Gas Prices, and What the Media Won’t Tell You

$5 a gallon gas is a very possible in the next six months. The sad part about it is the average American doesn't understand why U.S. Light Crude has risen 400% since 2003 and even sadder is that many Americans don't realize that this spike in price can be halted. I have had several discussions with friends about the status quo economy and how it can be likened to the mid 70's. Without the extensive history lesson, policies from Tricky Dick Nixon inflated our economy and weakened the dollar. Inflation increased and caused the price of energy to rise significantly towards the end of the decade. Around 1973 or 74 the government pushed for fuel efficiency and in 1975 passed the Energy Policy and Conservation Act (EPCA). The goal was to increase efficiency and reduce consumption by 2 million barrels per day. "According to the National Research Council, Corporate Automobile Fuel Economy (CAFE) standards had reduced oil consumption by 2.8 million barrels per day in 2000,²¹ a 25 percent reduction in gasoline demand or a 13 percent reduction in overall U.S. demand (see Figure 2, above). CAFE standards saved consumers about $70 billion in 2000, $66 billion in direct consumer savings and another $3 to $6 billion through lower imported oil costs.²²" (www.ndrc.org)

I just wanted to take the opportunity to make guys aware of what causes energy inflation, the effect and some practical solutions. That's right there are small things we can do to reduce our dependency on oil. Like those one million plastic grocery bags we save under the sink or in a drawer, can be recycled. We all consume, on average one to three beverages served in a plastic bottle. Now I know all of you are too fly to even begin to think about all the steps involved with recycling, but the next time you spend $70 to fill up the Honda on the way to The Velvet Room, you will thin twice about discarding your Sprite and water bottles at Quick Trip's trash can. Besides, they sell gas an will make sure all of your plastic trash makes it to the landfill to keep crude oil prices high.

Causes of Energy Inflation (High Ass Gas)

1. The weakness of the dollar has led many investors to put their money into commodities like oil
   
2. Optimism about the prospects for the US economy which may increase demand for oil
   
   1. "The bulls are in control of the market," said Victor Shum, energy analyst at Purvin & Gertz in Singapore.
      
   2. "The economic report out of the US [on Monday] on the service sector seems to suggest the economic slowdown may not be as deep as initially thought," he said.
      
   3. "The sentiment is that the oil pricing is likely going to stay quite strong, with a lot of volatility," Mr Shum said.
      
3. Oil has been rising because of fears over possible supply disruptions; Political instability
   
   1. Production is down in Nigeria after the latest attacks on pipelines this week by anti- government militants
      
   2. Iraqi exports through the north of the country have been hit by renewed cross-border raids by Turkish forces against Kurdish insurgents
      
4. Soaring global demand for oil is being led by China's and India's economic expansion
   

Effects of Inflation

1. Oil price 'may hit $200 a barrel'
   
   1. Surging demand was increasingly likely to create a "super-spike" past $200 in six months to two years' time (Argun Murti, Goldman Sachs energy strategist)
      
2. "Economists warn that continuing high oil prices will impact on the global economy, hitting growth and fuelling inflation"
   

   Source: BBC NEWS http://news.bbc.co.uk/2/hi/business/7387203.stm
   

   
   

3. If oil prices stayed at current levels of $120 or rose further to $150, this would have "serious consequences" for the strength of the economy, economic forecasters said.
   
4. "If it hits $200 per barrel, as one Opec minister recently predicted, then frankly, all bets may well be off," said Hetal Mehta, Item Club economist.
   

Solutions

Macro (on a Global Level)

Demand for oil from the fast-expanding economies of India and China is one of the key long-term factors that has boosted the price of the commodity

1. China will take further steps to secure a greater future supply of oil this week when it signs a deal with oil-producer Venezuela to build a refinery jointly in Guangdong province.
   
2. Under the deal, Venezuela will supply China with 400,000 barrels a day, five times the current amount.
   
3. Last month, Petrochina signed a 25-year pact with Qatar to secure supply of liquified natural gas from the Gulf nation.
   

Source:

Micro (at tha crib, and I mean that literally)

Fuel efficiency standards had a profound impact on U.S. oil demand. In 1975

In response, the United States and other oil importing nations radically reduced their demand for OPEC oil through fuel efficiency, fuel switching and new production. In response, the total demand for OPEC oil fell by 13 million barrels per day, or 43 percent, between 1979 and 1983.²⁰ Unable to maintain its desired market share at the high oil prices it was charging, OPEC was forced to slash its prices.

1. Fuel Effiency We did it in the 70's and We Can do it again
   
   1. Mass-producing gasoline-electric hybrid vehicles, which get double the mileage of today's cars
      
   2. Expanding use of renewable, non-petroleum fuels, such as ethanol made from crop wastes, by steadily increasing requirements for "renewable content" in gasoline
      
   3. Encouraging "smart growth"- instead of suburban sprawl to increase our transportation choices, reduce the need to drive and enhance our quality of life.
      

Reduce oil use in industry-Improvements to industrial processes could produce substantial oil savings. For example, greater use of gasification technology would allow industry to produce more useful products and fuels from the "bottom of the barrel," i.e. residual oil and petroleum coke. Increased recycling of plastics would also reduce oil use.

Source: http://www.nrdc.org/air/transportation/gasprices.asp#head3

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