Awash in fuel

Nov 14, 2013 22:38 UTC

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The average price of a gallon of gas in the US this week is $3.19, and it’s been been falling since Labor Day, when it hit $3.60. The falling price caused one research firm to up its third-quarter GDP forecast by 0.3 percentage points to 2.7%.

While part of the fall in gas prices is likely a typical seasonal fluctuation coupled with the falling price of oil (WTI crude is now about $93 a barrel, compared to about $110 over the summer), Brad Plumer writes that there are other factors at work. For one, no hurricanes have hit the Gulf Coast, which means the refineries in the area have been more productive than usual this year. Today, Jason Furman, the head of the White House Council of Economic Advisors, tweeted that “monthly domestic crude oil production exceeded crude oil imports for the first time since Feb 95”.

Perhaps an even bigger factor is the increase in the production of natural gas in the US, which has led to American refiners producing a lot of diesel that gets exported. “The U.S. became a net exporter of petroleum products just two years ago and is now the largest exporter in the world”, according to CNBC. Domestic gas is just a byproduct. “Gasoline is produced in the same process but it isn’t as widely used abroad, leaving the U.S. market awash in the fuel”, writes the WSJ.

The ethanol market is also affecting the price of gas. Here’s Plumer:

Earlier this year, many refineries were buying up renewable credits, known as “RINs,” in anticipation that the Environmental Protection Agency would tighten its rule on how much ethanol needs to be mixed in with gasoline in 2014. The price of RINs soared, which, in turn, may have driven up gasoline prices.

The opposite is happening now as many observers think the EPA could weaken its ethanol targets for 2014 (a leaked draft suggested as much). Partly as a result, the price of RINs has fallen sharply since July — and with it, some analysts think, the price of gasoline.

Barry Ritholtz doesn’t see the falling price of gas as a good thing. “While some analysts are applauding what this means for consumer spending, I am much more concerned with the demand side of the equation. The economy remains filled with soft spots and pockets of weakness”, he writes.

That’s not, however, how many others see it. Deutsche Bank’s chief US economist tweeted “A one cent change in #gasoline prices impacts annual household #consumption by roughly $1 billion”. Tom Kloza, the chief oil analyst at the Oil Price Information Service, told Bloomberg Businessweek that the price of a gallon of gas being $0.11 cheaper than a year ago “translates into about $40 million a day in direct consumer expense.” Says Bill McBride, “Whatever the reasons, this is definitely a plus for drivers!” — Shane Ferro

On to today’s links:

New Normal
The real loser of the recession is rural America – Lydia DePillis

Chart of the Day
A totally unscientific but spot-on analysis of viral journalism – Analee Newitz

Tech
Why one investor thinks SnapChat is worth billions: press and hold – Mike Isaac
SnapChat also possibly turned down Google – Nitasha Tiku
“Young people, the things they like on the Internet, increasingly I don’t understand it. This is my biggest worry” – Jenna Wortham

The Fed
Three interesting points from Janet Yellen’s testimony – Matt Yglesias

JPMorgan
JPMorgan paid the daughter of China’s former prime minister $1.8 million over two years – NYT
Highlights from the #AskJPM Twitter fiasco – Matt Zeitlin

Compelling
“Social mobility can be used to legitimate inequality” – Chris Dillow

TBTF
The political basis for shrinking big banks – John Quiggin

Oxpeckers
“If you had told me 10 years ago that I’d be at a Wall Street Journal party with Gisele Bundchen and Daft Punk…” – Joe Pompeo

Hyperbole
“The McRib’s existence injects a measure of otherwise unrealizable gratification into the social fabric of food culture” – Ian Bogost

The More You Know
Diabetes kills someone every six seconds – Bloomberg

Bitcoin
Living on Bitcoin is “consistently inconvenient and occasionally frustrating, but never impossible” – WSJ

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The 40-year energy myth

Oct 18, 2013 21:33 UTC

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This week marks the 40th anniversary of the 1973 oil embargo, when Middle Eastern producers, the members of OPEC, temporarily banned imports to the US to protest its support of Israel in the 1973 Yom Kippur war. “Crude-oil prices spiked, fuel lines snaked behind gas stations and years of stagflation followed”, writes the WSJ. Every president since has made a push to reduce the country’s dependence on foreign oil — despite the fact that US consumers cannot divorce themselves from global oil prices.

Eight presidents and several Middle Eastern armed conflicts later, the US is scheduled to become energy independent by 2020. As of this year, the US is the largest producer of petroleum and natural gas in the world, squarely outpacing Russia for the first time, largely thanks to increased production of shale gas through controversial fracking practices.

What does that mean for Americans? Not much, in the individual sense. As Quoctrung Bui explains, retail energy costs haven’t gone down much, even as the wholesale price of natural gas has plummeted, because much of your electricity bill comes from building and maintaining infrastructure.

Energy independence has much more to do with macroeconomics and foreign policy than the price Americans pay for energy. The conventional wisdom (slash political talking point on both sides) is that cutting foreign oil dependence reduces economic vulnerability, with the example being the effects of the 1973 oil shock.

But Gal Luft and Anne Korin argue in this month’s Foreign Affairs that high oil prices, which first surfaced around the time of the 1973 embargo, have little to do with where the oil is coming from. America, they write, has never gotten more than 15% of its oil from the Middle East and half of our imports come from the Western Hemisphere. The 1973 oil shock was caused by OPEC artificially reducing the world’s oil supply for their own profit, which is what sent the global price skyrocketing (and has kept it high). Because so much of the global supply is produced but other nations, the US can’t control the price even if it is “energy independent”:

If investor-owned oil companies such as Exxon, BP, Shell, and Chevron were sitting on top of three-quarters of the world’s conventional oil reserves, they would be supplying something around three-quarters of the world’s oil. And if not, they’d be slapped with an antitrust lawsuit. Antitrust lawsuits, however, don’t work against sovereign governments…

Robert Bryce wrote about the myths behind “foreign oil dependence” back in 2008, noting that oil is a global commodity with a global price, and “anyone who argues that the United States will be more secure by going it alone on energy hasn’t done the homework”.

And that’s essentially the message from a September report by consulting firm Wood Mackenzie. It forecasts that even after becoming technically “energy independent”, North America as a whole will continue to both export and import oil “for the foreseeable future”. – Shane Ferro

On to today’s links:

UGH
Obamacare website errors include duplicate enrollments, spouses reported as children and missing data – WSJ

Long Reads
22 hours in one of New York’s iconic restaurants – NYTmag

Alpha
Bad investment of the day, Fantex edition – Felix Salmon
Banking is becoming less ‘Rock Star’-ish – Dealbreaker
Steve Cohen’s SAC is near a $1 billion settlement with the DOJ – Reuters
Steve Cohen is not selling art to pay his bills – Shane Ferro

Politicking
Some possible reasons to be optimistic about Congress after the shutdown – Cardiff Garcia

Awesome
A succinct summary of what happened this week – Barry Ritholtz

Tough Choices
Poor, on purpose: what it’s like to choose to live on $5,000 a year – Nona Willis-Aronowitz

Wonks
On round number bias – Tim Taylor

Remuneration
Rabobank is getting rid of bonuses for executive directors – Quartz

Oxpeckers
Buzzfeed without the GIFs – BuzzfeedminusGIFS.Tumblr.com

Terrifying
“Ms Grimes’ innovation mantra is AMP, which stands for ‘accelerating meat possibilities’” – Ad Age

Takedowns
“Greenspan’s plodding text oscillates maddeningly between equivocation and chutzpah” – Bloomberg

Niche Markets
Goldman Sachs’ wildly successful experiment in congestion pricing – John Carney

Servicey
How to get bros to shop for clothes: “it’s a hunting mentality” – The Verge

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COMMENT

The author misses an important fact. Purchase a barrel of oil from a foreign country, and that country benefits in two important ways. FIrst, the revenue from leases and taxes flow directly to their treasury. Second, the salary and other expenses associated with extraction will be spent primarily in the country of extraction, and again the tax revenue will benefits will accrue to that country. In other words, a dollar spent here is much better that a dollar spent elsewhere. I assume that this additional tax revenue is contributing to the shrinking budget deficit.

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