Has anyone else been waiting for the other shoe to drop?
Ever since oil prices surged past $90 a barrel, I've been waiting for the day when pump prices followed suit.
But despite oil trading well over $80 a barrel, people didn't seem to mind. After all, pump prices have remained flat for the last few months, even if they are about 40% higher last year. What was there to fear? The peak driving season is over, so it's smooth sailing from now on, right?
Unfortunately, that's not the case.
According to the Energy Information Administration's (EIA) petroleum report this week, gasoline prices took off, rising to an average of $3.11 per gallon. And as if that weren't enough, the head of the EIA, Guy Caruso, announced that prices could rise more than twenty cents over the month.
Let me ask you, "When was the last time you paid $60 to fill up your tank in December?"
But before you start pointing the blame at drivers, remember this...
Gasoline demand actually dropped this week. According to the EIA, demand fell by 180,000 barrels per day. In fact, our gasoline demand over the past few weeks is only slightly higher than last year:
EIA U.S. Gasoline Demand
So if it's not some glut in demand, could the record oil prices finally be affecting prices at the pump?
Although we already knew these record oil prices would eventually affect our weekly gas fill-ups, don't expect relief to come anytime soon. There's a bigger problem you should be worried about: Oil markets are getting much tighter.
Testing Peak Oil in 2008
Buried in the Caruso's pump prediction was a bigger problem: Oil markets are getting much tighter.
I can hear OPEC still crying, "Don't blame us, it's the speculators!"
According to Caruso, that might not be entirely true, pointing to a problem in fundamentals. In other words, the problem is that our oil consumption is getting out of hand. I can't help but wonder what people will say if oil if over $90 in January? By then, we could be seeing pump prices hitting up to $5 this winter.
Assuming OPEC is "comfortable" with oil at $90 a barrel, another output increase is highly unlikely when the organization has its formal meeting in December. Perhaps November's 500,000 barrel production increase was too much. We won't know for a few months if the November increase can help ease crude prices.
I've been saying this for a while now: The peak oil theory is going to be put to the test in 2008. Since global oil production has remained flat for the last few years, oil prices could really get out of hand next year as demand continues to rise.
In 2008, we're going to find out which OPEC countries telling the truth about production capacities. I've got a feeling that Saudi Arabia may be the only one to increase production.
The Price Trigger
Now that we know more pain at the pumps is on the way, I've always been curious about what a person's price trigger is. In other words, what is the price when you go to yourself, "Maybe I better work from home today, or perhaps I should walk to work?"
Admittedly, it'll be different for everyone, but I think my trigger is around $7 or maybe $8 per gallon.
I guess only time will tell.
Until next time,
Keith Kohl
p.s. I know a lot of my readers have been asking me about new places they can look to invest their money. A new financial service called, "SC Trading Pit", will be "unveiled" to Energy and Capital readers next week, so stay tuned. SC Trading Pit was developed to help you find the "small cap" companies with the potential to increase hundreds, if not thousands of percentage points.
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Don't forget that on this side of the 'pond' in UK retail prices are now well over £1 sterling per litre after a recent surge - I guess thats around USD10 per gallon. Rather than the price I think its the speed of increase which unnerves everyone. I have paid over £60 sterling (? USD120 ?) to fill my very average family car for several months now.
I agree that its not going to get any cheaper. We don't have much sympathy for your $3.11 gallon, but as I've said, its the speed of the increase that worries everyone.
France is about 25% cheaper than UK but prices are rising.
Consumption rates for vehicles are becoming increasingly important here as I am sure they will be worldwide from now on.
I enjoy your regular commentary, keep it up - many thanks
Andy Barnes
which 100 percent of the time hit the nail on the head, so to speak.
I all reality, I guess you have, as I have concluded that the oil cartels are in bed with the governments here in North America.
In Canada we are being taxed to death on our fuels. Basically 30 percent plus is federal, and provincial tax. Our government takes in so much cash, they do not know what to do with it. All this does is boost the cost of goods & services here and States side. I do believe there will be an accounting eventually and the practice will come back and bite them on the backside. Best regards,
enjoy your articles. Don Herd
The use of alternatives is increasing. Once the Americans get the message that it is their patriotic duty to their families and their nation to get out of oil watch out.
Here in NZ I have just been to the Christchurch Show and there were so many solar pumps, heaters and panels for the home. Ground heat extraction devices, wind turbines, biodiesel. Energy crop production intiatives from government for farmers or just land owners who are willing to crop rape seed. Coherant cost effictive household and farm energy plans. Farm power stations for irrigation and power consumption AND generation back into the grid!
T think good old supply and demand will adjust the oil imbalance in due course. Mind you the 'Scare and pain' factor does help to get people motivated 'creative stress caused by a diminishing bank balance' does help to change minds.
Also the cost of petrol in Europe carries a 75 to 80% tax, meaning that if you remove the tax the cost of petrol drops to $1.97 a US gallon, and in the rest of Europe the story is about the same. What to they get for that tax of 80%, they get nearly free health care, free higher education for those students who carry good grade through the lower grades.... they get better highway and bridges, good transit systems that can carry you all over western Europe. So when you hear someone talking about the cost of petrol in Europe, don't forget to point out to them the details of that misleading statement.
We were being set up in 1983 when the fed under Regan deregulated the commodities markets. and even before that when Nixon took us off the gold standard. Now even OPEC is saying we are being taken to the clearers by the crude oil speculators, as well as a host of other deceptions now being played out in the US markets. I just dump my gold holdings last week after 12 years of playing that game ... as well as my green stocks. I'm playing the hydrogen production and fuel-cell industry in Norway and Canada now.
It's stuck in Committee now and you can bit it will stay there if the oil slicks have their way.