Prices up, consumption down--market economics working for gasoline consumers?
Yes, American gasoline prices have risen more than 30% in a year. Yes, consumption is now down in the U.S., year to year. Just under 4%. So maybe nobody ever said there was a one-to-one ratio. Bet if gasoline gets to $5 per gallon, consumption will drop another 4%? Of course, one thing the marketeers don't calculate: who's held hostage to gas prices, needing it to live, to work, to care for a family? How much is other consumption of goods off to pay for the necessary gasoline? We'll never truly know.
But we do know even countries heavily into alternative fuel, like Brazil with its sugar-based ethanol, are still very much in the oil business. Brazil's planning on six dozen more drilling rigs, many suited for deep water oil drilling. And we recently blogged about the addition of new refineries in Saudi Arabia and North Dakota to handle heavy crude with its higher sulphur content.
NOTHING DOING IN U.S. SENATE
The U.S. Senate today managed to not do anything on two energy-related bills. Because oil prices and gasoline prices are higher than a year ago the Senators feel compelled to be concerned. However, neither a new tax on oil company profits, nor the so-called global warming legislation is likely to even come up for a vote. Not this year anyway. The tax bill, BTW, was designed to compel oil companies to begin investing in alternative energy. Like trying to compel newspapers to run great newsites online. Oil companies are not very likely to seriously compete with themselves in a major profit center.
The global warming bill had all kinds of subsidy goodies for alternative energy, research and development, etc.
CRUDE QUESTION? HOW HIGH CAN IT GO?
Today the American-based futures market for crude oil went down. There were matching forecasts from US and International Energy agencies saying demand was falling, like people are buying less gasoline. But while the American economy is not so hot right now, growth continues apace in other parts of the world, especially in Asia. There experts are foreseeing $150 per barrel oil soon, and talking $180-200 per barrel in coming years.
It's much easier to imagine higher energy prices in rapidly growing Asian economies because their labor costs are low, their pollution regs lax or unenforced, or both, some governments largely authoritarian. In short, higher oil prices are just part of the bigger picture of grow and spend. Let richer countries worry about the planet? Japan, of course, highly developed economically, is one large exception and it's working seriously on developing alternative energy sources.
Japan is not only workking on their own alternative energy systems, they recently peldged $10 billion to go along with $5 billion from the World Bank. That's going to help poorer countries build cleantech systems as well.
OIL FUTURES SPECULATION, AND SPECULATING ON THE FUTURE It's crucial to note that Asian energy anaysts are very open about how speculation in the oil market is driving some of the current high price. Does this signal international support for re-regulation of the petroleum futures market now based largely in New York and London?
And wouldn't that simply drive the futures trading elsewhere? Just today there is talk of moving the crude oil futures trading to Dubai. You care to speculate on how hard it would be to regulate there? On the other hand, Dubai is not much of a military.... That's a speculation for another time.