Inflation

Charles Kaldec writes:

To see more clearly how the price of the dollar has changed, it helps to
view price changes over a 10 year period. Since 2002, the price of a barrel of
oil has increased four-fold, to $107 last Friday from $26 in 2002. To suggest
that oil companies had enough power to impose such a price increase, or that
speculators are responsible for a quadrupling of the price of oil is, on its
face, preposterous. Instead, the price of oil and gasoline are up because the
Federal Reserve has driven the value of the dollar down.

For example, if the dollar since 2002 had been as good as the:

Chinese yuan, the price of oil today would be $82 and a gallon of
regular gas would cost about $3.10;

Euro, the price of oil today would be $77 and regular gas would cost
about $2.90;

Japanese yen, the price of oil today would be $71 and regular gas would
cost about $2.75;

Swiss Franc, the price of oil today would be $63 and regular gas would
cost about $2.50.

Thanks Mr. Bernanke!

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Big Oil v. Big Coffee

Mark Perry asks:

What's next? Congressional investigations to determine if coffee speculators are driving up prices? Allegations of "price gouging" at Starbucks? Investigations of "windfall profits" for "Big Coffee"?

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So why is gasoline so expensive, when oil is so far off its record price?

The answer is that the price of oil Americans see every day has little to do with the price of gasoline at the pump.

Those prices are for a particular type of oil -- West Texas Intermediate -- that's stored in Cushing, Okla.

Thanks to increasing supplies from the Rocky Mountain states and Canada's oil sands, plus a lack of pipelines to move that oil out, there's currently a big glut of oil in Cushing. That's pushing the price of West Texas crude down.

Prices for most other types of oil, which make up the vast majority of oil that refiners use in U.S. gasoline, are much higher than West Texas Intermediate. London's Brent crude, for example, was closer to $124 a barrel on Wednesday.

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Cartoon: Oil Prices

Oil Prices

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A Year of Oil Prices

One year ago, on July 3, 2008, oil prices settled at a record high -- a once-unthinkable $145.29 a barrel

On Thursday, it settled at $66.73, less than half the record price, following a $2.58 decline.

In between, a global demand surge morphed into a global economic slowdown -- one that would drive the price of oil as low as $33.87 in December -- followed by the partial recovery that has been underway since.

A year ago, oil was driven higher by two factors. One was the emergence of new global economic powers such as China, India and Russia, competing with the United States and the West for the world's oil. The other was a weak dollar, the currency of crude trading.

read the CNN article

6 Month High for Oil

Light, sweet crude for July delivery rose 78 cents, or 1.3%, to settle at $62.45 a barrel Tuesday.

That's the highest settle price since Nov. 5, and the fourth day in a row that oil has settled above $60...

The national average price for a gallon of regular unleaded gasoline increased to $2.425, up 1 tenth of a cent from the previous day's price of $2.424, according to a daily survey by motorist group AAA.

In the last 28 days, the average price of gas has jumped 37.7 cents or 18.4%. The average price of a gallon of gas is still down $1.68 or 41% from the record high price of $4.114 that AAA reported on July 17, 2008.

read the CNN article

2008 Oil Prices

Oil at 4.5 Year Low

The Organization of Petroleum Exporting Countries, in a bold but not unexpected move to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month. The cut is the largest ever announced by OPEC.

OPEC hopes the cuts will stabilize prices, which have dropped by more than $100 a barrel since reaching a record high in July. The worsening economic downturn has sapped demand worldwide.

But traders were unmoved by the production cut, which had been widely expected. U.S. crude for January delivery sank $3.54 to settle at $40.06 a barrel on the New York Mercantile Exchange.

That's the lowest settlement price since July 13, 2004, when oil settled at $39.44.

read the CNN article

Oil Hits 17 Month Low

Oil prices fell Friday to their lowest point since May 2007 as investors were unimpressed by a decision from the world's largest oil cartel to slash production targets.

The Organization of Petroleum Exporting Countries, whose member nations control about 40% of the world's oil, said it would cut production by 1.5 million barrels a day starting in November in order to keep oil prices from falling further. But many investors had been looking for something much larger.

U.S. crude for December delivery settled down $3.69 to $64.15 a barrel in New York. It was the lowest close for oil in more than 17 months. Prices hit an intraday low of $62.65 after news of the cut.

Read the CNN story

Oil Prices: Biggest Gain Ever

Oil prices posted the biggest one-day dollar gain ever Monday as the dollar was punished by the government's $700 billion Wall Street bailout plan and big investors scrambled to fill obligations as the October contract expired.

The October contract surged in afternoon trading, reaching as high as $130.00 - a more than $25 gain. But it dropped back down to settle at $120.92 a barrel, up $16.37 from Friday's close.

The gain eclipsed the $10.75 spike in oil on June 6.

read the CNN story

Drilling in ANWR

Should We Drill in the Arctic National Wildlife Refuge? An Economic Perspective

Abstract

This paper provides model-based estimates of the value of oil in Alaska's Arctic National Wildlife Refuge (ANWR). The best estimate of economically recoverable oil in the federal portion of ANWR is 7.06 billion barrels of oil, a quantity roughly equal to US consumption in 2005. The oil is worth $374 billion ($2005), but would cost $123 billion to extract and bring to market. The difference, $251 billion, would generate social benefits through industry rents of $90 billion as well as state and federal tax revenues of $37 billion and $124 billion, respectively. A contribution of the paper is the decomposition of the benefits between industry rents and tax revenue for a range of price and quantity scenarios. But drilling and development in ANWR would also bring about environmental costs. These costs would consist largely of lost nonuse values for the protected status of ANWR's natural environment. Rather than estimate these costs and conduct a benefit-cost analysis, we calculate the costs that would generate a breakeven result. We find that the average breakeven willingness to accept compensation to allow drilling in ANWR ranges from $582 to $1,782 per person, with a mean estimate of $1,141.

read the study

My comments: Is not drilling worth $1,141 (per person)? NO! The treehuggers (tundra lovers) would not cough up that much money to preserve it, yet they will use the coercive power of the government to prevent drilling.

DRILL NOW.

Oil and Gas Prices

Oil prices began to rise on Tuesday after BP shut down an oil pipeline in Georgia and continued fighting threatened supplies in the region...

Oil company BP said early Tuesday that it had shut down the Baku-Supsa, which carries 90,000 barrels of oil per day through the embattled nation of Georgia.

Georgia produces very little oil but serves as an important hub for transporting crude and natural gas between Europe and Asia...

A stronger dollar also pushed oil prices lower. The dollar extended its gains against the euro Tuesday amid concerns of weakening European growth...

The average price of retail gas in the U.S. has fallen more than 31 cents to $3.799 a gallon at the pump over the past 26 days. But gas prices remain more than a dollar higher than where they were 12 months ago.

read the CNN story

Oil Prices: Supply and Demand

from Carpe Diem

Oil Prices Down $15.89 over Past 3 Days

Oil prices fell steeply on Thursday, extending a decline to a three-day record $15.89 a barrel, as natural gas prices tumbled and investors anticipated declining demand.

Light, sweet crude for August delivery fell $5.31 to settle at $129.29 a barrel on the New York Mercantile Exchange. The last time oil settled below $130 was June 5, when it settled at $127.79.

The decrease may mean that the market has finally realized that the fundamentals cannot sustain such large prices, said Peter Beutel, an oil analyst with Cameron Hanover.

"I think the days of seeing record prices every other day for 60 days running are behind us," Beutel said. "But that doesn't mean we won't see a few more highs."

Beutel said that uncertainty over the economy, the Middle East and hurricane season mean oil prices will remain volatile in the short run.

read the CNN story

Oil Prices Drop over 6 Dollars

Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.

Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.

The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.

But in 1991, oil was trading at just $32 a barrel, so the more than $10 slide in dollar terms represented a record 33% drop. Oil fell 4.4% Tuesday, which does not even crack the top 100 price declines in percentage terms.

read the CNN story

Oil Prices and Iran

Iranian missile tests. Reports of covert U.S. operations inside the country. Israeli military exercises designed to simulate an attack on Iran.

The signs are unmistakable: Tensions in the oil-rich Persian Gulf are heating up.

And that matters to oil markets.

Iran sits atop the Persian Gulf, through which pass 20% of all the world's oil. Its missiles are also within easy striking distance of the giant oil fields of Iraq, Kuwait and Saudi Arabia. Together, the Middle East produces 25 million barrels of oil a day, or 30% of the world's total daily production of 86 million barrels...

A successful attack on Abqaiq, he said, would cause sustained oil prices of $200 to $250 a barrel.

read the CNN story

Cartoon: Drilling for Oil

Cartoon: Oil Prices

China Cuts Oil Subsidy

Oil prices sank nearly $5 on Thursday after China said it would raise gas prices by lifting subsidies that have been blamed for driving oil prices higher. The move could curb demand from the country's rapidly growing economy.

Light, sweet crude for July delivery fell $4.75 to settle at $131.93 a barrel on the New York Mercantile Exchange.

China's National Development and Reform Commission said that prices of gasoline, diesel and aviation fuel will increase by 8% beginning Friday.

read the CNN story