Americans are transfixed by energy trends these days. The recent marked decrease in gas prices is driving (pun intended) debates ranging from who to vote for next month to whether it’s wise to relocate in California’s Inland Empire with its monumental commute into LA. On Friday, MSN’s front page was featuring an article [1] that seriously considers whether the Republican adminstration is artificially causing gas prices to drop ahead of November. The title above represents my S.W.A.G. about where the truth lies on this issue. I’ll be sketching out the basis for my assessment and contributing a few links to some aspects of the riddle.
Once again it was frequent Doom reader Mike that got me started (see Tuesday’s comment #12 and following after "Safety Net" episode X). Following Mike’s challenge to my less than well thought out comment #13, I had the good fortune to run a reality check with a real expert the next day. [2] [3] Unfortunately I failed to bring up possible manipulation of the US Strategic Reserve statistics, but from my understanding now, these wouldn’t be that important to the price fluctuations (I don’t doubt these numbers are fiddled with, it’s just that there are larger forces at play).
The main driver of gasoline market volatility these days is the ongoing conversion from RFG, America’s legacy gasoline product, to the new mandated RBOB blend, the stuff you can add 10% alcohol to and it still works the same with standard gas engines. In effect, the US oil industry is running two parallel full-up distribution systems, as the changeover is about half done. The Slate article [1] describes Sachs’ recent modification of the "Reformulated Gasoline Blendstock for Oxygen Blending futures contract" as the most plausible candidate for manipulating the price of gas down. Indeed the change is having a major effect on gas prices, but it’s much easier to believe that the change was driven by the huge forces involved in handling the RFG/RBOB cutover as opposed to political forces. Yes the temporary depressing effect on pump prices is a plus for the GOP, but they are benefiting from luck, not skill.
The experts remain unimpressed by the widely reported hypothetical 50% increase in US reserves that’s supposed to follow from Chevron’s reported discovery in the Gulf of Mexico last month and the less widely told story that Saudi Arabia can maintain current output for 140 years. Investors, the MSM, and the general public seem to have gotten a lift from these stories, though. Again, the effect seems to have been less any plan than a lucky bounce of the ball for the Republicans.
All that being said, the bottom line is that world oil production peaked last December. Whoever controls Congress after November 7th, we have an urgent need to cut back on commuting, and that does effect housing.
________________________
Notes and References
[1]: "The Oil Conspiracy: Is the Bush administration manipulating oil prices to win elections?", by Daniel Gross, Slate, October 4, 2006. The article’s answer is approximately "uh, no". All the emphasis in the quotes is mine.
"These days, gas prices interest political consultants as much as they do truckers. Politicos believe there is a direct relationship between the price of a gallon of gas and the fortunes of Democrats at the polls. High gas prices during the fall campaign season? Hello Speaker Pelosi. Falling gas prices in the post-Labor Day period? Crank up the Karl Rove Political Genius Machine again. Before the Foley scandal broke, Matt Drudge was tracking the falling price of a gallon of gas in Iowa on his site."
[2]: "Oil a better bargain than Starbucks? Energy expert thinks so", by Clare Mellor, Chronicle Herald (Halifax NS), October 5, 2006. Simmons’ PPT deck should show up here with his previous speeches in about a week.
"If you think you’re paying through the nose every time you fill up at the pumps, think again, says Matthew Simmons.
…
The world is not about to run out of oil soon or even in the next 100 years, but a scarcity is looming, he warns.
…
Unlike many other industry analysts, Mr. Simmons said the world has probably already passed "peak oil production," and it has nowhere to go but down.In fact, the Harvard University graduate, who has done exhaustive research in the field, calculates the world hit peak production at the end of 2005.
‘Until there is better data coming out, I am going to assume that 74.3 (million barrels per day) number that we hit in December 2005 is the highest we are going to get,’ he said."
[3]: Mr. Simmons gave an encore performance of his WTCC talk [2] to a general audience Wednesday evening. He arrived at the venue a half hour early and most gratiously gave me at least five minutes patiently going over the points from comment #13 (summary of his corrections at comment #16). There was an extensive Q&A after the talk where he fielded a variety of questions from the 100 or so people in attendence, and then stayed an additional hour at the reception. Altogether a memorable evening for all concerned. Mr. Simmons is a gentleman and a scholar.
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You think the GOP is manipulating oil prices?!
Tell me you’re kidding. Please.
mike -
That was my thinking last Tuesday. My hypothesis was that GOP planners had timed the Chevron news about Jack-2 and the remark by the ARAMCO President (Saudi oil for 140 years in the bag) to influence the election. Further exploration and the timely reality check described above suggest RFG/RBOB conversion is what’s actually driving gas price volatility.
here is matt simmons with an 40 minute interview with kim puplava where he has really something interesting to say. very very good.
he also quotes some of the chevron management and says that the hype is way way overdone
http://www.netcastdaily.com/fsnewshour.htm
gEORGE bUSH AND his Arab buddies influence gas prices in front of a midterm election? No this ignorant miscreant who stole the White House would never dream of doing anything like that, or would he.? Or his ignorant father, who chairs a 30 billion dollar hedge fund, whIle his son is President, SURE WOULDN’T Do anything to profit off the American public. Wasnt George sr. the President during the office building meltdown that almost led to his prized son Neil’s arrest? Now his psychotic son can rule over the housing breakdown. If the Democrats have any brains they would just not run and let the Republicans win everything. And for the next two years we can show tapes repeatedly of Bush praising home ownership in this country as if this was another miracle from God himself. I still have never heard back on who was the purchaser of thousands and thousands of put options on the money center banks before the September 2001 attacks. Gee who would truly know about that? These roaches in the White House would do whatever it takes to maintain control and bring down our democracy. And if it took nothing more than a transatlantic phone call to his slime ball friends in Saudi Arabia I think George would do it. This is the most shameful, conniving , deceitful, treacherous and dangerous group of thugs that have ever led a powerful nation since Hitler. Sadly a lot of the mind games and tactics they use come from that sad chapter in history. If one person on this board or in the world can say just one positive that George has accomplished in his 6 years in office let me know. And don’t respond by telling us he protected us. Before this moron seized office we had not been attacked in nearly 200 years. And this clown saved us? Sure.
And if you think i am just some broken down home owner sitting in Las Vegas then go type GEORGE SOROS into your search engine and read the comments from a Jew who survived Hitler who has mega billions and compares Bush to Hitler. American people wake up for a change. First it was Greenspan and CNBC touting internet stocks and now a White House that has the same public believing that all your problems will dissipate if you own real estate. THESE LOWLIFES IN wASHINGTON ARE THUGS. Amd, yes, I personally approved this message
Jan-Martin -
That’s a great interview, I’m following the 40 minute talk along with the transcript. Here’s a sample.
Wayne -
There are some really decent people in the current Administration and some really evil ones. Same thing can be said about the opposition.
Could you dig into your George Soros finds and give us some links & quotes about gas price flucuations? Let’s try to keep a bit of focus (yeah, that coming from me!)
You’ll be interested, John, in Charles Hugh Smith’s September 26, 2006 essay, “What’s Up (Down) with the Price of Oil?” at http://www.oftwominds.com/blog9-06.html [corrected here too, ed]
He begins, “What’s interesting about oil’s near free-fall from $78 to $60 in a matter of weeks is: this is exactly how it would respond had a concerted effort been made to drive down the price.”
Trying again with the link — the editor added the ending period to http://www.oftwominds.com/blog9-06.html .
Darrell -
Thanks for the link. Nice to see that Smith liked Robert Hass’ “Essential Haiku”.
John-
I had to check with Mr. Twist on the Haiku (He has a Japanese undergrad degree- lived in Japan six years.) He thought the translation was a little rough on the first one- and didn’t like the poem in general. He admits that the subject matter could be part of the problem- he doesn’t like flies!
Twist -
Deferential bow to Mr. Twist (who knows Japanese). I find Hass accessible, but can’t say much about his Haiku analysis being any good. Perhaps more compelling is the other half of the organization, Brenda Hillman. I was just starting to explore the dichotomies in “Loose Sugar” when something else came up. Plan “A” following retirement last June was to dig into poetry. Oh, well, …
(wayne’s probably looking at us, I’d better refocus on gas prices)
I am looking at you but since its your website i guess you can talk or write as you please. Bush was one asked what the consumer should do about the 3 buck a gallon gas. Bush looked at the reporter and replied’ don’t drive.’ I wonder what his response to disgruntled homeowners will be? And to homeowners who were pushed into these mortgages Congress had a hard time understanding? And to the people who bought oceanfront property only to see their homeowners insurance go up 700 pct? I can just imagine.
Wayne-
President Bush should be pleased with the current housing situation. This is from a 2002 White House memo:
Today, President Bush announced a new goal to help increase the number of minority homeowners by at least 5.5 million before the end of the decade.[all kinds of people bought houses, multiple houses- minorities included] The President’s aggressive housing agenda will help dismantle the barriers to homeownership by providing down payment assistance,[look at all the 100% equity loans] increasing the supply of affordable homes,[ok, they aren't affordable yet, but there's a whole bunch of them] increasing support for self-help homeownership programs, and simplifying the home buying process & increasing education.[simplifying the process=loosening lending standards] The President also issued “America’s Homeownership Challenge” to the real estate and mortgage finance industries to join in his effort to increase the number of minority homeowners by taking concrete steps to tear down the barriers to homeownership that face minority families.
http://www.whitehouse.gov/news/releases/2002/06/20020617.html
Sadly, it appears the President achieved his goals- only now it appears that the people these policies were supposed to help, will now be the ones disproportionately hurt.
Hi Dad!
Come to think of it, the way housing prices encourage people to live far outside of their cities and commute an hour to work every day (in single-occupant vehicles) — that is something that I can get upset about. (See, you can get me to care about this stuff!) I mean, when Dave and I were house-hunting, we took it as a given that our insistence on living car-free would mean that we’d get less house for our money. But, seriously, why should this be the case?
Oddly this no money down free financing on homes came after the internet meltdown. Where President Bush’s original intention was to ‘help’ the minorities the final rewriting of this script saw more affluent Americans involve themselves in this nonsense. I do not believe the minorities will be hurt in this downturn. There jobs are probably safer than most and it would be a good bet there is no Range Rover parked in the driveway. Who will hurt the most is the multi dwelling owners, anyone who bought a condo, and the refinance crowd will all be roadkill. The minories assuredly did not participate in the aforementioned.
Alice -
It’s great we can be in NDG Mtl and HFX and meet in Arizona without using a bit of gas. Simmons would approve!
Wayne -
The “helping minorities” thing predates Bush. F&F are all about affordability. There’s going to be a lot of pain to go around in this downturn. Already reports out of Cleveland indicate spiking BKs in neighborhoods affecting minorities. It appears the sub-prime loans often targeted minorities of marginal means in the last couple of years. That’s one thing the Senators got angry about last month.
Arizonians need not fret. You guys will soon have your esteemed Senator John McCain in the White House. hECK ALL YOUR empty CONDOS MAY TURN INTO…….ok we wont go there. In dollar amounts I still believe percentage wise the minorities remain relatively unscathed in the coming collapse. I can not count how many ‘white’ people, aka morons I know that went from one house to four or five homes. And a suggestion to all housing BEARS. dO NOT EVER ECHO YOUR SENTIMENT ON HOUSING TO A FRIEND OR NEIGHBOR. iF YOU RENT JUST SAY YOU ARE RELOCATING. And if you sell by owner never put the price on your house sign or pamphlet. People are quite edgy as it is so be noncommittal.
aMD I APOLIGIZE TO ANY READER if i offended anyone by referring to the nitwits installed in Washington, D.c. as ‘thugs.’ When Bush was re elected i cancelled most of my television stations and all newspapers and magazines. in 2009 i promise all to renew providing McCain is not elected otherwise i shall be seeking refuge in some foriegn country. To answer John M’s question properly most every controlling party does wha tever it takes to influence or control an event that may be a liability at election time. Gas prices are an obvious concern to everyone especially if you park a Range Rover in front of your Re-Fi’d condo. It would make only commen sense for Big Oil and the Republicans TO influence the price of gas so as to give the Democrats less ammunition to run on. Most should remember how irate Papa Bush was as President when Greenspan kept raising interest rates during the election of 1992 and subsequently blamed Mr. Greenspan for his defeat. The Republicans actually have received a benefit from that clown Foley as the media seems to no longer concentrate on the housing and Iraqi war. So we shall patiently await the outcome this fall and just pray that the Republicans stay in control so they cannot put the entire blame on the Democrats. Heck, look at Bill Clinton. Not even President on 9-11-01 and he is receiving the blame for the attacks. Incredible isnt it? Herbert Hoover promised us two chickens in every pot and a car in every grage and instead we got the Great Depression. Now Baby Bush comes along and promises all a house and 4 steaks on every grill.
He begins, “What’s interesting about oil’s near free-fall from $78 to $60 in a matter of weeks is: this is exactly how it would respond had a concerted effort been made to drive down the price.”
How utterly silly! “A falling price is exactly what we would see if there was a concerted effort to make the price fall.”
Well, duh!
That reasoning doesn’t even rise to the level of specious.
[Edited: Please refrain from personal attacks, and try to keep conversations on topic -Twist]
Metroplex: Yes the Mr. Universe reference was intended (thanks)but remember, “if someone is trying to kill you, you try to kill them right back!” I do have to say I prefer Al from Deadwood over Mal as a western role model, but for serious future thought(and a “doom” we really do need to worry about) try reading the very timely “The Road”.
That is very generous of you to offer but I am secure amd not in need. And real estate free might I add. But you can take what you felt was necessary to remove ‘the voice of reason’ from this country and donate it to the people at this web address for providing us with excellent research postings and witty ideas. Fortunately we still, to some degree, have our Constitution in tact. Sorry we disahree but that is what makes for a horse race. Take care wp
[Edited: Please refrain from personal attacks, and try to keep conversations on topic -Twist]
[Edited: Please refrain from personal attacks, and try to keep conversations on topic -Twist]
[Edited: Please refrain from personal attacks, and try to keep conversations on topic -Twist]
John, See my concerns! Your topics often attract such insightful and witty commentary from the highly educated. It teaches us so much about the housing situation. Given the lack of coherence (you nicely called it “focus”), the spelling and typing.
[Edited: Please refrain from personal attacks, and try to keep conversations on topic -Twist]
I think I’ll get some fresh air.