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Gas Prices and the US Economy?

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alabama

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The price of fuel and gas has got me bothered. I just for the life of me can’t see how we avert a strong economic down turn due to rampant inflation with this high increase in energy cost. Just think about it. Every industry uses energy and when the cost of energy goes up so does the cost of the products. Well if cost of products go up then people will have to draw more pay in order to be able to afford to go to work. Thus, the cost of labor goes up so products go up.

It is my understand that the oil companies are turning record profits with the high gas prices. I have always been for the free enterprise system and charging whatever price one can get. But it looks like the free enterprise system without competition will not work. Are the big oil companies fleasing America?

Please, some of you economic types help me understand this. Why does a gallon of gas have to sell for twice as much as it did last year? Does it cost that much more to make it?

If I had the money and know how, could I build a refinery, sell gas for $2.00 a gallon, and make money?
 

jigs

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the high costs are directly related to the inability of our country to refine oil.

thanks to the liberal wackos and "green party" boneheads, we have not built a new refinery in 25 years.

these same eco-freaks want us to stop drilling all together and drive steam powered cars.


now, the rest of the world has watched our foolishness, and realized we are ripe for picking........

I see a dramatic turn if these fuel prices do not come down. I had a plumber out today, and he told me that at his rate of $30 per hour, he has to work 2 hours a day for fuel!


I see the only answer is to start punching holes in Alaska, and tell the Arabs to go love their camels, we are keeping our dollars at home
 

Cowpuncher

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More than half of our oil comes from foreign sources. Oil companies do not get a lot of profit from this oil except when they already own it and the price rises.

They do get fat on domestic production - kind of. I think the average well in the US only makes about 10 barrels of oil per day. In fact most of the large companies have sold off their so-called stripper properties because they are more bother than worth.

Big fields make big money. Unfortunately, a large portion of the best fields were in the Gulf and were devasted by hurricane Rita. Only about 20% of the production has been restored and it will be as long as a year before it reaches pre-hurricane levels. Production lost is not recovered for years since the fields produce as fast as they can and can't catch up.

The damage to offshore facilities was extensive. BP just announced that they will take a $700 million hit is the third quarter for hurricane damage. And they will not be able to get production up for months.

Chevron also suffered severely due to both hurricanes. Their newest refinery at Pascagoula, MS was impacted by Katrina in early September and will not be back in action until sometime in October.

Chevron lost the biggest production field they had in the Gulf. It was producing about 22,000 barrels per day. The platform was found floating upside down in deep water and will probably be salvaged. They do not know if they will try again to produce those fields served by the platdform simce they only had a 5-7 year life.

If the oil business is so good, why are so many big companies disappearing as their reserves in the US are depleted?
 

agman

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Alabama said:
The price of fuel and gas has got me bothered. I just for the life of me can’t see how we avert a strong economic down turn due to rampant inflation with this high increase in energy cost. Just think about it. Every industry uses energy and when the cost of energy goes up so does the cost of the products. Well if cost of products go up then people will have to draw more pay in order to be able to afford to go to work. Thus, the cost of labor goes up so products go up.

It is my understand that the oil companies are turning record profits with the high gas prices. I have always been for the free enterprise system and charging whatever price one can get. But it looks like the free enterprise system without competition will not work. Are the big oil companies fleasing America?

Please, some of you economic types help me understand this. Why does a gallon of gas have to sell for twice as much as it did last year? Does it cost that much more to make it?

If I had the money and know how, could I build a refinery, sell gas for $2.00 a gallon, and make money?

The cost on energy is biting everyone. For each $10.00 per barrel increase in crude $50 billion in U.S. consumer discretionary income/spending is diverted to fuel costs. The rise will probably cause U.S. GDP growth to slow by 1.0% percent. Look for economic growth to slow to 2.5% from the 3.5% level. On a world wide basis GDP growth is expected to slow by 0.5% per the latest forecast from people I consider reliable.

The world, as with the U.S., is significantly more energy efficient than during the last crisis. Thus, the economy has been impacted less than in the previous energy crisis. The U.S. uses one-half the BTU's per dollar of GDP produced versus the 1970's. Ironically, China is one of the most inefficient users of energy in the world. They are approximately ten times less efficient than Japan.

Are the big oil companies fleecing America? I don't think so but they are in a period of excessive profitability which in the broader historical view should be short lived. In the interim they are investing aggressively in new exploration and alternative energy. They expect to be in the energy business long after dino oil is gone. The high price of crude and natural gas is reviving the coal industry and likely nuclear energy development. The best cure for high prices is high prices.
 

alabama

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Thank you all for your well thought out responses. I still have some further questions.
Where will this put us a year from now?
What will the effect of the high prices be?
How will lower income people pay their bills? They were just getting by and now it is taking a much larger portion of the income to buy energy.
Will we see a recession?
How can I prepare for the next few years?
For the short term, I am already thinking of burning this last skimming of hay I have in the fields instead of cutting it due to high fuel prices. This last cutting will only make about half of a normal cutting so I won’t make anything and I don’t need the hay this year but if next year is dry, I will have to have it. I hate to even think about fertilizes next year.

:( :???: :(
 

Jason

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I hear what your saying Alabama, but here is where you will need to track costs. You need to know exactly what it costs you to grow a ton of hay. If it isn't profitable, think about buying hay instead.

The fertilizer business is headed for a disaster in my opinion. There are options out there but they require more thought. I am investigating organic 'teas' made from compost and/or worm castings. The costs have been high for quality organic products and there are a lot of scam products out there, but chemical fertilizers have reached their economic breaking point.

In the big picture, fuel is not as big of a cost per unit produced as it used to be. Agman is bang on when says we use less fuel to produce more. My fuel cost is lower for the third year in a row and this year I did more farming than the previous 2.

The big picture is we need to know if we are actually making money doing what we are doing. If we aren't we need a source to subsidize what we do if we want to continue.
 

alabama

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I just found this. Oil is droping but gas is still going up. WHY?



Oil prices continue to slide

By Madlen Read
The Associated Press



NEW YORK -- Crude oil prices dropped for the fifth day in a row Thursday to two-month lows as traders exited what they say is a market trending lower on weakening U.S. consumer demand.

Gasoline, heating oil and natural gas prices fell as well. But analysts suggested that the coming Western hemisphere winter could push product prices upward again, with demand for heating oil outstripping supply because of refinery shortfalls and tight imports.

Light, sweet crude for November delivery on the New York Mercantile Exchange fell $1.43 to finish at $61.36 a barrel, the lowest settlement since Aug. 3. Crude is more than 13 percent off its recent high of $70.85, reached briefly on Aug. 30 after Hurricane Katrina struck the Gulf coast. That level is still about $20 below the all-time highs reached in the early 1980s, when adjusting for inflation.

"We've broken the back a little in the oil market," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. Many traders took profits Thursday on expectations that crude prices will fall into the 50s next week, he said.

Brent crude futures for November fell $1.75 to settle at $58.37 on London's International Petroleum Exchange.

Heating oil futures fell more than 6 cents to settle at $1.9507 a gallon, while gasoline futures dipped more than 6 cents to settle at $1.8405.

However, prices at the gas pump still hover around $3 a gallon. On Thursday, the average U.S. price of a gallon of unleaded gas was $2.94 -- a dollar more than a year ago.

Natural gas plummeted 80.8 cents to settle at $13.375 per million British thermal units on Thursday, after the U.S. Department of Energy's Energy Information Administration said natural gas inventories rose 44 billion cubic feet in the week ended Sept. 30.

However, natural gas inventories are still nearly 5 percent below year-ago levels, and prices could surge again if demand rebounds or if another storm approaches the Gulf. The Atlantic hurricane season officially ends Nov. 30, according to the National Hurricane Center.

"We may not have seen the high in natural gas," Silliere said. "But it looks like we've seen the high in crude for some time."

The Energy Department said Wednesday that fuel consumption in the past month fell by nearly 3 percent compared with last year. Experts said demand was falling due to high pump prices and an economic slowdown in parts of the United States affected by hurricanes Katrina and Rita, such as the Gulf Coast states.

"The September numbers confirm the trend that historically high oil prices are now affecting oil consumption," Energyintel analyst John van Schaik said in a research note.

Meanwhile, reports of refinery recoveries continued to trickle in.

Chevron Corp. said Thursday its Pascagoula, Miss., oil refinery, which can produce up to 325,000 barrels of oil per day, could resume normal operations by the end of this month, slightly ahead of earlier estimates. Katrina had damaged the refinery's marine terminal, cooling towers and other vital equipment.

Chevron said Wednesday it has resumed some production at two large offshore platforms in the Gulf of Mexico, shut ahead of Hurricane Rita last month. Royal Dutch Shell PLC also said Wednesday that its 275,000 barrel-a-day Port Arthur refinery should restart within the month.

Oil and natural gas production are slowly recovering. On Thursday, 80 percent of oil production and 66 percent of natural gas production in the Gulf remained blocked, according to the U.S. Department of the Interior's Minerals Management Service.


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Cowpuncher

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An interesting note.

When I first went to work for big oil in 1962, there was a cap on natural gas prices - 14 cents per thousand cubic feet.

In terms of energy content, it takes 6,000 cubic feet of gas to equal one barrel of oil. This was equal to 84 cents per barrel equivalent. Oil was worth about $3.00 at the time. The result that was gas wasn't worth looking for and was often flared in the field just to get rid of it. We found several gas fields which we didn't develop because the cost of a pipeline was more than the gas was worth. Most of these were shut in and we paid mimimum royalties to maintain the lease.

Now that gas prices are almost 100 times higher, all of these fields are either connected or will be.

Also, the low price of gas in the past result in gas being used for a lot of things that are no longer economical at today's prices.

The market will eventually balance out, but a lot of folks will take a big hit.


We have a lot of oak trees that died in the drought three years ago. One guy, who we have dubbed "choppin' John" is cutting thesse trees and selling the wood. We are happy to be getting rid of them.
 

rancher

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Oil Prices Rise for First Time in 6 Days




SINGAPORE, Oct 07, 2005 (AP Online via COMTEX) -- Crude oil prices rose Friday after a five-day decline, suggesting that traders shrugged off signs of faltering U.S. fuel consumption and expected demand to rise as winter kicks in.

Light, sweet crude for November delivery rose 56 cents to $61.92 a barrel on the New York Mercantile Exchange by afternoon in Europe, after earlier topping $62 a barrel. On Thursday the contract fell $1.43 to finish at $61.36, the lowest settlement since Aug. 3.

Heating oil gained 2 cents to $1.9739 a gallon (3.8 liters) while gasoline rose more than a cent to $1.8575. Natural gas edged lower to $13.290 per 1,000 cubic feet.

On the International Petroleum Exchange in London, November Brent rose 70 cents to $59.07 a barrel.

Analysts attributed Friday's rise to the onset of the Northern Hemisphere winter, the continuing Atlantic hurricane season and the slow recovery of U.S. Gulf of Mexico facilities after back-to-back hurricanes shut down crude and gas production and hurt refineries.

"Hurricane season isn't over yet, and we're coming up to peak demand winter season, it would be dangerous to think all the bullish news was out of the way," said David Thurtell, commodity strategist at the Commonwealth Bank of Australia in Sydney.

"We're getting down to the cheap levels now, making it worth buying on a risk-reward basis," Thurtell said.

Crude futures had fallen for five straight days on worries that U.S. energy demand had declined in the face of high pump prices.

The U.S. Energy Department said this week that fuel consumption in the past month fell by nearly 3 percent compared with last year. Experts said demand was falling due to high gas prices and an economic slowdown in parts of the United States affected by hurricanes Katrina and Rita, such as the Gulf Coast states.

But "enduring production, processing and refining problems on the Gulf Coast seem likely to create a strong floor under prices as markets head into winter even if demand growth is halted, or even severely dented," Energyintel analyst Tom Wallin said in a research note.

On Thursday, 80 percent of oil production and 66 percent of natural gas production in the Gulf remained blocked, according to the U.S. Interior Department's Minerals Management Service.

Wallin said the loss so far of 50 million barrels of oil supply, 240 billion cubic feet of gas and some 60 million barrels of refined products, with months of losses to come, "requires more than demand destruction to set right."

Japan said Friday it has extended plans to release some of its emergency oil reserves held by refiners to alleviate market shocks after Hurricane Katrina struck. Japan had said last month it would release about 7.3 million barrels of crude oil and refined products over the course of 30 days. The government decided to extend the period for another 30 days starting Friday, trade ministry official Keiichi Hakozaki said.

The release of oil reserves by several countries was coordinated through the International Energy Agency.

Crude is more than 13 percent off its recent high of $70.85, reached briefly on Aug. 30 after Hurricane Katrina struck the Gulf coast. That level is still about $20 below the all-time highs reached in the early 1980s, when adjusting for inflation.


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