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Chavez’s strong oil card is a bluff
Francisco Toro, Caracas Chronicles via Petroleum World
People see it as the “nuclear option” in Chávez’s escalating pissing match with the Americans. Chávez himself calls it his “strong oil card,” and likes to threaten to use it. If things get out of hand, the story goes, Chávez could stop selling oil to the US and then the brown stuff would really hit the fan.
Problem is, the story is based on faulty economic reasoning. Oil is fungible. The only way Venezuela can cause a supply shock is by pulling out of the oil market altogether. …
So don’t be fooled. The price of oil is set by the interaction of global supply and global demand. The only way Venezuela can cause a supply shock is by selling oil to no one. But this is the ultimate empty threat, because Chávez needs his oil revenue far more than the world needs our oil.
(10 October 2005)
In absolute terms Mr Toro is right, crude oil is approximately fungible (ignoring their to-date modest oil barter deals) and Venezuela can hardly afford to just turn off the taps. But in the case of invasion or another coup attempt, wouldn’t Chavez escape blame for production problems? -LJ
Smugglers cash in on regional oil subsidies
Dow Jones News Wires via The Standard (China)
Major oil-producing nations aren’t the only ones cashing in on higher world prices in recent months. Attempts by Asian governments to cushion the blow of rising fuel costs for consumers have inadvertently ensured windfall profits to fuel smugglers.
Profiteers in Asia have channeled cheaper-priced fuels across borders to states where market-determined prices have risen with the higher cost of oil or where austerity steps have choked regular supplies to create a black market. The increase in smuggling is working against government policies to keep a lid on oil prices and encouraging some to reconsider their market controls.
“Price controls create a profit-making opportunity. It’s human nature [to take advantage of the price gap],” said HSBC economist Qu Hongbin. In China, price caps have diverted supplies from domestic customers to higher-priced offshore markets and also discouraged oil producers from selling to their regular clients at the lower price, sharpening energy shortages. Local black markets have sprung up to ensure downstream users willing to pay higher prices have enough supplies. …
(11 October 2005)
Sugar prices soar on biofuel prospects, fund flows
David Brough and Rene Pastor, Reuters via MSNBC
Sugar futures have hit their highest level in nearly 10 years on expectations more Brazilian cane will be diverted to the biofuel ethanol as oil prices rocket and on heightened interest from investment funds.
But traders warned on Wednesday that if oil prices correct sharply downwards, sugar will take a dive too. Raw sugar futures have surged by a third to almost 12 cents per lb this year, having stood at 9.04 cents at the end of 2004. “Definitely, we’re going to 12 cents,” said Marius Sonnen of sugar trader Sonnen and Co. Inc. in the United States. “As long as oil prices are this high, the Brazilians will convert more cane into ethanol. I don’t see any end in sight to this rally.” …
A veteran London sugar trader said he saw dangers in the current giddy heights of sugar prices — trade in the physical commodity has shrunk, and futures may have to slide to attract fresh buying interest. But he said funds hold massive long positions in sugar futures as they diverted cash flows from strengthening equity markets, benefiting from the low cost of money. “I believe we are trading a ‘new’ sugar market,” he said, referring to the latest mix of ethanol and funds in the equation, and tightening credit lines to trade houses for speculative punts. …
(5 October 2005)
Higher gas prices hit rural Americans hard
G. Jeffrey MacDonald, The Christian Science Monitor
Where fill-ups are crucial, families face tough trade-offs: No Christmas presents for the Murphy kids.
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LITTLETON, N.H. – Cheryl Murphy used to drive her Dodge Caravan as often as necessary to see her doctor in Lincoln, 25 miles south of her home here in the sparsely populated “North Country.”
But that was before gas prices spiked, making fuel costs feel like a second co-pay for this single mother of two. Now that gas takes a 20 percent bite out of her monthly $243 check from Social Security, doctor visits have become a luxury out of reach.
“I don’t monitor my health condition as well as I should because I just can’t afford to get there,” Ms. Murphy says. Meanwhile, she’s cut down to one meal per day and has warned her children to expect nothing under the Christmas tree this year.
Ms. Murphy’s quiet struggle plays out far from the public eye. Yet her story is hardly unique in rural America, where wages languish 25 percent below those in urban areas and private transportation is more central to daily life. And with winter just around the corner, costly trade-offs are fast becoming a way of life in places where schools, jobs, and the nearest stores all require a lengthy trip behind the wheel.
A September report from the Consumer Federation of America paints a painful picture. Households earning less than $15,000 are spending 10.4 percent of their income on gasoline in 2005, up from 8.2 percent in 1999 and far above the 1.9 percent spent by households earning more than $80,000.
The fraction spent on gasoline in rural households is 50 percent larger than the one in urban households. So when gas prices rise, few are hit harder than the 7.5 million Americans living in rural poverty.
(11 October 2005)
Related in-depth report at The Nation: Running on fumes.
Pain at the pump, Profits in the boardroom
American Progress Action Fund
Americans are feeling pain at the pump. According to a recent CBS News poll, 86 percent of people have been affected by higher gasoline prices “some” or “a lot.” A recent Associated Press/Ipsos poll showed that 70 percent believe that higher gasoline prices will cause financial hardship for them or their family. Yet while ordinary Americans suffer under the weight of high gasoline prices, the world’s largest energy conglomerates are enjoying record breaking profits.
According to The Washington Post, the 2004 profits for ExxonMobil, ChevronTexaco, and ConocoPhillips broke records across all industries. In fact, last year, at over $25 billion, ExxonMobil booked the highest profit of any company in any year in history. Yet, oil company memos show that they made part of these profits by constraining refining capacity to drive up prices. These record profits have not only more than doubled CEO salaries, but they have driven up political contributions, a staggering $450 million in the past six years. So, while consumers are paying at the pump, oil companies are getting billions in tax breaks and sweetheart deals from the Bush administration and their congressional allies.
(7 October 2005)
A full report in PDF is available at the original.
Is the U.S. on the verge of a natural gas crisis?
Brad Foss, Associated Press via Ocala Star-Banner (FL)
Q: Natural gas output is down and futures prices are soaring in the aftermath of back-to-back hurricanes. Is the country on the verge of a crisis?
A: Homeowners, electric utilities and manufacturers will see a steep rise in the amount they pay for natural gas this winter – and that alone may qualify as a crisis for low-income families – but analysts do not expect any shortages akin to what U.S. motorists experienced with gasoline this summer.
Industry officials say there is, and will be, plenty of natural gas for customers who want it and are willing to pay market prices….there is less demand than usual for natural gas among Gulf Coast utilities, petrochemical plants and manufacturers affected by Katrina and Rita. And industrial users and homeowners across the country are expected to use less natural gas this winter because of high prices.
(9 October 2005)
Demand destruction in action. This AP article is being run by multiple newspaper, such as the Eugene Register-Guard.
Fearing Heat Costs, Many Take Preventive Action
Pam Belluck and Sarah Kershaw, NY Times
BOSTON, Oct. 10 – The price of energy has soared so high that Carol Paige has all but given up dancing.
It was a favorite hobby, twice a week at clubs in Worcester, Mass., almost a 50-mile drive from her home. For Ms. Paige, the drive is now a luxury. She is worried about a more basic need: heating her home. In the face of the surging cost of natural gas and home heating oil, Ms. Paige, a 60-year-old social worker who lives alone, has made other cutbacks, too.
She cut out the monitoring system for her burglar alarm, cancelled her garbage pickup and takes her trash to the dump herself, and plans to discontinue her Internet service.
And last week, fearful of a heating oil bill that could soar to $1,500 this winter from about $1,000 last year, Ms. Paige had a wood stove insert installed in her living-room fireplace at her home in Ashburnham, about 50 miles northwest of Boston. She plans to cut wood for the stove herself from trees on her property and from leftovers at nearby logging sites.
“I have a little electric chain saw,” Ms. Paige said. “I’m just trying to keep this house going.”
Sentiments like that are being echoed from Maine to Alaska as people, already grappling to keep up with the rising price of gasoline, have been further stunned by predictions of the skyrocketing cost of staying warm this winter.
People who heat their homes with natural gas will pay an average of 46 percent more this winter, with costs in some regions, like the Midwest, expected to be as high as 71 percent more, according to forecasts issued last month by the Department of Energy. Heating oil costs are expected to go up an average of 31 percent. And those figures were released before Hurricane Katrina made the situation worse.
Now, people across the country, as well as state and local governments and school districts, are scrambling to respond. Some are turning away from gas and oil, buying wood stoves, wood-pellet stoves, even corn-burning stoves. Others are replacing windows, buying carpets, adding insulation. Some are rushing to invest in alternative energies like solar, geothermal or biodiesel. And many are tightening their budgets.
(11 October 2005)
Living too large in exurbia
Mark Morrison, Paul Magnusson, Peter Coy and Christopher Palmeri; Business Week Online via Yahoo!News
…These days, though, a chill is sweeping through the fast-growing exurbs that have popped up like mushrooms on the outskirts of established cities and suburbs all across America. A lifestyle built on cheap energy costs and low mortgage rates is in jeopardy. Consumers who hardly gave a thought to gassing up when regular was $1.50 a gallon are abandoning their hulking sport-utility vehicles and pickups, signing up for carpools, and leaving the motorboat in the backyard now that prices are stuck at nearly twice that. And with heating bills expected to jump as much as 70% for many this winter, more pain is on the way.
Experience says that most Americans will turn down their home thermostats and break out the fleece. But if super-high energy prices persist for the next few years, as now appears increasingly likely, they will put a world of hurt on the thousands who already were stretching their budgets to live in the outer suburbs and rural fringes. As exurbia struggles with this new hurdle, what has grown into a huge new social and economic force will face its first real challenge.
…with energy costs soaring and a hike in interest rates likely in the months ahead, all of a sudden the Exurban American Dream is looking a whole lot tougher for many. Just ask Frank E. Heater, a carpenter who lives in Pike County, Pa., a fast-growing exurb of New York City. To afford his 3,500-square-foot ranch home, planted on five wooded acres, Heater pulls out of his driveway at 4:15 each morning to drive his Ford (NYSE:F – News) Expedition 86 miles to New York. In the best of times, his routine was grueling: “Come home, eat, shower, sleep, and you’re back on the road again.” But his gasoline bill now hovers around $180 a week, about double what he paid two years ago and an ever-growing big bite out of Heater’s take-home pay. Now he wishes he could take the bus, tools and all. “The gasoline is killing me,” he says.
The economic consequences of a slowdown in exurban exuberance is difficult to measure. Clearly the exurbs’ rapid growth has been one of the main engines of U.S. economic expansion in recent years.
(11 October 2005)
UPDATE (13 Oct): Reader sent in a link to the original aricle in Business Week.
Bike seller leaps on oil price opportunity
Puget Sound Business Journal
With gas costing $3 a gallon, Gregg’s Cycle in Seattle figures there’s an opportunity to entice commuters from their cars to bicycles.
In recent weeks the bicycle-seller’s Web site (www.greggscycles.com) has sprouted a new feature: A graphic rendition of a gasoline pump’s meter, with prices quickly jumping up to nearly $10.
“When will it stop?” read the rapidly flashing words on the screen. “Save Time. Save Money. Click here to learn more.”
People clicking into the Web site immediately are offered a choice of three links to sites for figuring out the costs of commuting by car. One of them is from Minneapolis, Minn., and another from Columbia, Mo. The latter indicated that commuting 14 miles a day in a vehicle that gets 15 miles per gallon, and paying for parking, costs about $223 a month.
Leif Thorsen, bicycle sales manager for Gregg’s Cycle at Greenlake, in Seattle, said there has been a small but noticeable increase in people interested in bicycle commuting, since gasoline prices have climbed in the wake of Hurricane Katrina.
(7 October 2005)
An example of on-the-ground behavior changes as energy prices rise.
Some governors abandon SUVs
Decision aims to encourage conservation
Ken Thomas, Associated Press via Seattle Post-Intelligencer
WASHINGTON — When gas prices soared after Hurricane Katrina, New Mexico Gov. Bill Richardson looked at the Lincoln Navigator that ferries him around his home state and thought about the message he was sending.
The large sport utility vehicle gets about 15 miles per gallon. So the former U.S. energy secretary decided to switch to a Ford Escape hybrid, which combines gasoline and electric power for twice that mileage.
“You need to practice what you preach,” Richardson said.
SUVs have been a popular choice for governors on the move, providing plenty of security, extra legroom and space for staff members. But with gas prices hovering near $3 a gallon, some governors are trading in their gas-guzzlers.
(11 October 2005)
Energy crisis unfolds in Pakistan
Riaz Missen, The Post (Pak.)
…Developing countries like Pakistan have subsidized oil prices to keep them affordable for middle classes. But it is not definitely an effective measure to resolve the problem as the burden is to be shifted to taxpayers at the end of the day. …
The recent call of the united opposition in Pakistan to launch protest campaign against the government is an unfortunate development at this juncture. Though it has got every right to express its concerns on various policies of the government yet the mode of protest is not inspired by reason — shutter downs and wheel-jam strikes will not serve the cause of the lower and middle strata of population already hit hard by soaring oil prices. …
(3 October 2005)
See also Lawyers protest rise in oil prices.
Cuts in Energy Spending May Prove Elusive
Post-Katrina Efforts Slow GOP Drive
Jonathan Weisman, Washington Post
Soaring energy prices and a renewed attention to issues of poverty after Hurricane Katrina are hampering Republicans’ plans to cut dozens of federal programs that Congress had targeted for elimination before the hurricane struck.
…But it could be much tougher to go after programs targeting high energy costs and flood control when Congress returns next week to complete work on spending plans for fiscal 2006, which began this month.
Among the programs set for elimination are high-energy cost amelioration grants totaling $28 million and natural disaster emergency loan subsidies totaling $3 million, both administered by the Agriculture Department. Other targets are $70 million in flood control and coastal emergency programs of the Army Corps of Engineers, a $298 million emergency low-income heating assistance fund, and the $10 million empowerment zone and enterprise community program.
…In the Senate, Republicans, pushed by the Bush administration, are moving to eliminate the Energy Department’s six regional energy efficiency field offices, just as the nation enters what promises to be one of the toughest winter heating seasons in memory. Those field offices help low-income families insulate their homes, issue and monitor grants aimed at energy efficiency, and help local, state and federal governments implement energy-saving efforts.
(11 October 2005)
Alaska Threatens To Yank North Slope Leases from Oil Companies
Matt Volz, Associated Press via ENN
JUNEAU, Alaska – Alaska’s oil and gas chief is threatening to revoke leases held by Exxon Mobil Corp. and other producers for not drilling the rich fields near the Arctic National Wildlife Refuge.
Division of Oil and Gas director Mark Myers says Exxon Mobil, the operator and largest leaseholder of the 106,200-acre Point Thomson unit, which has sat undeveloped for nearly three decades, has made a “mockery” of their obligation to bring oil and gas from Point Thomson to market.
The producers, which also include BP Exploration (Alaska) Inc., Chevron USA Inc. and ConocoPhillips Alaska Inc., have said it’s not commercially viable to develop Point Thomson. But with gas and oil prices at all-time highs, Myers is taking a hard line.
(10 October 2005)
