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First, fuel may very well go to $5/gallon this year. But, what people should be worried about are diesel fuel prices, not gasoline. As I've posted before, an oil company economist told me years ago, "Americans drive on gasoline, but the economy runs on diesel fuel." The diesel fuel--and broader "medium distillate," which includes diesel fuel--situation in this country is really frightening. Despite a warmer than normal winter, which dampens heating oil demand (another medium distillate), and an economy muddling in recession, which dampens diesel fuel demand, diesel fuel remains stuck at near $4 per gallon in most of the country. Any supply disruption, or even if the economy just improves a little bit, may send diesel over the $5 per gallon mark. Anyone who doesn't think that will very negatively affect them is living in a dream world, because every single thing we eat or use in daily living takes copious amounts of diesel fuel to either produce and/or transport. Food production and food transportation are especially dependent on diesel fuel. Most transportation economists will tell you that diesel fuel prices over $4 per gallon really start to hurt the economy, and $5 plus will seriously start to disrupt transportation to the point of causing shortages of food and goods to develop in some parts of the country. We are living on the edge. (By the way, one of things that pretty much dies at, say $5 per gallon medium distillate prices is the airline industry--jet fuel is a medium distillate, and prices at that level would pretty much make air travel unaffordable for any but the wealthy.)
Unfortunately, the diesel fuel situation in the US is pretty entrenched in a bad place. Every gallon of crude oil refined produces a certain percentage of everything from light gases like propane to heavy oils like asphalt. Gasoline is a light distillate/aromatic, while diesel fuel is, as noted, a medium distillate. The percentages of each type of product refined can be "biased" a little bit in the refining process. Most refineries in the US have been "tweaked" to produce higher amounts of gasoline. That was done for both economic and political reasons. The economic basis was that, for many years, gasoline demand was growing faster than diesel fuel demand in the US. The political basis was that the oil companies know that most Americans drive with gasoline. Avoiding the fallout of a potential gasoline shortage developing is very much in the oil companies' political interest. As for diesel, for most Americans, diesel fuel's now higher cost is hidden in the inflating costs of everything--Americans are so economically ignorant these days that they don't make the connection between higher diesel fuel costs and the inflating costs of the goods that they buy.
Compounding the diesel fuel problem is that the Ultra-Low-Sulfur-Diesel (ULSD) fuel now required to be used in the US takes more crude oil to refine. There are also only a couple of refineries in the US that can refine high-sulfur crude--which is what most of the remaining US oil reserves are--into ULSD. The result is that the US is now either having to import more higher cost low-sulfur crude in order to make ULSD, or is having to import outright ULSD that is refined elsewhere. Meanwhile, diesel fuel demand is increasing in the Third World, putting more strain on diesel fuel supplies and unrelenting upward pressure on prices.
Diesel fuel prices in the US "inverted" compared to gasoline prices--meaning diesel fuel prices at the pump exceeded the gasoline price at the pump--starting in about 2005, and have remained inverted most of the time since--a historical first in the US. That "inversion" is now larger than ever--nearly 70 cents a gallon in some places now. That right there indicates how serious the medium distillate situation in this country has become.
What can be done? There are no easy solutions. Break the economy to dampen diesel fuel demand? Not very attractive. Move more freight from fuel-inefficient trucking to fuel-efficient rail? That is already happening, but not nearly fast enough. Tweak the refining mix to maximize diesel fuel production in the US? Could be done, but it would shrink the supply of gasoline and put significant upward price pressure on gasoline. Repeal the ULSD requirements? Politically difficult, and now there are millions of 2007 and newer diesel vehicles that won't run on high-sulfur diesel. Begin refining diesel fuel from coal? It can be done--the technology is proven--but it would take years to bring significant production on line and the diesel fuel produced from coal would likely cost $5-$6 per gallon in today's dollars. What do I think will be done? Probably nothing significant, which will mean "Option 1"--breaking the economy--will be the likely result. When ignorant Americans have gas for their car, but no food on the grocery shelves because of out-of-control diesel fuel prices or outright shortages, then they will "get" what I'm talking about here--but it will probably take that kind of crisis to wake people up about the dire petroleum situation in this country.
(snip)As far a 5 dollar gas being a crazy idea , since when have the ones guilty of corporate greed changed their ways? Gas could jump to 5 bucks overnight and we couldnt do a thing about it. Even if demand falls they can stockpile it and still continue the same profits. Its not like gas is milk that will go stale .lol
Sorry, but your analysis of the marketplace is totally wrong on so many fronts ...
1) Refined gasoline is a perishable product. From the day of production, there's only so long before it starts to deteriorate and lose it's characteristics. It's got to be moved through the market in a fairly short time frame or it's not going to perform properly.
2) There's only so much storage capacity in the manufacturing/distribution and retailing system. The refineries have to have a place to accept their product or they have to shut down production because they can't keep making more with no place for it to go. "Stockpile" capacity is limited. It costs money to store the gasoline, which is a loss until the product is sold.
3) There's an ongoing production of gasoline which must be made because diesel fuel must be produced for the heavy transportation as well as manufacturing/farming/mining and so many other uses. Either that gasoline goes to the marketplace for a profit sale or it gets dumped. Additionally, there's a host of other industries highly dependent upon the products from the refineries ... plastics, fertilizer, etc. ... so the continued output from the refineries of petroleum product is essential across the board.
4) Gasoline priced at or beyond it's tipping point effectively shuts down it's consumption. The ripple effect throughout the economy for so many related industries shuts them down, too. You cannot isolate the energy industry from all of it's uses without significant ... and adverse ... effects. $5/gal gasoline is well beyond the demonstrated tipping price point in this country in recent years.
5) If you think food is expensive now, wait until the price of energy goes up another notch or two. Energy is required at every step of production of foodstuffs, processing the food, packaging the food, transporting the food, and having it available at your retailer. This doesn't even take into account refrigeration costs, which add more to the final consumer cost of those products.
As far a 5 dollar gas being a crazy idea , since when have the ones guilty of corporate greed changed their ways? Gas could jump to 5 bucks overnight and we couldnt do a thing about it. Even if demand falls they can stockpile it and still continue the same profits. Its not like gas is milk that will go stale .lol
Yes those greedy corporations that have let gas fall about $1 a gallon because of decreased consumer demand.
Basically, your claim is the EXACT opposite of what has actually occured over the last year or two.
I like small cars. I would love to have a Fiat 500 Abarth but who knows if they will even sell it here as the demand for that small of car has not met the supply of cars available. Fiat planned on selling 50,000 of the 500's here and about 12,000 were sold. The market is speaking out. Smart hasn't done much better, but then 2 seat cars that aren't sports cars don't do well here, the market speaks again. Toyota's Scion brand also has a small car that I thought was a 2 seater it is that small. Turns out that it has a back seat. I have yet to see any on the road although both Toyota dealers in the area are featuring the car.
Not sure where gas is heading although i am thinking down in price not up. Price is based on demand and even our biggest cars and trucks get better gas mileage than cars and trucks from the past. we had been competing with China for gasoline and crude but with the economy in a tail spin world wide consumption has declined. If OPEC and others want to sell their stuff they need to lower the price to get people to buy it. Hey I am no financial guru or anything close just watching what is happening in the world and figuring that within a 5 year period we will see gas at historic low prices. That or I have been in a room filled with some good smoke, and I don't even smoke, not even that stuff. LOL
I like small cars. I would love to have a Fiat 500 Abarth but who knows if they will even sell it here as the demand for that small of car has not met the supply of cars available. Fiat planned on selling 50,000 of the 500's here and about 12,000 were sold. The market is speaking out. Smart hasn't done much better, but then 2 seat cars that aren't sports cars don't do well here, the market speaks again. Toyota's Scion brand also has a small car that I thought was a 2 seater it is that small. Turns out that it has a back seat. I have yet to see any on the road although both Toyota dealers in the area are featuring the car.
Not sure where gas is heading although i am thinking down in price not up. Price is based on demand and even our biggest cars and trucks get better gas mileage than cars and trucks from the past. we had been competing with China for gasoline and crude but with the economy in a tail spin world wide consumption has declined. If OPEC and others want to sell their stuff they need to lower the price to get people to buy it. Hey I am no financial guru or anything close just watching what is happening in the world and figuring that within a 5 year period we will see gas at historic low prices. That or I have been in a room filled with some good smoke, and I don't even smoke, not even that stuff. LOL
Good post.
The biggest threat to gas prices IMO is if we keep printing US $$$ like crazy and the US dollar shrinks in value.
For example look at the Canadian to US dollar exchange rates....and we get A LOT of our fuel from them. What would gas prices look like right now if the US dollar were still worth $1.20 canadian instead of 95cents?
Hey I am no financial guru or anything close just watching what is happening in the world and figuring that within a 5 year period we will see gas at historic low prices. That or I have been in a room filled with some good smoke, and I don't even smoke, not even that stuff. LOL
As the consumption in China, India etc. rises and rises, fuel prices will do anything but go down. Natural ressources are limited, and as more people in the world can afford them, prices are going up. Only countermeasure is increase efficiency and consumption to get the same output (by transport, electricity, etc) with less input (by crude oil).
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Quote:
Originally Posted by jazzlover
First, fuel may very well go to $5/gallon this year. But, what people should be worried about are diesel fuel prices, ... The percentages of each type of product refined can be "biased" a little bit in the refining process. Most refineries in the US have been "tweaked" to produce higher amounts of gasoline. That was done for both economic and political reasons. The economic basis was that, for many years, gasoline demand was growing faster than diesel fuel demand in the US. The political basis was that the oil companies know that most Americans drive with gasoline. ...
Diesel fuel prices in the US "inverted" compared to gasoline prices--meaning diesel fuel prices at the pump exceeded the gasoline price at the pump--starting in about 2005, and have remained inverted most of the time since--a historical first in the US. That "inversion" is now larger than ever--nearly 70 cents a gallon in some places now. That right there indicates how serious the medium distillate situation in this country has become.
What can be done? There are no easy solutions. ...
Good points, and yes, the HIGH diesel prices are more disruptive to the economy. I was on a SMALL Harvest crew that was burning 300 gallons/ day @ $4.50 in 2007, that really fueled an increased cost of production.
Quote:
Originally Posted by sunsprit
Sorry, but your analysis of the marketplace is totally wrong on so many fronts ...
...
5) If you think food is expensive now, wait until the price of energy goes up another notch or two. Energy is required at every step of production of foodstuffs,
Cost and availability of food, water, land - USA needs to make some adjustments. We (USA) have been the 'Walmart' of 'artificially' low cost of living. As the World flattens, wealth spreads, competition increases (for jobs and FOOD). Too bad we (USA) propagated the artificial lifestyle of affluenza.
Quote:
Originally Posted by Mathguy
Good post.
The biggest threat to gas prices IMO is if we keep printing US $$$ like crazy and the US dollar shrinks in value....
Big trouble brewing if 'Helicopter Ben' slips up on his little ballet dance. (adding $$ to get the merry-go-round' rolling, then figuring out how to remove $$ without plunging into abyss.)
The physical characteristics of crude oils can be different. In simple terms, crude oils are classified by their density and sulfur content. Less dense (or "lighter") crudes generally have a higher share of light hydrocarbons — higher-value products such as gasoline, jet fuel, and diesel — that can be recovered with simple distillation. The denser ("heavier") crude oils produce a greater share of lower-valued products with simple distillation and require additional processing to produce the desired range of products. Some crude oils also have a higher sulfur content, an undesirable characteristic with respect to both processing and product quality.
In addition to crude oil, refineries and blending facilities use and add other oils and liquids to produce finished products for sale to consumers. These include liquids that condense in gas wells (called "lease condensates"), natural gas plant liquids from natural gas processing, and unfinished oils that are produced by partial refining of crude oil (such as naphthas and lighter oils, kerosene and light gas oils, heavy gas oils, and residuum — residue from crude oil after distilling off all but the heaviest components).
Blending facilities add oxygenates (such as ethanol) and various "blending components" to produce finished motor gasoline. Blenders also add relatively small, but increasing, amounts of "biodiesel" (made from vegetable oils or animal fats) to diesel fuel and heating oil.
Petroleum refining results in output greater than the input because of changes in the overall density of the refined products relative to that of the input oils. These changes result in an increase in the volume of products produced that is called processing gain. U.S. processing gain averaged about 6.2%
It does not take more crude to make ulsd. The added cost is in removing the sulfur. They went from lsd,500ppm to ulsd,15ppm.
One barrel of crude oil, when refined, produces about 19 gallons of finished gasoline, and 10 gallons of diesel.
Other products made from petroleum include:
Ink
Crayons
Dishwashing liquids
Deodorant
Eyeglasses
CDs and DVDs
Tires
Ammonia
Heart valves
The transition to less polluting, lower-sulfur diesel fuels in the United States affected diesel fuel production and distribution costs.
The Federal excise tax for on-highway diesel fuel of 24.4 cents/gallon is 6 cents per gallon higher the gasoline tax.
Today, the US does exports crude oil - about 20,000 barrels per day, all of it to Canada.
It all comes back to us as refined product, anyway -- mostly as gasoline.
We also export over 1 million barrels per day of refined products.
The fact that we export 183,000 barrels of gasoline per day has no impact on the price, given that we consume 9,200,000 + barrels of gasoline per day.
PS
EIA's forecast, as of December 6, 2011, for the average retail price of on-highway diesel fuel for 2011 is $3.85 per gallon, and the average for 2012 is $3.85 per gallon.
Barring any disruption in the availability.
As the consumption in China, India etc. rises and rises, fuel prices will do anything but go down. Natural ressources are limited, and as more people in the world can afford them, prices are going up. Only countermeasure is increase efficiency and consumption to get the same output (by transport, electricity, etc) with less input (by crude oil).
Here is a quote from just one story that I found.
"More efficient vehicles will mean that global demand for fuels to power the light-duty vehicle fleet is likely to actually plateau and gradually start to decline about 10 to 15 years from now, while still meeting the needs of consumers."
Sounds like to me that in 15 years or so we will be using less oil than we are producing.
In the article it states that by 2040 90% of all transportation will still be powered by gasoline and Diesal. Hybrids will be a big part of that but look at what has happened to fuel consumption, we use less than in the past. Many gas powered cars are getting 40 MPG and we will see 50 MPG and higher in the future. My first car got about 8 MPG and it was built in 1972.
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