Gasoline prices are up 75 cents a gallon since December and now double what they were when President Obama was inaugurated. Motorists in southern California are already paying more than $5 a gallon and prices are headed resolutely skyward. What could be the reason?
First, understand that soaring gasoline prices are not due to double-digit inflation of the type the United States experienced during the administration of Jimmy Carter. Indeed, the prolonged recession and shrinking economy under Barack Obama help keep inflation in check.
Neither are soaring gasoline prices due to an embargo by OPEC, Saudi Arabia, Iran, Venezuela or any other oil producer. So motorists’ miseries can’t be blamed on malevolent foreigners trying to punish the Great Satan.
Soaring gasoline prices are definitely not due to a shortage of crude oil. Indeed, new technologies have facilitated extraction from shale deposits and traditional oil fields in the United States.
Soaring gasoline prices cannot be blamed on declining car sales. Indeed, car sales continue to climb and the vast majority of the new vehicles sold are powered by gasoline engines.
Gasoline prices are soaring for a simple reason: that’s what president Barack Obama and his fellow climate-change fundamentalists want. Recall that Steven Chu, Obama’s former energy secretary said the administration had to figure a way to make U.S. gasoline prices equal those of Europe. In climate-change orthodoxy, high gasoline prices force the nation to think about mass transportation, alternative energy sources, electric cars and such.
Gasoline prices will continue to soar because president Obama is likely to reject the Keystone pipeline that would bring 700,000 barrels of crude oil from Canada every day. That would decrease dependence on OPEC but the president has expressed little concern about that. Canada is pushing for U.S. acceptance of the pipeline but the president shows little concern for the economic well being of longstanding friends and allies.
The president no longer faces reelection and climate-change fundamentalists have been demonstrating in Washington and demanding that he reject the pipeline to preserve his environmental legacy. That will be hard for the president to resist. So embattled Americans should look for gasoline prices to climb even higher. That’s what the president wants.
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February 24, 2012
Charting gasoline prices against income and GDP provides some interesting results.
Since rapidly rising gasoline prices are in the news, let’s look at some charts of gasoline and the economy, courtesy of frequent contributor B.C. These depict income and GDP in a ratio with the price of gasoline, and so they reveal information that is not contained in charts showing only the price of gasoline or GDP.
Here is disposable personal income and the price of gasoline:
When real (inflation-adjusted) wages are stagnant and the price of gasoline is high, as was the case in the late 1970s and the recessionary early 1980s, the ratio is low. If income is stagnant and the cost of gasoline is high, then people have less money to spend on other items and the economy is also stagnant–exactly what occurred after the 1979 Iran Crisis pushed gasoline prices up. (Sound familiar?)
When gasoline is relatively cheap and incomes are rising, then the ratio is high. Thus when oil prices hit bottom and incomes were rising in the late 1990s, then the ratio was peaking.
Look at it now. The ratio spiked in 2009 as oil prices plummeted from $140 per barrel in 2008 to less than $40 by the end of 2009.
Since incomes are stagnant (actually down since the 2007 top) and gasoline is once again on the rise, the ratio is returning to recessionary levels.
As B.C. noted: "These charts show that wages, incomes, and GDP have fallen dramatically in relation to the increase in the price of gasoline (and energy in general) since the secular peak in the late ’90s to early ’00s." The ratio is back to the recessionary levels of 1990 and 2008 and not far above the "oil shock" stagflation of the 1970s.
If the government portion of GDP is removed, what’s left is private GDP to gasoline prices:
This chart shows the secular decline in the private economy from the late 60s into the late 1980s, and the expansion of the 1990s. The ratio once again began a secular decline from its peak in the Internet boom years of 1999-2000, and then fell off a cliff in the 2008-9 recession.
Though it has recovered a bit, the ratio suggests that in terms of private (non-government) GDP and the price of gasoline, the private-sector economy is plumbing depths that are unprecedented in last 45 years. (The "oil shock" stagflationary 1970s look resilient by comparison, and the nation wasn’t borrowing 10% of its GDP every year, either.)
Yes, the Federal government can cover up the damage by borrowing 10% of GDP each and every year ($1.5 trillion, and don’t forget to add in the off-budget "supplementary appropriations"), and the Federal Reserve can add trillions in quantittative easing stimulus, but even adding $8 trillion of borrowed/printed money to the economy over the past four years has had remarkably little effect on the private-sector economy. That does not bode well for the "recovery."
Statistics: Posted by yoda — Fri Feb 24, 2012 12:11 am
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It’s Not Just Gasoline Consumption That’s Tanking, It’s All Energy
February 14, 2012
It’s not just gasoline consumption that’s declining–petroleum and electricity consumption are also dropping. Is that indicative of economic growth?
A number of readers kindly forwarded additional data sources to me as followup on last week’s entry describing sharply lower deliveries of gasoline. (Why Is Gasoline Consumption Tanking? February 10, 2012)
The basic thesis here is that petroleum consumption is a key proxy of economic activity. In periods of economic expansion, energy consumption rises. In periods of contraction, consumption levels off or declines.
This common sense correlation calls into question the Status Quo’s insistence that the U.S. economy has decoupled from the global ecoomy and is still growing. This growth will create more jobs, the story goes, and expand corporate profits which will power the stock market ever higher.
Courtesy of correspondents Bob C. and Mark W., here are links and charts of petroleum consumption, imports/exports, and electricity consumption. Let’s start with a chart of total petroleum products, which includes all products derived from petroleum (distillates, fuels, etc.) provided by Bob C. The chart shows the U.S. consumed about 21 million barrels a day (MBD) at the recent peak of economic activity 2005-07; from that peak, "product supplied" has fallen to 18 MBD. The current decline is very steep and has not bottomed.
This recent drop mirrors the decline registered in 2009 as the wheels fell off the global debt-based bubble. Those arguing that the U.S. economy is growing smartly and sustainably have to explain why petroleum consumption looks like 2009 when the economy tipped into a sharp contraction.
A link of interest from Mark W.: Montly U.S. Product Supplied of Finished Motor Gasoline (Thousand Barrels per Day) showing gasoline "product supplied" from 1945 to 2011. This shows gasoline has declined about 700,000 barrels per day from 2007, from 9.2 MBD to 8.5 MBD in November 2011. This represents about a 13% decline.
A number of readers wondered if gasoline imports might account for lower domestic shipments. That is a good question, and Bob C. found the answer in other EIA (U.S. Energy Information Agency) charts.
Weekly U.S. Imports of Total Gasoline (Thousand Barrels per Day)
Weekly Imports & Exports of Petroleum and Other Liquids (Thousand Barrels per Day)
Exports of Petroleum and Other Liquids
Here we see that of 8.5 million barrels a day of gasoline supplied, roughly 500,000 barrels are imported. In other words, the percentage of imported gasoline is modest.
The U.S. imports and exports petroleum products, but the net result is imports of around 8 million barrels a day. The U.S. imports about 10.5 MBD and exports almost 3 MBD for a net import total of 7.5 MBD. The secular decline in net imports from the 2006 top is consistent with the view that consumption has declined as a reflection of economic activity.
Mark W.also forwarded these charts of Electrical power consumption. Not only has electrical consumption never recovered the levels of mid-2008, it peaked in mid-2011 and has begun a sharp decline in late 2011.
I marked recent recessions on a long-term chart of electrical consumption to show that the deep recession of 1981-83 barely registered, while the recessions of 1990-91 and 2000-2002 are essentially noise.
That makes the secular decline from 2006 peaks all the more striking. (It is perhaps no coincidence that the housing bubble peaked in 2006-07 along with the extraction of home equity craze.)
Clearly, electrical consumption is in a downtrend with no recent historical precedent. Those claiming that U.S. growth is sustainable and the Dow is heading for 15,000 must square their rosy projections with sharply declining energy consumption. The two simply don’t match up.
As a lagniappe, here is a link from correspondent Joel M. on downward revisions to shale oil estimates. This injects a note of realism in the recent euphoric depiction of the U.S. as having essentially boundless supplies of petroleum equivalents. Substantial, yes, virtually unlimited, no.
Shale gas estimates continue downward: Energy Bulletin.
Statistics: Posted by yoda — Tue Feb 14, 2012 6:38 am
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