Record High Gas Prices?

[jamesqf]

Originally Posted by Thymeclock

No, that's a predictable, cyclical trend in prices, typical of most produce items. If next year's price cycle rotates from $2.49 to 4.75, that's inflation.

Not necessarily. If the price of everything goes up because of a dilution of the value of the currency, that's inflation. If early-season strawberry prices go up because there was a freeze in the Imperial Valley, that's supply & demand working off a crop failure. Really, this is just economics 101, you know :-)

You are saying that when the price of gas goes up, the price of other things goes down? My, what peculiar logic!

What I'm saying is that there's no connection: that the price of gas goes up (mostly) because of factors related to oil supply & demand, not because of inflation. At the same time we saw gas go up, we saw the cost of other things decrease. Here's a good example: cost of a gigabyte of hard disk since 1980: matt komorowski So does this prove that there's been a milion-fold deflation in the past 30 years? Nonsense, of course, just like rising gas prices = inflation is nonsense.

If you truly believe that "there's only so much in the ground, so every barrel pumped decreases the supply" tell us how much exactly is there.

Excuse me, but that has to have set an all-time record for dumb claims. What does the fact that I don't know where all the oil is have to do with the unarguable fact that the amount of oil must be finite, simply because the Earth is finite? Likewise for exploration: some fraction of the finite earth has been explored already, leaving an ever-decreasing amount that hasn't.

But the available supply (actually it is the production not the supply that is limited)

That's (mostly) wrong to begin with: in most places they're pumping as fast as they can. It's like drinking a milkshake through a straw, No matter how big the shake, you can only suck so fast. And regardless of whether you suck fast or slow, sooner or later you run out of shake.

Even in those places where production is artificially limited, it's still supply & demand on the consumer side of the equation.

You could buy a huge tract of land and live in a small cabin if you wish. Nothing is preventing you from doing that.

Nothing but the lack of several hundred million dollars, at a minimum. You just can't buy huge tracts of land these days, unless your personal net worth is up there in Ted Turner territory.

BTW, you never did tell us where you live where we will find those cheap food prices you cited.

Nothern Nevada, not too far (or IMHO not far enough) from Reno. The prices were at the WinCo supermarket WinCo Foods - "The Supermarket Low Price Leader! on South Virginia in Reno.

[jamesqf]

Originally Posted by darcane

Take a look at commodity prices. Since last summer, they have been on a tear. In 6 months, corn and cotton up 75%, wheat, barley, and others up 50-60%. Oh, and of course oil...

But is this because of inflation - a change in the value of the currency - or is it because of supply & demand: e.g. food prices going up because of the Russian crop failure, other commodities rising because of increased demand from China/India, etc?

Try a little thought exercise: you live on a remote island, which uses actual gold & silver coins for money. You've been used to paying say an ounce of gold a month for your food, but this year the rains didn't come, the crops failed, and all of a sudden you need to pay three or four ounces for the same amount of food. Is this inflation? How can it be, when you're on a gold standard?

[cfg83]

jamesqf -

I am sympathetic with the idea that the US dollar is on the "oil standard" :

The End of The Oil Standard | Energy Bulletin - 2005

Viewed from a different angle, an oil price ceiling is a dollar floor. Oil is traded in greater dollar volumes than any other commodity so the oil standard had more liquidity than gold ever did. The value of OPEC's oil production is more than a billion dollars per day. The oil equivalent of Fort Knox was not the Strategic Petroleum Reserve; it was the combined oil reserves of OPEC, three orders of magnitude greater and much larger in value than all the gold mined since the dawn of history. According to the December 20, 2004 issue of the Oil and Gas Journal, the oil reserves of OPEC at yearend 2004 are estimated to be 885 billion barrels.

According to the United States Geological Survey, the total gold ever mined in the world is about 3.4 billion troy ounces. At $42 per barrel for oil and $420 per troy ounce for gold, the value of Opec's reserves is 26 times the value of all gold ever mined. The United States Strategic Petroleum Reserve contained about 680 million barrels as of February 7, so it's role is an emergency supply in case of an oil market disruption; it is too small to have any long-term influence on oil markets.

Was the oil standard an accident or was it a deliberate product of U.S. policy? Motives are difficult to determine and the U.S. Treasury has not claimed to tie the dollar to oil prices. The ultimate effect of the end of the oil standard is difficult to predict, but one should not understate its importance.

The Gold, Oil and US$ Relationship - 2005

Oil, gold and commodities have all been priced in US dollars since 1975 when OPEC officially agreed to sell its oil exclusively for US dollars. From 1944 until 1971, US dollars were convertible into gold by central banks in order to adjust for any trade imbalances between countries. Up to that point, the price of gold was fixed at US$35 per ounce, and the price of oil was relatively stable at about US$3.00 per barrel. Once the US ceased gold convertibility in 1971, OPEC producers were forced to convert their excess US dollars by purchasing gold in the marketplace. This resulted in price increases for both oil and gold, until eventually oil reached US$40 per barrel and gold reached US$850 per ounce.

Today, apart from geopolitical threats in oil-producing regions, supply/demand imbalances from Peak Oil and increasing demand from developing countries, the price of both gold and oil can be expected to increase as the US dollar declines. With an ever-increasing US money supply, growing triple deficits and mounting debt at all levels, the US dollar is likely to continue the decline that began in 2001. Since then, foreign holders of US dollar assets have already lost 33 percent of their investment. How long will oil exporters continue to accept declining US dollars? How long will they continue to hold US dollars as their reserve currency?

What do you think?

CarloSW2

[Thymeclock]

Originally Posted by jamesqf

Not necessarily. If the price of everything goes up because of a dilution of the value of the currency, that's inflation. If early-season strawberry prices go up because there was a freeze in the Imperial Valley, that's supply & demand working off a crop failure. Really, this is just economics 101, you know :-)

You only chose one fruit to exemplify. With global production, produce comes to us from many different countries now, not just one local valley. Besides the example is based upon there being no crop failure - not interjecting one for the sake of argument.

What I'm saying is that there's no connection: that the price of gas goes up (mostly) because of factors related to oil supply & demand, not because of inflation.

If you recall that's not the point I made. I never said the price of gas is caused by inflation alone. (You are ignoring my point about the cartel, etc.) I said that when the price of most things rise, that IS inflation.

Excuse me, but that has to have set an all-time record for dumb claims. What does the fact that I don't know where all the oil is have to do with the unarguable fact that the amount of oil must be finite, simply because the Earth is finite? Likewise for exploration: some fraction of the finite earth has been explored already, leaving an ever-decreasing amount that hasn't.

You said: "Fixed supply (actually decreasing, 'cause ), increasing demand, of course the price is going to go up over the long term."

The supply isn't running out any time soon, or even long term. It's a red herring, for you are again injecting a point that is not relevant. The supply is no less viable than it was 30 years ago. Yet the price is higher. It is NOT due to purported dwindling of "supply".

That's (mostly) wrong to begin with: in most places they're pumping as fast as they can. It's like drinking a milkshake through a straw, No matter how big the shake, you can only suck so fast. And regardless of whether you suck fast or slow, sooner or later you run out of shake.

Cutsie analogies won't make your argument more believable. Pumping proceeds at whatever the efficient rate is, not subject to emotions (I'm pumping as fast as I can!"). When you do finally "run out of shake" you can find another one elsewhere and drill and insert another "straw".

OTOH if you are atop a sea of oil (as in Arabia) it doesn't require much looking to know where to find it, or as much effort to "insert another straw". But if they don't want to, the ones who control the dispensing of your "milkshakes" control the market for them.

First you say:

Increasing population, fixed supply of land. And notice how these days they build on ever-smaller lots? My house, built half a century ago, is about 1300 sq ft on a couple of acres. Nowadays they build 5000 sq ft McMansions on lots of a quarter-acre or less.

Then:

Nothing but the lack of several hundred million dollars, at a minimum. You just can't buy huge tracts of land these days, unless your personal net worth is up there in Ted Turner territory.

First you moan about Mc Mansions being built upon small lots (as if you live in a city) and now you say that you need hundreds of millions of dollars to buy enough land for a home. How absurd.

Your argument about "limited supply" is just as ridiculous applied to land as it is to oil. There is no shortage of either. You don't need a million gallons of gas to run your vehicle(s) nor do you need a hundred acres on which to have a single family home.

Nothern Nevada, not too far (or IMHO not far enough) from Reno. The prices were at the WinCo supermarket WinCo Foods - "The Supermarket Low Price Leader! on South Virginia in Reno.

Maybe we will all move there.

[jamesqf]

Originally Posted by Thymeclock

You only chose one fruit to exemplify. With global production, produce comes to us from many different countries now, not just one local valley.

Because I can only type so much, and it's better IMHO to use concrete examples when possible. But the principle still holds true if you extend it to all seasonal produce.

Also, here in the West we don't get seasonal produce from many different countries, at least not at the same point in the season. In midwinter, we can get some greenhouse-grown or air-freighted from Chile at considerable cost, then as the year progresses the source moves up the coast, with some thing eventually coming from Canada in the fall. Same's true in Europe...

If you recall that's not the point I made. I never said the price of gas is caused by inflation alone. (You are ignoring my point about the cartel, etc.) I said that when the price of most things rise, that IS inflation.

Yes, that IS the point you made. It may not be what you INTENDED, but it's what came across. I don't believe I ignored what you wrote about cartels, I said that it's irrelevant, because at the consumer end it doesn't matter, it's supply & demand.

You've also reversed cause & effect: inflation will cause prices of most things to rise, but rising prices are not necessarily due to inflation. Besides, the prices of most things aren't rising, certainly not to the same extent as gas, and many things, like hard disk storage, are decreasing in price.

The supply isn't running out any time soon, or even long term.

Sorry, but that's just baloney. If you want to sign on to the infinite supply of oil fantasy, there's no point in discussion.

What was the trigger for this latest oil price increase? Removal of Libyan supplies from the market, no? Which is a decrease in supply.

Pumping proceeds at whatever the efficient rate is, not subject to emotions (I'm pumping as fast as I can!").

Nope. It's a simple mechanical problem. Given X number of pumps of a given horsepower, connected to Y number of wells, pipelines, etc, there is a maximum rate at which the oil can be pumped. Can't pump faster unless you buy more pumps, drill more wells, and lay more pipelines.

When you do finally "run out of shake" you can find another one elsewhere and drill and insert another "straw".

If indeed there are more "shakes" around. But they're getting harder & harder to find (something I know first-hand, 'cause a good part of my income these last few years has been writing seismic tomography code used in oil & mineral exploration), and it get more & more expensive to drill the wells &c. How much did that Gulf well cost to drill, even without the blowout? All goes into the price, you know.

OTOH if you are atop a sea of oil (as in Arabia) it doesn't require much looking to know where to find it, or as much effort to "insert another straw".

It's your assumption that SA is still on top of a sea of oil, and doesn't have it poked full of as many straws as it will hold already. But even if this was the case, why should they? They have a resource which, however large it may actually be, is still finite. Increasing demand &c makes it very likely that the price will keep going up for the foreseeable future, so it's simply not to their long-term economic benefit to pump faster, when they can hold back and sell later at a higher price.

First you moan about Mc Mansions being built upon small lots (as if you live in a city) and now you say that you need hundreds of millions of dollars to buy enough land for a home. How absurd.

No, I did not say that. I said you need hundreds of millions of dollars to buy "a huge tract of land". To me, "huge" means at least several square miles. Around here it's not at all hard to find decent land priced at over $100K/acre.

...nor do you need a hundred acres on which to have a single family home.

Speak for yourself. I'd call a hundred acres pretty minimal, myself. Especially since it wasn't that long ago that you could get a quarter-section (160 acres) just by filing a homestead claim on it. Nowadays? Well, here's a decent (though small) parcel not far down the road from me: 8090 Musgrove Creek Drive 203, Washoe Valley NV 89704 | Homes.com

[Thymeclock]

Originally Posted by jamesqf

Because I can only type so much, and it's better IMHO to use concrete examples when possible. But the principle still holds true if you extend it to all seasonal produce.

A rational argument. I agree, typing and 'playing defense' can become tiring.

Also, here in the West we don't get seasonal produce from many different countries, at least not at the same point in the season.

Now that we understand your location, it makes sense. Probably in Nevada there is less market for fresh produce, due to cost and the nature of the demand. Much of the added cost of anything comes from shipping it. Most of what you are buying cheaply comes from local production (which lowers the cost). When everything is produced other than locally, we might be at the mercy of the locus of the producers, however distant, plus the increased cost of transport. Welcome to the new world of Globalization.

Yes, that IS the point you made. It may not be what you INTENDED, but it's what came across. I don't believe I ignored what you wrote about cartels, I said that it's irrelevant, because at the consumer end it doesn't matter, it's supply & demand.

No, it DOES matter, because whether you restrict the supply or increase the demand, either will raise the price. That's NOT irrelevant at all.

You've also reversed cause & effect: inflation will cause prices of most things to rise, but rising prices are not necessarily due to inflation.

Agreed...

...Besides, the prices of most things aren't rising, certainly not to the same extent as gas...

Yes, "the prices of most things" ARE rising. Stay tuned. You'll see the overall increase soon. (Or you might already have, viewed over time.)

The cause doesn't matter. It's still inflation of prices.

...and many things, like hard disk storage, are decreasing in price.

Yes, I know. That's due to technological advancement (also predictable, and expected). But, that too has finite limits. (As I expect you also know.)

Sorry, but that's just baloney. If you want to sign on to the infinite supply of oil fantasy, there's no point in discussion.

I don't dispute the finite nature of the limits of anything. But you are confusing or equating finiteness with sufficiency or availability. There is a difference, and it is important. The qualities are not the same.

What was the trigger for this latest oil price increase? Removal of Libyan supplies from the market, no? Which is a decrease in supply

.

That is probably the reason for the latest, current market spike. But the overall price trend over time is UP. Which means that after the current spike abates, you still will be paying more. So the predominant factor is not that of the price spike. That's merely a diversion, or a red herring (if you will).

Nope. It's a simple mechanical problem. Given X number of pumps of a given horsepower, connected to Y number of wells, pipelines, etc, there is a maximum rate at which the oil can be pumped. Can't pump faster unless you buy more pumps, drill more wells, and lay more pipelines.

Glad to see you put aside the childish analogy, so we can agree now.

If indeed there are more "shakes" around. But they're getting harder & harder to find (something I know first-hand, 'cause a good part of my income these last few years has been writing seismic tomography code used in oil & mineral exploration), and it get more & more expensive to drill the wells &c.

But any increased expense of exploration involved has to do (again) with inflation. The technology is improving, but the cost is greater.

How much did that Gulf well cost to drill, even without the blowout?

I don't know. Why should you or I care about how much it cost BP to drill it? Hey, if it weren't profitable, they wouldn't have drilled it. Would they?

All goes into the price, you know.

Yes, and they get to pay for their mistakes and clean up the mess they made, which is entirely as it should be. What more do you want in reparations? Blood? "A pound of flesh"? Or do you want a permanent moratorium: meaning no more exploration or offshore drilling? To serve WHAT or WHOSE purpose?

Just what is your agenda?

It's your assumption that SA is still on top of a sea of oil, and doesn't have it poked full of as many straws as it will hold already. But even if this was the case, why should they? They have a resource which, however large it may actually be, is still finite. Increasing demand &c makes it very likely that the price will keep going up for the foreseeable future, so it's simply not to their long-term economic benefit to pump faster, when they can hold back and sell later at a higher price.

Yep, you've got it now. It's all about money, politics and controlling the global market.

They are acting in their own self-interest, which is not only economic but also nationalistic, ethnic, and religious. They aren't doing it to "save the planet". Only naive or politically indoctrinated Americans spout that idealistic claptrap.

No, I did not say that. I said you need hundreds of millions of dollars to buy "a huge tract of land". To me, "huge" means at least several square miles. Around here it's not at all hard to find decent land priced at over $100K/acre.

Then I will say to you "move elsewhere". Just as you arrogantly suggested concerning those who live any distance from their employment should do, or those who choose to live flood zones, whether they be in ancient Japan or current New Jersey.

Speak for yourself. I'd call a hundred acres pretty minimal, myself.

Okay. I live in suburban NY, near the city. My lot is about 60 x 100 and my house is more than amply large to accommodate a typical family.

Why do you feel a NEED for 100 acres or more upon which to live? Do you have a need to be alone, away from society? Or do you just envy anyone who builds a large new home on a small plot of land?

Especially since it wasn't that long ago that you could get a quarter-section (160 acres) just by filing a homestead claim on it. Nowadays? Well, here's a decent (though small) parcel not far down the road from me: 8090 Musgrove Creek Drive 203, Washoe Valley NV 89704 | Homes.com

Oh, I see. It appears you are experiencing a case of "sour grapes".

[darcane]

Originally Posted by jamesqf

But is this because of inflation - a change in the value of the currency - or is it because of supply & demand: e.g. food prices going up because of the Russian crop failure, other commodities rising because of increased demand from China/India, etc?

Well, this current ramp up correlates well to the second round of Quantitative Easing (QE2) which is monetizing government debt and thus, reducing the value of our currency. The last jump in commodity prices happened during QE1...

A crop failure might account for one commodity, but seeing essentially all of them start climbing at the same time indicates a currency devaluation.

Originally Posted by jamesqf

Try a little thought exercise: you live on a remote island, which uses actual gold & silver coins for money. You've been used to paying say an ounce of gold a month for your food, but this year the rains didn't come, the crops failed, and all of a sudden you need to pay three or four ounces for the same amount of food. Is this inflation? How can it be, when you're on a gold standard?

You seem to be implying that a gold standard eliminates inflation. This is laughable and history showed otherwise.

On the gold standard, we had relatively low inflation of long periods of time, but there were dramatic swings from severe inflation to devasting crashes and severe deflation.

In your example, no that wouldn't be inflation unless you were seeing higher prices for the majority of goods and services. This could easily happen during periods of low technological advancement as gold is still being mined and thus the supply of currency is increasing. On the other hand, when technological advancement outpaces gold production, you get rapid deflation and a crash. Inflation tends to be harmful to people that have saved their money, and deflation harms those who borrow.

[roflwaffle]

QE is monetizing stuff in general. It can be government debt, but it doesn't have to be (eg mbs).

[Piwoslaw]

Originally Posted by jamesqf

I dunno - why can't the Europeans use dollars?

Because the US dollar will be the first to crash when China hiccups. Granted, with today's electronic financial systems the rest of the world's currencies will be only a few minutes behind, but that may be enough to stock up on emergency food supplies

Originally Posted by jamesqf

Then instead of having different names for units, you just stick on confusing prefixes - and worse, abbreviate them so you're never really sure whether M stands for milli, micro, or mega.

Oh, like the US system's units for mass (ounces) and volume (ounces) are totally different names?

If the metric system had been totally bogus, then it wouldn't have caught on. The French also tried to "metrify" angle units (gradians instead of degrees) and time, but those two already worked well enough to stand a fighting chance. Different types of gallons, miles and ounces, not to mention all sorts of obscure and local units, only lead to confusion, so a unified system was quite welcome, especially if it was adopted on a larger scale to aid in the trade of goods and information.

This discussion really should be happening somewhere else.

****************************************

Today's prices in Warsaw: US$7.00 per US gallon (1.28€/l) for diesel, $7.62 (1.39€/l) for petrol 98.

[jamesqf]

Originally Posted by Thymeclock

No, it DOES matter, because whether you restrict the supply or increase the demand, either will raise the price. That's NOT irrelevant at all.

Did I miss something here? I thought that was my side of the argument, that rising gas prices are due to supply & demand issues, not inflation?

Yes, "the prices of most things" ARE rising. Stay tuned. You'll see the overall increase soon. (Or you might already have, viewed over time.)

The cause doesn't matter. It's still inflation of prices.

I don't see that at all, though I'll agree that what I buy may not match all that well with "most things". And it's not inflation if the price increases are due to supply & demand pressures. Economics 101 again.

That is probably the reason for the latest, current market spike. But the overall price trend over time is UP. Which means that after the current spike abates, you still will be paying more. So the predominant factor is not that of the price spike. That's merely a diversion, or a red herring (if you will).

But this in turn is a red herring, because whatever the upward price drivers may be, they are NOT inflation. (Excepting the small fraction that is ongoing inflation, of course.)

But any increased expense of exploration involved has to do (again) with inflation. The technology is improving, but the cost is greater.

Absolutely not. The increased cost of exploration is because all the easy-to-get-to places are already explored. A century ago an oil company could drill a few hundred feet into Texas, and hit oil. Nowadays they have to run a drilling platform and drill 10,000 feet into the Gulf...

They are acting in their own self-interest, which is not only economic but also nationalistic, ethnic, and religious.

And which is NOT inflation :-)

They aren't doing it to "save the planet". Only naive or politically indoctrinated Americans spout that idealistic claptrap.

Saving the planet is idealistic? It's always seemed pretty pragmatic to me. I mean, where exactly are you planning to go if the planet isn't saved?

Then I will say to you "move elsewhere".

But there is no elsewhere, at least that I know of. No place on Earth where I could afford to own a decent tract of land - and I'm far from poor, too. It's just the reality of an overcrowded planet: only the super-rich can afford to own land.

Okay. I live in suburban NY, near the city. My lot is about 60 x 100 and my house is more than amply large to accommodate a typical family.

Where do you keep the horses? Or the garden?

Why do you feel a NEED for 100 acres or more upon which to live? Do you have a need to be alone, away from society? Or do you just envy anyone who builds a large new home on a small plot of land?

I can't tell you why, any more than I can tell you why I get hungry or sleepy. Can you tell me why you apparently don't? It just seems an inherent part of being. Nor do I envy those people at all. In my kinder moments I pity them, just as I sometimes pity people whose insecurities lead them to drive Hummers &c, or pay tens of thousands for a wristwatch. It's as though they're zoo animals who've gotten so used to their confined little cages that their idea of freedom is a better-decorated little cage.