Question on gas prices?

Question

I don't see how all of a sudden, well in the last four years, that the price of gas is rising.

Realistically, if there was a shortage of gas, wouldn't the price of gas have risen in the 90's instead of being around 1 dollar a gallon?

So why the huge rise in price now?

I realize other countries are using more gasoline too, such as China and India, and I know European countries have been paying more for gasoline compared to the United States, but is there really a shortage on gas?

I know I'm not part of OPEC nor do have any answer, but I'm just wondering if there really is a gas shortage?

Answer 1

Hurricane Katrina had a big impact on gas prices. Hurricane Katrina hit the Gulf of  Mexico where a good supply of oil and gas were located. They can no longer get that oil and gas in the Gulf so the world is depending on Europe oil rigs and such to provide for everyone. It will run out soon at the rate we are going. And the is actually kind of gas shortage and oil shortage so they are charging more for it. Either way its not looking good. They said gas prices might even reach $5 in the next year or two. Unless somebody stikes oil and gas somewhere else in the ocean then we have a problem.

Answer 2

Its because we're relying on foreign oil. Its all about supply and demand. If we were drilling for oil where we know its there (ie Alaska and Florida coasts), prices would start falling. There's not really a shortage overall, but theres a shortage on the current source we have.

Answer 3

there are several factors that are responsible for the rise in oil cost:

production

weakened dolllar - investors are buying gold & oil

and then it becomes a catch-22 where goods and services are not purchased since the price of good is increasing since the price of oil is rising. since there is less business, investors are buying more oil futures to hedge their investment bets.

Answer 4

Well, there really is a gasoline - and more specifically an oil "constraint" , on the marketplace.

This is a great question and one being commonly asked these days so I'll try and give as much information as I can. I apologize for the longish answer.

There is a rather total and complete lack of transparency in the oil futures trading marketplace and the bourse/markets for other related commodities are similarly not regulated very well at all.

http://www.mees.com/postedarticles/oped/...

Considering the criticality of the resource, one would expect far, far more transparency and demand upon market accountability.

http://realdealfinancial.blogspot.com/20...

So like it or not, the market is not transparent and completely subject to manipulation. HOWEVER, there are some underlying serious concerns in the overall supply chain for oil and gas.

Both oil and to a lesser extent gas are not renewable resources, which is to say - like trees, food, cloth we will effectively reach a point where the demand - potentially far outstrips the supply, at which point purchase price will always increase.

The problem is that we reached that point in the 1990's and really didn't respond in the way we should have.

http://www.eia.doe.gov/pub/oil_gas/petro...

This has a LARGE part to do with perception, rather than reality, the perception changed, largely in two major respects.

http://www.theoildrum.com/node/2743

1. In 2005, more or less,  planetary production of oil production capacity stopped increasing substantively and has "peaked" at about 85 million barrels per day.

2. It has been known that since the late 1960's and more dramatically after the 1980's that oil discovery has dwindled and has in no way kept pace with demand.

3. In 2006, after much obfuscation and foot dragging, the release of about 4-5 years of total cost expenditures for the discovery of NEW oil fields was released (this tells us how much money Exxon and other companies are investing to FIND new oil), This is critical because it indicates both the effort being expended and the capability / ease of extraction for the companies to deliver usable reserves from their dollars invested in discovery.

http://www.theoildrum.com/story/2006/1/1...

This is important because it shows that exploration and redevelopment of existing wells, has quadrupled in 4 years, meanwhile the rate of discovery continues to dwindle.

This is ALL BAD, it destroys the commonly held myth that "if only the (fill in the blanks) would let the oil companies drill we'd have no problems", line of thinking.

So absent the usual suspects of Arab terrorists, environmentalists, the UN, national instability, land use activists, etc, these firms have come up - essentially - empty.

4. Katrina / Rita - When the hurricanes hit in 2005, an interesting "market experiment" occurred, the costs of gasoline in the central southern states, went from 2 dollars or so a gallon to well over 6 dollars a gallon - anything OVER 8 dollars was generally considered "gouging" but under 8 - no problem.

http://www.ftc.gov/opa/2006/05/katrinaga...

This however, started the ball rolling, regional prices soon recovered, the Gulf rigs and refineries were repaired and brought back online but the market had shocked , while national prices touched 3 to 3.15 or so in places, the south kicked when they were down.

So since 2000-2001 and especially after 2005, prices have increased about 10-20% every six months. As Vice President Cheney says, it's the "new normal".

After this lengthy explanation, it's helpful to understand that while certainly there is speculation and marketeers whom are driving up costs , those increases are only - probably about 20% of the overall cost, so 80 cents out of every 4 dollars are going to some hedge fund or whatever.

This is not good, but its not the dominant factor either, I personally suspect that after the Bush administration, and especially after the new administration (be it Republican or Democratic) sets a new energy policy, we will see prices stablize around the three to four dollar mark. But we still have another 8 months to go, and at the current rate, that's a price point somewhere around 5 dollars or so.

Lastly - but certainly not importantly, HISTORY is a good guide here, We can look very much towards the early 1970's and possibly the early 1980's as a model for the economy today. This is NOT an entirely complementary statement, but, the situation is NOT as grim as it was back then.

Despite the popular concern for price at the pump, many of our industries and even some of our commercial transportation systems are significantly more efficient than they were in the 1970's so while costs have gone up we are not SO badly situated as we were - back in the day.

Furthermore, there is a popular hysteria that we are "running out of oil", this is totally wrong, we are running out of EASY to recover oil, but this is not the same as running out altogether.

Many folks suggest that drilling in various US reserves (ANWAR or off the coast) would be good, and in about 10 years, drilling in every site possible, it certainly might add a million or so barrels to the supply per day, but we are still using 50% more oil than we produce worldwide and we use an increasing amount (14 million barrels per day presently).

So an extra million barrels won't make a real significant difference at the end of the day, until we actually start using LESS of the stuff in the first place.

To be fair, there are other oil resources available - notably a trillion barrel equivalent of oil-shales and tar-sands in Canada and a similar quantity in Venezuela. But there is an important cost/supply side problem to be concerned about.

Currently if you find oil (Light Sweet Crude), for every dollar spend developing your well, you earn back 20 bucks (at the least), and with prices being as high as they presently are - probably quite a bit more.

With tar sands and shales, the math is decidedly less cool (for producers), to create usable oils from tar-sands requires desulphurization, and a complicated process of turning shales into oil. This reduces the return on investment from 20 to 1 to something like 2 or 3 to 1. It's still worthwhile to perform the extraction, but in a very limited fashion.

Furthermore, the energy used for current oil extraction is pretty trivial after the initial wellhead is drilled. In the case of tar-sands and such there is a production input of energy (to cook the oil out of the sands essentially), this means that it costs a significant amount of energy to get your oil produced in the first place.

So that trillion barrels is more like 600 billion barrels after you adjust for the inputs for energy consumption to bring it to market.

I recommend "The End of Oil" and "1000 barrels a second" for two good books which both (depsite their titles) go to pains to not get overly dramatic about the resource situation.

Answer 5

Actually there is a conspiracy saying Bush is holding back the gas that is coming in so that gas stations think there is a shortage of gas making them pay more since they think there is less gas. But if there was a shortage of gas the gas price would go up slowly.

Answer 6

The oil countries no longer respect us because we will not smash Iraq. So the price goes up.