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WHy gas prices are rising

JP Hochbaum

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Why You Are Paying So Much for Gas - Forbes

"If you want the detailed explanation, please see the link above; but the short story is this: the above law, because it allowed financial market participants to treat oil futures as just another investment like Wal-Mart or Exxon stock, caused gas prices to become tightly linked to stock market prices. This means that every time the stock market rises, oil and gas prices get pulled up, too, and vice versa. There is no logical reason for this! Gas prices should adjust because of a change in the forces driving the underlying supply of or demand for oil, not because stock prices are at a historic high. Just look at the graph below, showing gas prices (blue) superimposed on the S&P 500 closing price (red; data and graph from www.economagic.com):"

Why gas prices are rising...again! - Forbes
 
they are rising for four main reasons :

1. rather than letting actual physical worldwide demand determine the price, we have added in an extra layer of casino gambling.

2. China and India are developing middle classes. they want cars.

3. oil is a finite resource, but we treat it as though it was going to last forever.

4. we allow many localities to demand specific summer blends instead of just having a couple available for them to choose from. we don't have the refining capacity to support that many blends.
 
Then we must then ask why US stock prices are rising. This has been said to be mainly from two forces, more money pumped out by the fed and the relative yields of US bonds vs. US stocks.
 
and one would believe that the oil companies would then be paying extraordinary income taxes on their elevated earnings. let's see:
But Exxon Mobil’s tax rate is “lower than the average American’s,” Daniel Weiss, an energy expert at CAP, countered in an analysis that put the company’s U.S. federal income tax rate in 2010 at just 17.2 percent.
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and here is some of the corporate welfare that the GOP insists cannot be touched to resolve the sequestration:
How much do oil companies really pay in taxes? - Washington Post
 

Oh good grief...more "corporate welfare" garbage tossed at the oil industry.

The big bugaboo "tax break" for oil companies involves the allowance to expense Intangible Drilling Costs rather than capitalize them. Do you understand what tose costs are and WHY they are allowed to be expensed or what would happen if they had to be capitalized? This tax ruling is what has allowed all the additional exploration we have seen in the past few years and is the path to possible oil independence in the future but more than that it's a fair and reasonable tax law for an industry that has a rather unique situation required to develop its product.
 
please explain why the public should embrace the continuation of expensing the "Intangible Drilling Costs"
i look forward to your reply
 
As usual, JP ignores the simplest explanation.

 
justabubba said:
please explain why the public should embrace the continuation of expensing the "Intangible Drilling Costs"
i look forward to your reply
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IDC are, essentially, the expenses incurred for developing a well that don't result in the creation of a tangible asset. Surveying a site and testing the ground, for example, are intangible drilling costs. If these costs were not allowed to be expensed then they would have to be added to the other costs that create the physical well and be depreciated over time. Doing things that way means that a drilling company would have to wait years to recover their costs on things like dry wells and basic exploration. While they were waiting they would show higher profits because the expenses weren't allowed and pay more in taxes which would be passed on to the consumer while slowing production thus making oil less available and, again, raising costs to the consumer. If the government puts a limit on expensing IDC you could reasonably expect gasoline to hit $8-10/gal pretty much overnight.
 
phattonez said:
As usual, JP ignores the simplest explanation.

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It's hard for someone to accept that if they believe inflation absolutely can not happen by printing money unless every man, woman and child has a job.

For JP it's every reason but inflation.
 
I don't know anyone that isn't aware that different sources of energy need to be found for transportation fuel in the long run, if for no other reason than divesting the world of political involvement in the Middle East. People generally argue that peak oil fears are overblown, and that a mass switch to alternative energy isn't necessary right now. But I do think people understand that though the music isn't going to suddenly stop, it's going to fade out eventually, and it's best to have a chair to sit in before you can't make out the tune anymore...

Region specific blends are certainly responsible for temporary price spikes, but your top two reasons are so far and away more important that it renders the fourth unimportant in the big picture . It is paradoxical that getting permits to build new refineries is so onerous, but state legislatures insist on mandating blends that can't be fulfilled without regular shortages and attendant price shocks.
 

thank you for that
you have amply illustrated the special tax treatment received by the oil industry and why that unique corporate welfare deserves to be eliminated
much business builds to its asset base over time, requiring preliminary costs to develop those business assets. but they must then depreciate those costs over time because they do not enjoy the expensing provision allocated to the oil industry
the oil industry should be deprived of its special tax treatment
to pretend that this cash rich industry would suffer because its cash flow would be modified due to the more appropriate tax treatment, such that the price of fuel would double, is at best a specious argument
 


This is what correlation looks like:

When oil spikes inflation spikes. When oil decreased inflation decreases.

Your graph just shows money supply increasing and how little effects the spikes and decreases in oil prices.
 
JP Hochbaum said:
View attachment 67144026

This is what correlation looks like:

When oil spikes inflation spikes. When oil decreased inflation decreases.

Your graph just shows money supply increasing and how little effects the spikes and decreases in oil prices.
Click to expand...

How do you conclude from that graph that oil determines inflation? The 90s and 2000s are jarring. Lots of inflation despite little change in oil prices. You keep trying to ignore the obvious reality that printing money can cause price inflation and distortions in the economy.
 
I'm not seeing the correlation that you see.

 
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I don't ignore the reality that printing money can cause inflation. I am just saying that reality hasn't occurred yet, and by laws of supply and demand it can't until we reach full production. This isn't rocket science.
 
JP Hochbaum said:
I don't ignore the reality that printing money can cause inflation. I am just saying that reality hasn't occurred yet, and by laws of supply and demand it can't until we reach full production. This isn't rocket science.
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Yes, because throughout all of history massive inflation has only happened in perfectly productive economies! :lol:
 
phattonez said:
Yes, because throughout all of history massive inflation has only happened in perfectly productive economies! :lol:
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No, they have always occurred when production fell in massive ways, that is why properly iunderstanding what happened in Weimar (massive strikes, French occupation of Ruhr) and Zimbabwe (removal of landowners who farmed) is important.
 
I know first hand that the oil industry spends tons of money that has nothing to do with the production of oil. I am personally involved in abandonment projects by Chevron in the Gulf of Mexico, where literally hundreds of millions of dollars are being spent to remove out of service platforms and plug and abandon the associated wells and pipelines.

I'm not aware of any other industry that has such expenditures that yield no profit. Box manufacturers don't have to build ten factories in order to get one that will actually yield boxes. Boxes don't stop flowing from the factory unless the owner decides not to make any more. Box manufacturers don't have to tear down all the factories and remove the roads leading to the factories after they stop production.
 

yep, that's why i put it at number four. i would argue, though, that we could soften the blow slightly by federally mandating three summer blends. then localities could pick from those three, and it would relieve the bottleneck.

as for your first point, i have seen plenty of argument against and resistance to each and every non-oil idea which is proposed. some people even believe in abiotic oil that is somehow replenishing itself as we take it out of the ground. oil's psychological inertia is incredible. to be honest, i feel it too. i love my gas powered vehicles. but it will be a fine day when there are enough available alternative options that i can just choose to use oil as a novelty rather than as a necessity. as one of America's millions of work commuters, i've simply had it.
 
JP Hochbaum said:
No, they have always occurred when production fell in massive ways, that is why properly iunderstanding what happened in Weimar (massive strikes, French occupation of Ruhr) and Zimbabwe (removal of landowners who farmed) is important.
Click to expand...

Did production fall massively in the North during the Civil War?
 
phattonez said:
Did production fall massively in the North during the Civil War?
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Yes! Every single able bodied worker left production to fight! Silly question.

War affects a country's economy. Government spending for weapons and supplies causes a rise in demand for other goods. Workers who leave jobs and go off to war cause a decrease in supply. As a result, prices rise quickly. This is called inflation. In the Civil War, economic inflation was a problem in the North. But it was even worse in the South.
 

Right, it had nothing to do with excessive printing during the Civil War. How convenient.
 
phattonez said:
Right, it had nothing to do with excessive printing during the Civil War. How convenient.
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The initial cause of was the drop in production, printing money just made the already existant problem worse.
 
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