Learn or Lose Now

Hi Folks,

If you looked at the prices at the gasoline pump like most Americans do everyday, one would think that any decrease in oil consumption would lead to lower gas prices.  Supply and demand, right?  Well there is a couple of reasons that gas prices are up significantly at the moment and have the potential to go higher.  Latter on in this post I will point out the two main reasons gas prices are so high.  But first I am going to discuss the possible economic implications that a decrease in oil consumption could mean for the U.S..

Right; so during this last weekend I posted an article about this topic that can be found here.  In that post I linked to two different economic blogs that have picked up on this story.  Well today Zero Hedge posted another article in regards to the declining U.S. consumption of petroleum products(by the way, both articles on Zero Hedge are guest post).

Additionally, Karl Denninger at the Market Ticker made this comment today in a post titled, Retail Sales:  This is ‘Recovery?’”  This is an excerpt from Mr. Denninger’s post.

Gasoline is up 10% year over year as well.  Gas station sales, however, went from 38,216 to 40,991 and should be 42,038 on a parity price basis.  We have heard about a collapse in demand for gasoline — well, here’s your proof folks, as on a gallons-sold basis it sure isn’t going in the northbound direction.  And gasoline is not used for heating purposes, so this is all travel (by car.)

I encourage you to read the entire post and check out Mr. Denninger’s site as he produces a significant amount of thought-provoking content.

I decided to go to the U.S. Energy Information Administration(EIA) to see if I could find anything else.

U.S. Product Supplied of Crude Oil and Petroleum Products

There does appear to be a decline in oil consumption over the last year.  The data that supports this graph can be found here.

Apparently the ongoing assumption by the bears in the blogosphere is that any significant decrease in petroleum products would indicate a recession is in the cards for the U.S..  If you look at 1990 on the chart, you can see a noticeable decline in consumption.  The U.S. had a recession from 1990-1991.  So there seems to be some correlation between decreased petroleum consumption and economic malaise, but keep in mind that this is only one data point.  But an interesting one nonetheless.

Now, if oil consumption is so low, why is gasoline prices at the pump so high?  Two reasons.

1. Decreased refining capacity-refiners usually go down this time of the year for routine maintenance heading into spring.  Because of the reduction in refining capacity, the limit of how much gasoline that can be produced during the winter months is less.
2. Middle-East tensions that could result in war.  That could lead to a significant disruption oil production.

It does not help that the oil companies in their infinite wisdom have not created any new refiners in over 30 years.  Thank you oil companies.  Not!

I personally still believe that oil prices are being kept artificially high as an effort to appease Iran, as Iran’s economy is largely dependent on oil exports as their main economic driver.  Also, I am hearing reports of possible hyper-inflation in the Iranian economy, but just rumors for now.  Any significant shock to the Iranian economy could push their government to desperate measures.  And that my friends would be very bad for us all.

I am going to continue to follow this topic.  American life is interwoven with the prices that we pay at the pump and the energy that we consume in general.  Sadly, it appears that days of cheap oil are going be a distant memory and we are simply going to have to adapt to a new way of living.  More posts to come in the future on this topic.

Take Care,

Lat