Surprised about Oil Prices? Really?

Try ~4 UKP per gallon (around 8 dollars). !

http://www.petrolprices.com/ (prices are per litre)

--ALan

$4/gallon... still heaven for old Europe! People in Germany have to pay $8,59/gallon. Even with prices as high as $6/gallon the US economy shouldnt slow down dramatically.

$4/gallon is about 1.05$/liter. Call yourself lucky to live in the US.
Price here is 1.568€/liter or 2.46$/liter.

If you want to hear a really ugly number: 9.314$ per gallon.

I know you it's difficult to compare between countries, especially if one country has its own oil, but still the numbers are hallucinative.

We have our first buses powered by H2, I guess you see why ;-)

Fuel prices over here: http://www.brandstofprijzen.be/

Yeah, it's pretty mad how much more petrol costs here in the UK and rest of Europe. Last I fueled up I believe it was about £1.12/liter. $8.36.

All in all, I don't think it's that bad that the price of oil/petrol is high. As nothing else seems to keep people from buying SUVs, maybe the running costs will.

I've just bought a Citroën C1. Mostly because it does about 70 mpg (4.1 l/100km) and because of it's low emissions, road tax, parking permit are much lower. And it's a really nice, small car that does the job perfectly.

Duncan,

You think that flying over there and asking them to do more is doing enough? How much was Oil when Bush took office? How many people on his cabinet are oil people? Who is getting rich here?

I think he could be doing a LOOOOT more.

Cheers,

Dion

1.30$ / L here (Canada). This convert to 4.94$ / gal. And our friends from Europe showed it was worse (I knew that).

(I leave out the exchange rate of almost 1:1)

Gotta have to rebuild all these electric railroad they dismantled half a century ago for the sake of oil companies.
Gotta have to find a way to produce more electricity in a cheaper way (hint: so far Nuclear Power Plant are the cheapest and less polluting)

Oil is not in short supply. Read these articles. It just isn't being harvested fast enough to meet demand.

http://www.frontpagemag.com/Articles/Read.aspx?GUID=072E8C8F-3AD2-48B9-9747-09B47361E672

The data is substantiated in this official US Govt report:
http://www.eia.doe.gov/oiaf/ieo/index.html

>Even with prices as high as $6/gallon the US economy shouldnt slow down dramatically.

Most suburban workers, especially in W. United States, travel 20-30 miles each way to work by automobile. Once gas gets above $6 dollars a gallon, there will be great pain, as commuters shell out $100+ per week. If you're only taking home $500 a week, that's a huge chunk just to gas, not even accounting for maintenance, registration, insurance, etc...

And public transit is a joke in most parts of the U.S..

Quite magnanimous of you, Duncan: You drive your Acura around the USA and jet-set with Pinar around the world, yet believe that prices should remain high. Consequence: You will continue your high-living; others who are of lesser means cannot continue their less-affluent lifestyle. But as you both state and imply, that's just fine with you.

Now about those taxes to support alternative energy... Puleeze.... Can you say, "government waste?" Do you not believe that ethanol mandates are source of this problem? And that rich farmers are the beneficiary? How about the fact that we cannot drill along our enitre Atlantic, Pacific, Alaskan, and much of our Gulf coasts? Do you really think that funds raised from high gas taxes would effectively fund alternative energy as opposed to government pork and graft? Can you say ""Medicar", or "Social Security"? How about "Bridge to Nowhere"? Was government largess responsible for the innovation of your favorite camera/lens company, Canon? Is lack of government largess the source of the current travails of your former employer, SUN Microsystems?

The cause of our high prices - government (low dollar policies on the part of the Federal Reserve, drilling off limits, nuclear energy off limits). The solution - private industry (and less government); i.e., as the prices rise, alternative technologies will be funded and improved by private industry (these can include oil from Tar Sands, Shale, and, yes, Solar and wind). Meantime, ethanol mandates should be eliminated (again, this is the same gov't that you think can rescue us; I say get them out of the way), and both drilling and nuclear encouraged.

I appreciate your columns on photography and technology. Your views on government and society are based on a poor understanding of economics and a misplaced and incorrect faith in government.

I'm sorry to disappoint everyone who assumes some energy breakthrough could happen if only we invested in research and tried harder to find it. The reality is there will be no better safe source of fuel or energy than oil. Oil is it. And when it's gone, it's gone. After oil, there is only nuclear, and that comes with its own nightmares. It's silly to assume a better source of fuel can just be invented. All of history and everything known to science says this is unlikely.

The other thing to realize is that no one is to blame for. It's not the government's fault, or the people, it's not the fault of any particular country like America or China or Saudi Arabia. This is all just human nature. If abundant food is available, we will eat it. And we will reproduce until food is scarce and some people starve. If oil is available, we will burn it until its gone. We will make it scarce. Sadly, unlike food, once oil is gone, it's gone. Any conservation is merely a brief delay of the inevitable. If you don't burn it now, someone else will, or you will eventually.

Things are not broken. There is nothing to fix that could be fixed. Political policies and the best of intentions cannot change DNA and the cold, hard physical reality of our world.

Life is a tragedy. Fortunately, that's what makes it precious, beautiful, and worthwhile.

I disagree with much of your premise, JtM.

I agree it's a PART of human nature, but we have this thing called higher thinking. If we can recognize that a behavior leads to a consequence, we can avoid that behavior. We do it daily, in fact on a global scale, we're finally slowing down our population growth models (FINALLY, though not be nearly enough to offset the 6 billion boom of the last 100 years). So we are trainable, we just have to actually put effort into it, rather than lip service.

Secondly, Oil didn't just magically appear on earth. It was created. It will most likely renew itself over time. How much? Who knows? Eh... no one. But to say or think that the current way is THE way, is to show you're not looking forward. How long until it's gone then? Then what? If there's no replacement, then what are we to use?

We HAVE to think through this. Efficient use is one facet of the answer, as is better technology and other sources of fuel. The real idea I think is to grab energy from more than once source. All will have some sort of negative output as well, but if we could grab percentages from here & there, it'd be like... like.... the balance of nature almost? maybe?

Wind? Solar? Nuclear? Water? Coal? Oil? none are without consequence, but our reliance on ONE above all else throws everything out of balance.

And one final point. I would say that the thing about it that no one ever mentions (though I sort of did above) is the tie to population. If we could just control the world population and keep it at reasonable levels that the earth could sustain without undue burden, none of this would be an issue. 7 billion & growing, folks. Go look at graphs of world population from "beginning" to now. The sharp rise in the last 100 years is the root cause of our problems. Shrink the population 50% and stabilize it there, and almost all our resource issues go away.

Smartest species on the planet, and we're breeding ourselves into extinction because we don't want to face the reality that we are dependent on everything around us, not the other way around.

I love the debate. Thanks for the great discussion. I also find this podcast to be helpful in understanding this neverending crisis. http://blog.investtalk.com

Duncan,

I forgot to mention that public transport (despite the decision to go for hydrogen) sucks here as well. State-ownned (at least still for a couple of years), rarely on time, and once in a while with nationwide strikes (want to see a little country paralysed?).
I must say was pleasantly surprised by BART in bay area and the public transport in Chicago, Washington, NY and Boston.
Although having visited Houston as well, I guess I see your point... and my reaction was not entirely appropriate in the context of the message you were trying to bring.

I have seen some footage that even Texas would be turning around and going for alternative energy sources at a faster pace then we've done over here... Yes, the US has been a bit slack on reacting to finite resources, but at least when change occurs, it seems to go much faster.
Well, at least I hope everyone does his/her bit, because this issue is not at country/region level.

It's nearing the end of the Age of Fossil Fuels.

That's okay, We need to move on anyway. That said, it sucks spending $110 to fill my car with gas. :(

James,
Relevant stuff.

Here is an acticle which introduces another aspect to this discussion,

http://www.commondreams.org/archive/2008/05/09/8832/

and is pertinent in the context of your point about Mr. Bush _requesting_ that somehow more oil be pumped. Plus it is worth noting that he was willing to exchange nuclear energy production technology in times such as these.

sinclair

Bush Administration clear wants to leave Office with Crude at a record high which is one reason they do not have a strong dollar policy and why they have a vested interest in seeing the dollar depreciate.

Nobody was asking why the Navy invaded Venezuelan airspace the other day when it looked like the crude price was stabilizing.

Oil isn't expensive, the dollar is cheap. Its cheap because the government has been printing it like mad for the last 40 years to cover social programs and wasteful military spending, not to mention several wars.

Additionally, environmentalist idiots have forced thru legislation in their states such that the companies have to produce more oil blends than there are states! Its totally asinine.

Not to mention that at least half the cost of gasoline is the taxes the federal government makes on the whole process.

If you want to be mad about high oil prices, blame the government, which is wholly responsible for it. (There's plenty of oil, peak oil is joke because it only looks at one kind of oil and, for instance, ignores the trillions of barrels of crude undeveloped in canada.)

But, since people are sheep, the government never gets blamed and they get mad at the oil companies.

Where were your feelings for them when they could barely cover overhead and still had to pay high taxes?

And who ultimately deserves the blame? You and me because we've let the government get away with this BS. Baaah Baaah!

People always talk about the world getting smaller and smaller: I just think of this as the world getting a bit bigger.

Joe, you're wrong in writing that half the cost of gasoline is federal taxes. As we learned from the recent gas-tax-holiday boondoggle, the federal tax is a small portion of the cost of gasoline. According to the DOE's gas prices primer, federal tax is $0.18 per gallon.

But your larger point, that the government is entirely responsible for high gas prices is wrong-headed. Yes, the government could have taken structural steps during the past 35 years to decrease the country's need for gasoline and in that sense the government is responsible for high gas prices. But the government isn't just making gas expensive because it wants to; basic supply and demand are doing that by themselves.

Thank you Joe and swanman. It's funny to see people connect worth (as in value) with price (as in cost). They're related but not connected. Just like mass and weight. If you teleport to the moon, you may weigh less but your mass hasn't changed. Likewise, if you choose a weaker currency to price a commodity, the price goes up but it's value hasn't changed.

If you were to compare the price of oil to other commodities (like gold, silver, etc), you'd see that the worth of oil has stayed almost perfectly stable (meaning 1 ounce of gold will buy the same amount of oil today as it did in the year 2000). So, if there is an increase in demand, the market is not reacting to it in a noticeable way (unless you think that the demand for all commodities is increasing at approx the same rate). This point is bolstered by the fact that oil demand has decreased over the last 60 days while oil prices continue to rise. Even the greenies have figured this out.

Don't get me wrong, supply and demand is at work here but it's the supply of dollars (and to a lesser extent euros) that should have people worried. Everytime you hear a central bank say they will lower interest rates, it is the same as saying they will put more money into circulation. And more money available means the money is worth less. If you don't understand how an economy based on central and fractional reserve banking has not, can not and will never sustain itself, you need to add Henry Hazlitt, Murray Rothbard and Ludwig von Mises to your reading list.

Government is 100% responsible although rising prices wasn't the goal, just a predictable outcome. Government monetizes debt (prints more money) through central banks when they can't raise taxes and when they can't borrow any more. Their goal isn't to raise prices, their goal is to spend more money. Rising prices is just a unavoidable side-effect when you print the money to spend.

Just amazing to se the level of denial present in the comments here. Many seem eager to express the view that there is no real problem, its just the government trampling on our rights.

While there are still vast undeveloped oil reserves, peak oil notes that oil production ramps up in a linear fashion, while oil demand is increasing logarithmically. There is no way that enough oil can be pumped to meet the coming demand from China and Asia, and as demand exceeds supply prices will skyrocket. Oh wait....

Only the very rich can afford to drive cars -for the last 100 years the very rich have been Western consumers. I wonder who the very rich will be fir the next 100 years?

-Dave

Even know this post is more than a month old, I'll still provide my thoughts. First, James, I admire your work, and more power to you for writing about something "outside the area of your expertise". I hate the idea that you should keep your mouth shut on everything except what your resume says you know about. That's crap.

A few things I'd like to point out before I give my assessment of the causes of high oil prices. First, the government doesn't "print money" to pay for government programs. The Federal Reserve Bank "prints money" to promote stable prices and growth. Lately, it seems that they've printed too much. This can easily be seen not only by heightened inflation in recent months, but also by a more rapid decline in the value of the US dollar.

Speaking of the Dollar, we do not have a weak dollar because the Fed doesn't take a strong enough stance. First, the Fed doesn't set currency policy, the Treasury does. The Fed merely carries out their transactions, acting kind of like their broker on foreign currency markets. Second, we don't have a weak dollar because the Bush Administration didn't take a strong enough stand (although they've taken absolutely no stand, which I think is a mistake). The dollar is weak because we're running massive government and current account deficits, and we've been doing so for quite some time. In essence, we spend more than we save, and more than we have, so we borrow.

Who do we borrow from? Not from the government. Not, from US households, who save at an extremely low rate for how wealthy a country we are. Instead, we borrow from foreigners, both governments (such as China's) and the private sector. To simplify the currency situation, think about the strength of the dollar kind of like a consumer credit score. If you keep borrowing and borrowing, never paying down your debts, just refinacing old debt with new debt, your credit score will eventually go down. Similar concept with currencies (though not completely).

That said, oil prices are high for a few simple reasons. First, the developed world buys most of its oil from religious fanatics and nationalist dictators, the majority of whom control the world's most powerful cartel, OPEC; oil is sold on the open market, but it is not a "free" market. Second, hundreds of millions of people have been raised out of poverty in China and India. Though this has been happening for about the last two decades (especially in China) and doesn't speak for the recent rapid increase in the price of oil, it plays a large factor on the demand side. Another factor: governments like China's hold huge cash reserves (largely a result of massive trade surpluses), which means Chinese oil companies, most of which are partially or majority owned by the government, have a greater propensity to pay a higher price for oil.

Finally, oil is the most valuable commodity in the developed world. It is unlike most goods, in that there is no substitute for it. For example, if the price of beef skyrocketed due to a flood killing 20% of the cows in America, people would likely just buy more chicken or turkey or lamb or pork (hey, maybe even tofu). Oil, on the other hand, is not like this. If there were some massive oil supply shock, we couldn't just switch to a close substitute, because there is none. In economics, this is called a highly inelastic good. This means that regardless of the price, people and businesses are for the most part, willing to pay it; in this case, because they have to. The reasons for this are obvious. Just think about what you do and consume on any given day, and how oil powers much of that.

If you're looking for someone to point a finger at, hold your arm straight out, finger straight, and walk in front of a mirror (ok, and maybe a photo of your congressman). When you build a deep dependency on a commodity that is controlled for the most part by a bunch of religious fanatics, this is what happens. Hey, you wouldn't buy your groceries from the local pedophile, would you?

This stuff is common sense; like most of economics, it's not the rocket science some people make it out to be. Well, hopefully this clarified some of this for some people. Sorry if it sounded like ranting.

I am not convinced, that the rising cost of gasoline is in direct response to a declining supply of oil. In the US, gas prices went up just after the whole Katrina affair. Oil companies learned that when there actually IS a short supply of gas (due to refinery problems) people will complain, but happily pay >$3/gal. Record profits for oil companies ensued.

Why should they sell gas at $2 or $3 a gallon when people will buy just as much at a higher rate? This isn't so simple as supply-demand, I think the elasticity of gasoline is nil.

If you think 4 USD are much, wait until the US feels the inflation surge after the printing presses stop keeping up with the devaluation of the dollar ...

It's nearing the end of the Age of Fossil Fuels.

Yes I don not mind about this, too. We need an equal but clean alternative power source. I think the hydrogen fuel cell is the best alternative.