Gasoline Prices

[Danoff]

Let me try to flesh out my analogy a little better.

Oil companies -> Home owners
Oil consumers -> Home Buyers
Commodities Market -> Real Estate Market
Oil Price -> Home Prices


In this scenario, home prices have gone up (in some areas) by 100% in the last 2 years. Oil prices similarly have gone up by 100% in the last two years. Home owners had very little to do with the price jump, since the price is set by the real estate market. Oil companies have very little to do with the price jump since the price is set by the commodities market. People must have a home, they have no choice in the matter. People must use oil, currently it is next to impossible to live without consuming oil. Home buyers have control over how much home they buy and where they buy it. Oil consumers have a choice over how much oil they consume and how they consume it. The government has very little to do with the price in either case aside from taxes.

One difference in this is that the housing price increase absolutely dwarfs the oil cost increase in terms of absolute dollars. Another difference is that people are calling for regulation of oil prices but not home prices. And thank god too, because price regulation leads to supply shortages (see the earlier articles I posted). Gas lines are one thing. Housing lines? I don't want to be part of that.

 

[FoolKiller]

Also, you finance a house over a period of 15-30 years. At the beginning of the loan, you and the bank agree on a payment plan, which in most cases is fixed. In this way, you can plan your future finances. You know what you will pay next month, and you know what you will pay in 10 years. No such luck with gasoline. Four years ago, gas was $1.50. Now, it's twice that. How is anyone supposed to account for that when they figure out a monthly budget?

If you are properly working out a monthly budget you should be working it out every month and you should be over budgeting on necessities such as gas and groceries.

I manage to do it. In fact I have been gardening stuff this past month, paying the increased price of gas and I am still puting the same amount into savings every month. In fact, today I discovered I was $30 under budget. That is going into savings as well. All this and I still go out with friends at least once a week and buy pointless stuff every now and then. The only thing I have done is downgraded my Gamefly subscription to one game at a time, which I intended to do anyway since the second game just sits there until I beat or get tired of the first one.

I just found out today that I get a merit raise soon, so my paycheck has easily outpaced the gas increase.


Trust me, you can budget for the gas increase. Most of your other bills should be relatively stable and you can factor extra for gas increases based on AAA reports and market predictions.

 

[Kylehnat]

Ok, danoff, you don't get to comment on housing prices. The housing market in SoCal is absolutely ridiculous. My grandma's house in Placentia is about 1500 square feet, on a .25 acre lot, and worth more than twice my parents' house here in Washington (2600 square feet, 1.25 acre lot). Nobody can afford to buy a house in California, so it's not the best example. (This does bother me, as I may very well end up living down there at some point ).

Oil companies do not set the price of gasoline. They sell it at market rate. Jon Stewart is not an economist

They ultimately decide how much to sell it for. There is nobody forcing them to sell it at any given price. Same with a house. You can sell it below the going rate if you please.

Oil consumption is up across the globe, how could they NOT turn profits on a global scale?

Okay, but don't confuse "revenue" with "profit". Of course they're producing and selling more oil/gasoline. But to keep up with demand, they have to expand their own production facilities. The capacities of their refineries have to increase, and that is HORRENDOUSLY expensive. So they're making more money, but they are also spending a lot more money as well.

Here's my point: Oil companies say that they must sell their gasoline at these prices, because the price of oil is going up. Let's say you work for yourself as a computer technician. You charge people to fix their computer problems, and this is how you make a living. Your neighbor/friend has a problem, and would like you to fix it. You give him a quote, and he says "gosh, that's expensive". You tell him that it has to be that expensive, because the cost of parts and software is going up. He acknowledges that, and then pays you what you ask. The next day, you pull up to your house in a brand new Bentley. Is your friend wrong to question where his money went?

Trust me, you can budget for the gas increase. Most of your other bills should be relatively stable and you can factor extra for gas increases based on AAA reports and market predictions.

Okay, you can over-budget if you like, to account for the possibility of increasing prices. But for those on a tight budget, it isn't possible. I can get by on the money that I make now, but if any one of my expenses were to increase like gasoline does, I could be in trouble. Now in a few months, I should have a much better-paying job, and I'll probably never again worry about paying $30 for a tank of gas, but not everyone can be so lucky. Even if they plan to best possible degree, they can still end up on the short end of the stick.

 

[Danoff]

They ultimately decide how much to sell it for. There is nobody forcing them to sell it at any given price. Same with a house. You can sell it below the going rate if you please.

Sure, but why would anyone do that? The housing/oil analogy is still working perfectly.

 

[Poverty]

Most people live to the means of theyre income, hence why even people who earn over 100k a year can easily fall into debt.

Due to emerging economies such as china and india fuel will become alot more expenise. All those factories in china that manage to churn out so many products require oil to power them.

 

[FoolKiller]

Okay, you can over-budget if you like, to account for the possibility of increasing prices. But for those on a tight budget, it isn't possible. I can get by on the money that I make now, but if any one of my expenses were to increase like gasoline does, I could be in trouble. Now in a few months, I should have a much better-paying job, and I'll probably never again worry about paying $30 for a tank of gas, but not everyone can be so lucky. Even if they plan to best possible degree, they can still end up on the short end of the stick.

It's called an emergency fund. When you get your new job live on the same budget that you are now until you have enough money set aside to live on for six months(preferrably invested where you can easily access it but so it gains interest).

Most people live to the means of theyre income, hence why even people who earn over 100k a year can easily fall into debt.

When people live above or just at their income they are making a huge mistake. If a quickly increasing gas price isn't enough to convince anyone of that then they are hopeless.

 

[Swift]

Okay, but don't confuse "revenue" with "profit". Of course they're producing and selling more oil/gasoline. But to keep up with demand, they have to expand their own production facilities. The capacities of their refineries have to increase, and that is HORRENDOUSLY expensive. So they're making more money, but they are also spending a lot more money as well.

Now, I don't know this for sure, but I'm betting that the rest of the world doesn't have as stringent environmental controls for refining gasoline as the US. But that's just an educated guess.

 

[Kylehnat]

It's called an emergency fund. When you get your new job live on the same budget that you are now until you have enough money set aside to live on for six months(preferrably invested where you can easily access it but so it gains interest).

I have that now. There's enough in my savings account to live off of for about six months, but certainly not much more. Once I get a "good" job, I'll be making about 10 times more than I am now, so I should be fine

Now, I don't know this for sure, but I'm betting that the rest of the world doesn't have as stringent environmental controls for refining gasoline as the US. But that's just an educated guess.

In terms of quality of product, it's about the same. That is, BP gasoline in China is pretty much the same quality as it is here. Now there are different environmental regulations in China, which do affect how the refinery is designed, but not necessarily the process itself. Any regulations basically add equipment to the plant, but don't really affect the basic refining process.

 

[Danoff]

Excellent article!

http://www.foxnews.com/story/0,2933,193357,00.html

Oil prices fell for the fourth straight day on Thursday, dipping below $71 a barrel after China sought to cool its economic growth by raising a key interest rate and the World Bank tentatively resolved a dispute with Chad, which had threatened to shut off an oil pipeline.

On Wednesday, U.S. government data showed refinery output rising and motor fuel demand weakening, apparently in response to higher pump prices.

Light sweet crude for June delivery fell as low as $70.75 a barrel, before settling at $70.97, a decline of 96 cents on the New York Mercantile Exchange . Brent crude for June delivery on London's ICE Futures slumped to $71.28 a barrel, down 81 cents.

Gasoline futures declined by 6.16 cents to close at $2.0719 a gallon while heating oil futures slid 3.72 cents to close at $1.9857 per gallon. Natural gas futures settled at $6.805 per 1000 cubic feet, down 46.6 cents.

See that? Futures, as in the commodities market. That's where oil prices are set. And they're down as soon as investors see any strengthening of supply or weakening of demand. It's basic economics, I really wish they would teach this stuff in public schools.

What does John Q. Public see?

- Prices went up
- People complained
- A probe was launched into possible price gouging by oil companies
- Prices went down (I'm hoping, and it looks like that might happen)

What actually happened? International supply issues coupled with domestic supply issues due to new environmental restrictions combined with international tensions with Iran and an increasing consumer demand made oil a good place for investors on the futures exchange to put their money. Those issues resolved, demand weakened and investors pulled out.

Bush and oil companies had almost nothing to do with the increase or decrease. But rest assured, tax dollars will still be spent on a stupid investigation.

 

[Swift]

In terms of quality of product, it's about the same. That is, BP gasoline in China is pretty much the same quality as it is here. Now there are different environmental regulations in China, which do affect how the refinery is designed, but not necessarily the process itself. Any regulations basically add equipment to the plant, but don't really affect the basic refining process.

Um, I'm not an engineer. But having more or less equipment needed to process the gasoline means two things. 1) Less production cost(keeps prices lowere) 2) Less refining time(Can get a return sooner)

 

[code_kev]

All I wanna say is "£1 a ltr? Bugger off"

Thank you.

 

[Kylehnat]

Um, I'm not an engineer. But having more or less equipment needed to process the gasoline means two things. 1) Less production cost(keeps prices lowere) 2) Less refining time(Can get a return sooner)

Let's see if I can explain this better. BP has two refineries, one in the U.S. and one in China. They both produce the exact same product (87 octane gasoline, for instance), and produce the exact same amount. The process which turns oil into gasoline is the same in both plants (same sequence of equipment). For simplicity's sake, let's ignore the difference in logistics between the two countries and say that this particular sequence of equipment costs the same in both plants ($1 billion, for instance). Now, this process produces some gases, say sulfur dioxide (SO2), ammonia (NH3), and methane (CH4). Now assume that China has no regulation on these gases, so the plant in China can just release these substances into the air. The plant in the U.S. cannot do this, so they must capture these gases and process them into harmless substances. So now they have to add another $300 million in equipment which does not improve the refinery's ability to produce gasoline, but merely neutralizes these gases. It is realistic that a single change in environmental policy can require hundreds of millions of dollars of additional equipment. Thus, it is no surprise that oil companies have lobbyists that try to persaude legislators to not make such changes in policy.

 

[ledhed]

The more gas cost the quicker we in the US find a way to get off the oil teat . IMO something thaat will help the US imeasurably...also IMO I could care less if we have to drill through a raindeers asss to get oil ...do it and get away from buying oil from unstable areas that cost us money and lives to get oil from...money and lives we never see reflected at trhe gas pump.

I hope it hits 5.00 a gallon ..in two years we will all...or most .... be driving soy -bean powered go carts or hydro-cell or ...etc.

capitalism works great ....go ahead oil companys ...make my day .

 

[Joey D]

All I wanna say is "£1 a ltr? Bugger off"

Thank you.

Your taxes screw you over, therefore I don't feel bad.

 

[FoolKiller]

On Wednesday, U.S. government data showed refinery output rising and motor fuel demand weakening, apparently in response to higher pump prices.

They obviously haven't checked my gasoline usage. In a little over a week I am taking 6+ hour road trip to an amusement park. That is 12+ hours of driving and two days of participating in massive amounts of electricity usage.

Then Memorial Day weekend I am taking a 4 hour drive to visit friends. 8 hours total driving time.

Then in June my wife and I are taking a 4-5 hour drive to get out of town for our anniversary. 8-10 hours total driving time.

Is it obvious that gas prices don't concern me yet?

 

[TB]

Agreed, Foolkiller. My mom and dad are taking their RV to Georgia, almost 30 hours one way. Last year they took it to Alaska. Personally, with 2 kids, my wife working weekends and me working weekdays, we don't have any plans to travel anytime soon, regardless of gas prices. Prices will be a consideration, but it won't keep us at home by any means.

 

[Danoff]

They obviously haven't checked my gasoline usage. In a little over a week I am taking 6+ hour road trip to an amusement park. That is 12+ hours of driving and two days of participating in massive amounts of electricity usage.

Then Memorial Day weekend I am taking a 4 hour drive to visit friends. 8 hours total driving time.

Then in June my wife and I are taking a 4-5 hour drive to get out of twon for our anniversary. 8-10 hours total driving time.

Is it obvious that gas prices don't concern me yet?

Agreed, Foolkiller. My mom and dad are taking their RV to Georgia, almost 30 hours one way. Last year they took it to Alaska. Personally, with 2 kids, my wife working weekends and me working weekdays, we don't have any plans to travel anytime soon, regardless of gas prices. Prices will be a consideration, but it won't keep us at home by any means.

That's why oil prices have gone up. Unless demand weakens, investors will continue to think oil is a good place to make money. If you don't feel the pressure at the pump enough to change your driving habbits, then it's obviously still a bargain.

 

[FoolKiller]

That's why oil prices have gone up. Unless demand weakens, investors will continue to think oil is a good place to make money. If you don't feel the pressure at the pump enough to change your driving habbits, then it's obviously still a bargain.

When have I complained about prices? Compared to most liquid commodities it is a bargain.


Besides, if you can find a flight into Sandusky, OH, Mayfield, KY, or Gatlinburg, TN, and a rental car for local travel, for cheaper than the gas is going to run me then I would consider it.

 

[Danoff]

When have I complained about prices? Compared to most liquid commodities it is a bargain.

I was just commenting, not claiming you were a hypocrite. My previous post was supposed to be read with the tone of voice of someone agreeing with you.

 

[FoolKiller]

I was just commenting, not claiming you were a hypocrite. My previous post was supposed to be read with the tone of voice of someone agreeing with you.

Sorry, I read it wrong.

Anyone else want to waste a bunch of gas in one day with me and go to Cedar Point?

 

[Danoff]

http://www.cnn.com/2006/POLITICS/04/27/congress.oil/index.html

This is freaking stupid. The market will increase fuel efficiency on its own if people really care about it. All this is going to do is prevent people who don't care about fuel efficiency from getting what they want. Since when did America become so anti-American.

 

[FoolKiller]

Apparently only one politician is getting it right.

http://www.foxnews.com/story/0,2933,193487,00.html

Someone nominate Rep. Blackburn to a more powerful position.

 

[Kylehnat]

http://www.cnn.com/2006/POLITICS/04/27/congress.oil/index.html

This is freaking stupid. The market will increase fuel efficiency on its own if people really care about it. All this is going to do is prevent people who don't care about fuel efficiency from getting what they want. Since when did America become so anti-American.

The fuel-mileage requirements are for a manufacturer's entire fleet, not any individual model. So people can continue to buy their perpetually-thirsty Tahoes if they want. I agree that we don't need Bush telling car makers to up the mileage; they do that anyway. Cars today have higher performance and get better mileage than cars made 10 years ago. The same will be true 10 years from now, whether GW does anything or not.

 

[Danoff]

The fuel-mileage requirements are for a manufacturer's entire fleet, not any individual model. So people can continue to buy their perpetually-thirsty Tahoes if they want. I agree that we don't need Bush telling car makers to up the mileage; they do that anyway. Cars today have higher performance and get better mileage than cars made 10 years ago. The same will be true 10 years from now, whether GW does anything or not.

That's because if it's really important financially for vehicles to be more fuel efficient, there will be a market for it - and auto makers will cater to that market.

But people cannot buy their perpetually-thirsty vehicles if they're regulated out of existance.

 

[Swift]

I just think it's funny that the majority of the public is looking to the gov't for releif when the only thing they SHOULD do is lower the dumb gas taxes.

When did America switch from being a group of people that took care of themselves to a bunch of slobs looking for handouts from the government?

 

[Sage]

FDR. Oops, maybe we should save that for another thread.

 

[BMWteamPTG]

haha...

all im going to say is that ExxonMobil made $8.4 BILLION in profits first quarter. thats $.95 per gallon of gas!!!!!!!!

now, when they were selling gas for $.99/gal when i started to drive, they obviously had to have been making a profit right? or else the prices would have been higher then right? so why they hell are these guys enlarging their pockets with our money? greed...no other reason. they were too lazy and cheap to update and upgrade their refineries..so now we suffer...and we will for the rest of our lives. i dont think this is going to change. now that bush is calling for the big 3 to meet and discuss hybrid technology, the oil companies will keep raising prices to get all the money they can before hybrids take over.

 

[Joey D]

But the oil companies can charge what they like because we have to pay it.

 

[Danoff]

haha...

all im going to say is that ExxonMobil made $8.4 BILLION in profits first quarter. thats $.95 per gallon of gas!!!!!!!!

now, when they were selling gas for $.99/gal when i started to drive, they obviously had to have been making a profit right? or else the prices would have been higher then right? so why they hell are these guys enlarging their pockets with our money? greed...no other reason. they were too lazy and cheap to update and upgrade their refineries..so now we suffer...and we will for the rest of our lives. i dont think this is going to change. now that bush is calling for the big 3 to meet and discuss hybrid technology, the oil companies will keep raising prices to get all the money they can before hybrids take over.

Did you read the thread? Or at least the last couple of pages??? They don't set the price of gas!

Check my housing analogy above. Homeowners don't set the price of their house in the same way oil companies don't set the price of oil.

 

[Dave A]

Danoff is right, the price of oil isn't set by the oil compnaies. It's not the same but it's similar for a few natural resources, like metal's, a Jewelry manufacturer doesn't set the price of a Gold bar.