Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
"The reasons, even as America produces more of its own oil? It has to do with limited refineries, abundant regulations, a paucity of pipelines and more costly methods to transport all that domestic oil to where it’s needed most. "
Supply and demand maybe, maybe not? As long as we drive vehicles that do not get good gas mileage and as consumers do not push for cars with higher mileage we will pay more for gas.
I have always thought that the government should not tell car companies what MPG to shoot for. Let the consumer tell the car companies what they want with their pocket book. And we do as you look at the below list. We love our trucks.
Even if every car got 50MPG and we did not use as much gas prices might still stay high so profits do not diminish. I guess were screwed no matter what.
Here are the top 10 selling vehicles for YTD thru May 2013.
1 Ford F-Series #2 Chevrolet Silverado #3 Toyota Camry #4 Honda Accord #5 Nissan Altima #6 Dodge Ram #7 Ford Fusion #8 Toyota Corolla #9 Honda Civic #10 Ford Escape
I got close to $3 level in May with 0.12/gal HEB (Grocery Store) discount when using HEB debit shopping card at the pump. I think I paid $3.05 Regrettably, that deal finished at the beginning of July but will probably come back around X-Mas time. Typically Walmart matches that with $0.10/gal discount with Walmart debit shopping card. In other times Walmart offers $0.03/gal discount. Either card is free. You just walk in to cashier deposit money and immediately go to gas station and fill your tank.
Having said that, I think it is still possible to get $3 oil if we are hit with a severe recession a la 2008.
Reply to @Art: Apart from 1, 2 and 6 which are all trucks the rest are pretty efficient vehicles. Only Ford Escape is CUV/small SUV. 2013 version comes with 4 cylinder engines. The default is 2.5l but you can get one with either 1.6l Echoboost or 2.0l Echoboost. 2.0l Echoboost delivers V6 like power but 2mpg better performance (versus 3.5l V6 when compared on Ford Edge) if MPG is your biggest concern though you might want to look at Mazda CX-5 for mpg leader in CUV/small SUV category.
Even number 1 Ford now has Ecoboost engine which is much more efficient in gas consumption than engines of the past.
Oil prices going up and remain high for extended period indicates the idle capacity in economies around the world is brought online again. I welcome this type. OTOH, Speculative/manipulative rises when economy is getting weaker cannot be sustained for a long time. We have seen that in 2007. I would be cautious of late cycle oil price boom.
Gas and transportation is a major portion of producing many goods. Any business without pricing power will be hit. Any business that can pass the cost will be OK. Rail should do well vs Airlines. When people pay for more oil, they have less to pay for other things so weaker demand for other goods and services limit the opportunity for businesses to pass the cost down.
Reply to @Investor: Certainly, although I was curious if anyone had thoughts regarding whether or not more people will move towards electric vehicles, whether or not that infrastructure will be built out any quicker. If, lets say, oil is going to stay around these levels, will we finally successfully move towards alternatives - if so, what, how fast, etc?
Interesting article: "For instance, nearly one-third of the natural gas that’s produced in North Dakota is simply burned off, or “flared,” because there are no pipelines to bring it to market. (Unlike crude oil, natural gas usually can’t be shipped by truck or rail.) That explains why you can see the Bakken fields lit up from space, and it’s not ideal from either an economic or an environmental perspective:" http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/18/the-u-s-oil-and-gas-boom-is-straining-the-countrys-infrastructure/
I probably get less exercised over gasoline prices these days than most folks. I vividly remember the cost of filling a tank back in the late 1950s, like 35 cents per gallon.
Does that seem cheap? Not really if inflation is factored into the equation. When economists put the gasoline pricing history into an inflation context, the overall prices have fluctuated by less than a factor of two for nearly a century.
The price of a gallon of gasoline is usually conveniently broken into four major groupings: crude oil costs, various taxes, refining costs, and distribution costs.
By far the largest input is the price of the crude oil itself. The average percentage of the total cost over a long timeframe is 68 %. At today’s market price of roughly $108.50 per barrel, that’s $ 2.58 per gallon of gasoline (one barrel typically yields about 42 gallons of gas).
The national average tax bite is approximately 12 % of the total cost. The national average increment added by all local, state, and federal taxes is about 65 cents based on a survey conducted last month. Specific values will vary based on residency; since I live in California, that number is very likely slightly higher for me.
Refinery costs and profits per gallon combined are reported in the 14 cent range. Profits per gallon must be a small fraction of this minor contributor. Refiners are cost sensitive, and consequently are efficient producers. Volume accounts for the huge bottom-line profits recorded by these refineries.
Typical distribution numbers include transportation costs and retailer profits. The national average for these incremental costs are in the 10 cents per gallon range. I had a brother-in-law who owned an independent station for decades. He struggled making about 3 cents per gallon of gas sold. It was tough sledding; he survived because of the car repair segment of his business.
Indeed, likely forget about any erosion to 2 or even 3 dollar per gallon prices. An under three dollar per gallon price tag will not likely happen. Given today’s market structure, the national average price of a gallon of gasoline is expected to be $3.47 based on my data cited above. All other factors constant, the price of crude must drop to under 89 dollars per barrel to permit a pump price of under 3 dollars per gallon. Good luck on that score.
That’s a fair price given the dominant factors of crude oil costs and taxes. The refinery and distribution costs are minor contributors, and the competitive marketplace has likely operated to force the primary refiners and distributors to be as efficient as possible.
By this analysis, the refiners and the distributors have cut costs such that the price of the crude represents about 75 % of the total costs: their share is below the historical percentages. So don’t blame the local businesses. The drillers and the government are the real villains.
If the price of crude drops to $100.00 per barrel, you can still expect to pay about $3.27 per gallon at the pump. That’s the sad truth on the matter.
Basically, the current gasoline prices simply reflect the classical economic supply-demand curves. Cutting the miles driven and/or improving automobile efficiency will surely drop gas prices.
But accounting for inflation and auto fuel efficiency, it is no more expensive to drive today than it was 5 decades ago. If you believe it was a bargain or a vital necessity in that lazy, hazy distant past, it remains a worthwhile expenditure today.
Overall, the present gasoline pricing is not troublesome for me, and I am sanguine over the matter. I hope most of you find yourselves in the same circumstance.
I don't think there will be huge move towards Electric vehicles and Solar/alternative energy systems until oil perhaps hits $5 average (in today's prices) and stays there for extended time (lets say a year or more). For vehicles, the added cost and lack of nationwide network of refueling/recharging stations nationwide is going to be drag and nobody wants to make the transition until there is a good amount of money at the end.
I think the rise in gas prices may be premature. The gasoline inventory has actually risen recently.
Also, while WTI has risen recently, brent has not. So, the price gap between the two has closed. If Gasoline inventories continue to increase refinery output has to reduce and WTI prices will come down as crude demand will decrease.
Additionally, almost ANY vehicle (except maybe a Hummer) gets greatly improved mileage today compared to the 50's, so the actual cost per mile driven is most likely even lower now that it was then, taking into consideration all of the factors MJG mentioned above.
Comments
I have always thought that the government should not tell car companies what MPG to shoot for. Let the consumer tell the car companies what they want with their pocket book. And we do as you look at the below list. We love our trucks.
Even if every car got 50MPG and we did not use as much gas prices might still stay high so profits do not diminish. I guess were screwed no matter what.
Here are the top 10 selling vehicles for YTD thru May 2013.
1 Ford F-Series
#2 Chevrolet Silverado
#3 Toyota Camry
#4 Honda Accord
#5 Nissan Altima
#6 Dodge Ram
#7 Ford Fusion
#8 Toyota Corolla
#9 Honda Civic
#10 Ford Escape
Art
Having said that, I think it is still possible to get $3 oil if we are hit with a severe recession a la 2008.
Even number 1 Ford now has Ecoboost engine which is much more efficient in gas consumption than engines of the past.
So, if lets say $3 gas is never going to be seen again, what does one invest in (besides oil) and what does one not invest in as a result of that?
Oil prices going up and remain high for extended period indicates the idle capacity in economies around the world is brought online again. I welcome this type. OTOH, Speculative/manipulative rises when economy is getting weaker cannot be sustained for a long time. We have seen that in 2007. I would be cautious of late cycle oil price boom.
Gas and transportation is a major portion of producing many goods. Any business without pricing power will be hit. Any business that can pass the cost will be OK. Rail should do well vs Airlines. When people pay for more oil, they have less to pay for other things so weaker demand for other goods and services limit the opportunity for businesses to pass the cost down.
Interesting article: "For instance, nearly one-third of the natural gas that’s produced in North Dakota is simply burned off, or “flared,” because there are no pipelines to bring it to market. (Unlike crude oil, natural gas usually can’t be shipped by truck or rail.) That explains why you can see the Bakken fields lit up from space, and it’s not ideal from either an economic or an environmental perspective:"
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/18/the-u-s-oil-and-gas-boom-is-straining-the-countrys-infrastructure/
Picture from space: http://www.washingtonpost.com/blogs/wonkblog/files/2013/07/Bakken+flaring.jpg
I probably get less exercised over gasoline prices these days than most folks. I vividly remember the cost of filling a tank back in the late 1950s, like 35 cents per gallon.
Does that seem cheap? Not really if inflation is factored into the equation. When economists put the gasoline pricing history into an inflation context, the overall prices have fluctuated by less than a factor of two for nearly a century.
The price of a gallon of gasoline is usually conveniently broken into four major groupings: crude oil costs, various taxes, refining costs, and distribution costs.
By far the largest input is the price of the crude oil itself. The average percentage of the total cost over a long timeframe is 68 %. At today’s market price of roughly $108.50 per barrel, that’s $ 2.58 per gallon of gasoline (one barrel typically yields about 42 gallons of gas).
The national average tax bite is approximately 12 % of the total cost. The national average increment added by all local, state, and federal taxes is about 65 cents based on a survey conducted last month. Specific values will vary based on residency; since I live in California, that number is very likely slightly higher for me.
Refinery costs and profits per gallon combined are reported in the 14 cent range. Profits per gallon must be a small fraction of this minor contributor. Refiners are cost sensitive, and consequently are efficient producers. Volume accounts for the huge bottom-line profits recorded by these refineries.
Typical distribution numbers include transportation costs and retailer profits. The national average for these incremental costs are in the 10 cents per gallon range. I had a brother-in-law who owned an independent station for decades. He struggled making about 3 cents per gallon of gas sold. It was tough sledding; he survived because of the car repair segment of his business.
Indeed, likely forget about any erosion to 2 or even 3 dollar per gallon prices. An under three dollar per gallon price tag will not likely happen. Given today’s market structure, the national average price of a gallon of gasoline is expected to be $3.47 based on my data cited above. All other factors constant, the price of crude must drop to under 89 dollars per barrel to permit a pump price of under 3 dollars per gallon. Good luck on that score.
That’s a fair price given the dominant factors of crude oil costs and taxes. The refinery and distribution costs are minor contributors, and the competitive marketplace has likely operated to force the primary refiners and distributors to be as efficient as possible.
By this analysis, the refiners and the distributors have cut costs such that the price of the crude represents about 75 % of the total costs: their share is below the historical percentages. So don’t blame the local businesses. The drillers and the government are the real villains.
If the price of crude drops to $100.00 per barrel, you can still expect to pay about $3.27 per gallon at the pump. That’s the sad truth on the matter.
Basically, the current gasoline prices simply reflect the classical economic supply-demand curves. Cutting the miles driven and/or improving automobile efficiency will surely drop gas prices.
But accounting for inflation and auto fuel efficiency, it is no more expensive to drive today than it was 5 decades ago. If you believe it was a bargain or a vital necessity in that lazy, hazy distant past, it remains a worthwhile expenditure today.
Overall, the present gasoline pricing is not troublesome for me, and I am sanguine over the matter. I hope most of you find yourselves in the same circumstance.
Best Wishes.
I don't think there will be huge move towards Electric vehicles and Solar/alternative energy systems until oil perhaps hits $5 average (in today's prices) and stays there for extended time (lets say a year or more). For vehicles, the added cost and lack of nationwide network of refueling/recharging stations nationwide is going to be drag and nobody wants to make the transition until there is a good amount of money at the end.
I think the rise in gas prices may be premature. The gasoline inventory has actually risen recently.
Also, while WTI has risen recently, brent has not. So, the price gap between the two has closed. If Gasoline inventories continue to increase refinery output has to reduce and WTI prices will come down as crude demand will decrease.