Summary of Reasons Why Oil and Gasoline Prices Are Currently So High

Lynne Kiesling

In KP’s three years of life there’s been a lot of coverage of oil and gasoline markets, and some dominant themes have persisted:

  • The unintended consequences of price caps are usually pernicious.
  • Environmental regulation, in this case in the form of the EPA federal fuel oxygenate requirement, causes balkanization of regional gasoline markets, causes price differentials across regions, and exacerbates seasonal price spikes.
  • The price of oil is one among many factors influencing gasoline prices; environmental regulation is another, as are taxes. Regulation and taxes vary by jurisdiction, causing prices to vary.
  • Gasoline prices, like most other retail prices, follow a “rockets and feathers” pattern of response to oil prices. However, just because retail prices are slow to fall when oil prices do, that does not mean that retail gasoline markets are uncompetitive. It’s more a reflection of the inelastic demand for gasoline.
  • Part of the reason why the demand for gasoline is inelastic is what I mentioned this morning; fuel is a smaller share of household budgets for most US households.
  • Every spring like clockwork, gasoline prices rise for a combination of complex reasons (winter-to-summer fuel switchover, summer driving increase, etc.).
  • Every spring like clockwork, Illinois Senator Dick Durbin whinges about “greedy, price-gouging” oil refiners who are sticking it to consumers.
  • Every spring like clockwork, the Federal Trade Commission spends a lot of time and effort to investigate the competitive conditions in retail gasoline markets. Every spring like clockwork, they find no evidence of oil refiners’ abilities to influence retail prices in an anticompetitive fashion.
  • Right now, high oil prices are being driven by China’s (distorted and subsidized) demand and by risk premia due to uncertainty in the Middle East, Venezuela, and Africa.
  • OPEC and its shaky ability to sustain a successful cartel (because of hard-to-detect cheating from smaller members) does not determine world oil prices. OPEC’s decisions influence world oil prices, but they are only one part of a much more complex story, and that complexity is beneficial because it dilutes their ability to withold and raise prices.
  • [I saved this for last because it’s the important long-run point] Petroleum is scarce, perhaps even finite, in its supply. Technological change has helped us locate more of it, and pull it out of the ground where we might otherwise not be able to or where it would otherwise have been too costly. That’s the primary reason why prices fell in the 1990s. OPEC’s inability to sustain a cartel exacerbated that price decline. Price increases reflect expectations of future scarcity relative to demand and risk. That is the most powerful mechanism by which we learn both to conserve and to innovate.

[Leaves professor mode, goes downstairs to make herself a well-deserved Manhattan]


87 thoughts on “Summary of Reasons Why Oil and Gasoline Prices Are Currently So High

  1. “Petroleum is scarce, perhaps even finite, in its supply.”

    I would put it the other way around. Petroleum is finite, but not scarce. We have enough shale oil in Colorado, Utah, and Wyoming to supply the country with all of it’s needs for the next two to three hundred years. A little company named Oil Tech in Utah just presented to the US congress a couple of month ago. They are able to produce oil from this oil shale at a cost between 10 and 30 dollars a barrel.

    Canada is currently producing one million barrels a day from sand oil. They will increase this to 2 million barrels a day over the next 7 or 8 years. The available reserves of sand oil in Canada is equivalent to half the entire oil supply of the middle east.

  2. One reason fuel prices are high is the way fuel is taxed. It is an accountants full employment act. Why not let companies produce gas and then tax their profits. Now all fuel products are taxed by the same rate. This would allow production from partially depleted fields. Ethanal could be a big producer, if gas was required to have a 20 percent or higher ethanal percentage. This would be a big plus for farmers and could reduce farm subsidies. If we could reduce our imports by 20 percent with ethanal, it would have a great effect on our imports.

  3. Wisconsin is very concerned about competitive gas prices. So much so that there is a law requiring a minimum retail markup on the price of gas. Has something to do with unfair (i.e. I don’t like that) competition.

  4. Petroleum is scarce, perhaps even finite, in its supply.

    This is a bit of truism, i.e. fairly useless. In the first place, petroleum qua petroleum is finite on this planet in only the same sense that absolutely everything else is, too — including air, water, granite, arable land, et cetera. It’s rarer in a global sense than some things (sand) but more common than others (copper).

    So what? Any of these things are in principle recyclable, and we balance the cost of natural extraction versus recycling all the time. We will do the same with oil when the time comes. It makes some sense to take a bit of a long view here (which I take it is partly your point) and not become hysterical because the oil is “running out” any more than the Romans should have become hysterical in 400 AD because the supply of lead for plumbing was limited, or the English should have become hysterical in 1840 because the supply of domestic compass oak to build sailing ships was limited.

    Some people may be surprised to hear that oil is recyclable. But, after all, oil comes from the compressed and heated remains of plants. Plants take the products of oil combustion (CO2 and water) from the air and produce hydrocarbons.

    Now, oil as it comes from the ground is highly reduced by a million-year process of compression and heating, which makes it an unusually useful combustible (and raw material) in this oxidizing atmosphere of ours.

    But oil is hardly a unique convenient liquid combustible. You can skip the million-year compression if you’re willing to make the fairly mild switch to a short-chain hydrocarbon, like ethanol. That is, you can run cars and so forth on ethanol, and then grow plants to recycle the products of ethanol combustion back into ethanol. Voila, a nice closed cycle.

    God knows why Americans have a fondness for anxiety over gas prices. The price of cheese, houses, good dentistry and tea from China rises and falls all the time, and we accept this as just in the nature of things, something generally neutral, inasmuch as any price change presents opposite faces (happy and sad) to the consumer and the producer.

    But oil prices somehow serve as a proxy for all our anxieties about an uncertain future. I wonder why?

  5. I agree it’s a truism, and I stated it explicitly precisely because we get so knotted up in our knickers about it. I just think we need to get over it and start thinking of it as a commodity, just like other stuff.

  6. “A little company named Oil Tech in Utah just presented to the US congress a couple of month ago. They are able to produce oil from this oil shale at a cost between 10 and 30 dollars a barrel.”

    ‘Presented to the US congress’? What exactly does this mean? Are they looking for funding or something? Or do they need to get permission from the government for environmental reasons? Why exactly are they having tto ‘present’ anything to the US Congress?

  7. “A little company named Oil Tech in Utah just presented to the US congress a couple of month ago. They are able to produce oil from this oil shale at a cost between 10 and 30 dollars a barrel.”

    ‘Presented to the US congress’? What exactly does this mean? Are they looking for funding or something? Or do they need to get permission from the government for environmental reasons? Why exactly are they having tto ‘present’ anything to the US Congress?

  8. Yes, ethanol, what a crazy idea! Why instead of ethanol, which is basically alcohol and cars can run off of with a trip to the service station to modify it, and whose raw material is corn and other starchy plants thus renewable and with much more dispersed means of production and refining intead of being concentrated in the hands of a very few in a select few places, and could be cheap as dirt with a few years of production under our belt, instead let’s have cars that run on hydrogen fuel cells, made by a select few and mostly making fat old men rich and an unneccessarily complex process. Ethanol can on the other hand be distilled as one would distill grain alcohol “moonshine” as it were, and though I’m not saying the solution is for every single person to grow a patch of corn and have a “still” in their back yard, rather I’m saying the raw material being corn can be bought wholesale by professional distillers and processed in a great big version of a hillbilly’s “still” perhaps centrally located in corn-producing areas all over the country and it would be altogether
    1.renewable
    2.more even distribution of wealth from it by more decentralized means of raw material production
    3.beneficial to agriculture, to farmers everywhere

  9. Yes, ethanol, what a crazy idea! Why instead of ethanol, which is basically alcohol and cars can run off of with a trip to the service station to modify it, and whose raw material is corn and other starchy plants thus renewable and with much more dispersed means of production and refining intead of being concentrated in the hands of a very few in a select few places, and could be cheap as dirt with a few years of production under our belt, instead let’s have cars that run on hydrogen fuel cells, made by a select few and mostly making fat old men rich and an unneccessarily complex process. Ethanol can on the other hand be distilled as one would distill grain alcohol “moonshine” as it were, and though I’m not saying the solution is for every single person to grow a patch of corn and have a “still” in their back yard, rather I’m saying the raw material being corn can be bought wholesale by professional distillers and processed in a great big version of a hillbilly’s “still” perhaps centrally located in corn-producing areas all over the country and it would be altogether
    1.renewable
    2.more even distribution of wealth from it by more decentralized means of raw material production
    3.beneficial to agriculture, to farmers everywhere

  10. Hal,

    If ethanol was a good fuel that had a decent energy balance you would not have to mandate and subsidize its use. Current ethanol usage is mostly a big gift of taxpayer funded pork to ADM and corn growers.

  11. Questions they won’t ask:

    If methanol is viable as a fuel, then why isn’t it economical to use it as such in its own production?

  12. I must disagree with Hal about how fuels are taxed. Determining profits on a state-by-state basis would be a nightmare. Many local jurisdictions levy their own taxes. See this chart and read some of the footnotes. If one’s going to tax energy, and who isn’t, then a tax on units of quantity seems simplest.

    Your short description of the seasonal nature of fuel prices is great. Right now it looks as though there’s a lot of uncertainty and some hysteria in the marketplace: China, hurricanes, Europe’s increasing demand for diesel, refinery maintenance, and political instability in some oil-producing nations.

    I’m not sure that I understand Norway, one of the top three producers, as prices soar they appear to spend some and invest the rest abroad,for its national retirement program. Yet with its oil self-sufficiency, it has a 100% tax on vehicles and are now paying about $6.46 per gallon for premium. Are they trying to be fiscally responsible or something?

    They seem to have one other substantial problem that’s enough to bring me to tears.

  13. The conventional view is that oil consists of “dead dinosaurs” (actually dead, stinking algae blooms in shallow, anoxic lakes). As such, it is really a form of solar energy — plants or algae convert sunlight into carbon and are crushed into coal and oil.

    Google J. F. Kenney and you will come up with the view that oil has nothing to do with dead dinosaurs and everything to do with where diamonds come from. Thomas Gold famously thought that oil was abiogenic (some argue that a group of Russians including Mendeleev of Periodic Table fame thought that first), and that the carbon for coal and oil came from carbonaceous meteorites during the accretion of the Earth and that the Earth was never molten.

    Whether the Earth formed by cold or hot accretion I don’t know, but my understanding is that oxygen is so abundant in the Earth’s crust and mantle that there should not be much free carbon or hydrocarbons “deep down there.” So where do diamonds come from (pure carbon and probably only rare because the processes bringing them to the surface are rare) except from about 100 miles down where the pressures and temps are right?

    I saw a paper titled “Generation of methane in the Earth’s mantle: In Situ high-pressure-temperature measurements of carbonate reduction” By H P Scott, R J Hemley, H-k Mao, D r Herschbach, L E Fried, W M Howard and S Bastea, PNAS, bol 101, no 39, Sept 28, 2004 which demonstrated by lab experiment that water combined with CaCO3 (calcium carbonate) and FeO (a kind of iron ore) at the pressures and temperatures of the upper mantle where diamonds come from will form methane and other hydrocarbons.

    So you have plastic convection of partially-molten rocks deep underground, with iron coming up from below and calcium carbonate (limestone and related minerals) recycled by subduction from on top, the meet with water and are subject to the pressure cooker that makes diamonds and, voila, gasoline! How does oil and gas get from those levels up to the surface — Google Thomas Gold and read his arguments about rock pores under high pressures. Gold had the right idea but the wrong process for the origin of the reduced (free from oxygen) carbon.

    This may mean that the amount of oil we can burn is limited only by the Earth’s oxygen (and no, oxygen is not in homeostatic balance on account of the oceans and rain forests — the oxygen evolved over geologic time, although it would pay to understand those mechanisms as well.

  14. The conventional view is that oil consists of “dead dinosaurs” (actually dead, stinking algae blooms in shallow, anoxic lakes). As such, it is really a form of solar energy — plants or algae convert sunlight into carbon and are crushed into coal and oil.

    Google J. F. Kenney and you will come up with the view that oil has nothing to do with dead dinosaurs and everything to do with where diamonds come from. Thomas Gold famously thought that oil was abiogenic (some argue that a group of Russians including Mendeleev of Periodic Table fame thought that first), and that the carbon for coal and oil came from carbonaceous meteorites during the accretion of the Earth and that the Earth was never molten.

    Whether the Earth formed by cold or hot accretion I don’t know, but my understanding is that oxygen is so abundant in the Earth’s crust and mantle that there should not be much free carbon or hydrocarbons “deep down there.” So where do diamonds come from (pure carbon and probably only rare because the processes bringing them to the surface are rare) except from about 100 miles down where the pressures and temps are right?

    I saw a paper titled “Generation of methane in the Earth’s mantle: In Situ high-pressure-temperature measurements of carbonate reduction” By H P Scott, R J Hemley, H-k Mao, D r Herschbach, L E Fried, W M Howard and S Bastea, PNAS, bol 101, no 39, Sept 28, 2004 which demonstrated by lab experiment that water combined with CaCO3 (calcium carbonate) and FeO (a kind of iron ore) at the pressures and temperatures of the upper mantle where diamonds come from will form methane and other hydrocarbons.

    So you have plastic convection of partially-molten rocks deep underground, with iron coming up from below and calcium carbonate (limestone and related minerals) recycled by subduction from on top, the meet with water and are subject to the pressure cooker that makes diamonds and, voila, gasoline! How does oil and gas get from those levels up to the surface — Google Thomas Gold and read his arguments about rock pores under high pressures. Gold had the right idea but the wrong process for the origin of the reduced (free from oxygen) carbon.

    This may mean that the amount of oil we can burn is limited only by the Earth’s oxygen (and no, oxygen is not in homeostatic balance on account of the oceans and rain forests — the oxygen evolved over geologic time, although it would pay to understand those mechanisms as well.

  15. Quick to rise: in anticipation of higher prices sellers raise their price so they canafford to refill their tanks.

    Slow to fall: the sellers now have a bunch of expensive oil in their tanks they would would like to sell at a profit.

    The inelasticity of the market makes the above possible. Since demand does not vary much with supply in the agregate.

    I miss the gas wars.

  16. Typical energy systems run with gains of 5 to 20.

    That is for every 1 unit of energy put in about 5 to 20 units come out over the life of the system.

    Ethanol has a gain of 1.5 or less. Some say it is under 1. This is not viable unless you have energy to spare from some other source.

    Ethanol like hydrogen must be considered an energy transport system rather than a viable energy supply system.

    Surprisigly wind has a gain of around 10. As turbines get bigger the cost goes down to below coal. Once we get enough wind, variations in wind supply could be used to produce liquid fuel. The fuel manufacturers absorbing the output above normal load requirements.

    We are about 40 to 50 years from that point.

  17. Typical energy systems run with gains of 5 to 20.

    That is for every 1 unit of energy put in about 5 to 20 units come out over the life of the system.

    Ethanol has a gain of 1.5 or less. Some say it is under 1. This is not viable unless you have energy to spare from some other source.

    Ethanol like hydrogen must be considered an energy transport system rather than a viable energy supply system.

    Surprisigly wind has a gain of around 10. As turbines get bigger the cost goes down to below coal. Once we get enough wind, variations in wind supply could be used to produce liquid fuel. The fuel manufacturers absorbing the output above normal load requirements.

    We are about 40 to 50 years from that point.

  18. “Surprisigly wind has a gain of around 10”

    Bull-hockey. Maybe for one extra-well monitored and positioned wind turbine. But if you look at the sum total of all modern wind turbines produced in the last 15 years, and then apply the reported actual electrical output, the multiplier is at ONE or less.

    Nameplate ratings on wind turbines (theoretical output with favorable winds) is usually 5 to 10 times higher than actual output, due to management, high winds (the turbine has to shut down), and low winds. Not to mention losses due to having to convert the energy to grid-compatible AC.

  19. “Surprisigly wind has a gain of around 10”

    Bull-hockey. Maybe for one extra-well monitored and positioned wind turbine. But if you look at the sum total of all modern wind turbines produced in the last 15 years, and then apply the reported actual electrical output, the multiplier is at ONE or less.

    Nameplate ratings on wind turbines (theoretical output with favorable winds) is usually 5 to 10 times higher than actual output, due to management, high winds (the turbine has to shut down), and low winds. Not to mention losses due to having to convert the energy to grid-compatible AC.

  20. My grandmother’s favorite drink was the Manhattan, and I’ve started making my own with Southern Comfort. And excellent way to end the blogging day!

  21. If you work the numbers on gasoline demand and ethanol production, you’ll find that in order to meet current gasoline demands, you’d need to put aside 2/3 of all arable land in the United States for ethanol corn farming. This is assuming that a single bushel of corn can produce 2.7 gallons of ethanol, and an annual crop yield of 160 bushels per acre.

  22. If you work the numbers on gasoline demand and ethanol production, you’ll find that in order to meet current gasoline demands, you’d need to put aside 2/3 of all arable land in the United States for ethanol corn farming. This is assuming that a single bushel of corn can produce 2.7 gallons of ethanol, and an annual crop yield of 160 bushels per acre.

  23. Oil and gas conform to very precise growth fractals. There is potentially only one more week of growth for oil to reach its maximum 21/53/53 week growth cycle. Visit the Economic Fractalist:

    Saturation Curve Fractal Analysis – A Real Science?

    In order to qualify as a true science, the subject entity must be
    testable by scientific method and have underlying laws that operate in the
    real physical environment. These laws must be repetitively provable and have
    reasonable predictability for different applications. Scientific testing in
    college biology, chemistry, and physics laboratories usually results in
    experimental values that roughly support the underlying mathematical
    equations and theoretical constructs. If indeed complex economic systems
    travel by the simple quantum laws that observational fractal analysis
    suggests, a similar validity should be testable and provable in the great
    laboratory of readily obtainable asset valuation saturation curves.

    Valuation fractals represent a composite integration of primarily six
    elements in the complex economic system: cash and savings; total private,
    corporation and governmental debt load; ongoing wages; assets; lending
    practices; and prevailing interest rates. Each of these six broad parameters
    has its own complex internal dynamics and summation characteristics. In a
    very mechanistic fashion, following simple near-quantum and near-quantum
    related Fibonacci numbers, valuation fractals ‘grow’ to buying saturation
    levels and thereafter ‘decay’ to lower selling saturation levels. The
    fundamental point to this new potential economic science is that the daily,
    weekly, monthly, and yearly valuation fractals represent the sum total
    integration of those six elements and their complex interactive
    relationships. Pour into the economic vat: cash for daily transactions,
    savings available for money to be borrowed at given interest rates using
    prevailing lending practices for both major purchases and minor credit card
    purchases, balanced by on-going wages and debt servicing obligations,
    balanced by relative valuation of assets and their relative state of
    consumption, mix it up on a daily, weekly, etc. basis – and – from the vat
    flows forth the daily, weekly, etc. summation saturation curves dancing to a
    rather precise near quantum fractal tune. While lower order time unit
    fractals such as minutes and hours represent trading valuation saturation
    points, intermediate fractals represent the larger picture of on going
    velocity of money growth percolating through the system. The higher order or
    4-yearly, 17-18 yearly and 70 year fractals represent both business cycle
    and asset and debt saturation levels at the basic consumer level.

    There are three sequential identified ideal growth fractals followed by a
    decay fractal. The near quantum number time units for the three cycles are
    x, 2-2.5x and 2x, respectively. A nonlinear devaluation typically
    characterizes the second growth fractal somewhere between the 2x and 2.5x
    time period. The third growth fractal which ideally is 2x in length can have
    an extension to 2.5x. This extension of the third growth fractal has
    characterized both the current US equity and heavily invested commodity
    areas, particularly oil and gold, for the entire 128 week duration of the
    March 2000 secondary growth period.

    Just as the complex system is an integrative process, valuation fractals
    which exactly represent them are likewise composite integrations with
    nonlinear capacitor like decay devaluations. Fractals incorporate the
    terminal portion of the preceding decay fractal into the beginning of the
    follow-on growth fractal. An elegant pristine example of this rolling
    integration was the 40/100/100 day cycle exactly x/2.5x/2.5x that resulted
    in the March 2005 top for the DJIA. The first two fractals were ‘declining’
    growth fractals with a very characteristic nonlinear break at the end of the
    second fractal in August 2004. That second fractal was likewise elegant in
    its evolution in that it was composed of a 29/72 day x/2.5x sub fractal
    sequence. The probability that these precise sequences are random numerical
    sequential events approaches zero and elevates fractal analysis,
    reciprocally, to a high probability real science descriptive of the complex
    macro economy.

    The subsequent growth fractals dating from August 2004 likewise have
    followed the same very precise fractal growth evolution with a 52/130
    (x/2.5x) day first and second fractal growth sequence with the typical
    nonlinear drop between 2x and 2.5x of the second fractal. Anyone can verify
    this pattern using any of the major US or European indices. The third
    fractal US equity sequence has been a 12/30-31/28 day sequence, approaching
    the extended ideal form of x/2.5x/2.5x growth pattern. The major European
    indices ,e.g., the FTSE, DAX, and CAC have a slightly different mix of the
    six aforementioned underlying elements and have extended their growth – but
    are still confined within the 52/130/104 theoretical maximum and the
    theoretical Fibonacci maximum of 52/130/(1.62 X 52 = 84-85)
    days. These recurrent numerically ideal patterns since August 2004 once
    again lend substantial credibility to the notion that the complex
    macroeconomy operates according to some relatively precise laws of fractal
    design.

    What are the rate limiting factors that result in growth saturation points
    or asymptotes, decay selling saturation points or asymptotes, and the
    general nature of fractal patterning? Each of the six controlling
    parameters- assets, ongoing wages, lending practices, prevailing interest
    rates, debt load, and cash and savings – contribute to the saturation areas.
    Some are more important than others in determining cycle lengths and
    saturation points.

    Assets have two important elements: relative valuations and saturation
    ownership. If the valuation becomes too high or too overly consumed, demand
    will decease. The timing for this decrease is exactly represented by an
    asymptotic valuation saturation level or a single high valuation point
    followed by lower valuations. The valuation curves provide precise
    ‘barometric’ information on instantaneous demand relative to valuation level
    and relative to the consumption level. Some assets such as gas and oil must
    be purchased to maintain livelihood. As global consumption for the this
    finite resource increases, resulting price increases squeeze the null saving
    US consumer, far too many living from paycheck to paycheck, to the
    financial breakpoint. Unnecessarily expensive US healthcare, 25 percent of
    the value of which goes to third party insurers and the non-value added bill
    collection system, can be considered yet another consumable asset, that,
    like ‘uninsured equivalent’ gasoline prices, is driving many to insolvency.

    Ongoing wages and just as important the jobs that support those wages are
    perhaps the most important rate limiting factor in determining valuation
    saturation points. In the US jobs sphere, high paying manufacturing jobs
    with the exception of the housing industry have been significantly
    outsourced. As the housing bubble crests, overcapacity will become evident
    and high paying home construction jobs will contract. A considerable subset
    of jobs in America have questionable value-added real economic worth and
    will be lightened during consumer retrenchment. It is easy to image using
    the 1930’s as a template of a positive feedback contracting system, whereby
    decreased ,e.g., construction jobs lead to decreased consumer spending which
    leading to further job contraction in other nonessential service areas which
    leads to further spending contraction and so forth.

    Lending practices and prevailing interesting rates, the latter a Federal
    Reserve controlled parameter, work in synergy to foster money creation and
    asset inflation. Fractional reserve lending practices amplify the bank and
    money market savings used as a reserve base for lending. Extremely low
    interest rates, i.e., a Fed fund rate of 1 percent coupled with a lending
    practice of LIBOR type loans, no money down and interest only payments
    creates the interesting situation in which the interest cost of money is far
    below the real asset inflation rate. Not to borrow is to lose money that
    would be made with the expected inflation. Conversely, saving money under
    these interest rate and lending practice guidelines results in loss of
    purchasing power. Credit card interest rates reflect the needed higher
    interest rates to overcome the default rate. The last year of higher Fed
    Fund interest rates have resulted in both increased mortgage payments and
    decreased bank profitability secondary to the contracting spread of long
    term verses short term interest rates.

    Ongoing debt load and the requirement to service that debt diminishes cash
    available for asset consumption and investment. Percentage wise the total
    debt load relative to wages and GDP has had relatively small incremental
    increases – a fact which has mistakenly reassured many linear thinking
    economists. Debt load becomes very important and a primary factor in the
    fractal decay process, where assets are liquated in an attempt to pay down
    debt. Because debt is in a major way based on the value of the asset, debt
    load becomes relatively greater with ongoing declining asset values. This
    process also represent a positive feedback system and is self perpetuating.
    It results in a mechanistic devaluation and deflationary process, lowering
    the value of nearly all non cash or non-cash equivalent assets.

    Cash is the money that is represented by greenbacks in circulation and
    greenback equivalent readily convertible debt instruments such as
    treasuries, notes, bonds, bank deposits, and money market funds. In short
    cash represents the dollars in circulation and savings. The savings rate,
    which the Federal Reserve has bemoaned to be dangerously low and was
    reported to be zero in July, reflects the competition of the the various
    Investment areas. With interest rates below the real(which includes
    housing) asset inflation rates, deposited money in saving instruments loses
    its purchasing power value each week that it is malinvested in the bank or
    interest bearing cash equivalent instruments. Deposited money in saving
    instruments has been generally a bad investment in the last few years.
    During the decay fractal process, this scenario will be reversed with money
    from ongoing asset liquidation flowing into cash and cash equivalents, whose
    purchase power value will increase relation to asset devaluation.

    These are the lumped six broad elements that are dynamically interacting
    with each other to create the summation valuation points, curves, and
    saturation asymptotes. The evolving integrative fractals that appear to so
    well describe the real instantaneous state, the trending state, the
    saturation areas, and importantly predict the expected fractal
    nonlinearities of the complex macro economic system, have the fundamental
    characteristics of a real science.

    Gary Lammert

  24. Oil and gas conform to very precise growth fractals. There is potentially only one more week of growth for oil to reach its maximum 21/53/53 week growth cycle. Visit the Economic Fractalist:

    Saturation Curve Fractal Analysis – A Real Science?

    In order to qualify as a true science, the subject entity must be
    testable by scientific method and have underlying laws that operate in the
    real physical environment. These laws must be repetitively provable and have
    reasonable predictability for different applications. Scientific testing in
    college biology, chemistry, and physics laboratories usually results in
    experimental values that roughly support the underlying mathematical
    equations and theoretical constructs. If indeed complex economic systems
    travel by the simple quantum laws that observational fractal analysis
    suggests, a similar validity should be testable and provable in the great
    laboratory of readily obtainable asset valuation saturation curves.

    Valuation fractals represent a composite integration of primarily six
    elements in the complex economic system: cash and savings; total private,
    corporation and governmental debt load; ongoing wages; assets; lending
    practices; and prevailing interest rates. Each of these six broad parameters
    has its own complex internal dynamics and summation characteristics. In a
    very mechanistic fashion, following simple near-quantum and near-quantum
    related Fibonacci numbers, valuation fractals ‘grow’ to buying saturation
    levels and thereafter ‘decay’ to lower selling saturation levels. The
    fundamental point to this new potential economic science is that the daily,
    weekly, monthly, and yearly valuation fractals represent the sum total
    integration of those six elements and their complex interactive
    relationships. Pour into the economic vat: cash for daily transactions,
    savings available for money to be borrowed at given interest rates using
    prevailing lending practices for both major purchases and minor credit card
    purchases, balanced by on-going wages and debt servicing obligations,
    balanced by relative valuation of assets and their relative state of
    consumption, mix it up on a daily, weekly, etc. basis – and – from the vat
    flows forth the daily, weekly, etc. summation saturation curves dancing to a
    rather precise near quantum fractal tune. While lower order time unit
    fractals such as minutes and hours represent trading valuation saturation
    points, intermediate fractals represent the larger picture of on going
    velocity of money growth percolating through the system. The higher order or
    4-yearly, 17-18 yearly and 70 year fractals represent both business cycle
    and asset and debt saturation levels at the basic consumer level.

    There are three sequential identified ideal growth fractals followed by a
    decay fractal. The near quantum number time units for the three cycles are
    x, 2-2.5x and 2x, respectively. A nonlinear devaluation typically
    characterizes the second growth fractal somewhere between the 2x and 2.5x
    time period. The third growth fractal which ideally is 2x in length can have
    an extension to 2.5x. This extension of the third growth fractal has
    characterized both the current US equity and heavily invested commodity
    areas, particularly oil and gold, for the entire 128 week duration of the
    March 2000 secondary growth period.

    Just as the complex system is an integrative process, valuation fractals
    which exactly represent them are likewise composite integrations with
    nonlinear capacitor like decay devaluations. Fractals incorporate the
    terminal portion of the preceding decay fractal into the beginning of the
    follow-on growth fractal. An elegant pristine example of this rolling
    integration was the 40/100/100 day cycle exactly x/2.5x/2.5x that resulted
    in the March 2005 top for the DJIA. The first two fractals were ‘declining’
    growth fractals with a very characteristic nonlinear break at the end of the
    second fractal in August 2004. That second fractal was likewise elegant in
    its evolution in that it was composed of a 29/72 day x/2.5x sub fractal
    sequence. The probability that these precise sequences are random numerical
    sequential events approaches zero and elevates fractal analysis,
    reciprocally, to a high probability real science descriptive of the complex
    macro economy.

    The subsequent growth fractals dating from August 2004 likewise have
    followed the same very precise fractal growth evolution with a 52/130
    (x/2.5x) day first and second fractal growth sequence with the typical
    nonlinear drop between 2x and 2.5x of the second fractal. Anyone can verify
    this pattern using any of the major US or European indices. The third
    fractal US equity sequence has been a 12/30-31/28 day sequence, approaching
    the extended ideal form of x/2.5x/2.5x growth pattern. The major European
    indices ,e.g., the FTSE, DAX, and CAC have a slightly different mix of the
    six aforementioned underlying elements and have extended their growth – but
    are still confined within the 52/130/104 theoretical maximum and the
    theoretical Fibonacci maximum of 52/130/(1.62 X 52 = 84-85)
    days. These recurrent numerically ideal patterns since August 2004 once
    again lend substantial credibility to the notion that the complex
    macroeconomy operates according to some relatively precise laws of fractal
    design.

    What are the rate limiting factors that result in growth saturation points
    or asymptotes, decay selling saturation points or asymptotes, and the
    general nature of fractal patterning? Each of the six controlling
    parameters- assets, ongoing wages, lending practices, prevailing interest
    rates, debt load, and cash and savings – contribute to the saturation areas.
    Some are more important than others in determining cycle lengths and
    saturation points.

    Assets have two important elements: relative valuations and saturation
    ownership. If the valuation becomes too high or too overly consumed, demand
    will decease. The timing for this decrease is exactly represented by an
    asymptotic valuation saturation level or a single high valuation point
    followed by lower valuations. The valuation curves provide precise
    ‘barometric’ information on instantaneous demand relative to valuation level
    and relative to the consumption level. Some assets such as gas and oil must
    be purchased to maintain livelihood. As global consumption for the this
    finite resource increases, resulting price increases squeeze the null saving
    US consumer, far too many living from paycheck to paycheck, to the
    financial breakpoint. Unnecessarily expensive US healthcare, 25 percent of
    the value of which goes to third party insurers and the non-value added bill
    collection system, can be considered yet another consumable asset, that,
    like ‘uninsured equivalent’ gasoline prices, is driving many to insolvency.

    Ongoing wages and just as important the jobs that support those wages are
    perhaps the most important rate limiting factor in determining valuation
    saturation points. In the US jobs sphere, high paying manufacturing jobs
    with the exception of the housing industry have been significantly
    outsourced. As the housing bubble crests, overcapacity will become evident
    and high paying home construction jobs will contract. A considerable subset
    of jobs in America have questionable value-added real economic worth and
    will be lightened during consumer retrenchment. It is easy to image using
    the 1930’s as a template of a positive feedback contracting system, whereby
    decreased ,e.g., construction jobs lead to decreased consumer spending which
    leading to further job contraction in other nonessential service areas which
    leads to further spending contraction and so forth.

    Lending practices and prevailing interesting rates, the latter a Federal
    Reserve controlled parameter, work in synergy to foster money creation and
    asset inflation. Fractional reserve lending practices amplify the bank and
    money market savings used as a reserve base for lending. Extremely low
    interest rates, i.e., a Fed fund rate of 1 percent coupled with a lending
    practice of LIBOR type loans, no money down and interest only payments
    creates the interesting situation in which the interest cost of money is far
    below the real asset inflation rate. Not to borrow is to lose money that
    would be made with the expected inflation. Conversely, saving money under
    these interest rate and lending practice guidelines results in loss of
    purchasing power. Credit card interest rates reflect the needed higher
    interest rates to overcome the default rate. The last year of higher Fed
    Fund interest rates have resulted in both increased mortgage payments and
    decreased bank profitability secondary to the contracting spread of long
    term verses short term interest rates.

    Ongoing debt load and the requirement to service that debt diminishes cash
    available for asset consumption and investment. Percentage wise the total
    debt load relative to wages and GDP has had relatively small incremental
    increases – a fact which has mistakenly reassured many linear thinking
    economists. Debt load becomes very important and a primary factor in the
    fractal decay process, where assets are liquated in an attempt to pay down
    debt. Because debt is in a major way based on the value of the asset, debt
    load becomes relatively greater with ongoing declining asset values. This
    process also represent a positive feedback system and is self perpetuating.
    It results in a mechanistic devaluation and deflationary process, lowering
    the value of nearly all non cash or non-cash equivalent assets.

    Cash is the money that is represented by greenbacks in circulation and
    greenback equivalent readily convertible debt instruments such as
    treasuries, notes, bonds, bank deposits, and money market funds. In short
    cash represents the dollars in circulation and savings. The savings rate,
    which the Federal Reserve has bemoaned to be dangerously low and was
    reported to be zero in July, reflects the competition of the the various
    Investment areas. With interest rates below the real(which includes
    housing) asset inflation rates, deposited money in saving instruments loses
    its purchasing power value each week that it is malinvested in the bank or
    interest bearing cash equivalent instruments. Deposited money in saving
    instruments has been generally a bad investment in the last few years.
    During the decay fractal process, this scenario will be reversed with money
    from ongoing asset liquidation flowing into cash and cash equivalents, whose
    purchase power value will increase relation to asset devaluation.

    These are the lumped six broad elements that are dynamically interacting
    with each other to create the summation valuation points, curves, and
    saturation asymptotes. The evolving integrative fractals that appear to so
    well describe the real instantaneous state, the trending state, the
    saturation areas, and importantly predict the expected fractal
    nonlinearities of the complex macro economic system, have the fundamental
    characteristics of a real science.

    Gary Lammert

  25. Oil and gas conform to very precise growth fractals. There is potentially only one more week of growth for oil to reach its maximum 21/53/53 week growth cycle. Visit the Economic Fractalist:

    Saturation Curve Fractal Analysis – A Real Science?

    In order to qualify as a true science, the subject entity must be
    testable by scientific method and have underlying laws that operate in the
    real physical environment. These laws must be repetitively provable and have
    reasonable predictability for different applications. Scientific testing in
    college biology, chemistry, and physics laboratories usually results in
    experimental values that roughly support the underlying mathematical
    equations and theoretical constructs. If indeed complex economic systems
    travel by the simple quantum laws that observational fractal analysis
    suggests, a similar validity should be testable and provable in the great
    laboratory of readily obtainable asset valuation saturation curves.

    Valuation fractals represent a composite integration of primarily six
    elements in the complex economic system: cash and savings; total private,
    corporation and governmental debt load; ongoing wages; assets; lending
    practices; and prevailing interest rates. Each of these six broad parameters
    has its own complex internal dynamics and summation characteristics. In a
    very mechanistic fashion, following simple near-quantum and near-quantum
    related Fibonacci numbers, valuation fractals ‘grow’ to buying saturation
    levels and thereafter ‘decay’ to lower selling saturation levels. The
    fundamental point to this new potential economic science is that the daily,
    weekly, monthly, and yearly valuation fractals represent the sum total
    integration of those six elements and their complex interactive
    relationships. Pour into the economic vat: cash for daily transactions,
    savings available for money to be borrowed at given interest rates using
    prevailing lending practices for both major purchases and minor credit card
    purchases, balanced by on-going wages and debt servicing obligations,
    balanced by relative valuation of assets and their relative state of
    consumption, mix it up on a daily, weekly, etc. basis – and – from the vat
    flows forth the daily, weekly, etc. summation saturation curves dancing to a
    rather precise near quantum fractal tune. While lower order time unit
    fractals such as minutes and hours represent trading valuation saturation
    points, intermediate fractals represent the larger picture of on going
    velocity of money growth percolating through the system. The higher order or
    4-yearly, 17-18 yearly and 70 year fractals represent both business cycle
    and asset and debt saturation levels at the basic consumer level.

    There are three sequential identified ideal growth fractals followed by a
    decay fractal. The near quantum number time units for the three cycles are
    x, 2-2.5x and 2x, respectively. A nonlinear devaluation typically
    characterizes the second growth fractal somewhere between the 2x and 2.5x
    time period. The third growth fractal which ideally is 2x in length can have
    an extension to 2.5x. This extension of the third growth fractal has
    characterized both the current US equity and heavily invested commodity
    areas, particularly oil and gold, for the entire 128 week duration of the
    March 2000 secondary growth period.

    Just as the complex system is an integrative process, valuation fractals
    which exactly represent them are likewise composite integrations with
    nonlinear capacitor like decay devaluations. Fractals incorporate the
    terminal portion of the preceding decay fractal into the beginning of the
    follow-on growth fractal. An elegant pristine example of this rolling
    integration was the 40/100/100 day cycle exactly x/2.5x/2.5x that resulted
    in the March 2005 top for the DJIA. The first two fractals were ‘declining’
    growth fractals with a very characteristic nonlinear break at the end of the
    second fractal in August 2004. That second fractal was likewise elegant in
    its evolution in that it was composed of a 29/72 day x/2.5x sub fractal
    sequence. The probability that these precise sequences are random numerical
    sequential events approaches zero and elevates fractal analysis,
    reciprocally, to a high probability real science descriptive of the complex
    macro economy.

    The subsequent growth fractals dating from August 2004 likewise have
    followed the same very precise fractal growth evolution with a 52/130
    (x/2.5x) day first and second fractal growth sequence with the typical
    nonlinear drop between 2x and 2.5x of the second fractal. Anyone can verify
    this pattern using any of the major US or European indices. The third
    fractal US equity sequence has been a 12/30-31/28 day sequence, approaching
    the extended ideal form of x/2.5x/2.5x growth pattern. The major European
    indices ,e.g., the FTSE, DAX, and CAC have a slightly different mix of the
    six aforementioned underlying elements and have extended their growth – but
    are still confined within the 52/130/104 theoretical maximum and the
    theoretical Fibonacci maximum of 52/130/(1.62 X 52 = 84-85)
    days. These recurrent numerically ideal patterns since August 2004 once
    again lend substantial credibility to the notion that the complex
    macroeconomy operates according to some relatively precise laws of fractal
    design.

    What are the rate limiting factors that result in growth saturation points
    or asymptotes, decay selling saturation points or asymptotes, and the
    general nature of fractal patterning? Each of the six controlling
    parameters- assets, ongoing wages, lending practices, prevailing interest
    rates, debt load, and cash and savings – contribute to the saturation areas.
    Some are more important than others in determining cycle lengths and
    saturation points.

    Assets have two important elements: relative valuations and saturation
    ownership. If the valuation becomes too high or too overly consumed, demand
    will decease. The timing for this decrease is exactly represented by an
    asymptotic valuation saturation level or a single high valuation point
    followed by lower valuations. The valuation curves provide precise
    ‘barometric’ information on instantaneous demand relative to valuation level
    and relative to the consumption level. Some assets such as gas and oil must
    be purchased to maintain livelihood. As global consumption for the this
    finite resource increases, resulting price increases squeeze the null saving
    US consumer, far too many living from paycheck to paycheck, to the
    financial breakpoint. Unnecessarily expensive US healthcare, 25 percent of
    the value of which goes to third party insurers and the non-value added bill
    collection system, can be considered yet another consumable asset, that,
    like ‘uninsured equivalent’ gasoline prices, is driving many to insolvency.

    Ongoing wages and just as important the jobs that support those wages are
    perhaps the most important rate limiting factor in determining valuation
    saturation points. In the US jobs sphere, high paying manufacturing jobs
    with the exception of the housing industry have been significantly
    outsourced. As the housing bubble crests, overcapacity will become evident
    and high paying home construction jobs will contract. A considerable subset
    of jobs in America have questionable value-added real economic worth and
    will be lightened during consumer retrenchment. It is easy to image using
    the 1930’s as a template of a positive feedback contracting system, whereby
    decreased ,e.g., construction jobs lead to decreased consumer spending which
    leading to further job contraction in other nonessential service areas which
    leads to further spending contraction and so forth.

    Lending practices and prevailing interesting rates, the latter a Federal
    Reserve controlled parameter, work in synergy to foster money creation and
    asset inflation. Fractional reserve lending practices amplify the bank and
    money market savings used as a reserve base for lending. Extremely low
    interest rates, i.e., a Fed fund rate of 1 percent coupled with a lending
    practice of LIBOR type loans, no money down and interest only payments
    creates the interesting situation in which the interest cost of money is far
    below the real asset inflation rate. Not to borrow is to lose money that
    would be made with the expected inflation. Conversely, saving money under
    these interest rate and lending practice guidelines results in loss of
    purchasing power. Credit card interest rates reflect the needed higher
    interest rates to overcome the default rate. The last year of higher Fed
    Fund interest rates have resulted in both increased mortgage payments and
    decreased bank profitability secondary to the contracting spread of long
    term verses short term interest rates.

    Ongoing debt load and the requirement to service that debt diminishes cash
    available for asset consumption and investment. Percentage wise the total
    debt load relative to wages and GDP has had relatively small incremental
    increases – a fact which has mistakenly reassured many linear thinking
    economists. Debt load becomes very important and a primary factor in the
    fractal decay process, where assets are liquated in an attempt to pay down
    debt. Because debt is in a major way based on the value of the asset, debt
    load becomes relatively greater with ongoing declining asset values. This
    process also represent a positive feedback system and is self perpetuating.
    It results in a mechanistic devaluation and deflationary process, lowering
    the value of nearly all non cash or non-cash equivalent assets.

    Cash is the money that is represented by greenbacks in circulation and
    greenback equivalent readily convertible debt instruments such as
    treasuries, notes, bonds, bank deposits, and money market funds. In short
    cash represents the dollars in circulation and savings. The savings rate,
    which the Federal Reserve has bemoaned to be dangerously low and was
    reported to be zero in July, reflects the competition of the the various
    Investment areas. With interest rates below the real(which includes
    housing) asset inflation rates, deposited money in saving instruments loses
    its purchasing power value each week that it is malinvested in the bank or
    interest bearing cash equivalent instruments. Deposited money in saving
    instruments has been generally a bad investment in the last few years.
    During the decay fractal process, this scenario will be reversed with money
    from ongoing asset liquidation flowing into cash and cash equivalents, whose
    purchase power value will increase relation to asset devaluation.

    These are the lumped six broad elements that are dynamically interacting
    with each other to create the summation valuation points, curves, and
    saturation asymptotes. The evolving integrative fractals that appear to so
    well describe the real instantaneous state, the trending state, the
    saturation areas, and importantly predict the expected fractal
    nonlinearities of the complex macro economic system, have the fundamental
    characteristics of a real science.

    Gary Lammert

  26. Mr. Milenkovic…

    “plants or algae convert sunlight into carbon” ?

    Is that just sloppy language/typing, or do you really think that?

  27. Mr. Milenkovic…

    “plants or algae convert sunlight into carbon” ?

    Is that just sloppy language/typing, or do you really think that?

  28. Nick Lane’s “Oxygen” proposes that volcanoes emit CO2, plants convert that to C and O2, respiration (mainly bacterial decay and termites) covert much of the C and O2 back to CO2, but there is a small amount of C that gets sequestered in anoxic swamps and bogs that gets turned into rock. Some of that carbon gets turned into coal(and yes, people believe it gets turned into oil, but J F Kenney et al don’t believe that organic matter is the source oil owing to chemical thermodynamic arguments), but most of the carbon gets turned into a very low-grade hydrocarbon shales — many sedimentary rocks have low concentrations of hydrocarbons.

    I suppose I am contradicting myself to say that oxygen is a fossil gas which is the other half of the chemical equation when plant-reduced carbon gets sequestered in rock to turn into fossil fuel. But most of that carbon is in inaccessibly low concentrations and the amount of coal and oil reserves account for a very small amount of the oxygen. But if the thermodynamics of the formation of oil favor an inorganic origin in the upper mantle instead of an organic origin in sediments, there may be more oil than the small amounts of the vast carbon sediments that get trapped in just the right way according to conventional theories of oil.

    But I am not convinced that is the whole story on the oxygen either. I believe much more carbon is tied up in limestone and related rocks (CaCO3) than in hydrocarbon shales, and limestone must be an important mechanism for binding up the CO2 emitted by volcanoes, and some of that limestone may get recycled and converted back into CO2 gas by subduction. I believe that limestone formation has both organic and inorganic origins. So you have this massive movement of carbon and oxygen which is not tied to the usual plants turn water and CO2 into oxygen and starch cycle.

    Also, the argument is made based on fossil insects and on isotope ratios that the oxygen levels in the air must have reached 35 percent in the Pennsylvanian and then crashed to 15 percent in the Permian. If oxygen is a fossil gas, it makes sense that the coal-forming age would have produced a lot of oxygen, but where did all of the oxygen go to make oxygen crash in the Permian?

    Also, ultraviolet cracking H2O into H2 and O is a source of oxygen, but one argued not to account for the bulk of the oxygen. It is clear that the oxygen in the air is not in a kind of ecological closed loop homeostatic equalibrium with the algae in the oceans and the trees in the rainforests because the bulk of carbon in the biosphere is very small compared to the amount of oxygen. That has implications on efforts such as Biosphere 2 and the trouble they had using a closed-loop ecological system to control their level of oxygen.

    Getting back to J F Kenney’s theory. Petroleum geologists talk about an “oil window”, a depth and temperature where dead dinos (actually dead pond scum) gets turned into oil. The claim is that oil can’t form at the temperatures and pressures of the oil window (about 1 to 2 miles deep) owing to thermodynamic equalibria — the same reason diamonds decompose at those levels — there are these graphite pseudo morphs of diamond, rocks that look like diamonds but came up from the mantle slowly and thus cooked back into graphite.

    Apart from the usual organic-origin arguments, is there any line of argument supporting the pressures and temperatures of the “oil window” as condusive to forming oil?

  29. Who’ll be driving where on what………..?

    Talk about running with the foxes and sleeping with the hounds. It’s hard to see who is who when it comes to the government watching over the proverbial chicken coop, in this case the oil and automobile industries. Gasoline prices have increased 100% since we entered the Iraq war and keep going up and up. We are told this is caused by supply and demand. The world is using 90 million barrels of crude oil a day, up 70 million barrels in just forty years. Are there just too many people on the globe sucking up the product? Oil supplies around the world are on the decline. This decline is going to increase exponentially over the next forty years until for the most part, oil supplies will be reduced to a trickle compared with today.

    Speculators, oil producers, and investors are making windfall profits on global natural oil resources. Is there a crude oil shortage? I think this is not the case today, but that will change for sure a few years down the road. So, what’s the problem? It’s this, oil companies cannot or will not make enough finished product, and to boot, they are not alarmed. Why should they be, they will continue setting prices that are based on shortages as they see fit and reap in trillions right up to the last drop. What are our elected leaders doing to rein in these insatiable giants? Good question. Gasoline prices have doubled in just two years and business continues as usual. The current U.S. administration has sat idly by since it took office and permits these scalping practices by the speculators and producers to continue. The administration just signed a $287 billion new highway bill last week that will update and re-furbish our roads. Why in God’s name are our leaders concerned about updating our highway systems and not concerned about whether we will have affordable fuel for our vehicles to drive on them is more than I can understand. Are there any major oil or automobile austerity measures in this bill like gasoline conservation and mandating fuel efficient vehicles? Don’t think so. Not realistic and surely not wanted.

    The world oil resources belong to us all. They’re not an eternal commodity. The disposition of these oil resources should be done in good conscience and with consideration of us all, the wealthy and not so wealthy. It is not fair or just that only the wealthy be able to bear the escalating market price and consume as much as they want. For that matter, it’s not fair that only the G-8 nations be the prime regulators of this great resource. It seems we (the G-8 nations) have become the worst of all generations to date when it comes to consuming billions of barrels of precious oil resources in the name of greed.

    Where is the public outcry today that was heard in the 70’s and 80’s when gasoline prices rose only 30% in a year? Do we care? Have we become a nation of sheep that no longer challenges those in power? Or worse, have we become indifferent saying, “What’s the use, the Iraq war is all about oil and this administration is all about making money on oil”. Have we a president that is so afloat with support from the oil industry that he’s intoxicated with power? We’d better wake up and get a reality check. And please, may the neo-cons take note that this editorial is not about engaging in Republican or Democratic pseudo-politics. This writer voted for Reagan and Bush Sr. This is about mis-focused power and to put it bluntly, piss poor planning. Has this administration informed the public of a national gasoline/diesel fuel plan that would be put into effect if terrorists sabotaged several oil loading complexes in the Middle East, or for that matter a minor interruption in the major world pipelines took place?

    We must also keep in mind that it is highly improbable that the U.S. could ever build a public national land transportation overnight and not even in ten years that could move large numbers of our populace that equals or even comes close to that of the European and Asian nations whose systems were built and maintained over a century and in many cases are modern engineering feats. We were literally asleep at the wheel and left these kinds of decisions to the powerful lobbyists of the oil and automobile industries. Have things changed. Not really. The politicians continue to be more concerned with pleasing their constituents on mediocre sundry issues and backing big business that will bring jobs to their districts. And the lobbyists, they will never change. They continue to promote our love affair with the automobile and squash any opportunities for high tech public land transportation systems. And has anyone given any thought to what we’re going to do with all these airliners in thirty to forty years? They certainly won’t be in the air flying. Jets need jet fuel. Science may one day make a break through into levitated or static energy flight propulsion, but I wouldn’t bank on it for another 100 years or so. The gas lines in 1973 will look like a practice drill compared to what will be coming our way with even minor pipeline interruptions. And here we are like the little boy whistling in the dark, hoping this all is just a big bad dream.

    We voted for a guy who from the very beginning of his presidency was hell bent to get us involved in a war in the Middle East over WMD. We now know it was all about oil. Think we would have done the same thing to oust a cruel dictator from oilless Zimbabwe or Sierra Leone? I don’t think so. To make matters worse, this same president is a protector and promoter for big business, namely the oil and the automobile industries. The American automobile manufacturers are being allowed by the U.S. government to submit bogus mpg data to the EPA to help sell more U.S. automobiles, which in turn will use up even more fuel stocks here at home and drive up our foreign deficit of payments. From state to state, MSRP stickers blatantly lie about the expected gas mileage rates for U.S. made gas-guzzling automobiles. On the other hand, Japanese and Korean automobile owners achieve the exact or even better gas mileage rates promised by the manufacturer. Like the administration, the EPA has turned a blind eye to this fraud in the name of what…. our national interest? SUV’s are getting bigger and thirstier and continue to drag down our national MPG average instead of pushing it higher with more fuel-efficient automobiles. Well, there we have it in a nutshell. The polls are closed, we have what we have, our short sightedness is too long, and our complaining was too little.

    When I was a kid during the early forties we were at war. I remember seeing ration stamps in a decorator dish in the middle of the dining room table. My family members with cars had to present these gas ration coupons at the gas station before they could buy gas. Rationing allowed the price of gas to remain stable throughout the war. Gas rationing was a way to conserve fuel on the home front so we would have ample fuel on the war front. This prevented scalping and still enabled our workers to travel to and from their work places on fair priced fuel. There was never a shortage of fuel in the U.S. during the war, just good conservation planning to get the job done.

    Maybe now would be an excellent time for our government to be pro-active and consider re-activating a gasoline and fuel oil rationing system similar to the one that saved our behinds 60 years ago. Would this be painless? No. Would it be prudent? Yes. We are told we are at war. We are told we do have an oil supply problem. Let’s kill two birds with one stone. Reward those drivers that are trying to do their part to conserve fuel and stabilize fuel prices. People that drive at or under 12,000 miles (20,000 for rural areas) a year would constitute a national lowest price baseline. The number of gas coupons issued would be based on a pre-determined national average vehicle MPG rate that is now about 21 mpg. Those drivers that elect to travel long distances to their work places, make unplanned or frivolous trips, or have high gas consumption vehicles would pay a surcharge for the fuel they purchase without rationing coupons. And yes, a black market in ration coupons will probably surface; no good deed ever goes unpunished. Unlike WWII when every citizen received ration coupons whether or not he had a vehicle, this re-activated system could limit the recipients to only those with driving licenses.

    Or should we just let things be? Wait and see? Not over react. Continue being overwhelmed everyday with the new gas price signs that were changed while we were sleeping? The hysteria has already begun with cars cutting across lanes on the highway as drivers spot gas for pennies less. Using the past 1696 days of this administration as a baseline for gas pricing, we will be paying approximately $3.75 a gallon by January 20th, 2009, and that’s if we do not have any minor oil pipeline interruptions. This number does not include any periods with scalping increases similar to that which took place during the week of August 15th, 2005, which amounted to a 15% increase in one week.

    Gasoline rationing would open the door to a weaning off process, both as individuals and as a nation. During the Oil Embargo in 1973, gasoline supplies trickled almost to a stop. Tempers rose in the gas lines as the days went into weeks. There were a few bright spots though during this period. Jersey Bell Telephone re-designed their fleet of cars used by their supervisory personnel. They replaced the gasoline engines in their Plymouth K cars with electric motors and filled the trunk of the cars with banks of batteries. Good old Yankee ingenuity saved the day. A visitor from another planet might ask at this point, “You made it to the moon and back, why didn’t you apply all your technologies and resources to perfect better batteries and electric motors and not suffer this problem again”? I’m afraid the only answer I can come up with is “greed moderated conflict of interest”. U.S. leaders are tied hook, line, and sinker to the automobile and oil industries. There’ll be no solutions until we the people are totally fed up with our leaders’ self serving interests and demand they set a course that will initiate rationing, mandate we have the world’s best oilless electro-mobiles by 2007, and develop state of the art land public transportation systems before we send astronauts to Mars or any other outpost in space.

    Ron Beauchain
    Stuart, FL

  30. Who’ll be driving where on what………..?

    Talk about running with the foxes and sleeping with the hounds. It’s hard to see who is who when it comes to the government watching over the proverbial chicken coop, in this case the oil and automobile industries. Gasoline prices have increased 100% since we entered the Iraq war and keep going up and up. We are told this is caused by supply and demand. The world is using 90 million barrels of crude oil a day, up 70 million barrels in just forty years. Are there just too many people on the globe sucking up the product? Oil supplies around the world are on the decline. This decline is going to increase exponentially over the next forty years until for the most part, oil supplies will be reduced to a trickle compared with today.

    Speculators, oil producers, and investors are making windfall profits on global natural oil resources. Is there a crude oil shortage? I think this is not the case today, but that will change for sure a few years down the road. So, what’s the problem? It’s this, oil companies cannot or will not make enough finished product, and to boot, they are not alarmed. Why should they be, they will continue setting prices that are based on shortages as they see fit and reap in trillions right up to the last drop. What are our elected leaders doing to rein in these insatiable giants? Good question. Gasoline prices have doubled in just two years and business continues as usual. The current U.S. administration has sat idly by since it took office and permits these scalping practices by the speculators and producers to continue. The administration just signed a $287 billion new highway bill last week that will update and re-furbish our roads. Why in God’s name are our leaders concerned about updating our highway systems and not concerned about whether we will have affordable fuel for our vehicles to drive on them is more than I can understand. Are there any major oil or automobile austerity measures in this bill like gasoline conservation and mandating fuel efficient vehicles? Don’t think so. Not realistic and surely not wanted.

    The world oil resources belong to us all. They’re not an eternal commodity. The disposition of these oil resources should be done in good conscience and with consideration of us all, the wealthy and not so wealthy. It is not fair or just that only the wealthy be able to bear the escalating market price and consume as much as they want. For that matter, it’s not fair that only the G-8 nations be the prime regulators of this great resource. It seems we (the G-8 nations) have become the worst of all generations to date when it comes to consuming billions of barrels of precious oil resources in the name of greed.

    Where is the public outcry today that was heard in the 70’s and 80’s when gasoline prices rose only 30% in a year? Do we care? Have we become a nation of sheep that no longer challenges those in power? Or worse, have we become indifferent saying, “What’s the use, the Iraq war is all about oil and this administration is all about making money on oil”. Have we a president that is so afloat with support from the oil industry that he’s intoxicated with power? We’d better wake up and get a reality check. And please, may the neo-cons take note that this editorial is not about engaging in Republican or Democratic pseudo-politics. This writer voted for Reagan and Bush Sr. This is about mis-focused power and to put it bluntly, piss poor planning. Has this administration informed the public of a national gasoline/diesel fuel plan that would be put into effect if terrorists sabotaged several oil loading complexes in the Middle East, or for that matter a minor interruption in the major world pipelines took place?

    We must also keep in mind that it is highly improbable that the U.S. could ever build a public national land transportation overnight and not even in ten years that could move large numbers of our populace that equals or even comes close to that of the European and Asian nations whose systems were built and maintained over a century and in many cases are modern engineering feats. We were literally asleep at the wheel and left these kinds of decisions to the powerful lobbyists of the oil and automobile industries. Have things changed. Not really. The politicians continue to be more concerned with pleasing their constituents on mediocre sundry issues and backing big business that will bring jobs to their districts. And the lobbyists, they will never change. They continue to promote our love affair with the automobile and squash any opportunities for high tech public land transportation systems. And has anyone given any thought to what we’re going to do with all these airliners in thirty to forty years? They certainly won’t be in the air flying. Jets need jet fuel. Science may one day make a break through into levitated or static energy flight propulsion, but I wouldn’t bank on it for another 100 years or so. The gas lines in 1973 will look like a practice drill compared to what will be coming our way with even minor pipeline interruptions. And here we are like the little boy whistling in the dark, hoping this all is just a big bad dream.

    We voted for a guy who from the very beginning of his presidency was hell bent to get us involved in a war in the Middle East over WMD. We now know it was all about oil. Think we would have done the same thing to oust a cruel dictator from oilless Zimbabwe or Sierra Leone? I don’t think so. To make matters worse, this same president is a protector and promoter for big business, namely the oil and the automobile industries. The American automobile manufacturers are being allowed by the U.S. government to submit bogus mpg data to the EPA to help sell more U.S. automobiles, which in turn will use up even more fuel stocks here at home and drive up our foreign deficit of payments. From state to state, MSRP stickers blatantly lie about the expected gas mileage rates for U.S. made gas-guzzling automobiles. On the other hand, Japanese and Korean automobile owners achieve the exact or even better gas mileage rates promised by the manufacturer. Like the administration, the EPA has turned a blind eye to this fraud in the name of what…. our national interest? SUV’s are getting bigger and thirstier and continue to drag down our national MPG average instead of pushing it higher with more fuel-efficient automobiles. Well, there we have it in a nutshell. The polls are closed, we have what we have, our short sightedness is too long, and our complaining was too little.

    When I was a kid during the early forties we were at war. I remember seeing ration stamps in a decorator dish in the middle of the dining room table. My family members with cars had to present these gas ration coupons at the gas station before they could buy gas. Rationing allowed the price of gas to remain stable throughout the war. Gas rationing was a way to conserve fuel on the home front so we would have ample fuel on the war front. This prevented scalping and still enabled our workers to travel to and from their work places on fair priced fuel. There was never a shortage of fuel in the U.S. during the war, just good conservation planning to get the job done.

    Maybe now would be an excellent time for our government to be pro-active and consider re-activating a gasoline and fuel oil rationing system similar to the one that saved our behinds 60 years ago. Would this be painless? No. Would it be prudent? Yes. We are told we are at war. We are told we do have an oil supply problem. Let’s kill two birds with one stone. Reward those drivers that are trying to do their part to conserve fuel and stabilize fuel prices. People that drive at or under 12,000 miles (20,000 for rural areas) a year would constitute a national lowest price baseline. The number of gas coupons issued would be based on a pre-determined national average vehicle MPG rate that is now about 21 mpg. Those drivers that elect to travel long distances to their work places, make unplanned or frivolous trips, or have high gas consumption vehicles would pay a surcharge for the fuel they purchase without rationing coupons. And yes, a black market in ration coupons will probably surface; no good deed ever goes unpunished. Unlike WWII when every citizen received ration coupons whether or not he had a vehicle, this re-activated system could limit the recipients to only those with driving licenses.

    Or should we just let things be? Wait and see? Not over react. Continue being overwhelmed everyday with the new gas price signs that were changed while we were sleeping? The hysteria has already begun with cars cutting across lanes on the highway as drivers spot gas for pennies less. Using the past 1696 days of this administration as a baseline for gas pricing, we will be paying approximately $3.75 a gallon by January 20th, 2009, and that’s if we do not have any minor oil pipeline interruptions. This number does not include any periods with scalping increases similar to that which took place during the week of August 15th, 2005, which amounted to a 15% increase in one week.

    Gasoline rationing would open the door to a weaning off process, both as individuals and as a nation. During the Oil Embargo in 1973, gasoline supplies trickled almost to a stop. Tempers rose in the gas lines as the days went into weeks. There were a few bright spots though during this period. Jersey Bell Telephone re-designed their fleet of cars used by their supervisory personnel. They replaced the gasoline engines in their Plymouth K cars with electric motors and filled the trunk of the cars with banks of batteries. Good old Yankee ingenuity saved the day. A visitor from another planet might ask at this point, “You made it to the moon and back, why didn’t you apply all your technologies and resources to perfect better batteries and electric motors and not suffer this problem again”? I’m afraid the only answer I can come up with is “greed moderated conflict of interest”. U.S. leaders are tied hook, line, and sinker to the automobile and oil industries. There’ll be no solutions until we the people are totally fed up with our leaders’ self serving interests and demand they set a course that will initiate rationing, mandate we have the world’s best oilless electro-mobiles by 2007, and develop state of the art land public transportation systems before we send astronauts to Mars or any other outpost in space.

    Ron Beauchain
    Stuart, FL

  31. Google the name James Howard Kunstler and read about “global oil production peak, the point at which we have extracted half of all the oil that has ever existed in the world–the half that was the easiest to get, the half that was most economically obtained, the half that was the highest quality and cheapest to refine. The remaining oil is the stuff that lies in forbidding places not easily accessed, such as the Arctic and deep under the ocean. Much of the remaining half is difficult to extract and may, in fact, take so much energy to extract that it is not worth getting–for instance, if it takes a barrel of oil to get a barrel of oil out of the ground, then you are engaged in an act of futility. If it takes two barrels of oil to get one barrel of oil, then you are engaged in an act of madness. Much of the remaining half comes in the form of high-sulfur crude, which is difficult to refine, or tar sands and oil shales, which are not liquids but solids that must be mined before they are liquefied for refining, adding two additional layers of expense on their recovery. Quite a bit of the remaining half of the world’s original oil supply will never be recovered.” From “The Long Emergency”, page 24, by James Howard Kunstler.

  32. Google the name James Howard Kunstler and read about “global oil production peak, the point at which we have extracted half of all the oil that has ever existed in the world–the half that was the easiest to get, the half that was most economically obtained, the half that was the highest quality and cheapest to refine. The remaining oil is the stuff that lies in forbidding places not easily accessed, such as the Arctic and deep under the ocean. Much of the remaining half is difficult to extract and may, in fact, take so much energy to extract that it is not worth getting–for instance, if it takes a barrel of oil to get a barrel of oil out of the ground, then you are engaged in an act of futility. If it takes two barrels of oil to get one barrel of oil, then you are engaged in an act of madness. Much of the remaining half comes in the form of high-sulfur crude, which is difficult to refine, or tar sands and oil shales, which are not liquids but solids that must be mined before they are liquefied for refining, adding two additional layers of expense on their recovery. Quite a bit of the remaining half of the world’s original oil supply will never be recovered.” From “The Long Emergency”, page 24, by James Howard Kunstler.

  33. Just a comment on the first comment. It’s true we may never run out of oil. We may give up trying though, before we get to the last drop. While it’s also true that oil is not scarce, if you compare it too the current demand (is now 86 million barrels per day globally), then try to imagine that daily consumption over a period of decades. And remember the demand is growing. Sure, we are getting more efficient. The inescapable fact is a country like China and another one like India which together have 2 billion (or 1 third) of the world’s population, are beginning to consume a lot more.
    We are currently, I believe, at the maximum supply also known as Peak Oil. Thus it is easy to say, we’ve never had more oil. But it;s also true to say that we will never be able to extract (supply as much) again. That means from now on the glass becomes half empty, and the huge amounts of oil left become increasing difficult to access and extract, driving costs and prices even higher. But you know, it will feel like scarcity.

  34. Just a comment on the first comment. It’s true we may never run out of oil. We may give up trying though, before we get to the last drop. While it’s also true that oil is not scarce, if you compare it too the current demand (is now 86 million barrels per day globally), then try to imagine that daily consumption over a period of decades. And remember the demand is growing. Sure, we are getting more efficient. The inescapable fact is a country like China and another one like India which together have 2 billion (or 1 third) of the world’s population, are beginning to consume a lot more.
    We are currently, I believe, at the maximum supply also known as Peak Oil. Thus it is easy to say, we’ve never had more oil. But it;s also true to say that we will never be able to extract (supply as much) again. That means from now on the glass becomes half empty, and the huge amounts of oil left become increasing difficult to access and extract, driving costs and prices even higher. But you know, it will feel like scarcity.

  35. Folks, oil is scarce. It’s page one of every economics book. How scarce is an altogether different question. Even if the oil reserves under ground are there, the oil production facilities are still able to only drill, barrel, and refine X amount of gas per minute, day, year, etc. This process means diveting other resources to drill, etc. It is called oportunity cost. Even if gas was $0.01 per gallon, it’d still be “scarce”.

  36. Folks, oil is scarce. It’s page one of every economics book. How scarce is an altogether different question. Even if the oil reserves under ground are there, the oil production facilities are still able to only drill, barrel, and refine X amount of gas per minute, day, year, etc. This process means diveting other resources to drill, etc. It is called oportunity cost. Even if gas was $0.01 per gallon, it’d still be “scarce”.

  37. Typical energy systems run with gains of 5 to 20.

    That is for every 1 unit of energy put in about 5 to 20 units come out over the life of the system.

    Ethanol has a gain of 1.5 or less. Some say it is under 1.

    That’s all an accounting trick. The 2nd Law of Thermodynamics says that all energy systems have gains less than one. In real life, way less than one. The way we get net energy out is not a violation of the 2nd law of thermodynics, it is simply that we don’t count the enery inputs of the parts we don’t have to pay for — like all those algae had to work hard millions of years ago to suck carbon dioxide out of the air and turn it into hydrocarbon atoms.

    The right way to do the ethanol accounting is analogous to the right way to do crude oil accounting. There are billions of bushels of corn in storage in the US. The energy balance for ethanol should only include the energy inputs of moving the corn from storage to distillary and then distilling it. The costs of planting, growing and harvesting that corn are already sunk costs, and we don’t have to start counting those as inputs until we run out of corn in storage.

    Oil has other costs that you should count in there as well. It burns much less cleanly than ethanol. When using MTBE as an additive rather than ethanol you risk a huge-expensive-to-clean-up groundwater contamination problem. When we buy oil from wahabi nutcases they turn around and hire people to slaughter us, and we have to spend enormous amounts of energy protecting ourselves from them.

    cathy 🙂

  38. Typical energy systems run with gains of 5 to 20.

    That is for every 1 unit of energy put in about 5 to 20 units come out over the life of the system.

    Ethanol has a gain of 1.5 or less. Some say it is under 1.

    That’s all an accounting trick. The 2nd Law of Thermodynamics says that all energy systems have gains less than one. In real life, way less than one. The way we get net energy out is not a violation of the 2nd law of thermodynics, it is simply that we don’t count the enery inputs of the parts we don’t have to pay for — like all those algae had to work hard millions of years ago to suck carbon dioxide out of the air and turn it into hydrocarbon atoms.

    The right way to do the ethanol accounting is analogous to the right way to do crude oil accounting. There are billions of bushels of corn in storage in the US. The energy balance for ethanol should only include the energy inputs of moving the corn from storage to distillary and then distilling it. The costs of planting, growing and harvesting that corn are already sunk costs, and we don’t have to start counting those as inputs until we run out of corn in storage.

    Oil has other costs that you should count in there as well. It burns much less cleanly than ethanol. When using MTBE as an additive rather than ethanol you risk a huge-expensive-to-clean-up groundwater contamination problem. When we buy oil from wahabi nutcases they turn around and hire people to slaughter us, and we have to spend enormous amounts of energy protecting ourselves from them.

    cathy 🙂

  39. Here’s another, potentially valuable twist on the abiogenic/biogenic controversy–microbe populations that make methane in real time in coal beds:

    http://www.lucatechnologies.com/content/index.
    cfm?fuseaction=showContent&contentID=26&navID=26

    Interesting for suggesting what we don’t know about the terrestrial carbon cycle and ways to exploit it.

    Also re Oxygen–Dr M is right about fossil oxygen–the currently most accepted theory is that most oxygen was created during the Banded Iron Formation periods as green and blue-green algae produced enough O2 to switch our atmosphere from reducing to its current ~20% O2 levels, and incidently poisoning a lot of the reducing bacteria alive at the time. However, that was a necessary precondition to the high-O2 lifeforms now dominant on the planet.

  40. Here’s another, potentially valuable twist on the abiogenic/biogenic controversy–microbe populations that make methane in real time in coal beds:

    http://www.lucatechnologies.com/content/index.
    cfm?fuseaction=showContent&contentID=26&navID=26

    Interesting for suggesting what we don’t know about the terrestrial carbon cycle and ways to exploit it.

    Also re Oxygen–Dr M is right about fossil oxygen–the currently most accepted theory is that most oxygen was created during the Banded Iron Formation periods as green and blue-green algae produced enough O2 to switch our atmosphere from reducing to its current ~20% O2 levels, and incidently poisoning a lot of the reducing bacteria alive at the time. However, that was a necessary precondition to the high-O2 lifeforms now dominant on the planet.

  41. Actually, Ron’s point about Bush invading Iraq over oil may be what saves our American way of life, at least into the forseeable future. With us there to act as a “policeman” and make sure the middle east oil flows smoothly to the whole world, we may be able to buy some more time to come up with more fuel efficient cars and investigate oil alternatives. Just imagine what would happen to the world stock markets if the president did address this issue head-on. And also try to imagine our way of life with a severe disruption and/or cessation of oil. Do any of you know how to spell “Depression”? It would make 1929 look like a bad movie, in my opinion, if the countries who still have oil underneath their land decided tomorrow to no longer share it with the world but keep it for their own use. The oil geologists all say that except for some small fields in Alaska and others in the Gulf of Mexico, America is the most tapped-out country in the world. Yet we use 25% of what the world produces. I don’t know about you, but I’m beginning to think President Bush is a genius for ridding the world of Saddam and trying to bring a stable gov’t to Iraq. More stable gov’ts equals less disruption in oil production. We’ll see if President Bush’s gamble was a good one when we look at history through our rear-view mirror in a few years.

  42. Actually, Ron’s point about Bush invading Iraq over oil may be what saves our American way of life, at least into the forseeable future. With us there to act as a “policeman” and make sure the middle east oil flows smoothly to the whole world, we may be able to buy some more time to come up with more fuel efficient cars and investigate oil alternatives. Just imagine what would happen to the world stock markets if the president did address this issue head-on. And also try to imagine our way of life with a severe disruption and/or cessation of oil. Do any of you know how to spell “Depression”? It would make 1929 look like a bad movie, in my opinion, if the countries who still have oil underneath their land decided tomorrow to no longer share it with the world but keep it for their own use. The oil geologists all say that except for some small fields in Alaska and others in the Gulf of Mexico, America is the most tapped-out country in the world. Yet we use 25% of what the world produces. I don’t know about you, but I’m beginning to think President Bush is a genius for ridding the world of Saddam and trying to bring a stable gov’t to Iraq. More stable gov’ts equals less disruption in oil production. We’ll see if President Bush’s gamble was a good one when we look at history through our rear-view mirror in a few years.

  43. Oil is not about to run out! See Julian Simon. Oil shale is not the answer. Gee, I haven’t seen fractals and Fibonacci’s for at least 10 years, obviously some kind of cycle there. Does anyone out there create value or just wave their arms?

  44. the more the gas companies can get and the more the gov can tax the happier they are .
    like my one boss once told me why try to sqeese the big guy when its easier to sqeese the little guy and you can always forse them to pay more just like if your the low man in the company and you have a family and youve got to keep your job so your boss knows this and has more leverage over you and how far he can push you the gov works the same way and so do hospitals and every other company that produces a product that is a nessesity in basic liveing .
    whoes ever heard of a wealthy person conplain about gas prices they write everything they can off on taxes .

  45. Nick, we aren’t at Peak Oil, although a lot of folks want to think so. First point to consider. Between 1970 and 2000 we used all of the known reserves as of 1970, which was about 530 billion barrells. Interestingly, even though we used all of that, we now have proven, known reserves of about 1000 billion barrells, or nearly double what was known 30 years ago. The proven, known reserves tag is a complete misnomer as well. That is what the owner of the oil field declares it to be, and historically they have proven to be very conservative on those numbers. For example, in the early 1990’s, British Petroleum stated that they had X number of barrells (I don’t remember the exact numbers, but could look them up if I needed to) in the North Sea fields. By 2000 they had actually produced twice X and now state that they have that amount remaining in known, proven reserves in the North Sea. In other words, the world oil reserve numbers are not at all dependable.

    Add to that the fact that sand, tar and shale oil reserves in Canada, Venezuela and the USA equal out to somewhere between 7 and 10 TRILLION barrells, and the picture really changes. Heavy oil of that nature is profitable at prices above $40/barrell (which is why the governor of Montana is talking about producing synthetic oil using coal), so we should expect, if oil prices stay high, that heavy oil extraction and refining will begin in earnest in the near future. Watch for news blurbs on that.

    Finally, to the guy who said, “Yes, ethanol, what a crazy idea!”

    Aside from all of the other issues with ethanol that people pointed out to you, you do realize that you need oil to produce ethanol, right? High density agriculture, such as growing corn, is very oil intensive, from tractors to fertilizer, to transport to market. The reason that no one is bothering with ethanol as a fuel (except when the government subsidizes it, of course) is that between its low energy potential and its high oil costs it is just not worthwhile as a fuel.

    References (on my blog):

    Peak Oil Fallacies
    More Thoughts on Gas/Oil Prices

  46. Nick, we aren’t at Peak Oil, although a lot of folks want to think so. First point to consider. Between 1970 and 2000 we used all of the known reserves as of 1970, which was about 530 billion barrells. Interestingly, even though we used all of that, we now have proven, known reserves of about 1000 billion barrells, or nearly double what was known 30 years ago. The proven, known reserves tag is a complete misnomer as well. That is what the owner of the oil field declares it to be, and historically they have proven to be very conservative on those numbers. For example, in the early 1990’s, British Petroleum stated that they had X number of barrells (I don’t remember the exact numbers, but could look them up if I needed to) in the North Sea fields. By 2000 they had actually produced twice X and now state that they have that amount remaining in known, proven reserves in the North Sea. In other words, the world oil reserve numbers are not at all dependable.

    Add to that the fact that sand, tar and shale oil reserves in Canada, Venezuela and the USA equal out to somewhere between 7 and 10 TRILLION barrells, and the picture really changes. Heavy oil of that nature is profitable at prices above $40/barrell (which is why the governor of Montana is talking about producing synthetic oil using coal), so we should expect, if oil prices stay high, that heavy oil extraction and refining will begin in earnest in the near future. Watch for news blurbs on that.

    Finally, to the guy who said, “Yes, ethanol, what a crazy idea!”

    Aside from all of the other issues with ethanol that people pointed out to you, you do realize that you need oil to produce ethanol, right? High density agriculture, such as growing corn, is very oil intensive, from tractors to fertilizer, to transport to market. The reason that no one is bothering with ethanol as a fuel (except when the government subsidizes it, of course) is that between its low energy potential and its high oil costs it is just not worthwhile as a fuel.

    References (on my blog):

    Peak Oil Fallacies
    More Thoughts on Gas/Oil Prices

  47. The notion of abiotic sources for oil have been debunked. Measurements of carbon isotope ratios are the strongest evidence for the biological origin of oil.

    Oil is not like any other commodity. It is an energy source that makes our technological and industrial life possible.

    Oil has very high energy density and is very cheap to extract. There is nothing else on the horizon with this combination of characteristics. Yes, we may move on to some other energy source or basket of sources (wind, solar, geothermal…) but the transition will be jarring and expensive.

    For a variety of reasons accurate numbers for the amount of oil in the ground, the rate it is being extracted, our capacity to extract it at ever higher rates and such are hard to come by. This makes it difficult to predict when peak oil will occur. Most likely we’ll notice it a couple years after it happens. The conundrum is that we should be investing in alternative energy sources now while we have cheap oil available to build them, however, there is not much political willpower to do so until the crisis is upon us and we no longer have the cheap oil needed for the transition.

  48. The notion of abiotic sources for oil have been debunked. Measurements of carbon isotope ratios are the strongest evidence for the biological origin of oil.

    Oil is not like any other commodity. It is an energy source that makes our technological and industrial life possible.

    Oil has very high energy density and is very cheap to extract. There is nothing else on the horizon with this combination of characteristics. Yes, we may move on to some other energy source or basket of sources (wind, solar, geothermal…) but the transition will be jarring and expensive.

    For a variety of reasons accurate numbers for the amount of oil in the ground, the rate it is being extracted, our capacity to extract it at ever higher rates and such are hard to come by. This makes it difficult to predict when peak oil will occur. Most likely we’ll notice it a couple years after it happens. The conundrum is that we should be investing in alternative energy sources now while we have cheap oil available to build them, however, there is not much political willpower to do so until the crisis is upon us and we no longer have the cheap oil needed for the transition.

  49. The best Manhattans are made with brandy, rather than whiskey or (egad) Southern Comfort. Very smooth. It’s a Wisconsin phenomenon, by the way.

  50. With an oil baron as president who has pissedoff allof the Arabs in the universe, why are we surprised at our record setting oil prices????

  51. With an oil baron as president who has pissedoff allof the Arabs in the universe, why are we surprised at our record setting oil prices????

  52. Skip, I would say that is the silliest analysis I have ever read, except that it is the current position, approximately, of MoveOn.org, Daily Kos and Michael Moore. It completely ignores economics and just relies on bashing someone you don’t like.

  53. Oil Prices

    During the first day of classes, we had a discussion in each of my three Principles of Micro section regarding why the price of oil is so high right now. Lynne Kiesling over at Knowledge Problem (and an Economics lecturer

  54. Oil Prices

    During the first day of classes, we had a discussion in each of my three Principles of Micro section regarding why the price of oil is so high right now. Lynne Kiesling over at Knowledge Problem (and an Economics lecturer

  55. Can someone please explaing something to my economically-challenged self: all this talk about “supply & demand” setting the price of oil….I understand the concepts, I took Econ 101….but how exactly does an abstract concept set the oil prices? Doesn’t some actual living and breathing person have to decide what price their comapny is going to sell oil for? And if taxes, fees, and cost of production all remain at a constant(in this thought experiment), doesn’t the “supply and demand” reason for price increases essentially amount to “you can all fight it out over my oil, who’s paying me the most”? Is supply and demand as much of a physical law as Newton’s Laws of Motion? Cui bono?

  56. Can someone please explaing something to my economically-challenged self: all this talk about “supply & demand” setting the price of oil….I understand the concepts, I took Econ 101….but how exactly does an abstract concept set the oil prices? Doesn’t some actual living and breathing person have to decide what price their comapny is going to sell oil for? And if taxes, fees, and cost of production all remain at a constant(in this thought experiment), doesn’t the “supply and demand” reason for price increases essentially amount to “you can all fight it out over my oil, who’s paying me the most”? Is supply and demand as much of a physical law as Newton’s Laws of Motion? Cui bono?

  57. “‘Presented to the US congress’? What exactly does this mean? Are they looking for funding or something? Or do they need to get permission from the government for environmental reasons? Why exactly are they having tto ‘present’ anything to the US Congress?”

    If I were to speculate, it’s probably because about 2/3 of Utah Land is administred/controlled by the Federal Government. Thus it’s much more likely than not that the resources in question are in BLM land or a national park/monument/wilderness area.

    And if they are (and probably if they aren’t), what kind of access drillers/miners would be given is a very political question. Not only from an environmental point of view; outdoor and wilderness recreation is a very valuable part of the Utah economy and the biggest selling point when it comes to quality of life here.

  58. What I’m confused is why retail pricing reflects IMMEDIATELY crude oil futures contracts? They claim it’s their ‘replacement’ cost but if the price of timber waste goes up, that box of Kleenex at Wal Mart isn’t immediately repriced – why is gasoline? And it’s never been quite established as to what is the correct % of increase as (funny thing) when commodity prices go up like orange juice, producers profits are hurt but yet, if crude proces goes up, refinery profits increase dramatically – there is a whole other dynamic going on …

  59. What I’m confused is why retail pricing reflects IMMEDIATELY crude oil futures contracts? They claim it’s their ‘replacement’ cost but if the price of timber waste goes up, that box of Kleenex at Wal Mart isn’t immediately repriced – why is gasoline? And it’s never been quite established as to what is the correct % of increase as (funny thing) when commodity prices go up like orange juice, producers profits are hurt but yet, if crude proces goes up, refinery profits increase dramatically – there is a whole other dynamic going on …

  60. Robb, Econ 101 should have explained that the marketplace adjusts. What do you suppose that company will do if no one buys their oil at the price they set for it? On the other hand, if they sell their oil faster than they can produce it, what will they do? What will you, the consumer, do if the price of gas is higher than you can afford? What if it is lower than the maximum you are willing to pay? Multiply the actions of the suppliers by the thousands of oil suppliers and millions of gas retailers and multiply the actions of the consumers (speculators on the futures markets, refineries, gas stations and end users are all consumers, at some stage) by literally billions. As they all adjust their behavior and their price demands, the market floats until an equilibrium is reached.

    Think about the actions of GM and Ford this summer. They weren’t selling enough cars (their price was too high for the demand), so they added incentives that dropped their prices, which changed the demand for their product, and created a new equilibrium in the market place.

    Those who produce and market goods and services are in business to make money, which means selling their goods and services. Their goal is not to sell a product at the absolute highest price, it is to sell it at the price that maximizes their profit, so they have to find that balancing point where they are selling as much of the product as possible for a price that brings them a profit. Reducing the price (which changes their per item profit) may actually increase both revenue and profit by increasing demand. This is exactly what Henry Ford did, by the way.

  61. Robb, Econ 101 should have explained that the marketplace adjusts. What do you suppose that company will do if no one buys their oil at the price they set for it? On the other hand, if they sell their oil faster than they can produce it, what will they do? What will you, the consumer, do if the price of gas is higher than you can afford? What if it is lower than the maximum you are willing to pay? Multiply the actions of the suppliers by the thousands of oil suppliers and millions of gas retailers and multiply the actions of the consumers (speculators on the futures markets, refineries, gas stations and end users are all consumers, at some stage) by literally billions. As they all adjust their behavior and their price demands, the market floats until an equilibrium is reached.

    Think about the actions of GM and Ford this summer. They weren’t selling enough cars (their price was too high for the demand), so they added incentives that dropped their prices, which changed the demand for their product, and created a new equilibrium in the market place.

    Those who produce and market goods and services are in business to make money, which means selling their goods and services. Their goal is not to sell a product at the absolute highest price, it is to sell it at the price that maximizes their profit, so they have to find that balancing point where they are selling as much of the product as possible for a price that brings them a profit. Reducing the price (which changes their per item profit) may actually increase both revenue and profit by increasing demand. This is exactly what Henry Ford did, by the way.

  62. jbelkin, you apparently didn’t realize that gasoline is also traded on a commodity futures market? The folks buying and selling gasoline futures base what they do on the oil futures market, naturally. Gasoline futures jumped to $2.50/gallon. When you add taxes, distro and transport, and some sort of margin and overhead for the supplier you end up with prices rising to $3.00 to $3.50 per gallon in very short order. In the south east, with a significant shortfall due to the shutdown of the Gulf of Mexico production and the Gulf oil ports, I expect prices will hit $4.00/gallon. IF the feds can restrain their price fixing urges it should stabilize there and then slowly come down as production goes back online.

  63. jbelkin, you apparently didn’t realize that gasoline is also traded on a commodity futures market? The folks buying and selling gasoline futures base what they do on the oil futures market, naturally. Gasoline futures jumped to $2.50/gallon. When you add taxes, distro and transport, and some sort of margin and overhead for the supplier you end up with prices rising to $3.00 to $3.50 per gallon in very short order. In the south east, with a significant shortfall due to the shutdown of the Gulf of Mexico production and the Gulf oil ports, I expect prices will hit $4.00/gallon. IF the feds can restrain their price fixing urges it should stabilize there and then slowly come down as production goes back online.

  64. you all have way too much time on your hands i can tell you why oil prices are up so high its because opec controlls oil production and they cheat us on money they over charge under the pretense that they are scared we are running out so i dont think you all know what to do you are going to the result of the problem instead of the root of the problem something needs to be done about opec not about our usage or our mixtures in venesuelia (yes i know i probably misspelled it) it is 12 cents a gallon what does that tell you
    it tells me that we are being overcharged by opec AND the government next time you post try to think through to the root of the problem instead of just talking or typing your heads off

  65. The Fundamentals Are Basically the Same: A Reprise of Last August’s High Gas Price Posts

    Lynne Kiesling We leave on an intermountain West camping trip Saturday morning, so will be beyond the reach of communication technology for a fair chunk of the next week. But given that the underlying fundamentals have not changed substantially in…

  66. The Fundamentals Are Basically the Same: A Reprise of Last August’s High Gas Price Posts

    Lynne Kiesling We leave on an intermountain West camping trip Saturday morning, so will be beyond the reach of communication technology for a fair chunk of the next week. But given that the underlying fundamentals have not changed substantially in…

  67. The Fundamentals Are Basically the Same: A Reprise of Last August’s High Gas Price Posts

    Lynne Kiesling We leave on an intermountain West camping trip Saturday morning, so will be beyond the reach of communication technology for a fair chunk of the next week. But given that the underlying fundamentals have not changed substantially in…

  68. The Fundamentals Are Basically the Same: A Reprise of Last August’s High Gas Price Posts

    Lynne Kiesling We leave on an intermountain West camping trip Saturday morning, so will be beyond the reach of communication technology for a fair chunk of the next week. But given that the underlying fundamentals have not changed substantially in…

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