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Why Gasoline is So Expensive

Posted April 23, 2008 4:25 PM by Steve Melito
Pathfinder Tags: the high price of gasoline

What do rising demand, stagnant production, a falling U.S. dollar, and inadequate refining capacity have in common? According to Arnie Baker, chief economist at Sandia National Laboratories (SNL), they all explain why gasoline that cost less than a dollar just ten years ago now costs over $3.50 a gallon.

Reading this story won't save you any money at the pump, but Baker's crystal ball may contain a ray of hope. "Some oil analysts believe that between 2009 and 2011 prices will return to the 80 dollars a barrel level or below," the SNL economist explains. "Others think prices will remain in the $90 range or above. To me it's a big toss-up right now, but markets eventually work, and not only on the way up."

What do you think? And did Baker's four-fold explanation miss anything?

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#1

Re: Why Gasoline is So Expensive

04/23/2008 9:12 PM

Thanks Moose,

So, let me see if I have this right. In looking for something we might have some hope of changing for the better, it looks to be the refinery situation. The biggest roadblock to more refineries appears to be ecological issues raising costs and limited available locations. Perhaps this is the direction for discussion on this subject.

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#2

Re: Why Gasoline is So Expensive

04/23/2008 11:18 PM

Personally, I'd like to see the US drill for all of its oil in the US. I would also like to see lowering the consumption of oil by building more nuclear power plants.

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#3
In reply to #2

Re: Why Gasoline is So Expensive

04/24/2008 1:25 AM

What I can't understand is why the price of natural gas is also rising so fast. After all, unless I am mistaken, natural gas is produced from wells in the U.S., Canada and Mexico. OPEC has nothing to do with it. And it is transported to consumers by underground pipeline, not diesel trucks and local gas stations. Are the natural gas producers just riding the coat tails of OPEC and screwing us in the process? Or are they jacking the price in anticipation of fuel cell cars and home hydrogen generators?

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#6
In reply to #3

Re: Why Gasoline is So Expensive

04/24/2008 6:37 AM

If it was fuel cells and hydrogen, they (producers) would be lowering prices.

However, your basic question, I believe, lies at the heart of the matter, in the perceptual sense. That is to say, it's not as much the issue of why prices of petroleum products are high, but the perception they are rising irrationally. I find the statements by some, that a conspiracy is afoot a little bit difficult to justify. It is hard to see just how such a conspiracy as is claimed could be put together on a global scale. That said, it is not inconceivable that geopolitical policy making does play some (not all but only some) part in giving the appearance of "collusion" in current prices. All in all, though, it is probably more accurate to see the price rise, and the manner of price rise, from a different, market based perspective. Simply said, prices are rising because prices are being bid up--there is intense competition to secure (claims on) supplies...competition which is influenced in large part by belief that (1) prices will continue to rise and (2) reliability of supply is uncertain. This notion of bidding up the general price level is not inconsistent with the previous bidding up of house prices to irrational levels in the US before the mortgage market collapse.

On the up side, as pertains to "gas" price escalation, this bidding up of prices is an important factor in averting a repetition of what happened in the 1970's, when the problem was actual shortages. One has some latitude to reduce allocation of dollars spent on gasoline consumption; but so far (unlike the '70's crisis), no one is being compelled to reduce consumption within the degree to which it can be afforded.

Maybe this helps answer...? Or allay...?

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#8
In reply to #3

Re: Why Gasoline is So Expensive

04/24/2008 9:20 AM

Natural gas is also being used in bulk to generate electricity - replacing older 'dirtier' coal fed units. This growth curve (currently) is scary all the way out to 2020 and is the most difficult factor for the plastics people who need Natural Gas cracked for Polyethylene -

This is one of the reasons that Russian oil based PE coming on and moving into China as raw material to be produced into products for shipping into the US is a big factor in PE moving 'off shore' (at least at present)

Jim

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#13
In reply to #3

Re: Why Gasoline is So Expensive

04/24/2008 12:20 PM

"What I can't understand is why the price of natural gas is also rising so fast."

Many industries are able to switch back and forth between oil and gas, e.g., a brickmaking kiln with both oil burners and gas burners. The more economical energy source is chosen at any given time. When the price of oil goes way up energy consumers switch to gas, driving the price up. That is the basic reason the price of oil and gas move together.

Bill Morrow

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#16
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Re: Why Gasoline is So Expensive

04/24/2008 6:03 PM

good one Jaguar !!

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#28
In reply to #3

Re: Why Gasoline is So Expensive

04/25/2008 3:43 PM

I think the natural gas prices are going up because the the price of everything is going up. Partly because we are a fossil fuel dependent society. Almost everything we own has petroleum in it or used it to transport it. And the other is the ridiculous amount of inflation that has caused the dollar to become almost worthless. Wheat has shot through the roof, gold, silver. I work at a steel processor/fabrication company and the volatility of the steel market is killing us. It looks like it is going to be worse than it was in 2004.

This is off topic but it actually costs more than 1 cent to manufacture a penny, how does that happen without the Federal Reserve printing endless fiat money that isn't backed by anything tangible.

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#10
In reply to #2

Re: Why Gasoline is So Expensive

04/24/2008 9:49 AM

If it werent for all the ecological nonsense we would be drilling and producing from the 2nd Alaskan reserve, but the environmental lobby wont allow it, holding us hostage to high oil prices. Lets be clear about who the source of high oil prices is. We dont really import all that much oil (~15%), but we pay based on the spot market prices and the "perceived" future price of oil. It's all a high stakes game similar to poker. The government could shut it down over night, IF they wanted to.

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#4

Re: Why Gasoline is So Expensive

04/24/2008 2:02 AM

as far as i know it is the opec and china large consumption of oil that drives the prizes up, also the terroris threat is used as an excuse to drive the price up

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#5

Re: Why Gasoline is So Expensive

04/24/2008 2:21 AM

Above is a graph from Wikipedia Hubberts peak, a graph showing oil reserves, and when they will run out, there is also a book that should make interesting reading.

Regards JD

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#9
In reply to #5

Re: Why Gasoline is So Expensive

04/24/2008 9:24 AM

I for one, do not trust such graphs.

What is being referred to is the light sweet crude that is getting short. There are many more oil deposits in the form oil sands and oil shale that are costlier in producing gasoline and diesel from. But there is still a lot of oil 'out there'.

When we talk about peak oil, we really mean peak liquid, and easy accessible oil, not oil as a whole.

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#15
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Re: Why Gasoline is So Expensive

04/24/2008 4:45 PM

"I for one, do not trust such graphs."

Good point! Add the fact that Brazil just found a major supply that will probably push their status to #3 as far as available oil reserves and the graphs will keep changing.

I'll bet that we haven't exhausted the discoveries yet, either.

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#29
In reply to #5

Re: Why Gasoline is So Expensive

04/25/2008 3:51 PM

yeah but hubberts peak isn't the peak of oil in ground, it has to do with how much can be produced.

when we are off of oil entirely there will still be oil in the ground because at some point there will be more energy required to find, pump and refine the oil than the oil can yield so how much is left in the ground doesn't matter.

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#7

Re: Why Gasoline is So Expensive

04/24/2008 7:38 AM

Here is link with an interesting report which, in my opinion, better explains who all is involved in the street level pricing of gasoline:

http://www.senate.gov/~gov_affairs/042902gasreport.htm

You can see how the monopoly of Refiners and Distribution Networks have been formed in US and how these monopoly companies dictate pricing of gasoline, with their Price Margins built in for profit.

But can anyone explain why there is a global Oil futures market with spot market pricing?

Here is a link which starts to explain the Oil futures market:

http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/price_transactions.htm

Seems to me that it is not prudent to allow "speculators" to set the price of Oil.

Wouldn't it be more stable to sign long term Oil contracts with nations who have a surplus of Oil reserves and production?

Lucky Nemo

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#11

Re: Why Gasoline is So Expensive

04/24/2008 10:05 AM

New refineries might be nice but I think that they are probably not going to happen, at least not here in the US. The US has a big case of nimbyism when it comes to that and I don't think that will get any better with time. In fact, I think it will only get worse as the restrictions against their operation (not that they are all bad restrictions) get more and more expensive. It will probably be easier to import the finished product at some point, if we aren't doing it already.

I think the best solution would be to stop using so much of it, and recent trends show annual consumption growth slowing, not just in the US either since prices aren't cheap in some of these other countries. Sadly, my gas bill went over $50 for the first time last night.

Natural gas prices, as alluded to earlier, are due in part to natural gas consumption in the power industry which has grown like gang-busters recently. Coal right now is facing a death sentence in the US according to some people in that you can't site a coal power plant anywhere due to nimbyism. Kansas recently cancelled two coal plants I believe over the environmental concerns surrounding the plants. This is also a large concern for coal gasification units that have been proposed both for power and to some extent, basic chemicals.

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#12

Re: Why Gasoline is So Expensive

04/24/2008 11:07 AM

All the factors listed are important, but I think you have left out a few major issues:

* With the stock market and real estated market stagnant or falling, energy market speculation becomes a destination of choice for investors. This drives up prices in a tight market. I think by most estimates this adds between 5% and 10% to the cost.

* The US has pursued foreign policies which (possibly intentionally) increase tensions in the oil producing parts of the world - by invading Iraq, by continued saber rattling toward Iran, by inept meddling in South America, etc..

* By our failure to develop a rational long term energy policy here in the US, we have continually missed the boat on long term policies to restrain energy consumption. Since OPEC first flexed its muscles in the 70's it has been clear that we are vulnerable, but domestic political calculations have led to political arguments which demean planning, conservation, and mileage standards as socialism. Instead of supporting political leadership with the courage required for such a long term effort, we have voted instead for leaders who promised to let 'the invisible hand' of the market sort it all out. Not surprisingly the market has spoken.

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#14
In reply to #12

Re: Why Gasoline is So Expensive

04/24/2008 4:41 PM

Well, interesting points. However, in reality...

Gas is costly because of two main reasons

1. Demand. China has ramped up their consumption drastically in their rush to become a world player in the economic market. This is driving up the price of oil.

2. The number of functioning available refineries in the US have had a hard time meeting domestic demand. Couple this with the insane number of different blends makes it difficult to supply everybody with the amounts needed.

I agree that world squabbles impact the price, but these are price fluctuations and not responsible for trends.

I also agree that long term policies have driven us toward a higher dependency for oil from unstable and/or hostile nations. Welcome to globalization. Now if we could all just get along and sing Kum By Ya... Opps, that would religiously offend some of our current oil providers.

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#17
In reply to #14

Re: Why Gasoline is So Expensive

04/24/2008 6:15 PM

The futures market is the only thing that keeps energy (oil, heating oil, natural gas, gasoline (RBOB)) flowing AT MARKET PRICES. When people hear and talk about the commodoties market they have a knee jerk reaction and think of "greedy speculators driving the price up."

This is just plain ignorance. A futures trader (speculator) can profit by the price going up OR down. The speculator does not care which direction it goes. The speculator wants to be on the right side of the trade though. There are two sides to every transaction - a buyer and a seller. If I buy (take a long position) a contract for Lite Sweet Crude for July delivery at $110/bbl, someone has to sell (take a short position) a contract for Lite Sweet Crude for July delivery at $110/bbl.

Now, if the price goes up to $115/bbl I profit (off the top of my head $4000/dollor per contract) and the one who sold the contract looses and the broker nets a commition for 2 round turns). The price could just as likely gone down and I would have lost.

Now, I could have also sold the contract instead of buy a contract. In that situation I am betting the price will come down.

Traders make their decion to buy or sell based on technical analasys (charts, indicators and chart formations) as well as fundamental analasys (supply, demand, reserves, ending stock, carry over, the weather, pipeline or refinery vandalism and terrorism, etc).

The same is true of the grains, meats, softs and financial futures contracts.

So, you can not say that the evil speculators are driving the price of oil up. The futures traders can and do profit if the price goes up or down.

Part of the reason why the price of oil and energies in general are going up is because oil is priced in US dollars per barrel and the dollar has been taking a hit for quite some time. A weak dollar is a double edged sward just as a strong dollar is a double edged sward.

Shifting corn and sugar to energy production is a desasterous idea. When corn and sugar see higher demand their prices go up, acerage is shifted from other crops (beans, wheat and oats) which in turn lowers the supply of other grains and pushes their prices up. When corn and wheat (feed grains) get more expensive beef and poulltry will go up. Recently the higher cost of feed had cattle and hogs flooding the feed lots which in the short term drove the prices down, but made livestock scarce in the next cycle because producers pushed livestock to market early to avoid higher feed costs.

If we are going to produce alcohol we need to produce it from a waste product. At present we can not economically produce alcohol from grasses and the stalks of corn. We really can't produce alcohol from corn very efficiently based on the energy put in verses the energy produced.

Another reason why gas is so expensive is because of the number of government mandated blends of gas that have to be produced. Refiners have to make tens or hundreds of different blends which can only be sold in certain regions. This adds complexity and cost to production and shipping. Also adding alcohol to gas is expensive because the alcohol has to be added at the last leg of the supply chain because they can not ship alcohol in a pipeline (raw or blended with the gas) because it absorbe water).

Another component of the high price of gas is taxes. The government profits from every drop of gas and diesel sold. The government also spends essentially zero dollars and generates billions of dollars of revenue from taxes. On the other hand the oil companies have huge investments in capitol, facilities and resources, payroll, etc. The government makes more (clear) on a gallon of gas than the oil companies do, yet the government has the odasity to rake the oil companies over the coals about thier profits? That is absurd. The problem is that most people think the oil companies "make too much" and don't have a clue about the facts. Also, if the government can confiscate the profits of "big" oil, they can confiscate the profits from ANY industry, business and individual. Also, businesses do not pay taxes, they pass them on to the consumer.

Travis

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#18
In reply to #17

Re: Why Gasoline is So Expensive

04/25/2008 1:02 AM

'and the broker nets a commition for 2 round turns'

That commission adds to the cost, without providing any additional oil. As the futures contracts get swapped around, bought, sold, resold, etc., the commissions keep adding more and more to the price. People in California got to watch this process first hand a few years back with electricity and natural gas. In addition since the oil producing regions of the world are in turmoil, the commodities traders are betting that the price will go up. They call it a risk premium. This puts additional pressure on the market.

Yes individual traders can win or lose on any particular trade, but their mere existence means that there is one more set of mouths to feed in the supply chain, a set of mouths that don't drill any oil, don't pump any oil, don't ship any oil, and don't refine any oil.

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#20
In reply to #18

Re: Why Gasoline is So Expensive

04/25/2008 3:11 AM

The broker only brings willing money and willing producers & consumers together. Brokers work for a living so must earn something. The point, and net impact of trading by bets on commodity prices is to mitigate what might otherwise be large shifts in prices. For the producer this often means smaller profit than might otherwise be possible by direct selling (in sellers' markets), and vice versa—a trade-off producer is willing to accept for the derived benefit of predictability. Conversely, same on the other side of the trade. It is the best way that has been found to ensure relative markets stability...and avoidance of intolerable fluctuations in supply.

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#25
In reply to #18

Re: Why Gasoline is So Expensive

04/25/2008 1:35 PM

Depending on your borker the commission can be anywhere from about $6 per side ($12 per round turn) per contract - BUT the commission is not part of the per barrel price and does not add to it. When I buy or sell a contract of anything, be it energies, meats, grains or softs I can not say, Hmmm - I am going to have to pay $25 to make this transaction ($12.50 to establish the position and another $12.50 to liquidate my position) so I am going to factor that into my bid or ask price. It just isn't so.

I look at the charts, the indicators and oscolators and read as much of the fundamental research (fundamental research is available from many sorces - RJO, Mound, Hightower just to name a few). I decide which direction I think the market is going to move. If I think the market is going to go up I place a Stop Order GTC (good 'till canceled) at a price above the prevailing market price (or above near price resistance) in anticipation the market will move higher to my bid price. If it does my order is filled. If the market goes the other way I don't get filled. Once the order is filled I will place a Stop Order GTC some amount below the prevailing market price (which I typically use an 8 Day Average True Range). I will adjust my stop loss up as the market moves up. Once the market turns down and moves through my stop loss my stop order will be filled and my position will be liquidated.

Just as easily I could anticipate that the market will move lower in which I will place my Stop Order at an asking price some amount below the prevailing market price (or below nearby support prices). If the prices move lower my I will then have a short position and will then place a stop loss above the prevailing price action.

At no time do I factor in the commission costs into my bid or ask price. The market determines the price. Every trader has control over how much they pay for commissions because every trader can choose what broker they use and every broker had different rates and fees.

In the movie "Trading Places" with Dan Akroyd and Eddie Murphy, when the Dukes explained how the futures market worked, one of the Dukes asked what the best part of it was. The answer was that they (the broker) get paid regardless of if the Trader (people who participate in the futures markets are NOT investers (as someone in the stock market is), they are Traders) makes money or not.

The futures market has it's origins back hundreds of years to smooth out the supply and prices of agricultural products (grains as well as vegetables). When a farmer would harvest his crop and go to market to sell he would be standing in line with every other farmer at the same time. As a result for a brief period of time the grain (and other markets) were flooded with supply. As a result the price would plumet. But come November, December or later in the year grain and other staples were scarce and costly. The futures markets that developed then allowed a farmer to sell a promisary note to sell a set amount of grain at a predetermined time (delivery date) in the future for a predetermined price. So in August a miller could purchace a futures contract to agree to buy X bushels of grain in December at a given price. After he buys that contract he can either hold it until December or he could choose to sell it to someone else - sometimes at a profit, sometimes at a loss.

The futures market works exactly the same today. As many know rice has become very costly of late. This is because of production and delivery problems, so the price goes up.

One of the things that drives the cost of coco is not supply but rather delivery problems. The fundamental research for coco often cites various levels of violence on the Ivory Coast and political unrest. Almost all of the coco has to move through the Ivory Coast and if it can't move it effects supply and cost.

The same is true for oli. OPEC can not control the price directly. They can control supply and in turn indirectly affect price. The other side of the equation is demand (ever heard of the summer driving season?) If Hugo Chaves siezes an oil field or refinery and nationalizes it, that affects supply. If terrorists in Venezuela bomb a pipe line (which happens often) supply is disrupted. Today supply and demand are very closely matched. If the supply is at capacity and something happens to lower supply for a brief period of time that will affect the price of oil world wide.

There is no consperecy setting price. Where was the government helping the oil companies when oil was $15 a barrel? At those levels it was costing more to produce than you could sell it. Then the government came up with the windfall profits tax as a way to further punish the US oil industry. Now, when oil prices are high the government wants to stick it to them again. Unfortunately too many people stand up and cheer when congress says they are going to take "excess" profits from the oil companies. That is sad because sticking it at Exxon will not improve the life or situation of a single American. Indeed, it will hurt them because the oil companies will simply pass on that tax.

The futures market are not all that complex. It's simple supply and demand.

Travis

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#19
In reply to #17

Re: Why Gasoline is So Expensive

04/25/2008 2:53 AM

Nobody really believes that Congressional hearings (the raking over coals thing) is anything but a show for the camera, do they? It's all about posturing...to escape the wrath of innocent voters who need to blame (in electeds' minds) anyone but their own representatives.

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#21
In reply to #17

Re: Why Gasoline is So Expensive

04/25/2008 3:24 AM

Nice post but what is a sward?

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#22
In reply to #21

Re: Why Gasoline is So Expensive

04/25/2008 4:00 AM

Nice post but what is [an] a→sward?

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#55
In reply to #17

Re: Why Gasoline is So Expensive

06/01/2008 11:26 PM

Read this. Enron still killing us.

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/07/17/how_traders_gamble_with_your_energy_dollars/

Here is the effect of that loop hole.

http://www.rsi-ireland.com/documents/DarkPoolsVol2.pdf

This amount to the near Privatization of the Futures Markets

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#23

Re: Why Gasoline is So Expensive

04/25/2008 8:04 AM

So why is Speculation a good thing for the consumer? What's the end result on the economy?....Higher Prices..year over year

Who keeps the speculator in check to make sure they are not just running the price up for profit = manipulation?

Lucky Nemo

http://blogs.wsj.com/marketbeat/2008/04/15/five-reasons-why-oil-isnt-coming-downyet/?mod=WSJBlog

  1. Speculation. Large speculators still hold substantial long positions in crude oil, natural gas and heating oil, according to the weekly data from the Commodity Futures Trading Commission, and buying from funds has remained healthy. "It seems to be one of the only profitable homes for speculative money," says Mr. Williams. Technically oriented investors may help in pushing the price of oil to $125 a barrel, according to Mr. Newsom, as Tuesday's new high could motivate more buyers.

Democrats Demand Probe Of Oil-Market Speculation

http://online.wsj.com/article/SB120891152616136701.html?mod=googlenews_wsj

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#26
In reply to #23

Re: Why Gasoline is So Expensive

04/25/2008 1:57 PM

What keeps speculators from driving up the price? Why didn't you ask what keeps a speculator from driving the price down?

Simple.

For every seller there HAS to be a buyer.

For every buyer there HAS to be a seller.

If someone decides to sell (short) a contract for October oil at $150/bbl he has every right and ability to do so. But, if the prevailing market price is $110/bbl nobody will buy (take a long position) at that price.

One of the most unique thing about the futures market is that I (or any other trader) can sell a contract for any commodity just as they can buy a contract. The only requirement (regardless of if they are selling or buying) is that they have sufficient margin in their account. For the first day you hold a position you must have in your account an amount equal to or exceeding what is known as the Initial Margin. For every day past this you must maintain an amount of cash in your account equal to or above what is known as the Maintenance (or however it's spelled - not my best skill) Margin which is lower than the Initial Margin.

If you sell a Wheat contract for December delivery you then MUST buy a contract for December delivery befor the delivery date (better before the first notice day) otherwise you will have to make arrangements to take delivery for the entire contract AND pay for it. This is on the order of several thousand bushels which will make a big pile in your back yard, not to mention empty your account and get you in big trouble with your broker and the exchange. To take physical delivery you have to be set up to do so with the broker and the exchange. Often a Jewler will purchace a gold contract and take delivery.

So, what keeps someone from running the price of anything up? The market. The same question could be asked, what keeps a trader from driving the price down? If the prevailing price of oil is $118/bbl someone can place an order to buy oil at $75/bbl, but who is going to sell it to him? Nobody so his order will remain unfilled (and the broker gets nothing - the broker is only paied when a transaction takes place).

Travis

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#31
In reply to #26

Re: Why Gasoline is So Expensive

04/25/2008 11:46 PM

Hi Travis,

I hear what you are saying, but I am very skeptical. As I said earlier, the presence of speculators in the supply chain has to cost something, or they would all starve. The business about willing buyers and sellers sounds like a dodge to me. Speculators have bid up the price of other commodities before: real estate, precious metals, stocks, etc. The fact that at some point the market may have an adjustment and settle at more reasonable prices doesn't mean that someone hasn't made a killing in the meantime.

Nor am I alone in this. In a recent AP article about Toyota passing GM in world wide car sales, Mike DiGiovanni, GM's executive director of global markets and industry analysis said on the subject of petroleum prices "It's affected by so many factors, both political, societal, tangible in terms of what the actual physical reserves in the ground are and the cost to get at them. It's affected by refineries. It's affected by pipelines. It's affected by anything that can go wrong in the whole chain. And now it's affected by speculation, which is driving part of it."

Commodities traders may in some sense provide a service, although I have some doubts, but it is not a public service. Its a business. They get paid for it, and in many cases paid well. That money has to come from somewhere, and that somewhere is the money paid by the end consumer of the product. Traders always add something to the price as they pass things along. When a market is tight and they become speculators, that added something can be quite a lot.

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Anonymous Poster
#32
In reply to #31

Re: Why Gasoline is So Expensive

04/26/2008 5:08 AM

If there weren't risk takers with deep pockets, the supply of petroleum based products would dry up. We'd be facing not only escalating prices but rapidly escalating prices for dwindling stocks. A the same time, there are almost always many more losers that winners in the oil and gas production game. That has always been the case...but we only hear about the winners.

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#34
In reply to #32

Re: Why Gasoline is So Expensive

04/26/2008 11:22 AM

It is of course true that finding and drilling for new oil is a pricey and risky business, but this is not the business that oil traders are in. The fact that producers and traders both need deep pockets doesn't mean they are doing the same thing. A fortune made in oil trading doesn't increase the supply of oil. Producers make their money by finding oil under the ground and figuring a way to get it out. Traders make their money on oil from fields that are already producing. I might argue that as middle men they are actually consumers, not producers.

As to the statement that there are 'almost always many more losers that winners in the oil and gas production game', I'm sure that if you count heads this statement might be true. I and my family are from Texas, and I know that many people less famous than George W. Bush have lost money in the oil patch. But for your argument to be on point it must be about more than personal stories of failure and success. Its not about the body count, its about the dollars. Are you suggesting that the value of the fortunes lost in the oil biz is somehow equal to the value of the fortunes won? That the oil industry only survives by cannibalizing fortunes made in other lines of work? That's just not so.

I could make some Marxist argument that traders are all just social parasites, but I'm not going there. But they are also not the colossal industrial heroes of some Ayn Rand novel. What they do is different only in scale from what the corner store owners do when they decide to stock up on merchandise. They hope to get their money back with a profit in the near future from their customers.

There are may reasons why the cost of gasoline is going up. Most of these were laid out at the beginning of this discussion. We all know about supply and demand, and the rise of China and India, and the fall of the dollar, and all the other high school economic text book stuff. But it is also true that a significant part of the increasing cost is due to a new speculative bubble, fueled by mountains of cash in the hands of people too smart to invest it in a flat stock market, a sagging real estate market, or heaven forbid in new factories to provide jobs for American workers.

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Anonymous Poster
#44
In reply to #34

Re: Why Gasoline is So Expensive

04/28/2008 11:30 AM

<<<<I could make some Marxist argument that traders are all just social parasites, but I'm not going there. But they are also not the colossal industrial heroes of some Ayn Rand novel.>>>>

I love Ayn Rand. I wish every kid in school would read Anthem, The Fountain Head and Atlas Shrugged (assuming they were not then force fed the usual leftest comentary most in the NEA would put forth).

Three of the email addresses I use are John Galt, Howard Roark and Hank Reardon.

Travis

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#56
In reply to #44

Re: Why Gasoline is So Expensive

06/02/2008 12:07 PM

Keep in mind that oil reserves are predominantly found by large scale corporations that are traded on the stock markets. Speculation on oil and energy currently has nothing to do with providing investments to find new oil, unlike the wildcatter days of the turn of the 20th. This is not an emerging technology, like the PC boom in the 1990s, the speculators are driving the prices up much like parasites that don't have any limitations on their feeding, engorging themselves. The public is currently captive, since the US automakers never do anything innovative (easier to stay decades behind the japanese, and declare bankruptcy so the governemtn bails them out). Energy speculation would be controled if the consumers really could effectively stop using the fuel, if our cities were designed so the affordable housing was near the work, instead of all the jobs being clustered next to each other in somewhere like santa clara (where a home might cost $1 million) and people driving from a place like tracy (where a newer better home, might cost $300K) for 2 hours each way everyday, if US automakers would continue to work towards fuel efficient cars even when they are not trying to meet minimum government quotas (if just to fend off the bankruptcies we always bail them out from), and if the great ignorant unwashed massed didn't waste their husbands money just to show up the other soccer moms by having the biggest most expensive chunk of steel on the road (The SUV for most people in the Cities is another version of the diamond ring, no real value except the vanity of the purchaser).

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#43
In reply to #31

Re: Why Gasoline is So Expensive

04/28/2008 11:20 AM

In reality someone who is trading futures (speculating) does not make money on a price being high or low. A trader (and the speculators in the market are traders too) makes his money from the SPREAD between prices.

A contract for oil represents the obligation to buy or sell (not the right as is the case with options) 1,000 US barrels (42,000 gallons) of oil. The tic size is $0.01 (1 cent) per barrel, 1 cent = $10/contract. (A movment of one cent in the price adds or subtracts $10 from the value of the contract, or a $1 change in the price of oil changes the value of the contract $1,000)

If he is long the market - he has bought a futures contract for oil (or any other futures contract) at $105/bbl and it goes up to $108/bbl before retracting (a pull back) where he gets stopped out (his position is liquidated by his trailing stop and he is kicked out of the market) he will net a $3 spread X $1,000/dollar = $3,000. (And whoever sold an oil contract at $105/bbl is short the market and will show a loss of $3,000 per contract in their account.)

The exact same math holds if oil moves from $75/bbl to $78/bbl - it is the same gain of $3,000 for the trader who is long, and a loss of $3,000 for the trader who is short.

So, the trader does not care what the price is other than how high prices affect volume and demand.

For many months from last fall on the reoccuring phrase you heard in the markets was "Beans in the teens" referring to soybeans going to $13.00 a bushel. Beans have been driven up because acerage was shifted from beans (and other grains) to corn to meet the demand for corn placed on it by the shift to ethenol. Even with high bean prices the math still was the same. The change in value per contract is still the same per dollar if it goes from $6.00 to $7.00 as it is if it goes from $12.00 to $13.00 per bushel. It's all about the spread.

Now, every now and then you will have an episode like what happened to the silver market in the '70's or '80's (can't remember) when the Hunt brothers attempted to (and to a large degree suceeded) corner the silver market. However it is illegal to corner a market and when it happens it is delt with by the laws which govern the markets.

I would not look to the market if I was trying to find a conspericy or THE reason why oil prices are at all time highs. The market does not control the prices but merely reflects and reports the price at any given time.

This is not to say that there are not conspericies somewhere else that affect the price of oil but I would not look for it in the market.

Also, when people think of the demand for oil they have to be aware that gasoline, diesel, heating oil, jet fuel (which is for the most part ultra pure kerosene) - the fuels are NOT the only use for and not the only product from refining a barrel of oil.

Travis

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#46
In reply to #43

Re: Why Gasoline is So Expensive

04/28/2008 5:03 PM

I thought jet fuel was watered down kerosene.

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#52
In reply to #43

Re: Why Gasoline is So Expensive

05/07/2008 6:54 PM

So it seems that the futures market is based on specualtive purchases early of contracts for a commodity that you attempt to promulgate a price increase in the commodity at the time of purchase, driving the price up for sale of the contract. So it is like buying something wholey on paper, manipulate the market pricing, then sell it for profit. Interesting concept. What happens when the executive office decides to curb federal oversight and enforcement in an attempt to "promote" investments? could illegal manipulation of the market occur then?

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#53
In reply to #52

Re: Why Gasoline is So Expensive

05/07/2008 11:30 PM

Absolutely!! And it has happened several times before: The Panic of 1907, 1920 and the Great Depression.

Blue

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#24

Re: Why Gasoline is So Expensive

04/25/2008 10:06 AM

I learned something interesting from the talking heads on TV last night. It seems that while the price of gas has increased 89 % in Europe over the last several years, it has increased over 300 % in the US. Most of the cost increase in the US over this time is due to the drop in the value of the dollar. Or so they said. Makes sense. Of course there is the flip side of the falling dollar issue. US exports are booming. Including farm products, which is causing a rise in food prices in the US. The improvement of the balance-of-trade, along with the eventual increase in interest rates on US bonds, should moderate future gas prices in the US somewhat.

Bill Morrow

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#27
In reply to #24

Re: Why Gasoline is So Expensive

04/25/2008 2:29 PM

Very true - since oil is priced on the world market in US dollars when the value of the dollar goes down the price goes up (just one component).

The country would be better off if we had a savings rate of 15%-20% rather than the 2% or less that is is now.

Increasing savings would free up capital for economic expansion and would strengthen the dollar. However we are being told there isn't enough spending going on out there so the government is going to drop money from helicopters. I think this is a very short (and weak) term solution to a very long term problem. Increasing savings rates to strengthen the dollar would not happen over night, but rather may take a generation or two.

Lowering government spending and taxation would go a long way to strengthening the dollar and putting us back on a sound footing once again.

Travis

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#59
In reply to #24

Re: Why Gasoline is So Expensive

06/04/2008 2:28 PM

This would imply the euro has increased in value relative to the Dollar by 158% in that time period. Wow, maybe the US should stop fighting in the middle east to maintain europes oil supply flowing, it doesn't seem to help our economy and cost us money.

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#61
In reply to #59

Re: Why Gasoline is So Expensive

06/04/2008 2:46 PM

"This would imply the euro has increased in value relative to the Dollar by 158% in that time period."

Not really, since the price of gasoline in europe includes a much higher proportion of tax than does the price of gasoline in the US. I'm sorry, I don't have the exact figures, but just for the sake of illustration, lets say the gas price in the US is 25% tax while in Europe it is 50% tax. Assume the tax is assessed on a per gallon (litre) basis, not a price basis. In this example, a 100 % increase in the cost of the product would produce a 50% increase in the after-tax price in the US, but only a 25% increase in Europe.

Bill Morrow

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#30

Re: Why Gasoline is So Expensive

04/25/2008 4:39 PM

I do not want be a pessimist but the days of cheap gas are over. Yes; the Dollar has fallen but that is only a small part of it. The biggest reason is the US Government will not allow new drill sites. The Dakotas, Alaska and Wyoming areas all have Oil producing capabilities but for the most part are limited in production or no production, not to mention Texas and Oklahoma being hand tied. The US Government also taxes the gas to almost 50% of the price a gallon of a gas. They also make us put ethanol into the gas which is a lousy substitute and takes corn from the food supply which drives up corn prices and everything made from it. As a result of Ethanol every spring there is a change over period that causes a shortage and drives the cost up even more. It would be nice if the oil companies would plan for this but they do not because the gas is a commodity a shortage just drives up the price making them more money. Exxon recorded record profits in 2007; I wonder if they every paid for the VALDEZ accident in Alaska 20 years ago? If the US Government allowed new drill sites that could probably cut the US domestic cost in half. The oil companies are not angels though they say they are all independent but when one company raises the price they all follow in a matter of hours. I think there is a conspiracy factor here but I would not ask the US Government to regulate it though because they would just screw it up, remember the gas lines of the 70's. The prices will not come down because there is too much revenue for the oil companies and the US Government.

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#35
In reply to #30

Re: Why Gasoline is So Expensive

04/26/2008 4:23 PM

I also believe a further conspiracy theory.

The more the US uses imported oil from wherever it comes from, it will reinforce the US position of a major power in the world in the time to come. Why?

Simple, if their oil runs out, they have nothing but the money that was paid for the oil down the years. The technology, equipment and often even the manpower was supplied by the US. Once they run out, the US will always have their own supplies as reserve and this will ensure the US position. Right now the US has an incredible deficit on the balance books. If the dollar goes pop, which it cannot do as the banks will not allow it, the whole US economy would come falling down like a house of cards. At least keeping the oil in your territories safe for future use, you could manufacture a way out of those debt problems in the future.

Yes it may be far fetched but not at all impossible I think.

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#36
In reply to #35

Re: Why Gasoline is So Expensive

04/26/2008 5:10 PM

Unfortunately, Oil is a renewable resource. the only way a country will run out is when they run out of the highest quality sweet crude. Hydrogen, Carbon, and Oxygen are in the top 5 of most abundant elements in the universe. As long as the earth remains electronegative, hydrocarbons will always be around in large quantities.

To make an analogy of your point, it's like waiting for the trees to run out in other countries. Although the US may cause countries to clear crop their trees, they will continue to regrow trees and sell them to the US.

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#39
In reply to #36

Re: Why Gasoline is So Expensive

04/27/2008 7:10 AM

You forget the bit that says something about a couple of billion years.....

Yes it may be renewable according to the meaning of that word, it does not make it sustainable. We use more than gets formed.

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#42
In reply to #30

Re: Why Gasoline is So Expensive

04/28/2008 10:46 AM

You are absolutely correct - the US Congress will not allow drilling in ANWAR as well as any new development off shore and some in the continental US. There is an oil field in the Gulf that the US could drill in if were it not for the US Congress. So, instead of the US drilling for it the Chinese are drilling there and are using Cuba as their base of operations.

Why won't the US Congress allow US companies to drill in areas they should? Environmentalism. The environmental loby, Greenpeace, The Siera Club and the like are a very powerful economic lobying group. Also, Big Corn exists just as Big Oil and Big Tobacco. Big Corn has seen to it that demand for corn (and to a smaller degree soybeans) is increased by shifting usage from agricultural to energy. Alcohol is not a good substitute for gasoline. It has shipping problems because it absorbs water along the way. It does not contain nearly as much energy gallon for gallon or pound for pound and the energy out is slightly higher than the energy put in to producing it (system wide).

Back to Big Green. The environmental movement is not so much about saving the environment and global warming (notice how the headlines are shifting from global warming to climate change?) as it is about economically crippeling the US. Why are global agreements like Kyoto aimed right at the US while contries like China and other third world countries are exempt? Because it is easier to tear down the economy of the US than it is to build the economies of other countries. The US is all about Capitalism and as far as Big Green and other socialist movments are concerned the US needs to be brought down. Big Green has also shaped the argument in such a way that if you oppose them then you are for dirty air and dirty water. This is not true. Who is for dirty air and water? I oppose Big Green because of it's socialist agenda and do not accept the argument that human activity is the cause for climate change. Remember, man was not around during the last ice age and man was not the cause of the end of the last ice age. The earth, sun and universe goes in cycles and that cycle will march on with or without us.

If it was determined tomorrow that we (the world) has to raise the temperature of the earth 1 degree (either average or uniformly) or we will all die - we could not do it. The same goes for cooling the earth the same amount. If we can't do it on purpus then we sure can't do it by accident.

The US has made remarkable strides to limit smoke stack emissions (when you see a smoke stack billowing, often a large component is steam and the amount of CO2 and particulates is not as high as you might think). Other countries like China and the Third World have done little to curb emissions. China and even parts of Europe are still using high sulphur for domestic heating yet the US sits on huge deposites of low sulphur coal but again because of the efforts of Big Green the US can't use the coal.

Yes, Big Green is at the heart of the supply problem of oil as it is also at the center of the effort to dismantel the US economy.

The other problem is that now we are forcing energy solutions on the market by way of legislation that otherwise would not survive - like the compact florescent light bulb for example. Congress is now mandating the use of compact florescents while banning incandescent bulbs by some date in the near future. Along with this comes a whole host of unintended consequences. Too often Big Green, congress and other forms of activism (yes, congress is an activist body) are praised for good intentions regardless of outcome. (The same can be said for the policies that came out of the "Great Society" and the "War on Poverty".)

The previous discussion about how oil prices are set is relevant to current supply. The market can not discount current oil prices for oil that isn't in the supply chain now.

Travis

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#33

Re: Why Gasoline is So Expensive

04/26/2008 11:00 AM

So is speculation a "civilized" form of rationing?

When has speculation driven down the price of a commodity year of year? Can someone show a relevant example in the energy sector?

On to a more sensitive topic:

So why is Oil priced in US dollars????

Who made that agreement???????????

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#45
In reply to #33

Re: Why Gasoline is So Expensive

04/28/2008 12:00 PM

Prices fluctuate all the time. Look at any long term chart ( a monthly chart going back 5 or 10 years) and you will see that everything goes in cycles - the lows and the highs.

Most recently Lumber has been going down to almost giveaway levels. This is partly seasonal (fewer houses built during winter months) and part of it is economic (fewer houses being built because of the slow down in the housing market). Copper and Lumber are linked. Housing is not the only component of copper usage but it is a large component. When lumber goes down copper prices will see downward pressure.

Now, back to the traders. In a housing slump, if you are short the market lumber contract(s) then you will generally make money. You have sold a contract at a price that is higher than it will be at a future date. When you short a futures contract you are selling high with the hope to buy (back) at a lower price in the future and will in turn net the difference. Short is the other side of the coin of being long the market where you will buy low with the hope of selling (back) the contract to the market at a higher price in the future and will net the difference.

The show that is now airing on the History Channel, Ax Men follows a number of logging crews in Oregon. In a recent episode the mills announced they were going to stop buying lumber for some period of time (a week or so) and some of the loggers were laid off. This was happening last fall and winter when lumber prices were depressed because the housing market was depressed.

This would be a case of someone asking, "Why are lumber prices so low?" and being angry that a trader or speculator is pushing the price down.

Low prices benefit some groups (low lumber prices benefit the builders who are able to continue building through a slow down) and hurt others (the loggers, the mills, etc.). At the same time high prices will hurt some and benefit others. The same goes for oil, gasoline (RBOB), etc.

Yes, over time there is an upward trend for just about all comodoties but that is due to inflation in the US and everywhere else in the world. If you look back on the charts of sugar, coffee, all of the grains and even oil, heating oil and natural gas you will see the price goes up and down and there will be long protracted periods of decline. Many prices are seasonal. Lumber is seasonal because of the winter slow down (and this time the slowd down coincides with an economic slow down). Gold also has a seasonal cycle. Gold will see upward pressure in the months before December because of the higher demand from Christmas. (Gold only trades in the spot market every other month - Dec, Feb, April, June.....)

The market knows all and sees all. You can fight it or you can work with it. If you fight it you will loose every time.

Travis

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#37

Re: Why Gasoline is So Expensive

04/26/2008 7:26 PM

First, the question behind the question: Why is the price of gasoline suddenly so dear in the United States.

One definitive answer: Because so many US Americans have both the unavoidable necessity and the means to pay, if not in cash then, with borrowed cash using plastic issued to all in spite of creditworthiness. The advent of vending pumps has only accelerated the trend. Credit card companies and their sponsors are loving it. Even if card holders cut back on fill-up frequency, they still win with (in addition to lower processing costs) commissions on higher purchase $amounts.

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#38

Re: Why Gasoline is So Expensive

04/27/2008 12:14 AM

If the government inflates the money supply, prices rise. Follow the money.

James

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#40

Re: Why Gasoline is So Expensive

04/27/2008 7:52 AM
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#41

Re: Why Gasoline is So Expensive

04/28/2008 6:28 AM

Seems plastic is another factor. Just saw on the local news (N. Calif) where interviewed persons at the pumps say they are no longer paying with credit card borrowing...cash in hand only, as a way to get control over fuel expenses. So easy money is one reason gas prices rise easier than they might otherwise...

Paying with cash also, it seems, will help reduce prices (or the rate of increase) as creditors see their "win no matter what" leech game being threatened.

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#47

Re: Why Gasoline is So Expensive

05/03/2008 4:14 AM

The government inflates the money supply, prices rise. Why do some people talk so much and say so little?

James

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#48

Re: Why Gasoline is So Expensive

05/03/2008 9:59 AM

It's expensive only if you can't afford it.

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#49
In reply to #48

Re: Why Gasoline is So Expensive

05/03/2008 12:08 PM

Maybe its still expensive, even if you can personally afford it. As John McCain pointed out yesterday (maybe accidentally), we have been and are fighting wars in the Middle East to protect our access to oil. When you factor in the loss of life to both Americans and Iraqis, and the financial, social, political, and moral costs of these wars, the price goes up a bit.

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#50

Re: Why Gasoline is So Expensive

05/03/2008 5:53 PM

Well you left out the strangling of competition. While many of us were in Vietnam the oil companies were busy buying up refinerys and oil leases and shuting down the refinerys and pluging the oil wells to control the price.

Also you left out the many laws including enviormental that are used as Barriers to Entry to stifle competition from outside the indusrty and grandfather in the old companys.

G M has a tank the can saftely store hydrogen in cars I worked on the project in Fla. they even shot it with a 50 cal. machine gun. Bet you won;t see it in your life time.

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#51
In reply to #50

Re: Why Gasoline is So Expensive

05/03/2008 9:14 PM

Dear Dadw5boys, Is it possible for you to remember the actual construction and materials of that tank? If so there is a possibility that with a series of small but significant changes it could be marketed.

Just a thought, Dragon

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#57
In reply to #51

Re: Why Gasoline is So Expensive

06/03/2008 11:50 PM

We had to sign agreements but NASA provided the material that protected the center tank if a bullet got thru the 1st 2 layers of the outer tank. I can not be spefic or I could do jail time.

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#54
In reply to #50

Re: Why Gasoline is So Expensive

05/08/2008 1:48 PM

Working as a consultant for some major oil corporations, I know the environmental regulations are not something perceived as benefitical to these large corporations. Because of these laws many of the large oil corporations make serious efforts to at least maintian the appearance of managing their environmental impacts better than standard wate dischargers (they have more to lose being the deepest pockets). On the other hand some of the smaller oil companies around Bakersfield don't really even try to manage their impacts, they can just declare bankruptcy if they get in too deep. Also, the smaller companies do not have the image and public perception issues to address, so you go to a small company refinery and see product leaking from old pipes and tanks, go to a new Chevron or Shell facility and you won't see this. While i am not claiming the larger corporations are clean, they are cleaner than smaller facilities because they try to maintain a cleaner appearance due to the impact to public image.

Regarding the hydrogen fuel tank, GM just came out with their new hybrid concept that does include a hydrogen fuel tank, these only thing that is delaying production of the hybrid is their battery technology at this point. They do anticipate something in the next few years though.

Purely running on hydrogen really isn't the way to go hydrogen requires a large investment of energy to make. However, efficient use of hydrogen to run hybrid electric vehicles, where you much more efficiently use the fuel, maybe a much more atmospherically friendly approach. You don't just want to burn hydrogen, but also want to improve effective fuel mileage too. Else you are burning oil to make hydrogen to fuel the cars, and as we all know from thermodynamics their is always a lose of energy in any process. So even though oil is utilized more efficiently in massive electricity generation than in automotive applications. The loses in generating hydrogen, storing it, and then burning it in cars that do not use the fuel more efficiently, could offset the gains in efficiency from genrrating electricity. Let alone considerations for waste disposal, since hydrogen is derived from source water and the other constituents will be concentrated and possibly converted in the process.

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#62
In reply to #54

Re: Why Gasoline is So Expensive

06/04/2008 4:38 PM

And there's something else I've yet to hear mentioned...dropping exhaust water onto frigid paved roadway surfaces. Will Hydrogen fueled cars need to have tracks? Or all tires be produced and sold with spikes?

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#58

Re: Why Gasoline is So Expensive

06/04/2008 12:14 PM

Nemo wrote:

"Who keeps the speculator in check to make sure they are not just running the price up for profit = manipulation?"

The answer is FEAR. The commodity market, like every other market, is driven by GREED (the same desire for profit that motivates virtually all of us to get up and go to work every day) and FEAR. As long as experts project that oil prices will continue rising, speculators (investors) will purchase oil futures. When experts judge that the price of oil has risen to levels that can not be justified by the law of supply and demand, the party will be over. Speculators will be rushing for the doors and oil prices will plummet. The market is SELF-REGULATING. Government intervention in free markets almost always leads to disastrous unintended consequenses.

Bill Morrow

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Bill Morrow
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#60
In reply to #58

Re: Why Gasoline is So Expensive

06/04/2008 2:44 PM

The government has been regulating trade in these markets with agencies like the SEc nearly since the beginning of these markets back to the 1850s. The government gets lazy and corrupt every so often and relaxes oversight and control, these are the periods where speculation becomes rampant, then following a market adjustment, or in older terms crash, the government increases oversight again to stabilize the markets. The lack of oversight is not new, has happened every so often, during WWI and Late 1920s are good examples. some group like Enron lobbies for relaxed oversight claiming it will make the system more efficient and improve investments driving the economy faster, and some elected officials modify the law or reduce oversight agency funding, and all the other elected officials , being too corrupt and lazy, let this pass with minimal notice or commentary. The news agencies then dont report it because it is deemed too boring at that time, and they lack the foresight to see the potential consequences to such actions any further then the end of the week. So it goes unnoticed until a market correction occurs, and some corporate executives raid the company that started the whole thing and buy some mansions in Florida, Texas, Georgia or somewhere where it doesn't matter how you got the money as long as you have money.

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#63
In reply to #58

Re: Why Gasoline is So Expensive

06/04/2008 6:16 PM

Couldn't governmental laissez faire be just another form of—the flip side of the coin as it pertains to—intervention? So that a knowable "unintended consequence"—nearer-term hardship ranging from moderate-for most to fatal-for-some—is deemed acceptable for the greater good in the longer term? And could not governments tacitly agree that such "intervention" should, or must, be so? Because producer nations and (net) consumer nations alike—also net creditor nations and net debtor nations—are, ultimately, in the same boat...both facing dire consequences in the long term. For example, Saudi Arabia (both of itself and as leader of the cartel) faces no less bleak a future than it's primary customers, as its commodity reserves run dry. Adding to that, the fact of the Kingdom's apparently inevitable eventual loss of its primary water supply (its ground water)...faced with the prospect of ceasing to exist, would it not be rational that such a nation would insist both on prolonging its primary income as well as obtaining sufficient hard currency (gold) to fund the increasingly immense investments (some already in progress) that will be required to replace its depleting water reserves?

On the flip side, would consuming nations in the west see their long-term interests as being best served if the Kingdom (and Islam's center of stability) descends into chaos and disintegration?

So, as to government intervention, it's probably not a question of if it should occur; it's a question of the form in which, inevitably, it must occur.

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#64
In reply to #63

Re: Why Gasoline is So Expensive

06/04/2008 7:54 PM

This implies a much greater imperialism that i really was not interested in discussing. The rights of another nation withstanding our discourse, i was specifically discussing the US government, which tends to be reactive to public emotional outcries rather than proactive. This is a common issue for democracies clear back to Athens. The mob is fickle, and the majority vote their feelings rather than any rational basis simply because they lack the skills. Athens was driven to imperialism on the whims of the voting masses (imperialism followed quickly on the feet of democracy in athens), lost major battles during the peloponnesian wars because of the whims of the masses(Alcibides power and influence was derived from these masses). Rome which used a system more consistent with modern idea of democracy, a republic, fell to the imperial system, of augustus, because the masses strongly supported his predecessor Julius Caesar, and Augustus used the influence with the mob to receive support from the republic and eliminate competitors in pursuit of his title. And who can forget the french attempt at democracy. The mob is quick to attack on the whim of anyone with an emotional outburst, and quick to forget why they did it or even that they were involved. This leads to governments that are driven by emotional outcries. Since emotional outcries occur after an incident, the means democratic governments typically are driven to be reactive. If louisiana had prepared for kattrina like Florida prepares for hurricanes, before the fact over the previous year when they had already had a near miss from those hurricanes that crossed central florida, they would not have had the disaster they had. In turn, they would not have gotten the attention, and the associated funding and man power, readily poured on that state. The cost for pre-emptive action would have come from the state or local coffers, rather than the majority of funding from the federal government. The same can be said for So Cal and the recurring wildfires destroying homes every couple of years, when there is a disaster that gets on the news and receives alot of public attention and outcry, the area receives federal money and man power (and in California, it then receives much more state resources). This is a greasy wheel effect, and it is how democracies operate. What this means is the government oversight will grow corrupt and lazy in-favor of questionable investment (or in some cases fraudulent) practices. when something regarding this becomes news worthy and gains public attention, then the elected officials (who many times lack the skills to do anything outside of politics) began to try to create the perception that they were kept unaware, the fault lies elsewhere, and now that they know they are going to do something. This is how laws come into being, in reaction to some public outcry (thus you must incur enough damage that is perceived as unfair and inspires strong emotional responses in a way that makes it so obvious that even journalist can figure out what is happening, to get a law for public benefit passed). It is pretty obvious that Enron as one example did everything it could to manipulate the financial markets, and our government to their favor, as secretly as possible, and any laws passed that were promoted by these special interest lobbyist probably are not in the public interest. But until enough people get hurt during a slow news day, the government will not do its job,"of the people, for the people" does not imply "laissez faire" (though i guess government bail outs of corrupt businesses, or protection of corrupt executive from being tarred, feathered and hung in the town square isn't "laissez faire" either.

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#65

Re: Why Gasoline is So Expensive

06/07/2008 3:03 AM

Listen to this NPR broadcast.

It is the Hedge Funds that are trying to Privatize the Engery Furtures Markets.

http://www.npr.org/templates/story/story.php?storyId=89723375

Unregulated Hedge Funds

Even Exxon said Oil should be only $55.00 a barrel.

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