**Oil prices high..? Not so much when you do the math..!**

[BillMorrow]

in this mornings email came this:

I thought this was a good big picture look at the potential impact of oil prices. There's an awful lot of noise out there right now:

No Oil Recession

The price of oil jumped $11 per barrel last Friday (a record daily dollar amount), after a $5 move on Thursday. For perspective; just seven short years ago, in 2001, oil was trading at about $20/barrel.

The spike in oil was due to a confluence of factors. A senior Israeli official suggested an attack on Iran - to prevent the latter country from acquiring nuclear weapons - was a possibility. The European Central Bank raised the specter of a rate hike, which hurt the dollar, especially after the unemployment rate jumped to 5.5%, possibly pushing any Fed rate hikes further off into the future.

A re-ignited oil price has re-energized the outlook for recession from some analysts. Despite avoiding one so far, these analysts are convinced that a teetering consumer will be pushed over the edge by $4 gasoline.

The problem with this theory is that when you go through the math there is much less there than initially meets the eye. According to the US Department of Energy, our country imports (net of a very small amount of
exports) about 10 million barrels of crude oil per day.

At the current price of $138/barrel, the US will spend $425 billion more per year for imported oil, compared to what we would have spent if the price were still at the average $21/barrel that prevailed in 2001: (10 million barrels * 365 days * ($136 - $21)) = approx. $425 billion.


This is a great deal of money, and it is money that US citizens or companies would keep if the price of oil had not gone up. However, it is still a small amount of the resources that the US economy produces.
In fact, first quarter 2008, total US output (GDP) was running at an annualized $14.2 trillion; or $4.1 trillion more than it was in 2001.
And personal income is $3.4 trillion higher this year than it was in 2001. In other words, the US consumer has roughly $3 trillion more in income to spend this year than it did in 2001, even after subtracting the higher cost of imported fuel.

Some may say that imports are only part of the energy story, and this is true. But money US consumers spend on domestic energy is income to other US citizens who produce or distribute energy products.

This is why rising oil prices are not the major cause of recessions. A careful look at history shows that excessively tight monetary policy caused recession in 1974, 1980, 1990, and 2001. Yes energy prices climbed in each of those instances, but tight money was the true cause of the contraction. This explains how energy prices, which have been on the rise for over five years now, have yet to undermine economic growth.

Federal Reserve policy is still highly accommodative and productivity is still strong. These two factors alone are enough to keep the economy expanding in the months ahead, despite the massive jump in oil prices.

Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist

[jdhurst]

On one hand, what we pay for gasoline today is the same or not much higher than it was in Europe some years ago (which is one very large part of why they have such small cars).

On the other hand, the bite out of my pocket is still higher than I was used to, so the car stays home even more, and I use public transit more. Today the (somewhat) early train to downtown was on time, but also full with standing room only. That is unusual, and I attribute it to people looking for a more economical way to travel to work.

... JDH

[j-dawg]

$425 billion is nearly $1500 per citizen annually. That money comes from somewhere.

I'm also wondering about the numbers. If we assume total equality (everyone earns the same, everyone is working, both of which are clearly not true), then at $3.4 trillion extra income we're earning $11,000 more per person than we did in 2001. Even if all the numbers cited are correct, we have to factor out the assumptions of equality we made earlier, so this average of $11,000 is in the hands of a very small number of people and hardly affects the average American. Even with the dollar so much weaker than it was in 2001, I find the conclusion here a bit dubious. If those statistics are correct, the entire increase in GDP is not coming from consumer spending.

I don't know if high fuel prices are the cause of our current weak economy, but they certainly don't help, especially when everything else is so expensive, too. The psychological effect of a $65 tank of gas may also contribute to reduced spending.

[BillMorrow]

good points..

i assume that the spread of income/expense, etc. follows the general demographic as it pertains to wealth in general..

when i was in europe in 1986 i paid about $7.50 or more for a gallon of fuel..
since it was sold and priced in liters this is a rough guess..
it was so much i did not really want to know..

[egibbs]

Gas prices today are actually quite reasonable... compared to what you will be paying next month.

If you doubt that, think back a month or two to when a gallon of regular was in the $3.50 range (here in NJ) as opposed to the $3.87 I paid today.

I used to spend about $25 a week on gas. Now I spend about $40. $15 a week is not going to break me, but I drive a pretty efficient car. It must suck to have one of those RAM 2500 Crew Cabs and take a $100 hit every couple days.

You can't just multiply the cost of a barrel of oil by the number of barrels we import because consumers don't buy it by the barrel. It has to be refined, trucked, and taxed before we get it, and all of those add additional cost. Oil company profits are at record levels, so it's safe to assume they are adding more markup to a gallon than ever in dollar terms. Trucking uses gas, and that costs more though truckers ability to pass on the increases is not as strong as the refiners. And taxes are usually a percentage not a fixed amount, so there is a tax windfall for government.

People are getting really angry, you can feel it. Cheryl Crowe may be onto something - she could find herself at the vanguard of a movement if she's not careful. She might really need those snipers on her roof.

Ed Gibbs

[Phazer]

I find the biggest pill to swallow is the fact that besides the house payment and insurance policies, everything has gone up significantly. At least businesses, (almost all), can pass higher operating costs onto the consumer, we the consumer cannot go into our place of employment and say, "Hey, my operating costs have gone up, so you now have to pay me xxx.xx more per month".

On one of the financial networks the other day, they made the most assnine statement that I've heard in a long time. "If you factor "out" fuel and food, inflation/costs have not gone up very much". Well gee whiz Wally, if you factored out my utilities, loans, and other costs, I'm doing pretty good. Bad thing is, we can't and they're just trying to gloss it over and make us feel good.

I never used to be a "conspiracy theorist", but the older I get the more I beleive. Or a saying I love to quote, "There are no coiencedenses".

[Puppy]

I find the biggest pill to swallow is the fact that besides the house payment and insurance policies, everything has gone up significantly.

Here in Europe (namely Czech Republic) electricity and gas goes up nearly 10% per year while salaries are frozen. House payments, food, insurance, everything is still more and more expensive while the local currency is being "stronger". Consumer electronics and clothes are overpriced for a long time. It is much cheaper to buy them in Germany or the UK (you save up to 50%). And EU bureaucratism makes everything even worse. Current fuel price is about 2.1 USD per litre.

[beGi]

On one hand, what we pay for gasoline today is the same or not much higher than it was in Europe some years ago .....

You can say that again. You've said it like you took it right from my own mouth....

Here in Europe (namely Czech Republic) electricity and gas goes up nearly 10% per year while salaries are frozen. House payments, food, insurance, everything is still more and more expensive while the local currency is being "stronger". Consumer electronics and clothes are overpriced for a long time.

Same here, and the end is not near..... One example, the cheapest new ThinkPad here costs around 1200 US$, and according to lenovo.us, the cheapest I could find is 540 US$, both models are R61, very similar.... And the worst part is that average US salary and average salary in Croatia are (light) years away..... That's very frustrating....


EDIT:

Current fuel price is about 2.1 USD per litre.

Again, same here..... That's around 8 $ per gallon.... How much does gallon costs in US?

[AIX]

[..] a gallon of regular was in the $3.50 range (here in NJ) as opposed to the $3.87 I paid today.

Uh, but that's a very good price I think.
Romania - price of a regular gallon as of today: ~$6.7
What if you'll have to pay a price like this? "Downshifting" to a 1.6-1.4l 4L engine? Diesel anyone?

[Puppy]

And the worst part is that average US salary and average salary in Croatia are (light) years away..... That's very frustrating....

My theory is that it will never change. It is a "destiny" of most of post-communist countries, something like initial setup. While the prices are now equal (in most cases even higher) to western countries our salaries are very low. The managers and politicians are still telling us that's because low productivity of our work. I'm getting fed up will all this crap repeated over and over for twenty years. I'm software developer and I was working abroad for a while. No one had ever complained about productivity or quality of my work. Actually it was more relaxed than working here. Here I'm supposed to work more than 35 hours per day to "improve" my productivity to get the same income ? That's ridiculous.

[gaphic2]

Here in Belgium, a gallon of petrol today sets you back $9,68. About half of that amount is tax. Since the early 1980s fuel tax here has tripled. Since the beginning of this year the government had to cut the taxes six times to keep the price paid at the pumps below an agreed maximum. Fuel duties are now what they were in 2005.

Around that time I started working full-time from home. I'm guessing wildly here, but you could probably cut about half of the petrol demand in the west if everyone who sits in front of a screen for a sizeable portion of the day did so without leaving their house. And we've got the technology to conduct whatever meeting your boss might think you need as well.

The managers and politics are still telling us that's because very low productivity of our work. I'm getting fed up will all this crap repeated over and over for twenty years.

And the tragedy is that the market needs countries with low wages. The world economy would collapse if we the west and in the emerging economies didn't throw away its wages on lots of cheap stuff made by underpaid workers elsewhere.

[Puppy]

And the tragedy is that the market needs countries with low wages. The world economy would collapse if we the west and in the emerging economies didn't throw away its wages on lots of cheap stuff made by underpaid workers elsewhere.

It might be considered as reinventing the colonialism

[gaphic2]

It might be considered as reinventing the colonialism

You're right, it's nothing new - there were gruesome pages written in Congo's history by Belgian companies and officials, without ever being held accountable. And there's still Belgian plantations dotted around the world today, producing - relevant to the OP - palm oil for biofuel for instance.

[goofyGAguy]

Oil company profits are at record levels, so it's safe to assume they are adding more markup to a gallon than ever in dollar terms.

If I may say so, this is quite a mindless statement. Oil company profit margins are the same now as they have pretty much always been; somewhere in the range of 8-9%.

[Toine]

Something to think about is the price we pay over here. (the netherlands).

1 liter is 1.65 euro.
So an gallon 3.78 liter
6.23 euro's that's 9.63 dollars a gallon!!!

And no my car isn't that eco. 8.5 km to the liter.
20 miles to the gallon.

[qviri]

I think I can add a second argument to my list of reasons to not buy a car in foreseeable future, right after "ridiculous insurance premiums".

[sco1984]

Petrol price hike is majorly these days happening in 2 countries on priority basis.

1 is United States of America & 2nd is India .

Lot's of debates and etc. But if we really take a look at world wide petrol rates, It is clear that prices in other countries are still cheap.
I went trhough the fact survey for asia. And was amazed to know even petrol prices in China are lower than in India.

Also I got to know , India & US shares same international petrol line. From same pipe we and US imports petrol.

In India due to subsidiary, prices are going up. Not sure about in US.
But it is expected to see 30% more price hike in petrol prices. Four wheelers consumes a lot of fuel for sure. In US 90% vehicles are 4 wheelers obviously due to cold. In India more there are 60% are 2 wheeler's. Average of 2 wheelers is like 75 km's for 1 litre petrol.

I am pretty sure once Obama takes his seat prices will again fall back and everything will be normal.

Current price of 1 litre petrol in India is 61 Rupees that is equavalent to 1.5 US$ .

Cheer's,

[mattbiernat]

Something to think about is the price we pay over here. (the netherlands).

1 liter is 1.65 euro.
So an gallon 3.78 liter
6.23 euro's that's 9.63 dollars a gallon!!!

And no my car isn't that eco. 8.5 km to the liter.
20 miles to the gallon.

True, but you don't have to drive 5km- to the nearest store while being in as big city as Irvine (200K people). Or commute to work ~40km while still being within city limits (Greater LA). Plus, public transportation in Europe is much better developed than down here in California. Without a car, in here, you are simply screwed. We are forced to buy gas at whatever price it is, in Europe, you have an option of taking a bus.

[BillMorrow]

***snip snip***
I am pretty sure once Obama takes his seat prices will again fall back and everything will be normal.

HUH..?!!
once WHO takes HIS seat..??

you think if a tax and spend democrat, a chicago democrat (in the mold of Richard Joseph Daley, mayor for life and father of the current mayor for life of chicago and some would say the inventor of the graveyard vote) things will return to "normal"..??!

sadly, the numbers won't ever let things return to normal until india, china, brazil and others drastically reduce their demand for oil and its products..

supply and demand are a harsh task master..

obama is little more than a mouthpiece, an empty suit with a microphone and a talent for speaking..

Maximilien Robespierre, (6 May 1758–28 July 1794) had a similar talent..

history will show where his talents took france and i sure hope that our own Robespierre, Barak Obama, does not fool enough of the electorate to "take HIS seat"..
BTW, its not HIS seat to take..

many fools will rush to the defense of obama after reading this post but obama is deeply flawed and carries so many negatives that any defense will be a hollow rendering of "Change" and "Tax the Rich" while never really defining who is "rich" or what real change he proposes and how he will go about it..

We all have seen what Hugo Chavez has done to venezuela.. Hugo Chavez, President for Life..
sounds familiar..?

-30- for now

[beGi]

sadly, the numbers won't ever let things return to normal until india, china, brazil and others drastically reduce their demand for oil and its products..

You forgot to mention US....oh, you wrote others.....

Maximilien Robespierre, (6 May 1758–28 July 1794) had a similar talent....

You probably know how he ended.... Comparing those two guys like that, hm, someone could misinterpret that....

[sco1984]

***snip snip***
I am pretty sure once Obama takes his seat prices will again fall back and everything will be normal.

HUH..?!!
once WHO takes HIS seat..??

That was a British english style I can say rather?

and

HUH..?!!

perfect american wording format!!

You ever been to India?
Politics is an most complicated and interesting subject to discuss.
Different countries, different govt and different constitution.
It differ's.

All of us laughed harder when some1 from White house made a comment recently in a press conference saying "Indians eat a lot" ... LoL!! Thats not the way to say that! We export rice and sugar to US indeed.

And 1 more comment was "Middle class Indians are going richer than middle class americans" ... Woo hoo !!! Strange comment!!!

Well, here debate is not about Indians use lot of petrol than what americans use.

If we start debate you'll accept that american govt is the world's number 1 petroleum oil importer. When comparing 100 motor bikes with better milage against four wheelers who gives very less average, figure it out where the petrol consumption goes a lot.

You can also consider all those american companies who have estblished there offices in India and using petrol as well?
DHL,Pizza Hut,McDonalds and many others?

Why Diesel rates not going high?
Thats why we call this price hike a BIG POLITICs!!
If govt in US or India goes for hike in Diesel price, everything would go expensive because major national and international road transport vehicles use Diesel as a petroleum product in there tanks.

No wonder Chevrolet the american motor company is now selling there cars's in India.

I am not a fan of Obama or Hillary ..

Bill Clinton was much descent & cleaver politician!! He followed the rules of politics!

Elections are coming/running in both countries. I hope you got the point !!!

[sco1984]

, and I use public transit more. Today the (somewhat) early train to downtown was on time, but also full with standing room only. That is unusual, and I attribute it to people looking for a more economical way to travel to work.
... JDH

Good 1 !

In India alone in Mumbai [ I hope you people know Mumbai?] more than 90,000 passengers everyday travel within Mumbai using local train system. Sounds crazy? They saving petrol ultimately.

Yeah true...It's hard to stand !!! Crowded trains running on electricity power all the day. Those trains only pause for like 3 hours after every 24 hours of time. And not just middle class people travel in it but executives and many high class people do travel ! Now Train is heart of Mumbai...Some people are thinking to make Mumbai a separate nation like HongKong but I dont see any possibility.

[qviri]

True, but you don't have to drive 5km- to the nearest store while being in as big city as Irvine (200K people). Or commute to work ~40km while still being within city limits (Greater LA). Plus, public transportation in Europe is much better developed than down here in California. Without a car, in here, you are simply screwed. We are forced to buy gas at whatever price it is, in Europe, you have an option of taking a bus.

I wouldn't do that to everyone, but I'm going to call you out on this. You're young, university educated, and - forgive an assumption based on what I've read around the forum - unmarried. If you really had to, you could move closer to your job, find a job closer to you, move somewhere with better transit connections, or even to a city where transit is adequate (I won't quite say good).

Being screwed because you don't have a car is kind of like being screwed because you don't have a phone - you screw yourself over when you define yourself in terms of what you don't have.

In India alone in Mumbai [ I hope you people know Mumbai?] more than 90,000 passengers everyday travel within Mumbai using local train system. Sounds crazy? They saving petrol ultimately.

Can you double check that number for me? 90 000 in a city of over 10 million doesn't sound that impressive.

[AIX]

Why Diesel rates not going high?

In some countries in Europe the price of diesel fuel is higher than the price of gasoline; probably because we have a lot of Diesel cars here.

[mattbiernat]

young, university educated...., you could move closer to your job, find a job closer to you, move somewhere with better transit connections, or even to a city where transit is adequate (I won't quite say good).

yes I am university educated and unmarried but im not talking about myself. the prices can go up to $20 per gallon and i will be fine, i will be able to afford to commute to work. but my post wasn't about me, it was about most people in L.A. who never went to college and are less fortunate. a lot of them commute from peripherals of greater L.A. because they cannot afford rent inside the big city itself. and now they are screwed, the gas prices went up so much that commuting for them is something that might not be affordable, and the apartment prices went up as well...

[mattbiernat]

Maximilien Robespierre, (6 May 1758–28 July 1794) had a similar talent..

as well as Adolf Hitler... nothing good came out of it as well...
the thing that i like about Obama is that he is an outsider, he is fresh meat in the politics. he will be getting my vote because:
1. im tired of Clinton and Bush's dynasties. i mean the father is a president, the son is a president, and now what? wife as a president, grand kids as presidents. seems like power is concentrated
in small circle of people.
2. the only reason Mc Cain is not going to get my vote is because republicans were in power for 4 years, in both, the congress and the presidency and nothing good came out of it. sorry time for a change...
3. republicans tend to be more conservative and i wanna get the stem cell research going... (that's my moral value, but hey, everyone has a right to vote on a certain president because they agree with their morality or not vote because they disagree with their moral values)

[goofyGAguy]

i wanna get the stem cell research going...

Then get to it. There's no law against stem cell research.

[Kyocera]

many fools will rush to the defense of obama after reading this post but obama

Bill can you tell us how you really feel please!?!??!

I don't see how anyone can defend obama, no track record, no experience, he seems to have a group of "lambs" that want to follow the pied piper to never never land. Most of the people following him are white elitists, soccer moms, SUV upper middle class. The word of the day is "hope" they have no real plan just "hope". I Hope they can live in the wake of Bush and Clinton, it will take more years than Obama would have to even put a dent in anything, I say let the whites elect him if that's what they want, then suffer the consequenses to follow, which would be absolutely no change to the status quo.

[goofyGAguy]

I don't see how anyone can defend obama, no track record, no experience, he seems to have a group of "lambs" that want to follow the pied piper to never never land.

Pish-posh! All hail the Marxist Messiah!

[BillMorrow]

Maximilien Robespierre, (6 May 1758–28 July 1794) had a similar talent..

as well as Adolf Hitler... nothing good came out of it as well...

the hitler parallel has been overused..
chavez, castro and others provide the same lesson..

the thing that i like about Obama is that he is an outsider, he is fresh meat in the politics. he will be getting my vote because:
1. im tired of Clinton and Bush's dynasties. i mean the father is a president, the son is a president, and now what? wife as a president, grand kids as presidents. seems like power is concentrated
in small circle of people.

WAIT just one minute..
did you miss the part about the mayor-for-life..?
or the current president-for-life of venezuela..??

2. the only reason Mc Cain is not going to get my vote is because republicans were in power for 4 years, in both, the congress and the presidency and nothing good came out of it. sorry time for a change...

ok, what change..?
how will barak pay for it..?
did you miss the part about defining just who he considers to be "rich"...?
so he can tax the rich..
my gawd, talk about well worn political mumbo-jumbo or meaningless hyperbole'..
you want change, vote for ron paul..
(that IS the name of the independent party candidate, right..? )

3. republicans tend to be more conservative and i wanna get the stem cell research going... (that's my moral value, but hey, everyone has a right to vote on a certain president because they agree with their morality or not vote because they disagree with their moral values)

what you mean is you want the government to pay for stem cell research..
i agree 100%..

you will see that i am not one of "those" republican types who has a mind like that cement wall mentioned above..

i also think a woman has a right to choose..
THERE, hows THAT for a statement that will ratchet up the debate..
(ok, new rule: no one talks any more about abortion)