Fuel prices world-wide

[Robert.Boston]

Here's Gasbuddy.com's Gasoline Forecast for 2012.

Great quote from this article:

“Motorists who drive a SUV may want to consider calling their banking institution and obtain a credit limit increase so they can afford this summer’s fuel expenses.”

 

[Larry Chanin]

It appears to me that media reports in US don't address anything that has impact on every day's life and is FARTHER than 6 months away. Another example is 1 million EVs on the road by 2015 - what does that to me?
OK here is my prediction. US will see $6/gal in more than 25% of all cities before EOY. If $5 is a concern $6 is a shock? Not really. You will see $8/gal before 2014 ends.

Hi Volker,

Thanks for your prediction, but I'm not sure I follow your remarks with regard to the prediction I referenced. It goes out to the end of the year. It show it peaking at near $5/gal by Memorial Day for some mainland cities. I am of the opinion that $5/gal prices will represent a real impact on daily life of most folks and that long range predictions, while nice to have, are not as compelling as going to the local gas station and paying $5/gal. :wink:

Larry

 

[Robert.Boston]

The $5 by Memorial Day will coincide neatly with initial test drives of the Model S. Take a friend!

 

[Larry Chanin]

The $5 by Memorial Day will coincide neatly with initial test drives of the Model S. Take a friend!

Hi Robert,

Yes, there will be another media bump at that time and Elon will get some free advertising again. During those interviews I'm sure he will revise his cost of gas comparisons to reflect the new realities of pricing.

Larry

 

[Larry Chanin]

Zakaria: Why oil prices will stay high

Here's an insightful article by Fareed Zakaria that was referenced in the "Investing" thread.

Zakaria: Why oil prices will stay high

I saw some striking numbers this week: Look at the "break-even" costs for the world's top oil producers. That is the minimum price at which these countries need to sell oil so that they can balance their budgets.

Russia now needs oil at $110 a barrel to manage its finances. For Iraq, the number is $100. Even Saudi Arabia now needs oil to trade around $80 a barrel just to balance its budgets. The numbers are also high for Algeria, Qatar, and Oman. Only a decade ago Saudi Arabia was able to balance its budget with oil prices averaging around $25 a barrel.

So now it is in these countries' interest to keep oil prices high, which they do by curtailing supply in one way or the other. This is perhaps the most lasting impact of the year of global protest: High oil prices.

 

[Lloyd]

Interesting, I had dinner with a friend in the oil production business last night and was discussing prices. Locally here in Central California we produce a really heavy oil that in the past was selling for almost nothing $5 to $10 per barrel as there is not much in the way of distalates in this oil here. It is typically used for road tar, and such. Anyway, he is getting brent crude prices now at $100 per barrel for this oil, and he expects it to go up. The state has been buying lots of asphault here and created a shortage of what is produced here.

 

[Mycroft]

I wonder if 2012 will be the year that breaks the back of cheap gas. I'll feel really bad for fuel oil users, but it should bode well for TSLA owners in 2013+.

 

[Robert.Boston]

Which raises an interesting, long-term question, Lloyd: if the demand for gasoline goes down as EVs take an increasing slice of the market, how will this change the relative values of different crudes? I'm being optimistic, though; with growing auto demand in developing nations, the world demand for gasoline is only going up.

 

[Mycroft]

with growing auto demand in developing nations, the world demand for gasoline is only going up.

EVs are a drop in the bucket compared to that. Also, transportation costs related to the goods we buy, and most of the goods themselves, are tied directly to oil prices. We have a LONG way to go before we're weaned from the oil spigot, but we have to start somewhere.

 

[Lloyd]

Which raises an interesting, long-term question, Lloyd: if the demand for gasoline goes down as EVs take an increasing slice of the market, how will this change the relative values of different crudes? I'm being optimistic, though; with growing auto demand in developing nations, the world demand for gasoline is only going up.

It's going to take a while for EV's to have an effect on world oil markets. They are going to have to produce some serious numbers first. Wiki says there are over 1 billion gas cars in the world, and cars use only about 1/3 of the oil production. EV's have more of a political statement, and have more of an effect just because there is an alternative to oil other than a bicycle!

 

[Robert.Boston]

Hah! I never drew a comparison in my mind between a bicycle and a Model S! As a former bicycle-commuter, I guess I'm currently at my personal "peak oil" point.

 

[neroden]

Interesting, I had dinner with a friend in the oil production business last night and was discussing prices. Locally here in Central California we produce a really heavy oil that in the past was selling for almost nothing $5 to $10 per barrel as there is not much in the way of distalates in this oil here. It is typically used for road tar, and such. Anyway, he is getting brent crude prices now at $100 per barrel for this oil, and he expects it to go up. The state has been buying lots of asphault here and created a shortage of what is produced here.

My goodness. I always figured asphalt pricing was not going to drive the crude oil market for decades, since asphalt is basically a byproduct of gas/diesel refining... but the future is here, apparently.

 

[neroden]

Unless the demand for gasoline has shifted (i.e., independent of the price, people now want to buy more gasoline -- because, e.g. they now have a job and drive to work), the only way that you get decreased demand and increased price is to have a downward sloping supply curve. That, in turn, only happens in a non-competitive industry where companies can price in fixed costs. Gee, did I just conclude that the oil industry might be less than fully competitive?

Heh! Thank you very much! I think we have external structural evidence for that assertion. The cartel of majors, the state-owned companies covering most of the rest of the world, the cartel of oil states... it's startlingly noncompetitive for something with extremely commodity features.

 

[neroden]

Being amazed everyday by the European political arena I wonder what's left of political forces or indeed if there ever have been any.

My observation: when people expect oil prices to rice, the market buys oil futures. Sometimes with good reasons - an airline company can do this as insurance against spikes in oil prices - sometimes with nothing but speculative motives. No matter how: this drives up prices and prices rise.

When people expect oil prices to fall the reverse takes place and prices do fall.

To those in the know: There must be a name for this. Anyone? Anyone?

Soros, in this economic context, calls it "Reflexivity". It's also called "self-fulfilling prophecy". The resulting pattern is known as a "boom-bust cycle".

This sort of stuff drives economies. Supply and demand stuff happens, but the key thing they don't tell you in economics classes is that you are *never* at equilibrium, and you can move further away from equilibrium for *years* or *decades* before the "fundamentals" kick back in.

 

[VolkerP]

From Phil LeBeau's Behind The Wheel - CNBC

the primary driver of electric car sales remains the price of gas

I am sorry, but - basing ICE vehicle purchase decision on the current price of gasoline is as dumb as not buying an umbrella if it is dry weather in the morning in Wales.

 

[Larry Chanin]

From Phil LeBeau's Behind The Wheel - CNBC


I am sorry, but - basing ICE vehicle purchase decision on the current price of gasoline is as dumb as not buying an umbrella if it is dry weather in the morning in Wales.

Hi Volker,

Thanks for the interesting link.

I'm not sure I fully appreciate your analogy. Perhaps the author did over simplify the hurdles to EV adoption, but clearly if consumers have an economical alternative to expensive gasoline this will be an important factor in the buying decision. I think that Tesla has started to change the other major impediment to EV adoption, that is, the mindset that driving an electric vehicle can't be a compelling experience.

Larry

 

[Mycroft]

I think Volker is saying that just like it is sure to rain in Wales and thus an umbrella should be purchased, the price of gas is sure to go higher.

I think the petrol industry is hoping to slowly increase the price. So folks who purchase gas will be like the frog in the pot of water on the stove. It's when there is a dramatic price increase, like the last time it went over $4, that people freak out. If Iran closes the straight of Hormuz, then we're likely to see such a spike soon.

 

[Larry Chanin]

I think Volker is saying that just like it is sure to rain in Wales and thus an umbrella should be purchased, the price of gas is sure to go higher.

I think the petrol industry is hoping to slowly increase the price. So folks who purchase gas will be like the frog in the pot of water on the stove. It's when there is a dramatic price increase, like the last time it went over $4, that people freak out. If Iran closes the straight of Hormuz, then we're likely to see such a spike soon.

Hi Mycroft,

Thanks.

There of course is an inevitability in play here. Battery performance and costs are coming down while gasoline prices continue to increase. As the cost curves continue to diverge with time, all things being equal, EV adoption will increase.

But...Tesla is designing and engineering cars where all things are not equal. Their electric cars are superior to ICE vehicles in almost all aspects. Soon the average consumer will be afflicted with the same malady as we early adopters. That is, they will lust after a car because the way it looks and rides and use economic justifications to rationalize the purchase. The only difference will be that with the passage of time their justifications will be firmly anchored in undeniable facts, unlike our dubious economic justifications for buying a $100,000 car. :wink: :redface:

Larry

 

[VolkerP]

well said. Let's hope that the road to that point is a smooth one. No twists and turns that stir another global crisis (BTW what was the last year without a crisis? 1911?)

 

[neroden]

well said. Let's hope that the road to that point is a smooth one. No twists and turns that stir another global crisis (BTW what was the last year without a crisis? 1911?)

There's never a year without a crisis. The question is whether the crisis is "global". There have been lots of years without global crises. But *somewhere* in the world there was a crisis, every year. We have mostly forgotten about the crises of the 19th and early 20th century in Asia and Africa and South America. The locals haven't forgotten.