Lets stop with the political hot potato concerning oil

There has been a lot of talk of late centering around President Obama and the gas price hike we have seen in the US. Many people blame his policies, pushing alternative green energy over conventional energy (like Nat gas, coal and Crude). There has been people in the administration that have actually gone on record admitting as much. Dr Stephen Chu actually said in an interview with the Wall Street Journal in late 2008 (before he became part of the cabinet):

fileintothetrough.blogspot.com

 

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,”

 

According to the WSJ, Dr Chu would do this by quote: “raising gasoline taxes gradually over 15 years to coax consumers into buying fuel-efficient cars and discouraging sprawl”.

Now, we haven’t seen that happen as of yet. We already have seen however that the Administration does play favorites when it comes to the agenda or promotions of industries they see fit. We seen that with Solyndra and GM. While that does point to an obvious flaw or at least a blurred line in the relationship between private industry and the state; it is something that isn’t unique to the Obama Administration alone. It is also not he reason gas prices have gone up either these last few years.

Now, just like playing favorites when it comes to energy sources, the Obama Administration is guilty of a double standard in handling or at least blaming the source for fluctuations in gasoline prices. This was a stump speech in Indiana from 2008, one in which President elect Obama was campaigning on the high oil prices pushing blame on the Bush Administration and the oil companies, staying true to his populist ideals:

 

http://www.youtube.com/watch?v=dnLP12X3EgM&feature=player_embedded

 

There has been examples of President Obama deflecting when it comes to what is happening with the price of gas, blaming everyone from speculators to people driving SUV’s. So its pretty clear, the Obama Administration has favored alternative energy over conventional and he has also used double standard logic to defend the rise in oil prices. Again, these are not reasons why gas prices have went up. As i pointed out earlier this year, we here in the US are now actually a net exporter of fuel for the first time since the 1940’s, yet prices in gasoline have only went up. The reason is very simple. Its a global economy and oil is the heart of the global economy, there is very little one country can do to offset the global price that is measured in US inflationary dollars.

Now, with that said, the biggest reasons we are seeing rises in fuel prices specifically at the pump is also simplistic. The world is consuming more oil, the supply has remain unchanged, thus the law of supply and demand have driven the price up. Just look at the demand.

As we can see the emerging markets and growing economies are consuming more and more oil and we are consuming less. We are seeing now the fruits of their labor that comes from producing our cheap goods. The emerging economies are showing the world what it means when people say “a rising tide lifts all boats”. And to the contrary, ours are staying stagnate or sinking. That’s just cause and effect. Now what about supply?

 

oilprice.com

 

As we can see here and pointed out by Gail Tverberg:

 

“Since 2005, world crude oil supply has bumped up against what seems to be a limit of 75 million barrels of oil a day. No matter how hard companies try to extract more crude oil, and no matter how high world oil prices rise, they seem unable to extract more than 75 million barrels a day (MBD).”

 

So again, supply has stayed level, while demand has risen and while some look at the price of gas and the recession and rise in prices during the recession as proof of something to use as an excuse for blaming the administration its clearly not based on fact. Here is the graph that really tells what is happening.

 

Chart courtesy of Gecko Software

As you can see above, the demand in oil has increased with the price, nothing fishy or speculative about that. Its just simple mathematics. What we seen in the march from 2002-2008 is what we are seeing now. 2008 wasn’t some anomaly; it is reality. That is where the economic equilibrium now lies, but the more reckless spending and the more we rely on credit that dilute savings; the equilibrium will only rise in terms of dollars.

This idea that we can spend and borrow our way to prosperity is going to have some consequences, cheap oil is one of them. And when you factor in the emerging economies, it only speeds the rise in prices that much quicker. Call it cause and effect, call it 2+2= 4…. whatever you do call it, just call it what it really is, not what you want it to be. Stop pretending this is some partisan issue when clearly, this long term, cannot be a political football. Now if you want talk about getting Nat-Gas powered cars… that’s a different issue. Natural gas is really where our ultimate prize lies.

13 comments to Lets stop with the political hot potato concerning oil

  • Rojelio

    Kind of rambling. It’s not even clear if this is a call to arms to address peak oil or if you are a peak oil denier?
    Natural gas is the prize? You think fracking gas is remotely sustainable? How are bankrupt Americans going to build a MASSIVE new infrastructure required to run planes, trains, and heavy machinery on natural gas?

  • Fletchlives

    Its not a call to arms of anything. Its a reflection of reality. Oil like Nat Gas is finite. I think its safe to say anything finite is limited in its availability but then there is people like you who attempt to divide people, so the beat goes on. Do i think that Nat gas is remotely sustainable? I do. Comparatively speaking to oil it is. Even if the currency goes up in smoke, we will have something representing of value rather its a resource based economy, or some commodity backed dollar or if its another fiat recycling project… regardless of what it is, your tangible assets are going to hold value.

    You do know there is already cars/trucks running on CNG right? You do know that its more efficient then gasoline right? You do know we are said to have 75-100 years of this stuff. Do i think Gas should be converted to all cars? No, i like competition though because it creates choices, what choices do we have now? You pay 4.00 a gallon or you dont drive. This will do two things it sustain the life of oil and it will provide more time to come up with other solutions, whether that be wind solar, wave, what have you.

    Or you can reply to me cherry picking the last sentence and telling me its not clear, when i firmly believe its not a hard concept to grasp when it comes to oil. Demand is increasing, supply stays the same thus the prices increase. Thats rambling??? Im providing evidence of a simple situation that many Americans have to think about often. People then try to make this a political issue when clearly it is not. Although i have a separate political point that ill save for another day concerning that.

  • Rojelio

    I have not motivation to argue or disrespect the author. However, this issue is so important, I feel compelled to ask readers to please consider these fundamentals free of any political ideology or personal agenda on my part.

    1. The world’s problem in a nutshell is that oil production (and other resources) cannot expand in lockstep with the currency supply. However, our economic paradigm requires that energy production as well as debt MUST expand. Why not, it’s basically worked until global oil production hit a brick wall in ~2005 and has since plateaued. This was catastrophic for the current economic paradigm.

    2. There is currently NO substitute for conventional crude oil (e.g, light sweet cheap oil). Nothing even comes close. Not nuclear, not shale, not solar not anything.The quantum leaps in technology required for the necessary new energy paradigm cannot take place under the current system. One can see that essentially all resources are being diverted towards implementing the coming oil wars, not towards energy technology and sustainability. Hopefully a renaissance comes AFTER this nightmare plays out and many of us are dead.

    3. To even debate this, one must understand energy return on investment (EROI). IMO, this is where most people unfortunately miss the point. For most of our history, it took 1 barrel of oil energy to extract 100 more barrels of conventional crude oil (EROI=100). Compare that to the EROI of ~2 for the corn ethanol scam. Consider the author’s statement “we have 75-100 years of this stuff”. So what? Can we also afford the multi-trillion gallons of fresh water and the billions of gallons of low-cost diesel fuel needed to frack it? Communities lighting their tap water on fire for the next 100 years due to fracking is OK, just to get maybe an EROI of ~10?

    4. Where is the multibillion $ investment money for the fracking going to come from, especially during hyperinflation? Bad EROI is not cheap. Here it would be helpful to review the silver shield video “Baby boomer’s Last Chance” where he argues that if you have some paper nest egg you should convert to silver. I’m not sure if the author is suggesting you divert your remaining nest eggs towards the upcoming shale gas boom and bust cycle, but it is a fair question to ask.

  • Fletchlives

    Fair enough and i respect your points/arguments. This isnt any attempt to facilitate advice in investing in anything. I for one, have reinvested all of my savings into tangible assets (not cash thou). Being in my early 30’s my 401K wasnt too large that i had to take a significant penalty but i did pull that out and bough my property as well as a silver bullion and eagles. Back a few years ago i was scooping up silver eagles on ebay (of all places) for just a few dollars over spot per ounce. I think back when i was buying them they were about 14$ per oz and it was anywhere from $17-18.

    I also own a small farm so i am able to sustain a good portion of my food myself and i do have a gas/water well so all i pay is my electricity and taxes. Im actually networking with a few people in the general area to do some simple exchanging. I think localization is really the only alternative going forward if you want the least amount of impact from what is coming. Im not suggesting people do that, it just works for me.

    Im not also suggesting fracking is the answer and i own a well, it isnt comforting but its happening like it or not. If i was one of the elites, i would feel strongly we preserve our resources and let the world pump theirs dry in a Machiavellianesque strategy to remain “on top” but that isnt going to happen either. What you say about ROI is true, but the days of light sweet crude are over. We are getting down to the sludge and we are at the crescendo for supply if not on the downside of it, so the cost goes up, but having a competing resource make sense if you are looking at pumping gas. We are going to use up any commodities we can first, hopefully in the meantime we can figure out major strides in renewable energy.

    And oil wars and fresh water wars are also a probability as well. In fact i would for certain. As the population increases its inevitable. The cheap energy is used first, then the least expensive after that. Unless we can get fresh water to supply our energy it is going to be used for fracking, like it or not, bad investment or not. Its inevitable as well.

    The point of the article was blaming one party over another back in 2008 or now is silly. I think we both can agree on that.

    • Rojelio

      Keep writing. Just a few tweaks, you’ll be fine. Don’t let guys like me stop you.

      • Fletchlives

        Well i do appreciate your constructive criticism, i sincerely do. Im just an average guy, i make no claims on being an expert on anything because im not. I have worked for General Electric on both the floor and in the marketing department, i just find this site, topics like these fascinating. Its obvious you know what you are talking about so again, i appreciate all opinions and criticisms – that how we learn, or at least that is how i do anyway.

  • Aurochs

    Blah blah blah… the price of gas HAS NOT GONE UP! The value of your monopoly money HAS GONE DOWN! It’s called INFLATION and It’s been going on since 1964 when we went off the silver stadard. In 1964 when we last had silver coinage, a gallon of gasoline cost $.23 per gallon give or take a penny. A pack of cigarettes also cost 25 cents. Lettuce was 5-7 cents per head. A coke from a machine cost a dime and a bottomless cup of coffee was 5 or 10 cents (depending on the resterant.) You could buy a brand new house in S. Calif. suburb for $17,000. A family of four could live on dad’s blue collar job salary quite nicely and mom could afford to stay home and raise her family (how’s that ‘women’s lib working out for ya?) You could take a U.S. TREASURY NOTE to the bank and exchange it for a .77 toz of silver morgan or peace dollar. So don’t tell me the price of gas has gone up. It hasn’t. At $4.00 per gallon today that’s about $0.16 cents worth of silver at today’s price so either the silver or the gasoline is a bargain today. Actually, both are. All this crap on the tv about the middle east oil prices or the emerging economy of east bohunk are just elitist bullshit to keep you distracted from the real issue which is that our fiat currency is unsound and about to collapse. Geez! Don’t you get that yet?

    • Fletchlives

      That kind of goes without saying. We have lost 82% purchasing power since 1971 alone. Hence why i put:

      “there is very little one country can do to offset the global price that is measured in US inflationary dollars.”

      I have covered this many times over, i was simply making the point that this isnt a two party problem, again hence the title of the article. Is it Elite bullshit that other nations have emerging markets? I dont think so, but some people look for boogy men when they open their front door every morning too, it takes all kinds. Do you not agree that the supply of oil has hit a wall and is stagnate? Do you not believe that other nations are consuming more gas? Gas goes up for numerous reasons but supply and demand is at the top of the list, and inflation is tied into that of course. Bottom line, its costing more Americans to fill up their gas each day, do you think the average person cares its inflation? 1oz gold coin in 1971 cost $35 what did spot gold close at today? How much as that %35 worth in terms of real purchasing power today? 6 bucks? Do you think the interest rates will stay at zero? I do. If so gold and silver will only rise as do all commodities in a high/hyper inflation period. Do you think people will buy gold and silver because of it? Most wont. So, yes inflation is a driving force behind this but so is population so is supply etc etc. The point of this article was to simply end peoples constant blaming one mouthpiece over another. Period.

    • Rojelio

      It’s not as unidimensional as you imply. The inflation is because the currency has expanded faster than oil production. Consider the BP spill. You think they could have sucked up the cheap easy stuff, but just for shits and giggles they bungled around 2 miles under the ocean in glaring display of the limits to current technology?

      There are 7 billion greedy shitting bipedal hominids running around and just about every resource of value is being depleted at an exponential rate. Geez! Don’t you get that yet?

      • Aurochs

        “There are 7 billion greedy shitting bipedal hominids running around and just about every resource of value is being depleted at an exponential rate.”

        Yeah, I definitely get that. Too many apes for sure. No end in sight. But whenever you discuss the ‘cost’ of something, you’re either talking about ‘opportunity cost’ or the value of the currency. It IS simple. Don’t let your liberal professors or the msm fool you into thinking it isn’t.

  • Rojelio

    Hey Fletch,

    here’s a video that I think you would enjoy. It’s 45min but he’s about the best speaker I’ve heard about oil.

    http://www.youtube.com/watch?v=_qeRaBaPRmk

  • lastmanstanding

    Guys, I love it when you talk way the fuck over my head…oil, gas, silver, inflation, farms, growing food, liberal professors, msm, greedy shitting bipedal hominids?!? wtf!!!

    …it is late on a rainy Friday night here in the Rockies…

    did anyone notice that the dollar has dipped below 79?…It has not been there for a long time…personally i think it will continue down. Why? because no one is paying attention and having debates like this to enrich themselves and open each others minds.

    every day is important…use them to your advantage…I’d like to think that good use of them will save our asses.

    • Rojelio

      Haha. Comparing the dollar to other currencies is like patients in the AIDS section of the hospital checking to see who lost the most weight.

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