As the chart shows, relatively cheaper oil prices eventually filter down to the pump: But the industrialized world runs on petroleum, so the effects of relatively less expensive prices will eventually be felt everywhere. What’s not to like, aside from the danger of increased burning of fossil fuels causes planetary disaster? (Oh, that…) For one thing, the…More
Category: Oil prices
Much gas was wasted in Tuesday night’s presidential debate over pump prices of $4 a gallon. Americans deserve better, we’re led to believe, particularly by Gov. Romney? Why? If Americans choose to drive long distances in single-occupancy automobile trips, choose to live far out, without choices of transit, this is exactly what we deserve.
Oil is a global commodity whose price moves in response to supply and demand. Democrats are particularly dense here because they believe there is some evil speculator troll keeping prices “high.” Or the oil companies are “evil” because they make big profits. Yet in most instances prices move with market forces and expectations. Prices were low four years ago because the world economy was entering the worst freefall since the Great Depression. They are higher now because the global and American economies are healthier. We’re bidding against the world. The miracle of the price mechanism is that we can pay enough to get the gasoline to the pump.
We face a higher-cost energy future. Much or most of the inexpensive-to-refine “light sweet” oil has been extracted and burned into the atmosphere. This caused a moment in history that gave birth to happy motoring and suburbia. It’s over. Now there’s a global race on to lock up fossil fuel supplies for the future, bringing with it geopolitical instability. Most of these supplies will be more costly. The reason Bakken or Alberta is viable is because energy costs are rising. The price mechanism, again.More
Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:
1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).
2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.More
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Today the government reported that initial claims for unemployment fell by an unexpectedly large 27,000 to 365,000. The trouble is, we don’t really know what this means. More discouraged workers may be dropping out of the labor force and some states are cutting back jobless benefits. Challenger, Gray & Christmas said that jobs cuts rose 7.1 percent last month 40,599, up 11.2 percent from last April. According to the Economic Policy Institute, the state jobs picture, while still mostly positive, indicates slowing. Also, continuing government job cuts are disproportionately hurting women and minorities.
The more interesting report came from the Institute for Supply Management, whose index of the vast service sector fell much more than expected, to 53.5 in April, down from 56 in March and the lowest since November. Bloomberg notes, “Expansion among service industries may be moderating after a surge in the first quarter that coincided with the strongest pace of job growth in six years.”
The political ramifications of even slower growth aren’t as important as the continued misery for millions of Americans.More
It was interesting, in a driving-by-an-auto-accident way, to watch much of the mainstream media react to Friday’s low jobs numbers. Suddenly the recovery was off! In reality, nothing has changed. This is still a very fragile economy.
Hiring remains uneven, and even during the mini-boom of adding 250,000 jobs a month, many of those positions were of poor quality. Government continues to cut jobs, which is especially harmful to women and minorities. This is a big difference from the recession and recovery during the Reagan years, when government hiring continued to grow. Indeed, this is the first of the past four recessions when government actually shrank. Unfortunately the private sector isn’t picking up the slack.
The pullback in the stock market shows how little conviction was behind this rally, particularly now that it’s clear the Fed won’t be further expanding the money base. In addition to slow growth in America, Europe still remains troubled, pushed into recession by “austerity.” Demand remains weak. Consumer spending has its limits when most consumers are limited by poor wage growth and high debt. Higher oil prices are a worry — and when they’re not it’s because the economy is slowing further.More
A reader asks if Iran can block the Strait of Hormuz, the narrows between the Persian Gulf and the Gulf of Oman, though which approximately a third of the world’s seaborne oil passes? The answer is, yes.
Iran, which conducted naval exercises last week, has invested in small patrol boats armed with ship-to-ship missiles and perfected “swarming” techniques to fight an asymmetrical battle against superior forces of the U.S. Navy patrolling this strategic choke point. Iran warned America against sending another aircraft carrier to the region, a threat dismissed by the Fifth Fleet. Still, this ratchets up tensions already high because of Iran’s pursuit of nuclear weapons. Iranian saber-rattling has grown as the United States and European Union consider tougher sanctions against Tehran.
The EU is considering an embargo of Iranian oil. “The big winners here will be China and India, who do not fear rising Iranian influence and who will gladly soak up any additional oil exports they may have to offer. However, ending this small dependency upon Iranian oil imports in Europe does clear the way for military action without the need to ponder the immediate consequences on oil imports,” according to the blog The Oil Drum. Higher oil prices are already happening as a result of just the rhetoric, a drag on economic growth.More
As you know, the California solar energy company Solyndra received a $525 million loan from the U.S. Department of Energy, made some bad bets about the direction of raw materials prices and technology, forcing it to file for bankruptcy protection. This has produced a House investigation, with Solyndra executives taking the Fifth. If they were investment bankers, this would be another day at the office, but never mind that.
To the critics that say the Obama administration’s effort to seed a renewable energy sector with $22 billion in loan guarantees, former Reagan administration trade and commerce official Clyde Prestowitz says:
These are precisely the wrong conclusions to be drawn from the episode. As a former director of new product development at Scott Paper Company, I can tell you that any corporation or venture capitalist would be happy if as many as one in ten investments in new products and ventures paid off. The Solyndra loan guarantee of $535 million represents only about 2 percent of the Energy Department’s $40 billion portfolio of loan guarantees whose recipients mostly seem to be doing pretty well. Indeed, the number of jobs in the U.S. solar industry has doubled to 100,000 since 2003.More
Downtown Seattle has the dubious distinction of having the sixth costliest garage parking among cities in the United States, according to reporting by the Seattle Times’ Susan Gilmore. It’s a competitive issue to be taken seriously, especially if it hurts downtown businesses. On the other hand, garages charge what the market will bear and Seattle has a dense downtown with plenty of attractions and assets. (And one doesn’t have to own a car here).
But even “free” out in the suburbs isn’t really free. The externalities, such as environmental damage and climate-altering emissions, of big surface parking lots, wide streets, extensive car use, etc. aren’t priced in to conventional studies or public policies. Much of this is an artifact of a moment in history when energy was very cheap and debt low. Not for nothing are many suburbs suffering worse from the recession and its aftermath than center cities.
Beyond that, “free” parking, is heavily subsidized, although these costs are largely hidden from drivers. Donald Shoup, professor of urban planning at UCLA, analyzes the costs and consequences of this in his book, The High Cost of Free Parking. Tyler Cohen has written about it for the New York Times.More
The Dow is now below 12,000 with the longest decline since 2002. Maybe that will refocus us on things that matter, instead of Anthony Weiner’s unmentionables. Quickly, before the next, “Hey, America, look over here!” distraction, here’s a rundown of some things you might have missed while Weinergate … carefully choosing word for a family newspaper … *removed* the oxygen from the room:
ExxonMobil CEO Rex Tillerson told the Senate Finance Committee that based on supply and demand “fundamentals,” the price of a barrel of oil should be around $60 to $70 a barrel. How should Tillerson know this? The large domestic oil companies represent a sliver of world production and reserves. ExxonMobil is very good at spending money to support climate-change “deniers.” Understanding the fundamentals of supply and demand, apparently not so much.
But Tillerson and other CEOs are acting their part in the play. Righteous lawmakers search out the culprits for rising gasoline prices. Seventeen senators, including Washington’s Maria Cantwell and Patty Murray, signed a letter to regulators blaming speculators for the phenomenon. It reads in part, “While there has been little change in the world’s oil supply and demand balance since 2008, oil prices have jumped around from $147 per barrel, to $31, to $86, to around $104 today.” It was around $97 a barrel this morning, but you get the idea.
The price rise can’t possibly have anything to do with strongly rising demand in the developing world, including China, which is leading the world economic recovery even if its being felt tepidly at home. And the ceiling hit in world production in the mid-2000s, with many of the biggest fields in decline and major oil producing countries, including Saudi Arabia, holding back more oil for domestic use? That couldn’t have much of a role, either, could it? “Little change” despite the collapse in demand caused by the Great Recession?More