Reuters Money
Gasoline prices can be curbed: Here’s how
The U.S. Government already has a steel truncheon to curb high oil and gasoline prices. It’s called Dodd-Frank.
Petrochemical companies, banks, Wall Street and hedge fund speculators, though, don’t want to see real policing of this financial reform law to go into effect. They make billions with the status quo — at your expense.
In a classic red-herring tactic, House Republicans blame the federal budget deficit, EPA regulations and President Obama for high gas pump prices. Who’s really to blame? Let’s follow the numbers.
You can make a minor argument that increased demand for crude oil — and to some extent reduced supply — has some bearing on gasoline prices. There is a modest economic recovery going on here, in Europe and in developing countries like China and India. Everyone’s continuing to demand more black gold.
Yet there’s a huge disconnect between actual rise in demand and prices. According the American Petroleum Institute, gasoline demand rose 6.1 percent (year over year) in March while the pump price rose 22 percent during that period. The prices of all grades of gasoline rose 5.3 cents in one week (ending April 20), which was the highest level since August, 2008.
Gas prices are up 133 percent since the Wall Street meltdown gob-smacked the world economy in December, 2008. Is it possible that demand has risen that much in a sluggish period coming out of the largest economic downturn since the 1930s? Highly unlikely. You can blame slack production and Middle East crises for some of the price disparity, but certainly not all of it.
“There is no question that speculation is playing a role in the rise of gas prices,” said Rep. Barney Frank (D. Mass.), the ranking member of the House Financial Services Committee and key author of the Dodd-Frank law.
How to beat the energy tax
With crude oil prices once again shooting above $100 a barrel, getting a fill-up at the gas pump is getting pricey again. I just spent $60 to fill up my minivan over the weekend.
Even if the numerous Middle Eastern fights for freedom are resolved soon — unlikely at this point — we will still be hostage to foreign oil producers. Each increase in the price of oil is a direct energy tax on our transportation budgets.
Since conservatives in Congress appear unwilling to greenlight a comprehensive federal policy that will boost alternative energy, renewable electricity or green buildings, you’ll have to jumpstart your own conservation plan.
I don’t need to tell you how much gasoline is costing you at the pump. Across the entire U.S. economy, every extra penny at the pump costs us $1.38 billion, according to the U.S. Energy Administration. And that doesn’t include fuel surcharges that delivery services add on or the embedded costs of any consumer goods that need to be shipped.
If you commute by car — public transportation is better where available — you can’t avoid those extra dollars at the gas pump. But you can buy a fuel-efficient vehicle if you need to replace one.
Surprisingly, the smallest cars aren’t necessarily the most energy stingy. You can buy a pint-sized sub-compact and find that slightly larger car is more efficient.
The Mini Cooper, a pixie-like sub-compact with a 1.6-liter engine and manual transmission, averages 29 miles to the gallon in the city and 36 mpg on the highway. That’s not bad if your current vehicle is getting under 20 mpg.
Protesters rally in Libya, and you’ll pay at the pump
There’s not much that’s good or reassuring that can be said about rising oil prices and their effects on consumers. Crude costs rise halfway around the world, and U.S. drivers and shoppers feel it in their wallets faster than the actual oil could be shipped. On a macro level, analysts frequently suggest that every $10 per barrel increase in the price of oil cuts half a percentage point off of world gross domestic product growth.
The latest hit occurred because of turmoil in Libya, which interrupted production there. Oil prices surged, with prices for U.S. crude futures jumping over $103 a barrel in intraday trading Thursday, up 15 percent from Friday’s $89.71 close. That hike was short lived, as Saudi Arabia stepped up to guarantee supplies and oil prices walked part way back to under $97 a barrel.
But consumer gasoline prices won’t be so quick to reverse course. In the Midwest, gas prices were up about 20 cents a gallon in the first three days of this week, according to Fred Rozell of the Oil Price Information Service. They have already risen more than 50 cents a gallon in the past year, even before the Libya effect took hold, according to the Department of Energy. Drivers in parts of California, Hawaii, New York and Washington are already paying more than $3.55 a gallon, according to GasBuddy.com.
The national average will probably be between $3.60 to $3.80 by Memorial Day, Rozell says.
What’s a consumer to do, besides sigh and take the hit? Here are a few strategies.
Watch for fuel surcharges. Airlines have already been raising ticket charges. But if higher oil prices hold, you can expect fuel surcharges on top of that. Also on car rental contracts, cruise tickets and more. You can’t really avoid them, but if you already have travel plans in place, you can try to book tickets before those extra fees show up.
Optimize your trips. Not sure whether to fly or drive and which route to take? You can use the calculator at GasBuddy to put in a trip and it will let you know how much it’s going to cost, based on the local cost of gasoline where you’re going. Or use one of several smartphone apps that will find the cheapest gas prices near where you are.
If you’re stupid enough to go out a buy a huge 8 seater behemoth SUV when gas prices dip below $3.00 a gallon you deserve to wallow in your own misery.
Should you pre-pay your winter heating bill?
If you’ve been pulling out your sweaters lately, you know the first heating bill of winter isn’t far behind.
This year, the average household will pay $986 for heat, or 2.5 percent more than they did last year, according to predictions from the Department of Energy. It will be way worse for people in the northeast, who are expecting a colder winter than usual, and for people who use oil to heat their homes. They will pay an average of $2,125, according to the energy department outlook. Ouch! That might sting worse than the winter cold.
Those projections might turn out to be too optimistic. The recent decline in the dollar has pushed the price of oil up, and currency experts are suggesting that the dollar remains vulnerable to further declines. That could result in even higher energy prices going forward.
Utility companies often give consumers the choice of whether to lock in their costs at the beginning of the season or pay by the month. For example, in the Washington, D.C. area, it lists Petro home heating oil. You can fill your tank for $2.59 a gallon now or lock in a fixed price plan for the entire winter of $2.849 per gallon. If you buy 200 gallons a month, you’d pay $51 more for your first tank. If you bought five more tankfuls at $2.94 a gallon or higher, you’d break even with the fixed rate plan.
This year, given the projected increase in energy costs, locking in might make sense. “If I were going to recommend, I would recommend pre-paying because the risk of prices going up is higher than the likelihood that they will be going down,” said Bob Harris of WhiteFence.com, a web site that allows consumers to comparison shop for household utilities. He prepays his own heating bill because he likes the certainty of a fixed budget item.
So, do your own calculus. If your household budget is tight or fixed, you might want to prepay simply to lock in a predictable payment. If you can afford to let the price float, and you don’t use a lot of heating oil, you might want to fill the tank now at the cheaper rate and keep the thermostat set low, in the hopes that you wouldn’t have to buy too much more as the price rose. Make your decisions soon, suggests Harris. Once the cold weather hits, the deals disappear.
Caption: John Fontaine delivers home heating oil for Fisher Churchill at a home in the Boston, Massachusetts neighborhood of Jamaica Plain November 6, 2007. REUTERS/Brian Snyder
Randy: “I watch the energy department reports on consumption closely, and there was never an increase in demand or reduction of supply in 2008 that would drive up the price the way it did.”
You do? Well, maybe you need to pay more attention(1). As shown in the figure, it was really a long term thing. Demand had been increasing for several years, while supply had stayed flat.
Randy: “And at the end of 2008, there was never the reduction in consumption, or the increase in supply to warrant the prices tumbling far below last marginal barrel cost.”
You’re kidding, right? The US economy goes into a tailspin, but miraculously there is no impact on oil demand? Tell me another one.
For those interested in the facts, the facts that Randy has so much trouble spotting, here they are (2).
May I suggest some coffee BEFORE you check those figures? Other than that, don’t let the facts get in the way of a good story.
Randy: “Yes Obama, there is a solution. Use the SPR the way it was intended to be used.”
Yeah! Let’s use the SPR for speculations! What could possibly go wrong? You know, other than causing MORE volatility in the oil markets…(3)
JEYF: “You then price gasoline at $100 a barrel …”
Oh, that was easy! You just price oil at $100/bbl, eh? But if it was that easy, why go through that elaborate scheme? Why not just price oil at $150/bbl, and keep it there, while you rake in the profits?
(1)http://www.consumerenergyreport.com/2 008/05/22/an-amazing-disconnect/
(2)http://www.eia.gov/emeu/ipsr/t21.xls
(3)http://www.consumerenergyreport.com /2011/04/07/speculators-political-reser ve/