Gas prices: No relief in sight Web source: http://money.cnn.com/2006/05/18/news/economy/pluggedin_fortune/index.htm Demand has cooled a bit, but with a robust economy and limited inventories, don't expect good news for drivers - or investors. By Nelson Schwartz, FORTUNE senior writer May 19, 2006: 7:08 AM EDT NEW YORK (FORTUNE) - First, the good news: U.S. gasoline prices may come down by a dime or so in the next month. Now the bad news: That's about as much relief as we're going to get. Although wholesale gas prices have dropped from $2.10 a gallon to $1.98 in the last week, experts say still-tight inventories and reasonably healthy demand mean there will be no significant drop from retail gas prices of $3 per gallon or more in many parts of the country. "Over the next few weeks, we may get a little relief," says Larry Goldstein, president of the Petroleum Industry Research Foundation in New York. "But it's not likely to have any legs. " Refinery capacity is still limited, Goldstein explains, as are gasoline inventories. What's more, with refineries coming out of a long period of repairs and overhauls, the likelihood of an unscheduled shutdown or accident is much higher. "It's a tenuous balance," he says. "There's still an asymmetric bias to the upside" - in other words, it's easier for prices to go up than down. Higher prices do seem to have cooled demand a bit - it's flat vs. a year ago, a shift from the historical 1.7 percent annual growth rate over the past decade. But given that the economy grew at a robust 4.8 percent in the first quarter, it's unlikely that $3 gas will lower demand enough to push gasoline prices back to $2.50 anytime soon. "There's no major relief in sight," adds Jamal Qureshi, an analyst with PFC Energy in Washington. "The market isn't going to shift fundamentally this summer, and then we get hurricane season." The pain isn't spread evenly. Retail gas prices averaged $3.33 a gallon in California and $3.13 in Washington state, according the latest federal survey, vs. $2.85 in Texas and $2.87 in Florida. Refining capacity is tighter on the West Coast, especially in California, which uses a different gasoline blend than the rest of the United States. For drivers, one of the most frustrating aspects of the situation is that while price increases on the wholesale level translate into higher prices almost immediately when you fill up, drops like the recent move downward take more time to be reflected at your local gas station. University of California Energy Institute director Severin Borenstein calls this the "rockets and feathers effect," describing how prices rocket upward but only gently decline like feathers. This economic phenomenon, says Borenstein, doesn't stem from any nefarious plot in the boardrooms of Big Oil to control prices. The vast majority of gas stations are independently owned even if they're branded Exxon or Shell or Chevron - and local owners want to hold onto higher retail prices as long as they can. And drivers don't necessarily go out of their way to stations that might be offering gasoline for a few cents less. "It's not a perfect market," he says. "People shop around gradually, not instantaneously." Continued high prices mean bad news for President Bush - and investors. Along with the war in Iraq, gas prices have been repeatedly cited for the president's low-approval ratings, and members of Congress are worried about how the issue will affect them in November's mid-term elections. What's more, the news Wednesday that consumer prices rose at a slightly faster than anticipated rate helped push the Dow Jones average down by more than 200 points. That's a sign that high energy prices are finally beginning to be felt in the broader economy, and it increases the likelihood the Federal Reserve will raise rates when they meet next month. Public transportation anyone?
I wish people would pull their heads out of their butts and stop blaming the president for fuel prices. Anyone that has a basic understanding of supply and demand will tell you that prices have nothing to do with the oil companies gouging the prices (or the president allowing them to do so). There has been a significant increase in demand for fuel because of growing economies in both the US and especially China. Increase in demand = increase in prices. Along with an increase in demand, there has been a decrease in supply of fuel. Because of the destruction caused by Katrina, many of our domestic oil refineries have been affected. And to make the problem worse, all the stupid tree-hugger liberals will not allow oil companies to explore and drill for domestic oil or build additional refineries. Demand has increased but the leftists in congress have not allowed our suppliers to expand production to meet that demand. Decrease in supply = increase in prices. So yeah, the high fuel prices we are dealing with are purely a result of supply and demand, not price gouging or poor regulation from the federal govenment. If you want prices to go back down you have to decrease the demand for fuel (stop buying fuel) and increase the supply (ulilize domestic oil and build more refineries) The End.
You don't think that record profits reported by the oil companies, which have merged to the point where there is no effective competition, would have anything to do with it? Or the politicians completely and totally owned by the oil company lobby. Or maybe the convenience of so many refinery resources down for “rework and refurbish” at the same time to (some would say) artificially limit the supply coming into the “peak season”, compounded of course by Katrina hitting the Gulf. I’m not saying that there IS a conspiracy, but stating definitively that all this is just a coincidence and explained by “a basic understanding of supply and demand” is a bit close minded. Or do you find it inconceivable that Exxon/Mobile and company just *might* be as corrupt and manipulative as Enron and others like it?
no i guess you are right... i just know that it is pretty inconceivable to belive that oil companies just recently started gouging prices or something like that... i mean i think that the main reason for price increase is economic but as you said there have got to be other reasons for it... all i was trying to say was that fuel prices should not be blamed on the president because it should not be the government's job to regulate prices.
Now that I agree with. The only way the President is to blame is if he is actively thwarting investigation or legislation (including turning a blind eye) due to influence by the oil companies. Otherwise, pressuring him (or the rest of gov) to “correct” the “problem” is just forcing even more socialist government involvement in what should be a capitalistic free market (in an ideal world). And I also agree that it is economic supply-vs-demand driven pricing. If the price goes beyond what the market will bear, then theoretically, the demand will drop. But with the mega mergers eliminating competition (which many think would never have been allowed without the powerful lobby influence) and captive consumers with no real alternatives (some would say primarily due to active collusion between Fed and Oil) the normal (ideal) market balance mechanism does not work. So then the question is, was the supply side of that equation manipulated to artificially drive up and justify record profits. And this is what the public outcry demanding investigation is about. Then the backlash on the President is due to public perception (right or wrong) that he is in the Oil company’s back pocket (due to documented lobby “donations” and family connections), and so is at best turning a blind eye when he should be championing the (supposedly) wronged citizens. What a person believes is hopefully a result of conscious thought on their part, but of course, the “95 Percenters” of the population just go along the opinions and theories of whatever media they consume (main stream left wing, or niche right wing) Note: The term “95 Percenters” is the phrase used by some of my friends when discussing the (in our opinion) 95% of the population who are no more self determining than a heard of sheep, and so, in our ever so elitist opinion, “too stupid to live”.
If I remember correctly a lot of companies did their merging during the golden 1990's. Guess which President let that happen. Guess what also happened during the gleeful 1990's? Ridiculous extra regulations on any new refinery construction. Not that there are many incentives for the companies to build more refineries currently, but that seems like a pretty good deterrant. I work in a chemical plant and it's amazing how many hoops they require jumping through, even just to make a relatively simple change to an existing process. I can't imagine having to start all that crap from scratch. Just getting the permits and design would cost a medium to large fortune in this country. You can thank the radical enviro nuts and the NIMBY idiots for that. I'm all for clean air and environment too, but I also believe in such things as "the law of decreasing marginal returns" which makes cleaning up too much more gets very expensive for a very minimal improvement. Guess how many new refineries have been built in the past 30 years versus how much the worldwide (and just US) consumption of fuel has increased over that same time period. Don't forget about the specialty gasoline blends as well as the new ULSD requirement for 2007. It's definitely not President Bush's fault (or the rest of the Government), it's a simple matter of supply and demand. I want as little Government involvement as possible. Name one project the Government has been involved in that has been simple, efficient and cost effective. I don't seem to be able to think of a single project (except maybe a few military weapons programs) that doesn't get bloated with red tape and paperwork to kill the efficiency. If the government mandated a price floor, demand would increase to the point where shortages may occur. Keep in mind the market is setting the price. If the cost gets too high, people will switch to alternatives (sell the SUV in favor of a Metro, ride a bike more, blah blah) to stay within their means. Another positive of the higher prices is more encouragement for experimentation with alternative fuel sources.
I parly blame the President for not pushing alternatives enough. Yeah, hes said ethanol is good and everything but if he really wanted, we could have ethanol in alot more places and have a hell of alot more flex fuel vehicles on the road. Look at Brazil. Am i surprised? Nah. He has his hands in the pockets of oil companies and vice versa. Its all a game and it probably will never change. So while others complain, im glad gasoline prices are high, it will drive more alternatives into focus and hopefully take over the fossil fuels that we use today. Watch this. http://www.msnbc.msn.com/id/12676374/
If anyone ever was threatning you, I can assure youn that you'd rather have a REDNECK near by than a hippie!! Or if your car broke down and you needed help, you probably pray for a Redneck to drive by!!!
Rednecks have the "Im American and can do whatever i want" attitude so do you think they'd help anyone? Nah. Hippies stick together.
That didnt even make sense? Let me ask you this, DMAXRIG. How do you feel about Toyota and foreign automakers?
I dont care either way. They dont work for what I do, Farm. If someone likes em, fine. I think alternative fuels are a good idea, but they wont work in every application. For most people they will, but some professions you actually need to put power to the ground. As far as I know, nothing else is putting power to the ground as well as fossil fuels. Oh, and the hippies cant satnd on theit own to feet was a metaphor, as they cant do anything on their own.
So are you going to pay for this new fancy flex fuel vehicle for me and others? Also you don't think that when the alternative energies become more widely used that they are not just going to become the same thing as fossil fuels? If that's the case then you’re just a fool.
This is also true. Throughout modern corporate history (and even before, though less prevalent) MBAs and their ilk have analyzed and graphed out investment/return maxima to the Nth degree and implemented their strategies to maximize short term profits with no concern for product quality, customer satisfaction (at least not beyond what is required to maximize profit), or long term sustainability (at least not if it effects the next quarter negatively). These same people/goals also find it acceptable to manipulate the market through blunt deception, artificial shortages, exaggerated impact of localized situations (Catrina) and so on. Enron, Exon/Mobile, BP, and many others are clearly applying these techniques continually, and everyone sees it except the politicians their powerful lobbies/donations put into office. As things go now, these same people will be in control of the infrastructure for any future energy sources and will apply the same techniques to manipulate the market and maximize short term returns so they stock holders get their returns and the execs get their 6 and 7 figure bonuses for meeting short term quarterly and long term (as long as it gets in modern corporate culture) annual goals.
