So Why Is Gas So Expensive?

[LittleGrizzly]

Just a few weeks ago I had to do a comparison to get approximately 60 truck loads of product from West Michigan to Memphis. The price was practically the same but it took 2 weeks longer to go by rail and we still needed a local carrier to truck the product from the train station to the final destinations. The carbon footprint was better but the timing was a deal breaker.

The reason for this is there is no investment in railways anymore it all goes into oil the roads and cars, if a fraction of what was spent buying a car mantaining the roads fixing your car and filling up with gas you would have an amazing transport system, im sure with current technology goods can be transported just as quickly or quicker by train than by lorrys.

America could have an extremely effecient cheap public transport system covering the U.S, people in very rural areas would still need thier own transport but it would be easy to setup regular bus routes within citys and to nearby citys, and with trains covering transport across larger distances, its not difficult to take a decent chunk out of oil use....

[macsen rufus]

One big problem for the US is that so much of the economic activity of the past 20 years or so has depended upon building suburbia, and living in suburbia has depended on cheap gas. Couple this with the credit crunch and a bank or two a week going belly up and the issue is suddenly a lot more than a few "whining drivers". The whole pattern of settlement and development is not just dependent on oil, it is dependent on cheap oil. Property values are crashing, negative equity abounds, something like half a million homes have been repoed in the last few months. There are people with no homes, banks with empty property they can't sell, and suburban neighbourhoods in terminal decline. It doesn't take many empty, repoed houses in a street to crash property values even further. Which means that it's no longer viable to be a property developer. Huge lay offs in construction, and a large source of national wealth creation is blown. SUVs are losing value as fast as homes, the auto industry (directly or indirectly responsible for about 1/7 of US GDP & jobs) is in a dire state, and commercial property is also set to decline rapidly. Major malls are losing anchor stores. Cheap oil and cheap credit are the two crutches that have propped up the US lifestyle whilst its industry has gone overseas, and consumers have racked up massive personal debt and the govt has pegged up a record-breaking deficit as well. China owns your collective ass, like it or not. I realise this may sound like gloating over your misfortunes, but actually the old adage still holds - "When America sneezes, the whole world catches a cold". A lot of the Western economies are badly contaminanted by the sub-prime mortgage vehicles, and Britain too depends way too much on finance instead of real economic activity (you know, quaint old-fashioned stuff like making things...)

"Whining drivers" are the least of the concerns. Oil prices run through every aspect of our society, from intensive agriculture, which uses nearly 10 calories of fuel for each calorie of food produced, through distribution of all consumer needs. Fuel is just as expensive for the trucks bringing food to the mall as it is for shoppers driving there to buy it, or driving their 3 hour commute to work from the once "affordable" suburbs. So expect spiralling prices at the shops, too, as well as your domestic fuel bills, all at a time when your house is shedding value, your 401(k) evaporates daily as stocks crash, and your job turns out to be dependent on one of those sectors that is really suffering....

Ah, I feel refreshed now I've had my morning dose of doom

[macsen rufus]

...

[macsen rufus]

I think it is the scare mongers aka speculators that invent many crazy reasons for the oil price to go up, that is the major reason for the "crisis" we see today.

It's an easy target for oilmen and legislators alike, both eager to please the pissed-off Joe Public, however, market examination doesn't seem to support this theory.

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between
January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this
same period, activity on the crude oil futures market – as measured by the number of contracts
outstanding, trading activity, and the number of traders – has increased significantly. While these
increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to
date does not support the proposition that speculative activity has systematically driven changes in oil
prices.
The world economy has expanded at its fastest pace in decades, and that strong growth has translated into
substantial increases in the demand for oil, particularly from emerging market countries. On the supply
side, the production of oil has responded sluggishly, compounded by production shortfalls associated with
geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in
the short term, very large price increases have occurred as the market balances supply and demand.
If a group of market participants has systematically driven prices, detailed daily position data should show
that that group’s position changes preceded price changes. The Task Force’s preliminary analysis, based
on the evidence available to date, suggests that changes in futures market participation by speculators
have not systematically preceded price changes. On the contrary, most speculative traders typically alter
their positions following price changes, suggesting that they are responding to new information – just as
one would expect in an efficiently operating market.

Interagency Task Force on Commodity Markets , Interim Report on Crude Oil ,
Washington D.C.

[Redleg]

Just a few weeks ago I had to do a comparison to get approximately 60 truck loads of product from West Michigan to Memphis. The price was practically the same but it took 2 weeks longer to go by rail and we still needed a local carrier to truck the product from the train station to the final destinations. The carbon footprint was better but the timing was a deal breaker.

The reason for this is there is no investment in railways anymore it all goes into oil the roads and cars, if a fraction of what was spent buying a car mantaining the roads fixing your car and filling up with gas you would have an amazing transport system, im sure with current technology goods can be transported just as quickly or quicker by train than by lorrys.

Actually this is only partly true - American Railroads are primarily private or publicily held companies - which have to invest in their own infrastructure with miminual help from the government. Many cities are beginning to actually invest in light rail for metro transportation - the twin cities in Minnesota and a link is being established in New Mexico between Alberque and Santa Fe.

America could have an extremely effecient cheap public transport system covering the U.S, people in very rural areas would still need thier own transport but it would be easy to setup regular bus routes within citys and to nearby citys, and with trains covering transport across larger distances, its not difficult to take a decent chunk out of oil use....

Agreed - and many cities and communities are beginning to see the logic in doing so. It will just take a few years for it to get established and then several years to get funded and built.

[Oleander Ardens]

Something I want to add is that while oil has risen fast, coal has had 250% rise in one year. That is right, 250% in one year. So coal mining in the Ruhr might be very profitable once again. While it is kind of a bubble it shows that a such a high price level a whole range of other sources of energy becomes very attractive. Coal to oil conversion is particulary interesting.

P.S: Very interesting info by our norwegian members about oil production. Fits neatly in my perception of current state-owned oil companies.