelled down, looking at current dip and the dips of 73 and 80. If you tell us where you got the raw data or e-mail it to me, I could probably put together the graph, although frankly you do a much better job with graphing than I do (which is one of the reasons I poach your graphs so often).
The highway closures I refered to above can be called the Strategic Highway Reserve!
Strategic Mall/Parking Lot Reserve.
This Page Has Moved
How is TVT done each month?
The Traffic Volume Trends (TVT) report is published monthly by the Federal Highway Administration (FHWA). The report estimates the vehicle miles traveled (VMT) by state and several functional classes of roads. The estimates are based on two sources of data:
* The Highway Performance Monitoring System (HPMS), and
* Monthly traffic counts from automatic traffic recorders (ATRs).
The HPMS compiles data from the states annually concerning the condition and performance of all roads in the United States. HPMS includes the annual average daily traffic (AADT) by road segment. When these AADTs are multiplied by the length of each road segment and summed for all road segments and days of the year, they yield the annual VMT.
The states submit to FHWA traffic counts from their ATRs each month. These ATRs are permanent traffic counting devices such as inductive loops in the roadway. There are about 4000 ATRs that are reported to FHWA each month.
ATR data are submitted and processed using the Travel Monitoring Analysis System (TMAS). The FHWA runs quality control checks on all data received. Only data passing the checks are used for the TVT report.
Monthly average daily traffic (MADT) is computed from the ATR traffic counts. Each MADT is compared with the MADT for the same month the previous year to yield a change rate. The change rates are averaged by functional class of road. If a state does not provide traffic data in time, their change rates are estimated from the surrounding states.
TVT estimates monthly VMT by combining the change rates for each month with the most recent annual VMT from HPMS. The TVT report is available to the public within 60 days after the close of the month. Data that covers a minimum of 30 states and 70% of the VMT is required for publication. The next month's TVT report will include an update which covers more data.
The December TVT provides the first estimate of annual VMT for performance measures such as crash rates. When the annual HPMS data are available, they will supersede the total VMT from TVT.
Further reductions in these subsidies would reduce demand, and lower world oil prices.
These subsidies are occurring in developing, fast growing economies. Their reduction will only slow down the rate of increase in the energy needs of those countries. So even with demand destruction occurring over here, I find the conclusion of this statement, lower world oil prices, a bit too optimistic, since the change in demand for the whole world may still be positive.
JimPortlandOR,
I SoCal they call it HOT lanes...
The problem that I foresee is that net oil exports worldwide are declining faster than demand, in some areas, is declining.
Shown below is a link to a presentation I gave on July 14th, at Sandia Labs in Albuquerque, New Mexico, which was also video linked to two other national laboratories. The title of the talk was "Peak Oil Versus Peak Exports: What's the Difference and Which Should We Be More Concerned About?" Between the presentation and the following Q&A (about an hour in total), we covered a good deal of ground. The bulk of the presentation was an explanation of the Export Land Model and a presentation of the excellent quantitative modeling that my coauthor did on the top five net oil exporting countries.
Declining Oil Exports
Hangtown:
My friend who works for a federal agency estimates that half their budget is spent on spinning and lying. I guess the other half is just wasted.
Chinese oil subsidies likely hurt China more than us. Subsidies aren't free, they're just income redistribution.
Unlike progressive taxation, subsidies are a highly distorting form of redistribution, because they encourage otherwise irrational consumption levels.
Doc at the Radar Station -
Thanks
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
No, we've pretty much confirmed on this site that it's all legitimate supply and demand.
What's happening now is that well over a quarter of a billion people have mysteriously gone missing in China and India in the past couple of weeks.
The governments there are still denying it, but reliable inside sources confirm this is the case and that we're seeing legitimate fundamental pressure on the supply/demand equation for oil.
Thwe first, say, 5% of demand will be the easiest to curtail -- true discretionary driving. (Combining trips, etc.) The family vacation--if it is seriously curtailed--could allow let's say another 5% of easy demand. Beyond that you get into non-discretionary: commutes, trucking. Though if there is a big recession, there'll be a little leeway there.
The problem is, what do we do once this "easy" demand destruction is done with? We're back in the same mess in a couple years ASSUMING flat production (err.. exports Westexas). A 4% decline in exports means we're racing to stay in place until we're still racing a la Wiley E. Coyote off the cliff.
This demand destruction amounts to 1.1 MBpd less this year compared to last year. Total world increase last year was about 0.9 MBpd. In other words, we have cut our oil use more than the rest of the world has increased theirs...
Natural Gas and Petroleum Navigator Error Page
Transportation survey says nation's bridges are deficient
Transportation survey says nation's bridges are deficient | Minnesota Public Radio NewsQ
"And let me tell you the final nail in our coffin: In the last five years construction costs have gone through the roof. Petroleum, asphalt, concrete, steel have increased at least 50 percent, some times four times," Horsely sai
*Meanwhile in another part of my country: >> Buckling concrete snarls Parker Road
Buckling concrete snarls Parker Road : Traffic : The Rocky Mountain News
Drivers only can use the shoulder to get through because both northbound lanes of Parker south of Belleview are closed, said Mindy Crane, spokeswoman for the Colorado Department of Transportation.
Can't vouch for its validity, but this chart shows how US demand reacted to recent price shocks. Looks like a 25% decline peak to trough.
http://www.wtrg.com/oil_graphs/USpetroleumconsumption.gif
In the 70s, the problem had less to do with the price of gas than its availability. Sadly, Americans will resume their driving habits when the price issue becomes old hat. If you graph the price of gas to the average wage, I believe the prices are in line--or cheap.
U.S. Treasury to issue guidance on covered bonds
U.S. Treasury Secretary Henry Paulson will join officials from the Federal Deposit Insurance Corp, other financial regulators and some major banks to discuss the guidelines at 2:30 p.m. EDT (1830 GMT) in Washington, the Treasury said.
Re: Treasury Secretary Henry Paulson, aiming to create a new source of U.S. mortgage financing, wants banks to start issuing covered bonds without waiting for legislation from Congress.
Regulators can provide the guidance that lenders are asking to be set in law, said a Treasury official working on the issue who declined to be identified. Banks want a standardized definition of a covered bond, which requires the lender to make good on payments if homeowners default, and guidelines on bondholder protections.
Ok, Covered Bonds, as an unregulated solution to fixing banking mis-management is VERY Retarded! This is a way for SIFMA to sell unregulated bonds between a few friends of Paulson, Friends Of Angelo -- This is far more corrupt than Bear Stearns Bailout ---- PLEASE wake up!!!!
Jeffrey J. Brown and Mike in AZ, thanks for the links.
a 17% decline over ten trading days is huge, but not uncommon commodity futures. See prices cut in half, and sustained, and you can cite effects of demand destruction. At that point the question would be whether this would be the beginning of the end of the world as we know it, or a new age of consumption until mad max days. Only the players changing.
Oil at $70/bbl. The average Chinese motorist at that price would never in his life seen prices so cheap.
Hell if I know.
Not only are people driving less, they're driving slower. Hell, I almost rear-ended some guy in a Prius this morning who was going about 40 on the 10 east.
charlie writes:
I wonder what the impact will be on toll booth collections. Another potential problem for local budgets.
charlie | 07.28.08 - 10:12 am | #
The two toll roads I use most - the Chicago Skyway and the Indiana Toll Road - were leased to private equity groups for multi-billion dollar upfront payments within the last two years. City-owned parking lots in downtown Chicago got the same treatment. This stuff was very hotly contested back when it happened, but it's starting to look like a very smart move now.
Kou Jie is right; to prove a bubble oil should fall a lot more than just 20 bucks.
Jeffrey, if you ever give a talk in L.A. please post a note here!
The USA has the most subsidized oil in the world. In fact if we factored in and properly taxed gas for the cost of our policing the middle east, the pump price would be about $22.00 per gallon. Instead we borrow that money from China.
Kona:
Well gee, look at how fast and how casual these crooks are about starting up a new, national mortgage market, through covered bonds, telling the banks "Lend now, ask questions later".
Suggests to me how badly the GSE financials may be deteriorating. Bad GSE news within weeks will confirm my suspicions.
The US cuts back a little...and China increases its need for oil.
US demand would have to drop a LOT more before the global demand decreased.
JimInPortlandOR,
Your suggestion brought up an image in my mind of Hwy 99 and 395. WooHoo! I saw a 1000 miles of potholes and bumper to bumper 18 wheelers.
We have a cabin on Donner Lake and I get to watch what it takes to feed and supply California as the 18 wheelers climb over the pass.
Last summer there was a small fire near 80 that shut down the highway for about 6 hours. The truck traffic was backed up almost into Nevada. That night around 12 midnight the trucks were still crawling up the pass. Cars were allowed over the old Donner Pass road so what I saw was only trucks.
This view was a graphic example of the size of the California economy and our dependence on oil.
There are big changes coming no matter if more oil supply is found. The developing world wants what we have and that means they want the cars and freedom to travel.
No, we've pretty much confirmed on this site that it's all legitimate supply and demand.
What's happening now is that well over a quarter of a billion people have mysteriously gone missing in China and India in the past couple of weeks.
First, I am not a peak oil apologist, or an oil-bull apologist... however, we cannot use significant changes in price to rule out supply and demand.
imagine this:
100 thirsty people in a room and 100 gallons of water.
what would the price be:
answer: cheap.
now:
100 thirsty people in a room and 100 bottles of water. what would the price be?
answer: relatively cheap, but maybe more expensive
now:
100 thirsty people in a room with 90 bottles of water. the price?
answer: much more expensive since 10 people have to go without.
now:
100 thirsty people in a room with 50 bottles of water? the price: astronomical.
now:
100 thirsty people in a room with 50 bottles of water, and the possibility that the culligan man will be here in an hour. the price: plummets.
now:
100 thirsty people in a room with 50 bottles of water, and they just found out that the culligan man got killed by Nigerian rebels. the price: skyrockets again.
the point:
the demand curve could be start out extremely steep and then flatten out. small changes in supply would equate to large price movements.
covered bond - Cuil
The US cuts back a little...and China increases its need for oil.
US demand would have to drop a LOT more before the global demand decreased.
Milkman, we're already there, see post at 11:18.
"Due to general market conditions and the specific mechanics of the inter-dealer market making it even seems possible that inter-dealer market making will not be resumed this year," Anhamm said.
My Comment: Halted for the rest of the year? Sheesh. Do they think asset quality is supposed to improve in the next month and a half? I don't. There will likely be a flood of sell orders in January if they freeze the market this long.
European credit spreads have widened significantly in the last couple of weeks on growing concerns about bank writedowns on subprime-related exposures.
But increased market volatility this week has prompted Ireland's AIB Mortgage Bank, a unit of Allied Irish Banks Plc, and Britain's Abbey National Treasury Services, part of Spain's Santander to postpone covered bond issues.
My Comment: As I said earlier today in Citibank SIVs Hit Norway Townships, ABCP problems are turning up everywhere. Now we see they have completely locked up European Interbank Covered Bond Trading.
Is it any wonder gold is soaring and back over $800?
European Interbank Covered Bond Trading Halted-Minyanville
(OT: Stox on 10 day lows maybe readying for a dive).
And if Americans hadn't ever used SUVs as basic tranportation gas prices would be lower too. Why should Indonesia have to pay for our gas guzzling SUVs? Let them have their subsidies.
Americans will discover I suspect that driving less doesn't have much effect on the price of gas. If they stopped driving altogether that might make a dent. LOL.
tj&b,
thanks, and be cool bud.
The U.S. subsidizes gasoline and always has -- indirectly, through the interstate highway system and through federal funding for state and local road projects, pork-related or otherwise.
Imagine if everyone was still driving cross-country on old Route 66, or the equivalent. Wouldn't be so cost effective.
Think of the huge negative subsidy provided by all those countries by keeping the dollar peg. If they allowed the dollar to fall oil would be cheaper and they wouldn't have to provide a subsidy. Watch out for oil prices (in dollars) if this actually happens.
Market Pipeline: On covered bonds and subprime mortgages
On covered bonds and subprime mortgages
(FT Alphaville) Hank Paulson has been singing their praises for some time now: covered bonds. But it was only in a speech yesterday when he outlined their potential for the US mortgage securitisation market that theyve got much shrift. The WSJ covers some of the Paulson speech:
Speaking at a mortgage lending forum in Virginia, Mr. Paulson said he is working with the Federal Deposit Insurance Corp., the Federal Reserve and other federal offices to explore the potential of covered bonds, which he described as a promising vehicle to speed up the availability of mortgage financing.
Paulson - notably - also touted the benefits of subprime and the need specifically, for the subprime mortgage market in the US to start rolling once more. From Dealbreaker:
Can you please quit your OT spamming?
Hypermiling :: Even without a hybrid car, no more need to compare gas prices
It's not just for Prius's anymore.
j meyer,
another way of looking at it is that the subsidy becomes cheaper every day (in local currency retail price) and easier to maintain.
You can say it never makes sense to subsidize a primary commodity, but the Chinese run on cheap energy. U.S. runs on cheap credit and asset shuffling (as well as cheap energy). Which subsidy burden is greater in absolute terms? no question.
milkman,
Mike in Arizona (11:18 above) says no. So now which is it? Your source is?
"Hell, I almost rear-ended some guy in a Prius this morning who was going about 40 on the 10 east."
Any pious Prius doing 40 on a freeway deserves to be rear ended. That cr@p should be taken to state highways.
Sorry, I see Mike's already weighed in.
I see this assertion that our demand destruction is irrelevant given the scale of growth in global demand so often, I squeezed the trigger.
Bet someone makes the same claim again shortly.
The Prius does not belong on a freeway. Anybody who bought one and commutes daily on a freeway threw away their money...........
Yearning to Learn, best blog comment EVAR!
Well, I don't know anything about these agreements but I wouldn't get your hopes up. Remember we live in an age of private profits/socialized risk, so I bet somewhere in the double-extra fine print that the state will have to chip in if things don't work out the way the new owners envisioned them.
I mean, in the final analysis of these thing you gotta wonder what is the state going to do if they say "hey, we don't have the money to fix this road, sayanora"?
They're going to have to fix it.
You know the funny thing about bubbles...self interest.
Realtors: The prices of real estate only goes up.
People on this blog: The price of oil will only go up.
The reality: In each of the above mentioned groups there is more than a smidgen of self deluded agenda.
"If you graph the price of gas to the average wage, I believe the prices are in line--or cheap"
Real wages have not gone up since 2001.
Inflation adjusted, 70s 'till now, $136/bbl is not unreasonable. Nor is $4.50/gallon.
Subsidies do not increase demand it merely modiies the value. On the other hand, once these are removed, the demand curve usually falls or consumption is postponed.
So what does the 9.6 billion fewer vehicle-miles traveled do to the economy? I mean not just the fewer number of gallons of fuel purchased, it must translate into a lot of other goods and services not purchased........
That's the equivalent of about 43.5k fewer driving trips to the moon. Note this is just for illustration purposes, as there are no gas stations on the way to the moon so you couldn't drive there even if you wanted to.
You won't think it's so smart when you have to pay fifty bucks to ride the Skyway.
"...The bulk of the presentation was an explanation of the Export Land Model and a presentation of the excellent quantitative modeling that my coauthor did on the top five net oil exporting countries..."
-Jeffrey J. Brown
Jeffrey, that was a very interesting presentation. I generally agree with what you are saying, but I've got a few quibbles. I believe you are portraying the worst-case scenario regarding consumption estimates for the oil exporting countries-especially in the case of Saudi Arabia. The lower population exporters such as Saudi should experience some kind of "saturation effect" at some point with respect to consumption that would be a natural limit. So, I think the projection of their consumption is overstated.
Also, I believe that some of the conclusions drawn from the production graphs are overly pessimistic. The historic production curves that you showed for West Texas vs. North Sea production are large-field depletions. Wouldn't higher prices make a larger number of smaller fields profitable to extract which could offset the depletion from the larger known fields?
That said, I fundamentally accept your hypothesis, I just believe there are positive feedbacks that are hard to model and anticipate that will ameliorate some of the dramatic conclusions that you are drawing.
It means there's a lot of empty hotel rooms within 500 yards of the exits.
I wish every oil bear can just short oil so we can push it back to $10 a barrel.
Notice what wimps Americans are. In Europe they pay double the price (taxes) for gas and are more conservative. In the US they waste it driving their Hummers and SUVs and just whine about the price and have on will to raises GAS taxes. Can't wait for US to go bankrupt.
Guys think that specs rig commodity prices. don't know about that, but the fact that commodity prices are set on the margin, and so move abruptly, could make it appear as if they are.
Anyway, volatility could be seen as a product of our ignorance, plus the vaguaries of extraction and ag, times a relatively (really) thin market.
oh, and that whole dollar ain't worth nothing panic.
Hell if I know.
anyone who buys a prius is a sucker. you can get comparable gas mileage in several small cars that are much cheaper (my civic gets 40+ mpg).
Last I read US oil reserves were down, gasoline reserves were up. What will happen if gasoline prices drop and everyone rushes to the pump to fill up the SUV?
Wall Street loves you. Thanks chumps.
hc writes:
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
maybe we should have a discussion about seasonality.
current futures are trading for september delivery, which is after the busy summer driving season.
anyone else want to help on this.
JLC writes:
"anyone who buys a prius is a sucker. you can get comparable gas mileage in several small cars that are much cheaper (my civic gets 40+ mpg)."
I agree. And you don't have the issues with the batteries. But, you aren't as cool.
"... fuel use in Indonesia would fall by as much as a fifth if the government were to eliminate subsidies entirely."
Please change to " ... the government would fall by one hundred percent if fuel subsidies were eliminated entirely."
anyone who buys a prius is a sucker. you can get comparable gas mileage in several small cars that are much cheaper (my civic gets 40+ mpg).
prius drivers are pretentious schmucks that get to carpool for absolutely no practical reason that i can see.
Question is from a previous thread, but relevant here:
DrChaos writes:
Also on Energy.
I wonder if our government deregulates Energy Firms separating Energy production business from Energy Distribution, will it increase the competition and as the result lower the prices?
Although I dont work in the oil industry I am an engineer in the broader energy field. Think large California public utility company that went bankrupt a few years back. In our specific case deregulation worked wonders for everyone. Forcing us to sell off all of our generation facilities (save for one nuclear plant) and buying on the free market turned out to be a win/win. Lets see; we went bankrupt, the citizens of California got to enjoy energy savings through rolling blackouts, and Governor Davis lost his job to Ahnold. Im sure that was a one time aberration though as there cant be another Ken Lay/Enron in the world that would attempt to manipulate a market.
http://www.humanevents.com/article.php?id=27726
novak finds his way out of a hit and run.
OIL related, ya see, he was driving, like a maniac
First, I am not a peak oil apologist, or an oil-bull apologist... however, we cannot use significant changes in price to rule out supply and demand.
Again, I'm a bit simple minded, but the way I see it is:
Loose monetary policy = bubbles
Tight monetary policy = no bubbles
Maybe I have an overly simplistic worldview, but that worldview sure seems to explain a lot of coincidences.
BTW saying oil shouldn't be going up $5/day is different than being bearish on oil. I've never argued oil should be cheap.
The Demand Destruction Of Useless Thoughts
I'd love to see a graph that shows that the above is taking place as well.
Here's a great comment from our very own commenter Invisible Hand (or at least someone who plays them on Economists View):
"Invisible Hand says...
I wish I could believe that economics had arrived as a science, but I try to be an honest economist, and I can't pretend it with a straight face.
I am annually embarrassed when the Nobel Prizes are announced. The awards for medicine, chemistry, biology, etc are usually for important and impressive achievements, while the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work."
This is in response to a great post:
Economist's View: Economics "is at Last a Science"
Corn Rises as Heat Threatens U.S. Crop; Soybeans Little Changed
Corn, Soybeans Rise as Heat, Dry Weather Threaten U.S. Crops - Bloomberg.com
These guys are Cornholiod they will be ASSimilated. $65BBL by next year.
"Invisible Hand says...
I wish I could believe that economics had arrived as a science, but I try to be an honest economist, and I can't pretend it with a straight face.
I am annually embarrassed when the Nobel Prizes are announced. The awards for medicine, chemistry, biology, etc are usually for important and impressive achievements, while the 'Nobel' prizes in Economics are awarded for trivial and/or questionable work."
Haha... an economist (which was explained to me requires a PhD) on another site asked me where I studied economics after I lectured him on some peculiar issue he thought was insightful.
I proclaimed I'd no sooner study economics to understand the economy than I would astrology to understand the universe.
He didn't like that very much.
hc wrote at 10:54 am
If oil wasn't in a bubble, why did it go from $140+ to $120 in less than 10 trading days? Did supply/demand change that much in 10 days?! To me, this is ample proof of the amount of "fluff" that speculators have put into oil prices
Yearning to Learn at 11:43 am
the demand curve could be start out extremely steep and then flatten out. small changes in supply would equate to large price movements.
you are both right
world oil consumption is projected to increase 1.2% in 2008 from 85 1/2 to 86 and 1/2 million barrels per day.
despite the promising news about demand destruction, demand has been relatively inelastic while the supply curve appears steep where intersected
none the less, speculators are playing a part, as indicated by...
a 33% increase gas price increase in a year where the world growth in oil demand is less than 3% and supplies are not failing to meet demand indicates that speculation is distorting the market.
Economics is like any social science: descriptive not necessarily predictive.
Milkman,
Given that China and India are having problems with coal prices, I'd say that world demand for oil is quite constrained by price. Coal is the last major available substitute and contract prices for coal have peaked and are off their peak. As the US found out when it tried it, controlling the price of a scarce commodity means less of it is available in the controlled area.
The US in aggregate consumed 23.9% of world oil in 2007. China consumed 9.3%. Hong Kong consumed 0.4%.India consumed 3.3%. Japan consumed 5.8%. Total Europe/Eurasia consumption share was 24.0%.
In 2007 US consumption dropped 0.1%. Chinese consumption increased 4.1%. Hong Kong consumption increased 14.1%. Japanese consumption dropped 3.5%. Total Europe/Eurasia consumption dropped 2.0%.
New Zealand and Thailand also dropped consumption in 2007.
Because of price pressures and substitution in non-subsidized economies, 2007 world demand only increased 1.1% while the Asian-Pacific region's demand increased 2.3%.
As high energy costs drift through to food and other basic consumer necessities, even grocery stores in Europe are seeing flat to declining demand. This means that demand for consumer products produced in Asia will decline, which will cut manufacturing, which will cut consumption of oil in consumer-oriented manufacturing economies. To boot, countries like Malaysia, China, India and Indonesia have had to cut subsidies which will tend to depress consumer demand. Further, consumer demand in Asia-Pacific simply cannot replace significant drops in the developed world because of the income differentials between the regions.
See page 13 of the BP Statistical report.
ME and African demand also increased in 2007, but their shares of world demand were 7.4% and 3.5% respectively.
Or you could look at the US crude inventory report. Comparing YTD 2007 to 2008, products supplied has dropped 3.3%. This will accelerate as the demand for heating oil this winter will be restrained by inability of a large number of households to pay for it.
If you bother to look at the BP report for 2007 and extrapolate through a 50% lower rate of decline in Europe/EurAsia (1%), the same increase for all of Asia Pacific, and even a 2.5% decline for the US, you get a net decrease in world demand because of proportional consumption patterns.
Oil demand in the US started busting down well below average import prices of $100. Oil has a long way further down to go, and to the extent that these other countries continue subsidies, they increase the effective tax on their economies, which is going to suppress growth and foreign investment.
I cannot understand how anyone could read Calculated Risk all that much and not understand the relationship of price and demand.
Economics is like any social science: descriptive not necessarily predictive.
The problem I see is economists have tried to make it non-social by treating economic actors as emotionless purely rational entities that fit neatly into computable formulas etc.
IMO this has rendered economics almost useless, and maybe counterproductive as a science over the past 25 years or so.
As I see it this sort of thing has been used to justify all the bubbles and abuses of the past couple of decades.
The real 'far side' writes:
Robert Novak Hospitalized - HUMAN EVENTS
novak finds his way out of a hit and run.
i wonder if that gets him off the hook for revealing the identity of a covert CIA agent (treason) too?
Re: Doc at the Radar Station
Actually, our consumption projections are below what Saudi Arabia has shown in the past two years (a +7.2%/year rate of increase in consumption). Also, on a cash flow basis many of these exporting countries are seeing increasing incomes from export sales, even as their export volumes decline--because oil prices are going up faster than their volumes are declining, which tends to drive up domestic consumption, especially where subsidies are involved Having said all of that, once an exporter's production starts declining, the rate of change in consumption just changes the slope of the net export decline.
Regarding the Texas decline, this was after an ongoing effort to develop smaller fields, and implement secondary and tertiary drilling programs, etc. The point about the North Sea and Texas declines is that they occurred despite the fact that they were developed by private companies, using the best available technology, with virtually no restrictions on drilling. So, these two case histories absolutely contradict the "happy face" assertions that ExxonMobil and CERA have made regarding conventional production.
a 33% increase gas price increase in a year where the world growth in oil demand is less than 3% and supplies are not failing to meet demand indicates that speculation is distorting the market
not speculation per se, but FEAR.
fear of having to pay $200 next year means you're more willing to lock in $140 now.
AC, I agree.
"- Fed stops cutting rates, oil and commodities stop rocket blasting to the moon."
First of all, I agree with you fully (and have argued here myself as such) that loose monetary policy has definitely pushed some stupid money (including mine) into the energy complex.
however... the argument doesn't hold well over the last decade. for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003. And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
thus, although it is certainly PART of the story, we cannot blame oil prices entirely on monetary policy given the historical oil prices from 2000-present.
I suspect that it is a combination of things. One: we have had declining oil production AND worse yet declining ability of refiners to handle the "sour" crude, as well as increased demand. two: we have a faltering economy with dumb "hot money". three: we have easing monetary policy. four: we have political instability in many places.
these all together have caused a huge surge.
I just take argument with the idea that rapid ups and downs in oil price "proves" that there is speculation... because one would see just that IF oil prices are set at the margin and IF the demand curve is steep at that margin. hence my "bottled water" scenario.
Destruction is such a strong word. I mean look at that graph, even if we go back to 95 levels demand elsewhere including W. Europe and Japan yoy I understand is going higher. No new oil field has come online and I still think we see $200 dollars a barrel before 2010 is done.
Re: Tanta Nov 2, 2007:
Mark to model? How about mark to flea market? "Prepare for the credit drama sequel" by stocking up on beaver pelts and glass beads.
Put on your blast goggles before you read this blinding flash of obvious: "Jump in foreclosure could hurt prices." Also, "contagion" is back.
however... the argument doesn't hold well over the last decade. for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003. And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
thus, although it is certainly PART of the story, we cannot blame oil prices entirely on monetary policy given the historical oil prices from 2000-present.
If you think about it strategically though, an oil/commodity bubble would be last in line and unlikely to occur until speculators got desperate because it's basically suicide.
It's one thing to have politically popular bubbles like stocks and real estate (until the bubbles burst, of course) but an energy/commodity bubble is all but guaranteed to get the legislators on your case in a heartbeat and shut the party down.
I'm not at all surprised that more hot money didn't find its way into commodities in an extreme way until other outlets became nonviable.
Destruction is such a strong word.
Let's call it "demand moderation".
for instance: we did NOT see such a surge in oil prices during the easing policies of 2001-2003.
No because the spec money was going into housing.
And we saw an INCREASE in oil prices from 2003-2006 (a time of Fed TIGHTENING).
Yes, but investors don't invest in the FFR, they invest in bonds. And massive foreign purchases during this time, kept bond rates too low, so investors looked somewhere else for returns.
Keep in mind that TATA begins selling its $2,500 car this fall. I can only think that demand will pick up in India.
Yearning to learn
that's why i also think the world oil price is the result of a combination of events.
but it cant just be dollar devaluation because oil prices have increased relative to very strong currencies.
and it cant just be the intersection of the supply demand curves because the the up-tic in demand has been relatively small and while the capacity to quickly ramp up production is tight, supply has kept pace!
so i think it is reasonable to suspect that speculation is a part of the run up.
one reason? futures contracts are several times the level in volume of real production and consumptio
OT, but the Dow down almost 200. Now THAT is demand moderation!
In other OIL related news, Madonna, the massive oil user, has obviously been using steroids on her daily visits to the gym.
Have age and stress launched a shocking attack on Madonna's face?
| Mail Online
Ok, simple
Covered bonds will destroy the dollar, once and for all, with justice and liberty for Goldman and Paulso
White House sees budget surplus in 2012
I guess for some people the joke never gets old.
From that picture if Madonna is using steroids she better get her money back.
OT
Columnist Robert Novak diagnosed with brain tumor
"In other OIL related news, Madonna, the massive oil user, has obviously been using steroids on her daily visits to the gym."
That woman looks bad, I mean really, really bad, and her personality doesn't help.
I went to the races at Del Mar yesterday. I paid $8 for a 10oz cup of beer. I was disgusted at what they charged, just because they didn't allow alcohol, creating an artificial supply/demand environment. As I bought my 4th beer I began to realize that there are somethings that may suffer demand destruction which simply can be made up for by higher prices. In other words, you may suffer demand destruction through higher prices, but since there is a minimum yet large proportion of the population that will pay for it no matter the price (within reason), then prices can rise in an environment of demand destruction.
Oil may be alot like beer/alcohol. You will sell a certain amount almost irrelevant of price. You can make up for a loss of demand through more price increases. Oil is not perishable like say food. Oil is thought to be finite...meaning the less volume you sell now at high prices means the longer your supply lasts...in other words, it pays to sell less for more as opposed to more for less.
Now you know why we're at Peak Beer. It's average Joe's fault.
White House sees budget surplus in 2012
Gov't run Gas lines and high rent trailer parks I guess...
ac writes:
Destruction is such a strong word.
Let's call it "demand moderation".
ac | 07.28.08 - 1:37 pm | #
I agree - talk to me about 'destruction' when we get back to 1980 VMT ~half of where we are now according to the chart.
Double average mpg per vehicle and cut VMT in half (say over the next decade) and then we have our oil crisis back in perspective.
Price signals work.
mock:
I suspect you and I are in agreement.
I also agree that there is a degree of speculation (since I myself have speculated on oil prices, I prove by my existence that there is some speculation). however, it isn't enough to explain all of the rise we've seen IMO.
the real sticky question: how much of the rise was speculation. I think that's where we'll see some disagreement and fighting...
I myself am not sure... but I tend to think that speculation is LESS of an issue than the govt stipulates, and MORE of an issue than the traders stipulate.
and as for it being a "bubble"... all bubbles have at their roots a shred of plausibility... and that shred is used to justify exponential price increases... it's always hard to know when you've stretched from 'rational analysis' to 'bubble mentality'.
WHAT in the world is holding up WaMu, besides the collective will of the people on this blog of course...
Anyone notice how light the volume is today? Not a whole lot of conviction on the downside...
Tim:
I suspect a lot of money is just OUT of the market, period. people getting burned on the way up and on the way down.
this could spell trouble for wall street.
From the VMT chart - Between 1980 and 2007, total miles traveled roughly doubled. Yet the population only increased 34%?
Can anyone explain this?
Large and small specs are now short crude oil.
Can anyone explain this?
Mike in AZ | 07.28.08 - 2:16 pm | #
Ya - people do a whole lot more driving now. Longer commutes, more far flung domestic vacations, more kids have cars earlier & drive them more - all of the above.
Expensive gas changes all of that and more. Bring it on.
"White house predicts record deficit"
This administration broken a lot of records. Way to go!!!
ac:
what "hot" money is left? i mean i understand that hot money generally means money that moves around seeking highest returns and sometimes pure speculation, but isn't this the big bad new world of credit crunch?
meaning, isnt the money moving around real money with real risk/reward issues and not just 'funny money' created out of thin air?
Mike in AZ writes:
"From the VMT chart - Between 1980 and 2007, total miles traveled roughly doubled. Yet the population only increased 34%? Can anyone explain this?"
Exburbs?
Jesse Livermore writes:
Large and small specs are now short crude oil.
You serious? Or just talking your book? LOL.
Anyone have stats on automobiles per capita to tie into the how did total miles traveled double discussion...?
Some temporary demand destruction in the land down under... (hat tip TOD)
Supermarkets stockpile fresh food as truckies protest
Hannah Davies
July 29, 2008 12:00am
SUPERMARKETS across Queensland are expected to run low on food tomorrow as angry truck drivers stand firm on their two-week strike.
[snip]
Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.
As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
DONE!
Exburbs?
MiTurn | 07.28.08 - 2:26 pm | #
Part of it but not all - everyone is driving more.
Where you around in 1980? I was - we drove a lot 'cause our family biz dictated it. I still drive a lot because of biz... but now I tell folks I tell folks I'm driving out east on biz... stopping at 4-5 remote locations on the way and it hardly gets a yawn anymore.
Lotsa people drive lotsa miles nowadays... rural, exurb, suburb and even city dwellers. The numbers CR posted show it as does the average miles per vehicle at a given age for used cars... go shopping for a used car and you'll see just how many 3-4 year old vehicles already have well over 100K miles on them. 25-30K/mile per car per year w/ multiple cars per family isn't that unusual anymore.
It will all change with expensive gas. I sure know it has changed my behavior.
I think they are looking at how many less homes are being bought and estimating how many fewer miles REALTORS are driving.
Seriously though look how many airline flights are being canceled.
Trucks not shipping as much. I read 49000 trucks have left the road in this downturn.
Also less heavy equipment use since construction is slowing globally.
Oh Hanky is on Bloomberg have to go watch the comedy.
Lot of Prius hate here. I agree that anybody who turns in a good car to buy a Prius is chasing a fad. On the other hand, choosing it as a replacement for a clapped-out old car can make sense.
And there are the many people who buy hybrids that don't "look" like hybrids -- Civics, Camrys, SUVs of various types -- just because they want the mileage. If you really need an SUV, paying extra for one that gets 30mph combined may make sense these days.
Hank is re-writing accounting rules for QSPEs with FASB, so that FDIC and Fannie can play spin the money with accounting fraud, i.e, bring part of the debt on to the balance sheet for Level 3 shit, then allow the QSPEs and SIVs and CDOs to act as conduit to taxpayers -- meanwhile these covered bonds will devalue the dollar...
Lot of Prius hate here. I agree that anybody who turns in a good car to buy a Prius is chasing a fad.
When was the purchase of an automobile not a status statement?
Beware the bonds that are covered.
Banks must be in worse state than previously thought for the treasury to come up with a scheme like that.
MaxxedOutMama said:
"...demand for heating oil this winter will be restrained by inability of a large number of households to pay for it..."
Thank you maxxed out!
This is the key point that a lot of oil bulls are forgetting.
Oil is arriving the point where there are increasing segments of people who simply cannot pay for it.
Combine that with the fact that we also have a slowing global economy, which is the main projection of the results of housing/credit bubble as all of your have blogged about. This will further increase number of people "who simply cannot pay for it".
I hear it all the time -- price of oil can only go up! Price will go to 200, 300, 500 ,1000 a barrel!!!! Why not to infinity?
At some point, nobody can pay for it, and the aggregate demand has to fall.
Same reason why house prices cannot go up forever.
You can say oil is limited -- nobody is making more land. I can say land is limited, and nobody's making more of it too. Look where we are with real estate prices.
If you say oil is getting less in future -- I can also say land is getting less because more will be flooded by global warming!
I'm surprised how some RE bears can be so speculative on OIL sometimes.
Not to say that oil is going to drop back to $50, but I'm seriously skeptical claims that current oil prices are supported by supply/demand.
Disclaimer: I have no positions in oil/energy either way.
Or you could look at the US crude inventory report. Comparing YTD 2007 to 2008, products supplied has dropped 3.3%. This will accelerate as the demand for heating oil this winter will be restrained by inability of a large number of households to pay for it.
-- MaxedOutMama @ 1:21pm
Who cares if gasoline is at 4 dollars plus. For those of us in the Northeast, purchasing oil is gonna be a huge financial burden. It is currently 2 dollars over last winters' price
This crook is retarded:
re: "Paulson said covered bonds, used extensively in Europe, represent "a promising financing vehicle" and can be used without special legislation. The Treasury published a "best practices" guide" for the securities.'
Look what happened to the covered bond market November 2007 -- they shut it down because of liquidity problems.....dumbass retard!
I got my Prius when my Taurus died in 2003. I guess I just like "us".
Funny thing, I have a three cylinder metro that gets just as good mileage, if I'm the only one in the car; but as a family car the Prius is the bomb.
Kona Bullshit Updates writes:
Look what happened to the covered bond market November 2007 -- they shut it down because of liquidity problems.....dumbass retard!
Must have reached another "too big to fail" milestone.
MOM,
People have been dropping out of the oil market for several years now. Most of them have also been dropping out of the food market.
The difference now is which countries they live in; but I seriously believe there are plenty of people with cash to step in and bid up the price for some time to come.
Earlier this month, Paulson said Treasury has been working with the Federal Reserve, the Federal Deposit Insurance Corporation, and others to 'explore the potential of covered bonds' to help the US market.
'As Treasury seeks to encourage new sources of mortgage funding in the United States, improve underwriting standards and strengthen financial institutions' balance sheets, covered bonds have the potential to serve these purposes and reduce the costs for first-time home buyers, and for existing homeowners to refinance,' he said.
Re: " and others to 'explore the potential"
That refers to Goldman Sachs and Friends Of Angelo, including Dodd and other members of Congress and The Senate who will be connected to lobby funding and SIFMA related payoffs which I know nothing about...
The U.S. government and federal banking regulators are teaming up with the country's four largest banks to endorse a new way to pump money into the battered U.S. mortgage market.
U.S. Treasury Secretary Henry Paulson has unveiled a set of best practices designed to encourage banks to issue a debt instrument known as a covered bond.
The Bush administration hopes these bonds will replace some of the mortgage financing that has disappeared as investors incurred billions of dollars of losses on mortgage-backed securities.
Re: Teaming up, as in collusion and corrupt bullshit!
Re: "best practices"
IMHO, that means forget FASB GAAP accounting and do whatever it takes to transfer debts to a taxpayer bailout! This is the conduit and no one gets it!
Leave Kona Bullshit Updates you got your
own new thread to spam
what "hot" money is left? i mean i understand that hot money generally means money that moves around seeking highest returns and sometimes pure speculation, but isn't this the big bad new world of credit crunch?
meaning, isnt the money moving around real money with real risk/reward issues and not just 'funny money' created out of thin air?
I think a lot of air has come out of the bubble, that said as far as I can tell we still have this massive hedge fund industry largely intact which is basically a big ponzi finance scheme that's still flooding various markets with hot money.
Remember these barely existed at all until the early 90s when proprietary trading desks began moving out of the investment banks.
As long as you're reading about hedge funds and massive trading volumes in almost every market on a daily basis, the end of hot money is a long way off I suspect.
CR: Further reductions in these subsidies would reduce demand, and lower world oil prices.
Of course, it will also create demand destruction in some other area...
Another reason not to believe a fall in oil will mitigate things here any time soon is that utility prices are just beginning to catch up to $100 oil, let alone $120 oil. Just as gas prices fall, utility prices will be rising well into the fall.
The commodity boom is not the cause of the underlying problem, just another symptom of the huge leveraging that is just beginning to reverse.
Check out Naked Capitalism today
to see a mind-blowing chart of US debt as a % of GDP.
hc, difference being that $10/gallon for gasoline still has good economic utility relative to taking the bus.
Heating oil is a special case since there are replacement goods -- blankets, space heaters, etc -- for that.
I can bike to Costco but I'm not going to be able to bring much back.
Unless I get a bike trailer -- hmmm. . . .
I think there's a definite the beginning of the end for Oil As We Know It.
Pure Electric Cars. 2010.
Miles per Dollar is 1/10 the price in electricity than oil. Even if electricity rates doubles or quadruples, we're looking at electricity being 1/5 to 1/2.5 cheaper than Oil.
Once available on the market, those people who use it for commuting of less than 60 miles daily becomes almost completely independent from Oil (at least from their commute). Their demand for gasoline drops to near zero, down to to perhaps occasional use or vacation use.
It'll start with a few consumers at first, but there's no stopping it. Soon it'll be 5% of commuters, then 10%, then 20%. At 20%, which is a critical stage, there'll be enough demand "released" this way that gasoline can no longer hold the whole world hostage.
By then, the biggest worry is that Middle East peace will collapse, and if Iran has nuclear weapon then -- we may be near Armageddon.
Give me a break hc. Who is the only nation in world history to use a nuclear bomb? Any guesses?
I can bike to Costco but I'm not going to be able to bring much back.
Unless I get a bike trailer -- hmmm. . . .
Troy
Troy,
I used to be a gardener in Washington, DC, and got around on my bike. You'd be amazed at what you can carry through careful arrangement. Of course, bringing a pole pruner meant taking corners in a very wide arc...
North by Northeast writes:
Leave Kona Bullshit Updates you got your
own new thread to spam
North by Northeast
MR bernanke, woudld you layoff kona, he's got the story correct.
This is great news...it's about time most of the losers on the road stopped driving for nothing. What a waste of precious, natural resources.
Humans are stupid.
There's a big (obvious) difference between land/housing and oil. For both, you can say "They aren't making any more of it."
However, the piece of land or the house isn't immediately burned after buying it. The oil is. You can resell the same house after a period of time. No one can resell the same oil after consuming it.
Bob in MA, is this you?
Truck Bike - Check out what can fit onto a bike - massiv load of pet bottles funny
Here is evidence for possible unintended consequences in regards to a shift to massive bicycle useage:
bicycle-girl-8 | Narley
mp writes:
Now you know why we're at Peak Beer. It's average Joe's fault.
Don't believe the stories about "peak beer". Beer is a renewable natural resource. If we could just convert the ethanol plants to a more beneficial use...
Food for thought:
Suppose the world is down to it's last drop of oil. What do you think the price of it is?
Oil bull: It will be worth the whole world. Everything (in the world) will be traded for that last drop.
Oh Really?
Might I submit that the final drop is essentially worthless?
Either we would've found an alternative energy source by then, which makes owning that last oil a nothing burger.
Or
We would be force to regress as a civilization, which makes the marginal advantage of running that last bit of oil non-event.
(A third case where everyone dies is left out here, but it should be obvious that even in that case, buying that last oil is not worth it)
In each case, we wouldn't trade our entire net worth for that oil.
Now take this and regress backward, suppose it's not the last drop, it's the last 100 barrel. The last million barrel. Billion barrel. Trillion barrel.
At the very end, the price of oil is what it's maximum utility is to the world with respect to it's continued availability at that price.
If the continued supply of oil is really at stake here, you can bet that oil prices will not end up becoming infinity, instead some of the most viable alternate sources will start to become real volume drivers, and as they take off, the "max price" of oil will get stuck somewhere and then become irrelevant.
That is the most logical conclusion. You do NOT go and buy that last drop of oil, you do NOT go and invest more in oil.
It is crazy to imagine that demand do not change in the face of receding supply, but that what bulls keep citing, along with 1000, 2000 a barrel of oil in 10 years, etc.
"For those of us in the Northeast, purchasing oil is gonna be a huge financial burden."
Conjure and son of mp are building a solar system.
No, not that kind, the other kind. They have assured me it will be ready by winter.
Yes, Peak Beer is a fact. See me, free parking, and yes we cash checks.
So it's all the fault of poor foreigners, according to the NYT. Isn't that reassuring.
"If the continued supply of oil is really at stake here, you can bet that oil prices will not end up becoming infinity, instead some of the most viable alternate sources will start to become real volume drivers, and as they take off, the "max price" of oil will get stuck somewhere and then become irrelevant." - hc
hc, That makes a lot of sense. One might say that oil would have a natural upper limit of say $400 a barrel in today's dollars (just as an example). Most of it would probably be used for plastics, pharmaceuticals, etc., not transportation fuel any longer. The alternatives would be cheaper than $400 oil.
From the VMT chart - Between 1980 and 2007, total miles traveled roughly doubled. Yet the population only increased 34%?
Can anyone explain this?
Temecula turned into a bedroom communinty.
Sometime during the 80s, our attitude about distances changed. I remember when a drive to the beach (60 miles from Riverside, CA) was a big deal, done rarely. Then the Santa Anna canyon freeway opened and a trip to the beach was a short, easy and frequent hop.
Any reliable stats on military miles driven? Jet fuel consumed? Recent additional stockpiling of fuel? Theres a lot of military bases where the "missing two million barrels" could end up. I'm sure it's all classified, But some military buffs might have good guesses.