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Tensions Rise Over Fuel Prices
Fleet Owner via Layover.com
From owner-operators to big OTR carriers to public fleets across the country, record-high fuel prices are wreaking fiscal and operational havoc, with labor unrest glowering in the wings.
The U.S. Energy Information Administration (EIA) reported that gasoline and diesel prices for the week ending Aug. 22 increased 6.2 cents and 2 cents per gallon, respectively, boosting the national average for gasoline to $2.61 per gallon and diesel to $2.58 per gallon. That’s nearly 73 cents per gallon higher for gasoline and 71.4 cents per gallon higher for diesel compared to last year at this time, the EIA added. The situation is even worse on the West Coast, particularly in California, where fuel prices exceed $3 per gallon for both diesel and gasoline.
This staggering increase is hitting police departments and school districts especially hard. For example, the Virginia State Police estimated that rising gasoline prices would add $1.2 million to its $3.7 million annual fuel budget, an increase of 32%. The police department of Frederick, MD, is already $57,000 over budget because of fuel prices, having paid 33% more for fuel than it did in 2004.
(25 August 2005)
The Trucking Industry speaks. More details in the original article.-BA
Global: Globalization’s First Oil Shock
Stephen Roach, Morgan Stanley
This is the first oil shock in the modern era of globalization. That means its impacts are likely to be compounded by the cross-border linkages that shape the global trade cycle. In today’s US-centric world, that spells unusual vulnerability. If higher oil prices take a toll on the over-extended American consumer, repercussions in the rest of an externally-dependent world will be all the more acute. That puts Asia, the world’s most rapidly growing region, right in the cross-hairs of the energy shock of 2005.
Globalization complicates the transmission of shocks around the world. That’s especially the case with respect to the current energy shock. Countries will be hit both by the direct effects of rising energy costs, as well as by the indirect impacts of energy-related pressures on their major trading partners. To the extent that the American consumer remains the principal engine of growth on the demand side of the global economy, those nations that rely on exports to the US as major sources of growth will be hyper-sensitive to any energy-related cutbacks in US consumption.
In my view, the American consumer is very much at risk in the current oil shock…
(26 August 2005)
Respected analyst Roach continues to connect the dots between oil and the economy.-BA
Nigeria: Petrol price jumps 50%
Francis Awowole-Browne, Luke Okoro, Sopuruchi Onwuka, Rasheed Bisiriyu and Felix Nwaneri, Daily Champion (Lagos) via allAfrica.com
LAGOS – BARRING last minute change, a litre of petrol may cost between N72.00 and N75.00 from Monday following Nigerian National Petroleum Corporation’s (NNPC) decision yesterday to stop its alleged N600 million daily subsidy on the product forthwith.
In anticipation of the hike, motorists in Lagos and a few other cities engaged in panic buying to enable them have sufficient stock of fuel at the prevailing N51.00 per litre, with the development resulting in long queues of vehicles which snaked out at some filling stations.
(26 August 2005)
Long article appearing in a local publication.
China takes the brakes off motoring
Nury Vittachi, OneWorld UK
The world’s most populous nation now has motorists—but there’s no petrol at the pump.
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Oil-starved motorists in China are waiting in mile-long queues, desperate to buy petrol. Oil-rich fuel suppliers are desperate to sell it to them.
But buyers and desperate sellers cannot reach each other. A piece of paper stands in the way.
The chaos at filling stations this week in China is one of the most frustrating repercussions of large-scale changes in the oil business. The biggest change is the way that Asia is following America’s lead to become a continent of gas-guzzlers. Already, China is the world’s second biggest consumer of oil. But there are changes at every level. Chinese urbanites are putting away their Forever Brand bicycles and trading up to VW Santanas: a German-designed car built on the outskirts of Shanghai.
…It seems a long way from the situation described just after Chinese New Year, where Chinese newspapers exulted in the fact that oil imports were falling. China had “hefty year-end stockpiles”, the People’s Daily reported on 25 February.
What happened? Between then and now, oil prices rose from US$49 a barrel to US$67. Chinese suppliers, unable to raise their prices because a government edict forbids them from doing so, have shut hundreds of filling stations, claiming that they would otherwise be selling oil more cheaply than they can get it.
…Chinese leaders are desperate to avoid what’s happening in Indonesia, where the oil squeeze is putting the brakes on economic development.
(27 August 2005)
According to the OneWorld UK website: “Welcome… We aim to provide the UK’s best online coverage of human rights and sustainable development.
Prices transform oil into a weapon
Ian Bremmer, International Herald Tribune
…There are two reasons that oil has become an effective weapon. First, there is very little spare production capacity in global oil markets. Both OPEC and major non-OPEC countries are producing at close to full tilt. Global markets are likely to remain tight for at least the next two or three years, and Chinese energy demand will continue to rise sharply. With global oil markets so taut, even small interruptions in output put disproportionate upward pressure on prices.
Second, petro-states are rethinking their assumptions about the elasticity of global demand for oil. When oil sold for $30 a barrel, they accepted the conventional view that substantial price hikes might lower demand – and hurt their bottom lines – as importing states actively looked for new sources of oil, energy alternatives and other ways to cut fossile-fuel consumption. Now that oil sells for well above $60 a barrel, without (so far) a sharp drop in demand, energy-exporting states are changing their minds. Some now believe they can push the price still further and increase profits without a drop in demand.
The danger is that these factors make it much more likely that an oil producing state with a political axe to grind will cut output to certain customers (or at least threaten to do so), essentially take a small amount of oil off the market, and profit from the resulting price hike. This sharply increases the market power – and political leverage – of oil-exporting states, even for marginal producers. That makes diplomatic disputes with these countries more difficult to resolve.
In fact, it’s already happening
(28 August 2005)
A New Era for Energy
Donald Luskin, Smart Money Com.
…we’re conditioned by history to think that any time oil prices go up it must be because there’s some kind of shortage, an embargo or other “supply shock.” That was certainly the story of the 1970s. But it’s just not that way now. Today oil is just like any other commodity. When economic growth makes people richer, they want more oil – just as they want more of everything else. So the price goes up. It’s that simple, and it’s nothing to be scared of. It’s good news.
Just to be sure you get the essence of my point here: Growth causes higher oil prices. So it just can’t be that higher oil prices kill growth.
This point is especially true today when we look at demand from other quickly growing economies in the world, especially China. According to estimates by OPEC, over the five years ending in 2006 China’s oil consumption will have grown by more than 50%. That’s really not all that much oil in the grand scheme of things (in 2006 China will still consume less than a third as much oil as North America). But it’s another case – and another bit of proof – of my contention that growth causes higher oil prices.
As long as there is free and open trade between the U.S. and China, we have nothing to fear from China’s growth or its increasing demand for oil. China’s growth will make both nations richer. Suppose you do have to spend an extra dollar on gas driving to Wal-Mart because of Chinese demand. What do you care? You’ll save $20 when you get there, because of all the cheap Chinese-made goods you’ll be able to buy. I’ll do that trade all day long…
Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors.
(28 August 2005)
Submitter points out that “this is the typical Michael Lynch view of oil economics.”-BA
I Can’t Afford My Gasoline
Dominic A. Tocci, Tocci Online
LYRICS
I got out of bed this morning,
Got in my car and turned the key,
Then I called outta work and I went back to bed,
Because the needle was on “E”.
I can’t afford my gasoline.
The prices have become obscene.
They’re up 5 cents a day. Who has that kind of green?
I can’t afford my gasoline.
I’ve got a friend who bought a hummer, (hum v yeah)
One of those gigantic trucks, (he don’t give a… darn)
But he can’t drive since he maxed out his credit cards, (tough for him)
Because his mileage really sucks. (six whole miles)
(28 August 2005)
Africa’s Oil Comes With Big Downside
Daniel Balint-Kurti, Associated Press via Yahoo! News
…Often, oil money is a driving force in heating long-standing political rivalries to the boiling point.
…President Olusegun Obasanjo also has angered Nigerians by approving fuel price hikes to reflect high global oil prices, drawing strike threats from labor unions. Most Nigerians see cheap fuel as the only benefit they ever got in a country with no welfare system and where more than 70 percent of the people live on less than $1 a day.
Nigeria is the world’s seventh-biggest oil producer, exporting nearly half of the 2.4 million barrels it pumps every day to the United States. Africa’s biggest oil power, home to more than 250 ethnic groups, is only one example of how oil can be a curse on the continent.
The development group Catholic Relief Services and a World Bank watchdog office said in a report on Chad, which began exporting oil last year, that adding oil to repressive, corrupt and poor countries too often results in simply more repression and corruption.
(28 August 2005)
What is, as usual, unmentioned in this article is that corruption takes two: the bribed government officials AND the bribing resource extraction companies, companies with corporate (though not tax) addresses in London, New York, and other Western cities.-LJ
Energy Prices Hit Americans on All Fronts
Jad Mouawad, NY Times
It might still be 80 degrees outside, but, four months before the first days of winter, many Americans are already facing the prospect of keeping warm while having to stay within their budgets. Instead of the short spike in energy prices that most expected, it now appears that a variety of high energy bills – for heating oil, propane, natural gas and electricity, as well as gasoline – will be around for a long while.
…Americans will spend $600 billion this year on oil purchases – everything from gasoline and diesel to jet fuel and heating oil. In two years, the national oil bill has jumped by $210 billion, or 54 percent, according to Larry Goldstein, the president of the Petroleum Industry Research Foundation. In addition, the nation spent $120 billion on natural gas in 2004, according to the American Gas Association. That is expected to increase to about $167 billion this year.
…As a direct share of the gross domestic product, oil accounted for 8.5 percent of the economy in 1980. As energy conservation measures took hold, and as Americans grew wealthier, that fell to a low of 3.1 percent in the mid-1990’s.
Last year, it was up to 4.2 percent. This year, oil is expected to account for 4.8 percent of the economy, according to Mr. Goldstein.
…The Energy Information Administration, a branch of the Energy Department, projected that retail heating oil prices would be, on average, 17 percent higher this winter than last year, at about $2.20 a gallon.
Natural gas, used by more than half of all households for heating, is expected to rise 16.5 percent, to $12.97 for each thousand cubic feet, while the price of propane, a liquid gas, is forecast to jump by 16 percent, according to Dave Costello, an analyst at the energy administration.
And these estimates may prove low. Last year, heating oil and natural gas prices increased by about a third over the winter. This year, heating oil contracts are up 51 percent while natural gas has risen 55 percent
(26 August 2005)
Jad Mouawad seems to be the writer to watch in the NY Times for good coverage of energy issues. This is just the latest of many. -BA
Gas prices too high? Try Europe.
Peter Ford, Christian Science Monitor
$7 a gallon? That’s what drivers in Amsterdam pay. But Europeans have long adapted to high prices.
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PARIS – When Guy Colombier pulls his economy car up to a Paris pump, he allows himself just 15 Euros ($18) worth of gas – barely enough for three gallons. Since prices started rising rapidly earlier this year, says Mr. Colombier, a printing press worker, “I drive a lot more slowly … and I’m looking for a place to live closer to where I work.”
Colombier’s pain is shared by drivers all over Europe, where fuel prices are the highest in the world: a gallon of gas in Amsterdam now costs $7.13, compared with just $2.61 in America. The contrast in prices and environmental policies – and the dramatically different behaviors they inspire – signals a widening transatlantic energy gap. And it raises the question: Does Europe offer America a glimpse of its future?
Indeed, while Europeans have learned to cope with expensive fuel (mostly due to taxes), there’s scant evidence yet that US drivers are adopting their conservation tactics.
“Societies adjust over decades to higher fuel prices,” says Jos Dings, head of Transport and Energy, a coalition of European environmental NGOs. “They find many mechanisms.”
(26 August 2005)
Demand for Oil Insight Is Spiking, Too
Roben Farzad, New York Times
NEW YORK — A prophet has no honor in his own country, but that is no longer the case with oil analysts, who have received unusual attention in recent months as the price of crude spirals to new highs.
“This all goes in cycles,” said Daniel Yergin, the president of Cambridge Energy Research Associates, an oil consulting firm, and the author of “The Prize,” a history of oil and international politics. “With oil at almost $70, the interest is intense and emotional and
keeps coming from every direction.”
That intensity was evident in late March, when Arjun N. Murti, a Goldman Sachs analyst, issued a report that said the oil market had entered the early stages of a “superspike” period of strong demand and tight supplies that could drive prices as high as $105 a barrel, which would far exceed the inflation-adjusted record of $86 set in early 1981.
At the time, oil was about $54 a barrel, and Murti’s prediction roiled the market.
An elder statesman among oil analysts, Fadel Gheit of Oppenheimer & Co., has seen oil analysts’ stars rise and fall before in his 19-year career. “Like anything else in life, it’s supply and demand,” he said of his recent popularity. “When you’re in demand, you’re really in demand. If oil was at $10, do you think you’d be sitting across from me? No broker or trader would even answer my calls.”
(26 August 2005)
