Plunging Oil Prices act as $350-Billion-Dollar Stimulus Package
It was only five months ago that oil prices hit a record high of $147 a barrel. Now they’re below $40 thanks to slowing global demand. At the same time, gas prices have plunged from over $4 a gallon to around $1.67 nationally. (And some analysts think they’re heading to a buck a gallon.) And just as high energy prices were a drag on the economy last summer, they’re giving it a boost heading into 2009. JP Morgan Chase economist James Glassman estimates that the drop in oil prices represents “a boost equivalent to a $350 billion stimulus.” To bring that down to the average consumer, Glassman explains, think of it this way: The typical household drives 15,000 miles annually. So a drop in gas prices to, say, $1.50 a gallon would represent a savings in their annual gas bill of $2,500 from when gas was at $4. This could boost GDP growth by as much as two percentage points.
Read the rest at: 5 Reasons Why the Economy Might Recover Faster Than You Think in 2009
Has OPEC Lost Control?
OPEC wants to prop up the dive-bombing price of oil, to keep their bank accounts flush with fresh cash. Russia is also feeling the pinch, as the rest of the world decides it _can_ live on less oil than previously consumed. OPEC would like Russia to join them in cutting output, in an effort to bring prices up.
Opec has been eagerly trying to recruit Russia to join its efforts and analysts say together the two could announce a further reduction of as much as 3m barrels a day of oil production within the next week.
Chakib Khelil, Algeria’s oil minister and Opec’s president, told state radio on Thursday there was a consensus among Opec members to reduce production when they met in the Algerian seaside town of Oran on December 17. He said: “The Oran meeting will decide a severe production cut to stabilise the oil market.”
Time will tell if they can woo the worlds consumers back to heavy consumption at the same time they bring prices back to “normal” profitability. If they are successful at turning this train around, then it’s likely the run-up and recovery of recent history were always under OPEC control - then what does it say about their intentions, as America teetered on the brink of the housing investment crisis in an election year…
What do you think?
OPEC Promises “Significant” Cuts - Again.
OPEC is to meet again on December 17th to mandate their members turn back their production output valves, in an effort to bring the price of oil up from it’s current lows.
OPEC President Chakib Khelil, who is also Algeria’s minister for energy and mines, told the Associated Press that a consensus has emerged among OPEC producers that a “significant reduction” is warranted by the current price slide.
Khelil would not discuss specifically how deep the cut might be. But he used the word “severe,” and noted that some analysts have predicted cuts of as much as two million barrels a day.
OPEC previously announced a 1.5-million-barrel-a-day reduction in October, but the decision failed to halt the fall in prices and markets have been expecting another cut at the Dec. 17 summit.
Why not keep OPEC on the run - regardless the price of oil - conserve as much fuel as possible w/o degrading your standard of living. Use resources like FuelClinic.com ( http://www.fuelclinic.com ) to learn to conserve and track your progress.
Continue to demand alternative sources of energy for your personal transportation. Demand “future-proof” FLEX-FUEL capable cars to take advantage of ethanol and methanol mix fuels w/o expensive new equipment, demand plug-in hybrids that charge overnight using clean electricity, demand small clean diesel engines that can run on bio-diesel that can be produced from algae.
Consumers cut consumption as a result of summers painful fuel costs - and pulled the rug from under OPEC, causing oil to “crash” back down to market value. Keep it going even lower by continuing to curb consumption, and keep pressuring government and industry to bring to market ways we can _replace_ most of oil from our transportation requirements.
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DOD’s Energy Plan is Running on “E”
Tonight, while scouring the web for the best sources of energy and new fuels information I can find for you, I stumbled upon a gem of a blog ( DOD Energy Blog ) that focuses on the impact of our energy crisis on the Department of Defense - the worlds single largest oil consumer.
And what perfect timing! First up, a post about a report that will get us all right up to speed on current DOD energy issues.
I’m not exaggerating when I tell you Dr. Sohbet Karbuz’s ”Can the U.S. military move to renewable fuels?” in last month’s Bulletin of Atomic Scientists is perhaps the best, most concise summation of the military’s fuel concerns in 2008.
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The Case for “Future-Proof” Flex Fuel Vehicles (FFVs)
Over the next few years you’ll see a change at your local gas stations as more alcohol-blended fuel pumps are installed across the nation. Alcohol-blended fuels like E85 are already available in some areas, and more are coming to market as more FFVs are sold in the United States.
US based manufacturers have committed to making 50% of their new autos FFVs by 2010 and and 85% by 2012. In addition, there is proposed legislation called the Open Fuel Standard Act which will mandate all cars sold in America meet the same goals, so this will mean that all imports sold in the US will meet the same FFV standard. (You can help support this legislation here.)
Since FFV is an widely available and mature technology (there are already millions of FFVs on the road in the US - you may be driving one), adding the capability to all new vehicles sold in the US doesn’t add notably to the cost of making new cars (usually about $100) - and provides a way for auto manufactures to “green-up” their product lines.
Drivers of FFVs will be able to choose what fuel to buy, based on price at the pump, performance needs, personal preference, etc. - just like shopping for any other commodity. You’ll be able to mix E85 with E10 (the current flavor of gasoline almost everywhere in the US) and newer alternative blends like E25 or M50. Using FFV technology, your car will automatically adjust your engines settings to run properly on any combination of gasoline and alcohol fuels.
Unlike more exotic alternative fuels like compressed hydrogen or natural gas, drivers of FFVs are not stuck on a virtual “energy island” of specialized refueling stations. You will be able to travel freely, just like today, as far and wide as you like - choosing your favorite blend of alcohol fuels as you go - or using straight gasoline where no other choice exists.
So if your next car has an engine that burns liquid fuel, makes sure it is “future proof” and check that it’s a Flex-Fuel Vehicle before you buy it, or else you’ll be left without options at the pump when the alcohol-blended fuels hit the wider market.
Turning Oil into Salt
I’m home from the Energy Freedom Summit in Chicago with so much material and information that it’ll take me weeks to digest, understand, summarize, and disseminate it to you. Let me start with a “sound-bite” sized summary of the theme of the conference…
Once was a time when nations went to war over salt. Seriously.
Until the 19th century salt was a strategic commodity much like oil is today. Salt was required to preserve meat - and preserved meat was required to allow armies to march. Salt was required for societies to grow beyond traditional collectives, and salt was required to store, transport, and sell meat that could not be consumed immediately. Wars were indeed fought over salt, and those nations with large salt reserves had tremendous political and economic prosperity - and power over those who needed their salt - much like countries with oil do today.
So, what happened to change the world, and strip salt of it’s strategic importance?
New technologies were invented which made salt unnecessary for food preservation. The invention of electricity, refrigeration, canning, and other preservative technologies forever changed the world, and salt became just another freely traded commodity like we are accustomed to today.
You can still preserve your meats with salt if you wanted to, but most choose to refrigerate it.
Today we find ourselves in a 19th-century dilemma again, where oil has replaced salt as a global strategic commodity, and where the trade in this commodity is tightly controlled in order to weild political and economic power.
Oil’s strategic value stems from it’s monopoly in the transportation sector. This monopoly gives the petrocrats that control OPEC and the bulk of world oil reserves unacceptable power over the global economy.
How exactly can we “turn oil into salt”. The answer is surprisingly simple and familiar - by using technology to provide fuel choice thru Flex Fuel Vehicles (FFV) and plug-in hybrid w/ FFV engines or new 100% electric vehicles (EV).
“Future-Proof” Flex Fuel Vehicles (FFVs) keep to a liquid-fuels based technology that is no different from the norm today. The element of “choice” is created by allowing drivers to decide what type of fuel to consume, with options ranging from straight gasoline (no change from existing habits) to a variety of blends of alcohol/gasoline like E25, E85, M50. FFV technology does not restrict auto manufactures in any way - they can make any variety of vehicle they’d want, from scooters to Hummers.
Plug-in Hybrids w/ FFV engines (similar to the Prius Plug-In) move the hybrid technology forward by decoupling the vehicle from the gasoline pump. With a plug-in hybrid, you can choose to recharge your car using your residential electricity. For distances greater than your battery capacity, your hybrid will switch to using it’s FFV engine, where you’ll have the same fuel options of non-hybrid FFV’s.
Electric Vehicles (EVs) (like these from an auto show earlier this year) are quite different and have no engine and require no liquid fuels on board. Instead they have bigger and better batteries and electric motor(s) which meet commuting needs of most Americans, and are recharged at home or at specialized recharging stations around town. This option allows a “no-oil” choice, as your car is recharged by the power grid. (The power grid is of course fueled somehow, in the U.S. usually natural gas, hydro-electric, coal or nuclear.)
At this point, when there are a variety of ways to power your vehicle, gasoline will have to compete with other forms of fuel that are not completely controlled by “big-oil”. As in Brazil, market forces will control costs and create a vigorous new-energy economy. Consumers decide what fuel to buy, based on a variety of reasons they get to determine.
When consumers have a choice and a real alternative to replace 100% gasoline, oil will no longer be a strategic commodity and it will be forced to be valued competitively, just like salt.
Once Bitten… Will Americans Continue to Conserve Fuel?
As oil prices continue to slide away from the peak crude costs earlier this year, and as the price at the pump lags downward, will American’s forget the hard lessons of the summer’s high fuel prices and lapse back into the sleepy denial of the true nature of our current energy crisis?
Judging from recently released data from US DoT, the ”mileage bubble” has yet to burst.
The U.S. Department of Transportation said Friday that Americans drove 5.6 percent less, or 15 billion fewer miles, in August compared with same month a year ago—the biggest single monthly decline since the data was first collected regularly in 1942.
But it’s not uncommon for market factors like these to lag behind one another. As fuel prices start to look “cheap” again to your average American driver, will they start forgetting the pain of $4+ gasoline?
Many experts I spoke with at the Energy Freedom Summit in Chicago believe that these lowered prices are very temporary, and that our energy strategy is so inherently weak that almost any “glitch”, storm, or supply chain attack will send prices soaring, probably beyond the record highs of this summer.
Robert McFarlane, former National Security Advisor for Ronald Reagan, went as far as to predict a massive attack on oil infrastructure in the next six months that would cause crude oil costs to soar over $200 per barrel, and cement the looming world recession, noting that a 5% cut in current production would mean oil would cost about $200/bbl.
While not everyone agrees with the certainty of the event, most did agree that should such an event occur, the damage to world population would be devastating - especially to the parts of the world where higher oil costs mean starvation and death, in addition to here in the West where it will mean job-loss and economic hardship or ruin for many.
It’s my hope that the oil market have overplayed it’s hand with the American people, and that the lessons of the summer of ‘08 will not be quickly forgotten.
What do you think? Comments are open…
OPEC Cuts Production, Oil Prices Continue Slide
SINGAPORE (AP) - Oil prices fell to 17-month lows at $63 a barrel Monday in Asia as investors weighed Friday’s OPEC output cut against growing evidence of a severe global economic slowdown that would undermine crude demand. Light, sweet crude for December delivery fell 32 cents to $63.83 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. Investors brushed off a 1.5 million barrel-a-day cut announced by the Organization of Petroleum Exporting Countries on Friday, focusing instead on falling crude demand as economies across the globe reel from the impact of a credit crisis. On Friday, oil fell $3.69 to settle at $64.15. Prices have plunged 57 percent from a record $147.27 on July 11.
Energy Freedom Summit - First Impressions
Today and tomorrow I’m in Chicago attending the Energy Freedom Summit, organized by the Set America Free Coalition. I wasn’t sure what to expect from this summit, not knowing much about the organization until just two months ago.
My first impression after today’s panels; I’m impressed with the knowledge, experience, focus and pace of this organization - they have a laser-lock on what they intend to do, and are efficient in getting the message out as powerfully as possible.
The panels are impressive leaders in their fields, from geo-political security experts to plug-in hybrid magazine editors. I’m taking many notes.
The attendees are an ambitious and eclectic group of people from a variety of backgrounds who are interested in understanding and solving the current energy crisis. Authors, government officials past and present, entrepreneurs, concerned citizens fill the conference hall - about 150 in all.
I’ve met several authors, a frog farmer, a history professor, a few lawyers, and several “regular joes” who are attending in an effort to ”do something” about this problem.
I’m not yet sure where I fit in here, but I keep talking to people, and am learning quite a lot.
(Update 10/27/08 - I’m home from Chicago, with enough new information to fill this blog for weeks. I’m currently writing a few entries, and will begin posting them as they are completed.)
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Supply and Demand: Oil Prices Dropping
You’ve probably noticed oil and gas prices are the lowest they’ve been all year. Demand has slipped not just here at home, but around the world. Even China’s demand is showing signs of cooling.
Source: IHT.com
At the beginning of the year, OPEC producers felt confident that strong economic growth and tight supplies would keep oil prices high. When oil crossed the $100-a-barrel threshold in February, the cartel’s president blamed speculators and said there was not much OPEC could do.
But now, panic is gripping producers as prices drop. Oil is down by half since July, and the speed of the decline has stunned oil-rich governments that have become dependent on high prices.
OPEC is worried that prices are going to slip too far. This, of course is great news for consumers, who have been suffering for months paying balooning prices at the pump. It’s also a confirmation that basic rules of supply and demand still work to determine the cost of commodities like fuel. Of course lower fuel prices would be even more welcome if not for the global economic downturn.
Were fuel prices a contributor to the economic crisis - a perfect storm of the housing credit and oil bubbles? I’m sure that high fuel prices helped push consumer confidence down. How can you be optimistic about weathering your other economic problems when every day the price of fuel rises, and never seems to fall. High fuel costs may have pushed us over the economic edge we have be teetering at for the last few years.
Early in the year there were numerous reports from government transportation agencies and commercial groups like AAA that Americans were curtailing driving, driving less that they had the year before, indicating the first decrease in driving in decades. In any case, the oil market is finally reacting to months of run-ups, where we found ourselves paying over $140 for a barrel of oil just a few short months ago. We stopped buying as much, and the price slips.
Now OPEC, the largest oil cartel, may attempt to flex its muscle to prop up falling oil prices and protect their profits, by purposely reducing oil supply.
Is it possible to demonstrate more clearly the need to find alternative supplies for energy than this? Is it possible to demonstrate more clearly the effect of energy conservation than this? We all participated in the grandest supply and demand experiment of modern history.
Conservation works - and works quickly, without any new technology required. Finding alternative sources of energy, or just stating the intention of finding alternative sources of oil, also works to reduce prices. It doesn’t take years, as predicted by politicians from each side. Speculators and cartels are discouraged when they hear the largest customer has decided to shop around a little. Sellers tend to sweeten the deal in order to keep the customer. It’s less about actual drops of oil, and more about managing human greed. Let’s not be lulled back into old habits by lower prices.
Let’s also remember that relatively small changes in demand led to fairly substantial changes in price. It’s true that Americans are driving less than last year - but it’s only by a small percentage. Look around, there are cars everywhere - moving around all hours of the day. American’s haven’t abandoned their cars, they are just using them a little less, or using them a little more efficiently. I’d like to think we contributed, however slightly.
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“$4-a-gallon gasoline has clearly killed demand”
A day after plunging as much as $5 a barrel in a dramatic sell-off, crude continued its downward trend Tuesday as traders sold oil contracts on the belief that prices are still too high in relation to demand and have further room to fall.
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The Option to Drill
Is the Option to Drill enough to stop sky-rocketing gas prices?
(For the record, politics stink. Oil is now a hugely political issue, and I try very hard to avoid ”politics” on this blog and website. It’s truely meant to be a resource for everyone, without a personal political axe to grind. Sometimes politics are unavoidable. When the facts speak one way or another, and it coincides with a certain political bent, I’ll do my very best to indicate why you should at least consider the points being made by “the other team”.)
Some say we “can’t drill our way out of high oil prices” and that “it will take 10 years to see a result” of renewed off-shore drilling here in the United States. Apparently, however, our government can do a little paperwork and revoke drilling moratorium restrictions - creating an “Option of Drilling” - and immediately see a “correction” to the price of oil - without any actual drilling.
- Since George Bush rescinded the federal moratorium on off-shore drilling and since demand for higher domestic production has increased in the face of $5 per gallon gasoline, the price of crude has dropped over $20 a barrel in less than two weeks.
- The correction for oil prices has lasted two weeks with Brent down 16.3 per cent since hitting a record $147.50 on July 11 while WTI has sunk 16.8 per cent since reaching an all-time high of $147.27 on the same day.
- Technically, the $128/bbl support on WTI did not hold very long, and crude is pushed down further to test how strong the $122/bbl support can be. If $122/bbl does not hold, then we would face another accelerating wave to the next significant support level at $110/bbl.
There is another ban on off-shore drilling - a Congressional ban. Lifting this ban would indicate a strong intention and commitment to the “Option to Drill” - and help continue the “correction” of oil prices. To lift the ban requires a vote. But, Congress being the mess that it is, there are people who’d just rather not vote one way or another on this right now…
- WHY NOT have a vote on offshore drilling? There’s a serious debate to be had over whether Congress should lift the ban on drilling in the Outer Continental Shelf that has been in place since 1981.
The “correction” has certainly had some help form the current high prices. “Pain at the pump” has changed the habits of many drivers. Demand has reduced 2.4% from this time last year. Many people are driving less. It’s not hard to imagine why, when the cost of a fuel stop can easily approach $100 for a full sized pickup or SUV.
- “People have changed their driving habits, and they’re not going to change back anytime soon,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group.
- Gasoline price changes typically lag behind oil prices. The price of oil has risen more than 72% over the last 12 months. But as the high cost of fuel cut into demand, crude prices have shed more than $23 a barrel since hitting a record high on July 11.
Without options, America’s economy can be held hostage by the greed of others. FuelClinic is obviously a stong proponet of consumer education, fuel conservation, new fuel technologies, electric cars, and other alternatives to help wean human civilization from the giant oil tit. At the same time, we do not need to needlessly (or stubbornly) slow the world economy by refusing to recognize the power of markets to correct themselves when artificial constraints are removed.
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