Great line, isn't it? Wished we'd said it, instead of this article.
As we talk here about trying to prep our corrections efforts to minimize the impact of higher future energy costs so as to keep budgets in line as much as possible to maximize public safety, we may occasionally give the impression that the path to those higher costs will be both straight and immediate. The article gives you a good example of why while the path will in fact be higher overall, it will also feature switchbacks and dramatic ups and downs, not just one regular increase after another. Because of speculators, elections and the . . . uh, leadership that occurs, the changing internal politics of oil producer nations (who are starting to figure out, "hmm . . . that Egypt guy went down, my peons are griping about things so we need to buy them off more, our own oil needs are increasing, we've got spoiled grandkids, . . . maybe going full tilt on production's not the smartest thing in the world regardless of current price . . . ."), and the tendency of higher gasoline prices to make economies go bust and thus bring down demand for it, we're on a roller coaster, not a rocket, as the author makes clear.
. . . If one does the arithmetic using the average price jump of 83 percent, futures prices could be expected to top out in the vicinity of $4.46 a gallon next spring. Adding in the additional 60 cents to get the gasoline taxed and to the nozzle of your pump, we could theoretically be paying a national average on the order of $5.00 a gallon before the 4th of July. This of course assumes that nothing bad happens in the Middle East that restricts or seriously threatens the flow of oil exports and sends prices much higher. . . .
If the price spike of 2008 obtains, $4+ gasoline is the breaking point for many Americans. Driving will drop, new car sales will plummet, trucks and airplanes will be parked, and with them a big piece of the American economy will grind to a halt. Four years ago, the drop in gasoline consumption was so sharp that it sent prices down $2.40 cents a gallon to an end of the year low of $1.65 thereby freeing up billions of dollars that were going into gas tanks in July and saving the economy from much more serious trouble. . . .
We also have a looming refinery problem in the U.S. and Europe coming up this summer. As demand for gasoline has dropped, refining has become less profitable, causing refiners to shutter or if possible sell some of their less-profitable refineries -- some 2.6 million barrels a day (b/d) of refining capacity has been closed in the advanced economies. In Europe, the continent's largest independent refiner is shutting down three refineries halting about 250,000 b/d of refining. In the northeastern U.S. however, the situation is much worse. Three large Pennsylvania refineries, which can refine 550,000 b/d and which constitute half the refining capacity on the East coast, are for sale. Two have already been shut down and the third is due for closure if a buyer cannot be found. While this loss of US refining capacity can be made up by increased shipments of refined products from Europe and the Gulf Coast, there will likely be added costs and delays that could result in shortages and higher prices. . . .
Makes your head spin, doesn't it? So, making exact timing predictions about these things is silly. But the trend line, as the last several years' flat-line supplies face growing demands from the developing world even if the developed world is cutting back, makes higher prices for energy and our lifeblood, gasoline, very likely. Not prepping for how we can cut our costs in those areas and become more self-sufficient in our departments and facilities is even sillier.
Now go read the post and see what mischief I may have done by pulling out the selected quotes. You know that's been on your mind.
Wed, January 11, 2012
by Mike Connelly filed under