Good Company

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Good Company

Saturday, August 15, 2009

Gasoline prices

Gasoline prices up over 60% - Chart of the Day:
So while gasoline prices are currently well below the record high levels of 2007, this recent rally has brought prices to a level well above what was witnessed from 1984-2004 ñ a two decade span of relative energy price stability.
Why are gas prices increasing? WSJ says it's due to the possibility of increased consumer demand:
Oil prices are jumping on the hopes of an accelerated economic recovery.

The kindling for that flame came from the U.S. Federal Reserve, which talked about the U.S. economy “leveling out.” It was fueled further by euro-zone economic data, as Germany and France are growing again (and a 0.3% growth rate is almost boom-time for those two).
But, as the article notes, this may be "irrational exuberance" -
Never mind that crude oil inventories in the U.S. are still growing (what summer driving season?) or that retail sales are still falling.
One way to curb your enthusiasm - looking into the future:
According to NSWA, by the end of President Obama’s current term in office (2012), restrictions put in place will likely reduce future oil output by 1.32 million b/d (15.4 percent) and natural gas by 8.9 percent annually. By 2019, restrictions and new taxes could have reduced the federal take from oil and gas production by more than $118 billion, or about 4 times the expected yield of the new taxes. By 2030, these proposed policies will have the effect of lowering oil production in the United States by over 3 million b/d (approximately 28 percent) and natural gas by 30 percent.
Also, by 2030 the cumulative reduction in federal tax take from the oil and natural gas industry could be more than $780 billion, under current administration policies.

“The decreased production that will result from the proposed tax increases will have a catastrophic effect upon the American consumer since less domestic oil means higher prices,” said Dewey Bartlett, Jr., chairman of the National Stripper Well Association. “The OPEC leadership will have almost exclusive control over the world-wide pricing of crude oil as well as all products refined from crude oil such as gasoline, jet fuel and diesel fuel. Each of the thirtyplus states that have oil and natural gas production will experience a sharp decrease in tax revenues and significant job losses. A vital domestic industry that today helps fuel our national
economy will become an insignificant creator of American jobs much like the shipbuilding, electronics and clothing industries. The consequences of the demise of our domestic oil and natural gas industry are beyond imagination.”
Lower tax revenue in a time of growing deficit spending, higher fuel costs and an increase in dependence on foreign crude - what a change!

Of course, if the current administration believes that all of the dire warnings of the NSWA chairman will come to pass but the result of higher oil prices will be to unleash a huge increase in demand for alternative fuels, more fuel efficient cars, more green technology - all of which would lead to a decrease in domestic oil consumption and a resultant "energy independence" from OPEC as demand for overseas oil goes down, the result of which will eventually be an increase in tax revenue and more green jobs, then, well, in the long run these tax increases may make some sort of sense. As in "forcing change" from above - by raising energy prices so high that alternatives make economic sense. In effect, "taxing" Americans into going green.

From an environmental view, however, it seems to me that the administration would have to be very naive to believe that global warming, if it exists, would be reduced by reducing U.S. consumption of crude oil. Dumping onto the market large amounts of oil that the U.S. isn't using simply means a lowering of crude oil prices for the rest of the world, and encourages other countries to replace the U.S. as a consumer. The worldwide demand for oil will not decrease. Indeed, with lower prices, there may be more development in countries without the U.S. standards for air and water quality and there may be an increase in "greenhouse gasses" as a result of the U.S. going "green." The law of unintended consequences may rear its ugly head yet again for this Administration.

On the other hand, there are only about 2 years before the next presidential election cycle kicks in, 6 months before Congressional campaigns start - and short term pain at the pump may cause the American people to vote a different vision of the future into place.

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