Whoops! Title Should Read: Why Gas/Oil Prices Increases not THAT Bad High Energy Costs Partially Offset by Cheaper International Goods By FD Khan About 6 months ago, I was helping my brother buy a flat-screen television. The model we decided on was a 42" Plasma Panasonic Flat screen that retailed for over $3000. We found it for $2700 and walked away feeling pretty good. Fast forward to September 2005...The retail price is less than $2000. What does this have to do with the ever-increasing price of oil and gas you ask? Everything I say. Energy prices have been steadily increasing for the last few years, yet inflation has remained relatively in check. Why is that? Inflation is the rate of growth in the prices of goods, or the constant devaluation of your cash. Inflation is measured by the CPI (consumer-price index), which is a typical basket of goods of the American consumer. The reason why inflation has stayed moderate in light of ever-increasing energy prices is because everything else is getting cheaper. Do you hear that giant sucking sound? It’s the incredible growth of demand for energy in countries like China and India. That is the primary driver behind not only higher oil and gas prices, but also those of cement and steel. This demand is causing our energy prices to skyrocket, as the market is slow to react to the rapid increases in demand. But what's going on in these nations to force such demand? Production and manufacturing on an almost unprecedented scale. These nations are producing virtually any and every good and service from electronics to clothing to chemicals to call centers. The result: goods and services are becoming cheaper and cheaper for Americans and American Corporations who can then pass on those cost savings to consumers. Though we may be allocating a higher percentage of our paycheck to our gas tank, much of that additional amount is offset by virtually everything else getting cheaper. The current Hurricane Katrina scenario has spiked prices significantly higher because of pipeline failures and localized issues, but I don't see the higher prices as sustainable and feel that they will fall to a healthier range of $2.20-$2.50 a gallon. Though this amount is high in historical terms, I don't think international demand will falter with us gobbling up these cheaper goods. Even if the Government decides to open up some of the strategic reserve, it really won't affect US prices, because our refineries that produce the gasoline are at 100% capacity and a new refinery hasn't been built in over 30 years because of environmental restrictions. So you can have a whole loaf of bread but if you only have one toaster, everyone has to wait for toasted bread. In conclusion, the higher energy prices are here to stay but you're still spending the same amount on ALL of your items, as you were when it was $1.65 at the pump. Though many will argue that gasoline is a requirement versus that of the discretionary spending items, but I disagree with that notion for a few reasons. Clothing, basic necessities (in the US we have a MUCH different idea of what is 'basic'), electronics, equipment and outsourced services prices are lower, which will allow corporations to lower most prices to stay competitive even in a higher energy price market. So next time you are at the pump cringing at the sight of gas prices, remember that gas prices are higher because that new laptop, t-shirt, sunglasses and most other things are costing less and less.
http://gom.rigzone.com/ Gives a good visual on the affected oil rigs and wind speeds in Katrina's path...
Thanks...i'm trying to get an idea of what exactly was affected and how much as to be more specific about how long the price spikes will be.
Is a plasma tv a good barometer/comparison? I think plasma tv's would've dropped in price anyway simply because of the competition in the market among technologies. Also, not everyone's looking for a plasma tv that costs thousands whereas pretty much everyone's looking for gasoline. How about everyday necesseties going down in price? Can anyone think of any?
Good point. We don't import our food from China. If you have little discretionary income like many Americans, you must now spend more on driving to work and feeding your children. And unfortunately the cheaper prices are not directly tied to the price of oil. I.e, if China decides to strengthen their currency so their population can enjoy more benefits of their growing wealth, oil prices will remain elevated while the price of our imported goods will rise.
This is the key that's ignored by all these macroeconomic analyses - there are different effects amongst different consumer groups. High gas prices hurt different groups in different ways. Sure, it might not be bad for the US as a whole, but tell that to the person who lives 50 miles from work and is living paycheck to paycheck as-is.
Even better point...Although I agree with the article, your point is much more meaninful as even though I make a decent living, I'll be 2nd guessing any travel plans as $$ is $$, no matter what income level you are...
The Plasma T.V. is a bad example because prices of new products always go down during their life cycle. That's first year Marketing Class. Prices are high when products are introduced to recoup R&D costs, then over time they drop and become more affordable. Just think how much DVD players used to cost 7 years ago. Now you can get one at Wal-Mart for $50. But the overall point that inflation has been held in check is correct, and that's really incredible given how much energy prices have spiked, but I think that won't be the case in the next few months. Energy prices effect everything and the prices have gotten to the point that manufacturers can't absorb the increases.
And sadly enough poorer folks generally have less ability to live closer to work so they can easily end up driving farther.
Many people may accelerate their purchases of hybrid cars too, which will be better for the country in the long run.
True, but it will take manufacturers bringing out trucks and SUV's that don't guzzle gas (as much) to help that along.
But again, this is an option for the middle and upper class, but the poor still have to bear the brunt of higher costs.
I miss my G35, but the next few months I am gonna love the subway even more than before. However, I dont think I will be driving up to New Hampshire for Thanksgiving.
Like DOD said, plasma tv's are definitely not a true indication of goods costing the same or less. My dad is in the wholesale business. His prices for goods are going up because trucking companies are charging him more. Now he is thinking about raising his prices. That means the retailer has to charge more. That means you the consumer is getting charged more. I'm in the coffee business. I am being charged more for milk now. I am thinking about raising the prices for coffee, etc. That means you the consumer is being charged more.
The local Exxon where I sometimes buy gas went up 20 cents from yesterday to today. Someone is making a killing. I don't think it's the filling stations.
All Exxons are independently owned and operated. Wholesale gas prices have not gone up yet. Yes, it is exactly the filling stations.
A little bit of good news about fuel: Long-Term Petroleum Picture Improves The post-Hurricane Katrina petroleum-supply outlook improved somewhat on Friday as U.S. and European governments agreed to release 2 million barrels a day of oil and refined products from their reserves. The announcement by the International Energy Agency was made after futures markets had closed. But prices fell sharply on reports that it was coming and as pipelines that distribute oil and gasoline from the Gulf Coast returned to high levels of service. Still, the immediately available supply of energy for automobiles, homes and airlines in East Coast and Midwest markets tightened. Some 1.8 million barrels a day of U.S. refining capacity remained shut down and it will be weeks before the extra gasoline from Europe arrives. Pump prices were above $3 a gallon in many places and motorists have been urged to conserve fuel by everyone from President Bush to Exxon Mobil Corp. Jeff Miller, who owns 50 gasoline stations across southeastern Virginia, said it will be a real challenge over the Labor Day holiday weekend to prevent pumps from running dry from time to time. "Every morning, I'm sitting down, figuring out which stations have product and which don't, then dropping off loads to keep at least some gas at all of them," Miller said. On Friday, four of his stations were empty and demand was holding steady at the others despite prices averaging $3.10 a gallon. Part of the difficulty, Miller said, is that suppliers such as BP PLC and Royal Dutch Shell PLC have been rationing the amount of fuel they will sell to Miller and other gasoline retailers in order to ensure overall availability in as markets across the U.S. for as long as possible. However, there is also a major benefit in having a supply relationship with a major oil company: "They have kept their prices lower than the unbranded suppliers," he said. Sonja Hubbard, chief executive of E-Z Mart Stores Inc., which owns 319 gasoline stations across Arkansas, Louisiana, Oklahoma and Texas, said 10 percent of her stores were experiencing temporary shortages at any given moment. "It will be a busy weekend," said Hubbard. "My entire management team will be working." Despite tight supplies, the panic buying that had struck some markets appears to have settled down. The long lines seen midweek at downtown Atlanta gas stations were gone by Friday, though some pumps were still closed. The IEA agreement will put more than 60 million barrels of oil equivalent on the market over the next month, with the U.S. government portion amounting to at least 30 million barrels of crude oil from its strategic reserve. But the market was most upbeat about the announcement from the 26-nation IEA because it will bring gasoline and diesel from Europe to the U.S. market, where supplies of refined products are shrinking due to Katrina-related refinery and pipeline troubles. Light sweet crude for October delivery fell $1.90 to settle at $67.57 a barrel on the New York Mercantile Exchange. Gasoline futures tumbled nearly 23 cents to settle at $2.18 a gallon, their first decline this week. The IEA announcement "has definitely relieved some of the pressure," said oil broker Tom Bentz of BNP Paribas Commodity Futures. "But the problem is, it's going to take time to get here. We're not out of the woods yet." It takes almost two weeks for a shipment of fuel to be delivered across the Atlantic, analysts said. Another bright spot on Friday was the increasing amount of fuel being delivered from the Gulf Coast by the Colonial and Plantation pipelines, which combined were shipping almost 2 million barrels a day of gasoline, diesel and jet fuel to the East Coast. The Capline pipeline, which carries crude oil from the Gulf Coast to Midwest refiners, was shipping about 750,000 barrels a day. "We've had some good signs, we'll just keep working at it," said John Felmy, chief economist of the American Petroleum Institute, a Washington-based trade group representing the major oil companies. "We're still calling on consumers to be prudent in their use of gasoline," Felmy said. "It's just a complicated jigsaw puzzle we're putting back together." Although electric provider Entergy Corp. said it was beginning to restore power to some key energy facilities in the region, eight Gulf Coast refineries and several natural gas processing plants remained out of service. U.S. gasoline production is down by about 40 million gallons a day, or 10 percent of consumption, and it could be weeks before the region's refining capacity is back to normal, analysts said. Locating workers and getting them back on the job will also take time. Another area of uncertainty is just how much damage was sustained to the underwater network of pipelines in the Gulf of Mexico that carry oil and natural gas to onshore facilities. "A prolonged outage raises concerns about the adequacy of supply for winter," said Bob Ineson, a natural gas analyst at Cambridge Energy Research Associates in Houston. Already, Floridians were being asked to reduce their consumption of electricity because a pipeline problem is limiting the amount of natural gas flowing to utilities. Natural gas futures fell 6.6 cents to $11.691 per 1,000 cubic feet, but they are about twice as high as a year ago. The Gulf Coast is responsible for around 30 percent of U.S. crude production and about 25 percent of its natural gas. A large portion of oil is also imported into the U.S. through the region. The U.S. federal Minerals Management Service said 88 percent of oil output in the Gulf of Mexico remained offline, while 72 percent of natural-gas production was shut-in. Total lost oil output since Aug. 26 was 8.8 million barrels and total gas production lost was 49 billion cubic feet. Hurricane Katrina damaged or displaced an estimated 58 Gulf of Mexico oil platforms and drilling rigs, according to the American Petroleum Institute. Among those, 30 rigs and platforms have been reported lost.
I would have to take your word on that. If it's true, then that station will never again get my business.
