Roger Baker : Oil Addiction Generates Denial

Political cartoon from the LA Progressive.
Oil addiction generates denial

The major sin of the big oil companies was to get their customers addicted, to set up lobbies to keep them addicted, and to deny the looming shortage problem, including the threat of global warming.

By Roger Baker / The Rag Blog / May 23, 2012

It’s easier to fool people than to convince them that they have been fooled. -- Mark Twain

Denial is a basic symptom of addiction that involves hiding the truth, refusing to talk about the problem, rationalizing, or dismissing the situation -- defensive patterns of behavior that the addicted employ to avoid facing reality. This same principle of denial holds true whether the addiction applies to an individual or to an entire nation.

It is certainly no exaggeration to say that the United States has been a nation addicted to a continuous supply of cheap imported oil for at least the last 35 years. This has been so ever since President Jimmy Carter promised to take a leadership role in breaking our oil habit in 1976. At that time he characterized the U.S. energy crisis as the "moral equivalent of war." The USA has been in denial ever since.

By 2006, our imported oil habit was still growing and caused about 35% of our trade deficit. (See Figure 1 in this link.) Since then, we have been able to produce more oil and cut back on our oil imports (see Figure 3), but now it has risen so much in price that it constitutes about 60% of the total U.S. trade deficit. Transportation, mostly driving, still accounts for about 70% of U.S. Oil consumption, despite the fact that driving has declined slightly after peaking in 2007.

Oilman and President George W Bush, who was in an excellent position to understand such things, openly declared our national addiction in his state of the union address in 2006:

Here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.

From President Carter to President Bush Jr., our imported oil habit became progressively less sustainable, as the cheap oil was used up. If the continuous stream of tankers that export oil from the Persian Gulf region should be interrupted now, the price would immediately rise to a level that would make fuel unaffordable to many U.S. drivers, and to a degree much more painful and disruptive than we experienced in 2008, or in recent months.

Our continuing addiction to Mideast oil accounts for the vast U.S. military force that we have stationed in the Persian Gulf, which region provides a large and growing portion of the world's total oil supply. It is sometimes claimed that because the United States gets most of its oil from sources closer than the Gulf region, we are not highly dependent on this region. However, since the oil market is global, any oil supply interruption in the Gulf region would soon translate to high prices everywhere else. The Chinese would soon bid against the USA for the fuel produced from the Canadian tar sands, etc.

Europe, by comparison, has been been largely shielded from big fuel cost increases by its already much higher fuel taxes. These taxes have forced its drivers to adopt lifestyles that minimize their fuel consumption, and thus protect them more from a global oil price rise.

Whenever the U.S. supply of imported oil is threatened with interruption (or if the U.S. economy should recover much), the global marketplace bids up the oil price, and the politically sensitive price of gasoline will rise in step and depress consumer spending . Whenever the world oil price is high enough, it can cause an economic crisis. In this case global demand may contract sharply, as it did in 2009. The price can never rise for long above what the global oil market can bear.

In 2008 we found that limit as we approached $120 a barrel for oil and $4 a gallon for gasoline. Prices are once again beginning to kill demand in the U.S., but under a slightly lower ceiling, because the economy isn’t nearly as strong as it was in the first half of 2008. Now the ceiling is closer to $100 a barrel.

Young people are more inclined to kick their oil habit

The lower third of the U.S. population by income increasingly cannot afford to drive at all.

As a result, many young people in particular seem to be culturally rejecting car ownership as a lifestyle goal, and are arranging their lives so as not to require cars. According to a new report ,

The average annual number of vehicle miles traveled by young people (16 to 34-year-olds) in the U.S. decreased by 23 percent between 2001 and 2009, falling from 10,300 miles per capita to just 7,900 miles per capita in 2009. The share of 14 to 34-year-olds without a driver’s license increased by five percentage points, rising from 21 percent in 2000 to 26 percent in 2010, according to the Federal Highway Administration.

The road lobby, sprawl developers, and climate change denial lobbies all have a dog in the fight and are happy to support groups that help perpetuate oil addiction denial. The Antiplanner, funded by the Cato Institute, is one prominent voice of denial. This Libertarian think tank, founded by one of the Koch Brothers, is still a bit too independent and they are trying to regain control again.

In fact there is now a wealth of evidence for a deep shift in driving behavior.

America’s transportation policies have long been predicated on the assumption that driving will continue to increase. The changing transportation preferences of young people -- and Americans overall -- throw that assumption into doubt. Transportation decision-makers at all levels -- federal, state and local -- need to understand the trends that are leading to the reduction in driving among young people and engage in a thorough reconsideration of America’s transportation policy-making...

In accord with the nature of politics, unhappy voters tend to seek political scapegoats to blame for their pain at the gas pump. As a nation in denial of addiction, we seek external causes other than our own behavior, dependent as it is on this unsustainable resource. As a nation, we uniquely depend on private vehicles for commuting as an integral part of the U.S. lifestyle.

Given all the media attention it has attracted over the past few years, the public seems to understand that maintaining the U.S. oil supply is important. They also believe that their driving dependency is tied to political policy. This leads to the false hope that, by choosing the right president, their driving might remain more affordable.

Given this situation, it is easy to understand why the recent rapid rise in the cost of fuel has become a political issue. Likewise, the recent modest decline in fuel price might seem to indicate that some kind of mysterious factor other than a natural oil shortage is at play.

It is hard for the average driver to understand that the price of gasoline is closely tied to oil demand on a global scale; that the cost of domestic gasoline is closely linked to the global market price of crude oil, and that its price rises and falls accordingly. Here we can see that the average U.S. gasoline price closely tracks the price of Brent crude, the global benchmark standard, even more closely than it tracks the price of the WTI grade of crude oil still produced in the USA.

Other factors can be important too, like transportation and refining bottlenecks, but the cost of crude oil is primary. Global supply and demand, including our domestic demand that uses more than 20% of the world's crude oil production, are the basic factors that determine what we will pay for our gasoline and diesel fuel. Because of our addiction , we seek scapegoats and seek to deny the need to change our own behavior.


Scapegoats for the right

Republicans make the absurd claim that the federal government and environmentalists have prevented the U.S. oil industry from producing enough oil to lower the price of gasoline. The attempt to portray any possible increase in domestic oil production as being sufficient to significantly lower the global price of oil is ridiculous but certainly attracts media attention.

The truth is that we are in the middle of an oil and gas “fracking” boom widely opposed by environmentalists. This drilling boom has indeed lowered our domestic natural gas price confined to areas within easy reach of gas pipelines, but it cannot much affect the price of oil, since oil is relatively cheaply transported by transoceanic tanker to the highest bidder.

The Republicans still contend that enough of an increase in petroleum could be obtained by increased domestic drilling so that it could lower the price of fuel, even down to the $2.50 a gallon gasoline that Gingrich was promising. Few in the oil industry seriously take these claims seriously, but it is the sort of talk that draws a lot of political attention. Mitt Romney has even called Obama to fire his three top energy advisors.

To be realistic about our current situation, the formerly cheap "conventional oil" that was produced by onshore drilling, which helped the USA win WWII, has nearly all been pumped up and is gone forever outside the Mideast. We now have to rely on much more expensive and hard to produce “unconventional oil" sources, like deepwater offshore wells -- especially since 2005.

In the current global market, the reality is that the fruits of increased domestic production will be sold to the highest global bidder by the multinational corporations like Exxon.

The price of crude oil has increased globally by a factor of five from $20 to $100 in only about the last decade. In terms of the physical infrastructure appropriate to lubricating and growing a profitable world economy, this has had a profound and deep-seated economic effect, an global economic shock that has been felt everywhere as reduced profits throughout the global economy.


Scapegoats for the left

Democrats and critics of the business community naturally choose different scapegoats than Republicans, often on grounds that sometimes seem almost as far-fetched. These scapegoats tend to be the big oil companies, Wall Street oil speculators, and the oil refiners.

There is little that Exxon can now do to reverse the chronic oil dependence that they have done so much to help create and perpetuate. They are in effect the beneficiaries of a once-abundant, but now increasingly scarce resource in an era in which the production cost is steadily rising. As Exxon's own reserves of cheap oil run short, they want to stay in business as middlemen, brokers, refiners, and producers of this increasingly scarce fluid vital to the continued functioning of the U.S. economy.

The major sin of the big oil companies like Exxon Mobil was actually, in large part, to get their customers addicted to their products in the first place, to set up lobbies to keep them addicted, and to deny the looming shortage problem, including the threat of global warming. This was recently detailed in the New Yorker. Obama's response to being blamed for high oil prices has been more political than focused on informing the public of their addiction:

The President’s policies toward the oil industry are not easy to categorize. His actions -- attacking oil-company profits while proposing more oil drilling -- can best be understood as political responses to rising gasoline prices.

Obama is quite willing to take advantage of the unpopularity of speculators as scapegoats . The Democrats don't have a coherent position on energy, but as politicians they still have to represent a public angry about fuel costs. What Democrat could resist blaming Wall Street and commodity speculators for driving up oil prices?

With gas prices continuing to soar, 70 members of Congress on Monday pushed federal regulators to stop excessive oil speculation. The House and Senate lawmakers -- all Democrats -- wrote to the Commodity Futures Trading Commission to urge the agency to immediately put in place limits on traders in crude oil markets and take whatever steps necessary to rein in prices at the pump.

"It is one of your primary duties -- indeed, perhaps your most important -- to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets in which prices are discovered operate free from fraud, abuse, and manipulation," the lawmakers wrote in a letter organized by Sen. Bernard Sanders...

The problem with blaming Wall Street speculators is that so much of the oil market is global, like the London exchange. In any case, price hedging is a legal and intrinsic part of a normal market involving buyers and sellers. Nailing down future delivery is the natural inclination of commodity dealers operating in a tight market.

The successful speculators tend to amplify price trends, rather than changing market direction. Speculation is a normal part of the business of airlines, for example, who do a service by anticipating and evaluating future fuel price risk. By anticipating future shortages, they make it hard to deny that there are looming oil supply problems that we urgently need to face.

"The fact is that there really are logistic challenges for Europe to replace Iran as a source of oil, and those challenges are going to translate into a higher price," said James Hamilton, an economist at UC San Diego who has studied past oil-price spikes.

Reasonable voices are no match for addiction denial

Not everyone in Congress has been in denial of our precarious U.S. oil import position. Republican Senator Dick Lugar recently posted an article -- "High gas prices threaten recovery" -- which explained that there is practically no global spare reserve capacity left to cushion a sharp oil price rise, due to an inflexible and increasing global oil demand in conflict with a fixed global oil supply.

Price stability depends on a cushion of excess oil production capacity that could be brought online within 30 days or so if needed. A good rule of thumb is 5 percent of the market -- now about 4.5 million barrels per day -- is a sufficient cushion. Drop much below that, and the market cannot easily cope with planned or unplanned outages...

The cushion today is just 1.4 million barrels per day of spare capacity in a global market of approximately 89 million barrels, according to analyst Bob McNally, of the Rapidan Group. Some estimates are even lower. That thin margin already inflates prices, but it also puts global oil markets on the edge of massive upheaval.

Senator Lugar offered his "Practical energy Plan," which amounts to taking a lot of simultaneous emergency measures to expand domestic fuel production, while reducing consumption. While this is good advice, it would certainly take more time and require more political will than we have available.

However even these kinds of sensible warnings by a moderate Republican Senator are apparently too much for the right-wing oil addiction deniers to tolerate. The Koch brothers, who became super-rich from petrochemicals, helped fund FreedomWorks, part of the opposition that successfully knocked Sen. Lugar out of the Republican primary, and thus removed a respected political moderate.


Little time left to deal with our addiction

Rising gasoline prices should ideally be welcomed as a warning of what is soon to come. One of the keenest observers of the geopolitics of oil and the precarious nature of our U.S. oil dependence is Michael Klare.

Because the American economy is so closely tied to oil, it is especially vulnerable to oil’s growing scarcity, price volatility, and the relative paucity of its suppliers. Consider this: at present, the United States obtains about 40% of its total energy supply from oil, far more than any other major economic power.

We will now have to prepare for major economic changes and high gas prices. Oil and politically sensitive gasoline prices have receded in price the last month, but this is in no way a sign that our lives can return to the cheap oil era of the past. We are busily preparing to fight Iran. The energy wars are heating up globally . The hour is getting late.

Klare now calls on Obama to be honest about the true gravity of our current situation.

President Obama has to be honest with the public. There is no solution to high prices, other than a change in the behavior of our energy use, because there is no cheap oil left on the planet. We have to begin a process of converting to alternative forms of energy or alternative forms of transportation. And he has to be honest.

Will we wake up and face our oil addiction denial in time? As they wisely say, you can evade reality, but you cannot evade the consequences of evading reality.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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Larry Ray : America's Gas Pains

Gasoline pump, Naples Italy, March 11, 2012 Photo from la Republica. Graphic by Larry Ray / The Rag Blog.
Reality check:
America's gas pains?

Most Americans have not lived anywhere other than in America, and many still live not too far from the gas pumps in the towns where they were raised.

By Larry Ray / The Rag Blog / March 27, 2012

GULFPORT, Mississippi -- A March 11, 2012, front page story in the Italian daily, la Republica, detailed a new record high for gasoline prices in Naples, Italy. While drivers were wailing about gasoline being $3.58 a gallon here on the Mississippi Gulf Coast, Neapolitans were upset over regular gasoline being priced at what would be $9.58 per U.S. gallon.

Gasoline in Italy is priced per liter. A liter, for those not metrically inclined, is a little less than 34 ounces or 1.1 quart. The pump in the photo above shows a price of 1.917 Euros per liter, or close to U.S. $2.53 a quart, at the conversion rate on March 11, 2012. Try to picture filling your family or business vehicle a quart at a time at $2.53 a quart.

I looked up the cost of a gallon of gas across Europe in March 11, 2012 when Naples hit the $9.58 a gallon record:

1. Belgium 1.68 euros per liter - $9.08 USD/gal.
2. Florence, Italy, 1.55 euros per liter - $8.38 USD/gal.
3. Luzerne, Switzerland 1.97 franc per liter- $8.86 USD/gal.
4. Netherlands 1.42 euro per liter - $7.68 USD/gal.
5. Fountain Bleu, France 1.62 euro per liter - $8.75 USD/gal
6. Munich, Germany 1.64 per liter - $8.86 USD/gal.

Gasoline has always been more expensive in Europe for a number of reasons. But the specter of $4 a gallon gasoline in the USA has caused a real uproar with cable news talking heads threatening the unimaginable possibility of four-buck gasoline before the end of this year. They are even calling for opening our strategic emergency oil reserves with the threat of four-buck gas. Breaking news folks today rarely consult even recent history.

We had $4 a gallon gas back in June of 2008 as speculators pushed up the price of crude oil just like we are seeing today. But by the end of December 2008, the bubble popped and crude oil prices plummeted to less than $37 a barrel. The U.S. average price for a gallon of regular unleaded gasoline fell to an amazing 5-year low of $1.61.

That we were paying only two-fifty something a gallon here on the Gulf Coast just a few months ago is an interesting historical benchmark. Consider that in May of 2005 they were paying U.S. $5.96 a gallon in bella Napoli. Their good old days. It will be interesting to see how far gasoline prices fall after the current 2012 bubble pops. And it will... after November.

Gasoline prices in the USA have gone up in the past few months just as in 2008 almost completely as a result of unregulated Wall Street futures traders and speculators artificially forcing up the cost of a barrel of oil. Today they are using worries about economic and political instability in Europe and the Middle East and the unreality of a presidential election year to inflate their bubble. A bubble that is forcing drivers already facing tough economic times to pay for this uncontrolled speculation which had a barrel of oil up to $112.61 last month.

America actually has a surplus of refined petroleum products in the USA today because of more fuel efficient cars and a serious change in driving habits here after similar gasoline price spikes in 2008. U.S. refineries are actually exporting refined gasoline abroad. Refinery inventory figures indicate no gasoline shortage in the USA.

However, never one to miss a play in fantasy politics, as gasoline prices have moved upwards in recent months, Newt Gingrich trotted out a new campaign promise to bring Americans gasoline for $2.50 a gallon "when he is elected." And there are many, many voters who cling to that same fantasy.

Most Americans have not lived anywhere other than in America, and many still live not too far from the gas pumps in the towns where they were raised. Folks my age still remember gas for 25 cents a gallon when we were kids. This older generation, soon retiring or already retired, will always want gasoline to be a couple or three bucks a gallon.

The present administration is being ridiculously blamed by strident GOP critics for the annual increase in gasoline prices which we have seen many times before, under many U.S. administrations in years past. Here's a quick reality check:

Filling up that 25 gallon tank on a big tricked-out Ford F150 8 cyl 4WD pickup that gets 13MPG, or any other vehicle for that matter, at Naples gas prices it would be around $240 U.S. for a fill-up.

Filling up that same 25 gallon tank in the U.S. even with $4.00 a gallon gasoline would be $100. And don't look for gas to come back to a couple of bucks a gallon this time.

Reality Check over.

Conversion to the price per U.S. gallon:
As of March 11, 2012 the 1.917 Euros / liter = $2.53 U.S. Dollars / liter
One U.S. Gallon = 3.7854118 liters
$2.53 X 3.7854118 = $9.57709185 or $9.58 a gallon

[Retired journalist Larry Ray is a Texas native and former Austin television news anchor who now lives in Gulfport, Mississippi. He also posts at The iHandbill. Read more articles by Larry Ray on The Rag Blog.]

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Roger Baker : How High Gas Prices Are Putting the Hurt on Average Drivers

Cartoon from The Smoking Jacket.
How high gas prices are hurting
average drivers (and voters)

By Roger Baker / The Rag Blog / March 22, 2012

[This is the first of a two-part series.]

High gasoline prices are probably hitting the average driver and voter harder than most people think. The numbers indicate that typical adult wage earners, meaning average voters, are already being hit hard by a combination of a depressed economy and stagnant pay, while having little choice but to pay higher gas prices.


Income distribution and trends

The wage trends here show that average U.S. earned wages (with the average being distorted upwards by the high income end) have been almost stagnant since 2007. This means that if the bottom half of wage earners were hurting in 2008, they are probably still hurting about as much now.

Most people who own their homes have seen their homes, as their major investment, decline in value. Also most other savings and investments have not prospered, with interest rates on banked savings remaining at near zero. "Core inflation" is said to be only a few percent, but inflation is being officially underreported with non-discretionary prices, which are a bigger part of low income household budgets, rising faster than discretionary costs.

We see here that the median 2010 household income in the United States was about $50,000, with half of household total earnings less. We can also see a big household income bulge at the low income end, with the largest percentage of household incomes centered on about $20,000 total per household.



This shows how many must be struggling to drive when the cost of driving is considered. If we assume two adult wage earners in many households, this would mean that each would be earning or receiving through benefits only $10,000 on average. Perhaps this is due to the unemployment of one, or part time or minimum wage jobs, or relying on social security or pensions as their primary income.

If the household consists of a single mother with an income of $20,000 and a child or two, there are the added costs of raising children. Whatever the reason, car ownership is increasingly dependent on income for a large portion of U.S. households.

In 2008, the Brookings Institution provided further evidence that the lowest income third of the population in particular seems to be struggling to drive at all. See the chart showing the highly significant correlation between income and car ownership.



These numbers, although a few years old, indicate the degree that low income households live in an economic twilight zone, an income level where a major lifestyle barrier determines whether or not they can afford to own and maintain a car.

How does income compare with what it costs to drive?

Here we see that the typical cost of owning and driving a family car was nearly $8,800 in April 2011.

The average annual cost to own and operate a sedan in the USA, based on 15,000 miles of driving, rose 1.9 cents per mile to 58.5 cents per mile, or $8,776, says AAA’s 2011 “Your Driving Costs” study. The increased costs to own and operate a vehicle were driven mainly by large increases in fuel prices, depreciation costs and tire prices, says John Nielsen, AAA national director of auto repair, buying and consumer programs.

Below is an expanded five year chart of aggregate U.S. urban transportation costs, a Saint Louis Federal Reserve FRED chart. Transportation costs in U.S. urban areas, where most folks live, have now exceeded mid-2008 costs and are crowding out other living costs at the lower earnings end of the wage spectrum. We see the total cost of getting around in U.S. cities by all means (which means predominantly cars) rose rapidly to end 2011 at a new record high level.


This series is charted monthly, but stops in December 2011. Looking at fuel price increases since then, and judging from the impact of fuel prices in recent years, it appears that the current cost index would probably be nearly 230, assuming the graph were continued to show the effect on driving costs of the big fuel price increases in the first few months of 2012.

In other words, since April 2011 of last year, the cost of owning and driving a car has increased roughly by a ratio of 205 to 230, or about 12%. That means that if the total driving cost was almost $8,800 a year ago, the urban travel cost consisting mostly of cars would now have risen to roughly $10,000 on average.


A recipe for frustration

For the many households with about $20,000 in total income, there is likely at least one adult who would want to own a car and drive, much as adults in the wealthier households do. However, even if a wage earner earns $20,000 a year, the $10,000 cost of car ownership and maintenance would now require about half their income.

There is no way to avoid the conclusion that many wage earners at the lower end are struggling hard to pay for food and rent and still drive a car to work, and that higher driving costs are forcing them to shed cars. This probably accounts for the current political focus on gasoline prices.

Among people in the lower 50% of household income level, many of whom can manage to afford to drive, fuel price increases must necessarily involve difficult choices, with a strong tendency for fuel costs to crowd out and depress other spending. Once discretionary spending -- like eating out and entertainment -- has been eliminated, life becomes a matter of balancing frustrating choices.

For many, the cost of the fuel needed to commute to work in aging cars (who can afford a new electric car, as opposed to keeping the old one running as long as possible?) has become a symbolic high-profile political issue.

For lower income residents in particular, it is easy to see why fuel price increases have become a source of anger; a red flag for so many average voters. (Part 2 of this series will look at what the public opinion polls are saying, and how and why rising fuel prices are becoming such a hot topic for the upcoming presidential race).

A large part of the new residential housing in recent decades has been suburban in nature, assuming a lifestyle that almost demands the use of the private automobile. Suburban sprawl development on the fringe of U.S. cities has tended to be low density, non-mixed-use development. Such development is intrinsically hard to serve with transit when compared to the denser core city, which generates many more trips per mile of service.

This means that the end of cheap oil is bound to have a major impact on U.S. land use, and its habitation potential. (See "The End of Suburbia.") Whereas poverty was previously concentrated in the core city while the suburbs were more affluent, the suburbs have now gotten poorer; most poverty is now in the suburbs.

In some areas, there are entire suburban neighborhoods full of abandoned homes. Many of the newer jobs have also moved out toward the suburbs. This means that getting to work increasingly requires commuting between suburbs to get from home to work, a type of travel which transit, by its nature, is ill-suited to handle very effectively.

Transit to the rescue? Yes, but not very fast, since it has been lacking significant new investment in recent decades. U.S. transit ridership peaked in 2008 and has since recovered modestly -- but it has still not yet reached this previous peak.

Looking at the graph to the left at this link, it appears that the poor economy largely led to the 2009 ridership decline, while increasing fuel prices are now helping to lead to a modest U.S. transit rider recovery. 2011 transit ridership is now up about 2.3% over 2010. However in some areas harder hit by high gas prices and and a poor economy -- like San Diego -- transit use is up a lot more.

The trend of mass transit growing more and more "in" with the public can be seen all over the country. The American Public Transportation Association reports that Americans took 10.4 billion public transportation trips in 2011, the second-highest total since 1957. That figure is bettered only by 2008's total, when gas prices soared to over $4 a gallon.

Transit faces several challenges, including a class-image problem, with so much U.S. suburban development being car-addictive by nature. In urban areas, those who use transit -- and who are willing to trade the convenience of driving for the time savings benefit of public transit -- are often identified as being among the poor. This often makes transit a hard sell politically.

The other problem is that transit -- like roads -- is unprofitable and requires a lot of public money up-front, especially for rail. Government money is increasingly in short supply these days. By the time the politics swings in favor of transit, as a result of peak oil and soaring fuel prices, transit might well be unaffordable.

Those left stranded in the suburbs can try to carpool, telecommute, combine or eliminate trips, or drive slower to save on gas. If all else fails, they can move to less gasoline-intensive locations. By last year a distinct home-buyer avoidance of suburbs with long commutes could be seen.

The other transportation option that appears to hold promise for preserving the habits of suburban commuters, struggling on a limited budget to drive, would appear to be the widespread acceptance of smaller personal vehicles like bicycles, electric bikes, motorbikes, and motorcycles, especially for commuting -- and despite the risks that come with their use. There is good evidence that public support for downsized travel alternatives is steadily increasing, even electric motorcycles.

However, most suburban highways are not designed to safely accommodate slower or smaller vehicles. For example, TxDOT builds wide shoulders on its high-speed highways, supposedly for the benefit of bikes -- despite the fact that the large speed differential makes bikes sharing lanes with cars unsafe when the cars are going more than 30 MPH. The evidence indicates that many drivers try to shift to motorcycles to save on fuel costs with sometimes deadly results.

Our findings suggest that people increasingly rely on motorcycles to reduce their fuel costs in response to rising gasoline prices. We estimate that use of motorcycles and scooters instead of 4-wheeled vehicles results in over 1,500 additional motorcycle fatalities annually for each dollar increase in gas prices. Motorcycle safety should receive more attention as a leading public health issue.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association in Austin. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog. Read more articles by Roger Baker on The Rag Blog.]

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Lamar W. Hankins : Gasoline Prices and Political Nonsense

Yesterday, today, and tomorrow: The oil speculators' dream, from Harper's Weekly, 1965. Image from cw-chronicles.com / heatingoil.com.
Gasoline prices, the XL Pipeline,
oil speculators, and political nonsense

The giddy, knee-jerk response to higher gasoline prices is the thoughtless mantra 'drill, baby, drill.'

By Lamar W. Hankins / The Rag Blog / March 7, 2012

None of us likes paying higher prices for gasoline. Some of us can’t afford the price increases we have seen the last few weeks and months to get to work and wherever else we need (or want) to go, leaving us less to spend on other products. But what most politicians have to say on the subject is nonsense. They want to score political points, rather than find a way out of this mess, or at least a way to improve it.

The giddy, knee-jerk response to higher gasoline prices is the thoughtless mantra “drill, baby, drill.” But our problem is not a lack of domestic oil production. We are producing about all we can, with thousands of leases still not developed. And domestic demand is lower than it was 14 years ago.

According to a report in Bloomberg Businessweek, the U.S. demand for crude oil in 2011 was less than it was in April 1997. In spite of our gargantuan appetite for oil, as a share of our total use, domestic oil consumption was 15 points lower in 2005 than it was in 1995. Today’s figures are about the same, according to a petroleum report in the Financial Times of London.

The largest single source of oil for the U.S. is Canada, at 25%. The OPEC countries together account for 47% of U.S. imports. Demand for oil in the U.S. dropped 2% in 2011, while U.S. oil production has increased. The rise in gasoline prices is not because we don’t have enough oil. Two reasons for the higher prices are the rising cost of oil on the world market because of higher demand in China and India, and the actions of crude oil commodity speculators.

U.S. oil companies export more oil products, such as gasoline and diesel, than they import. The top 10 countries we export to are Mexico, Netherlands, Chile, Canada, Spain, Brazil, Guatemala, Turkey, Argentina, and France. In fact, most of the XL Pipeline tar sands oil that could come from Canada is slated to be turned into diesel and exported, according to the refineries that will process that oil if it ever comes into the U.S.

The main reason for the increased U.S. exports of petroleum products is that the refineries make more money exporting oil than selling it domestically. Further, the refineries in the Port Arthur area are in a Foreign Trade Zone that rewards them with tax breaks for exporting oil products.

The thousands of new jobs that some politicians and business interests claim will be created by the XL Pipeline are nothing but Chamber of Commerce-type hype. The pipeline construction may result in 2,500 temporary jobs, not tens of thousands of permanent jobs.

A leading expert on gas prices, James Hamilton of The University of California-San Diego, says that generally a $1 increase in the price of crude oil produces a 2.5-cent increase in the price of gasoline, which is exactly what has been happening in recent weeks.

While the gasoline price increases are not yet higher than they were in 2008, we did not hear President Bush being blamed for those increases then. But those opposed to President Obama have been yelling to anyone within earshot that the current responsibility for gasoline price increases are his.

This is partisan and political nonsense, unsupported by the economic reality that about 97% of the price of gasoline is determined by the price of crude oil, according to Stuart Staniford, a scientist in the technology industry who studies oil-related data.

Around 2004, oil production stopped increasing world-wide. The producing countries have only so many pumps, oil pipelines, tankers, and other methods of getting the crude oil to refineries. As a result, the increasing demand from Asia and the rest of the rapidly-developing countries has created new competition for the oil production that is available, driving prices up.

Decreasing demand for oil products caused by more energy-efficient vehicles makes a small difference in the price of gasoline, as do marginal increases or decreases in the price charged by retailers.

Oil commodity speculators also drive up the price of crude oil. According to some estimates, such speculators control 80% of the commodity futures market in crude oil. Such speculators don’t produce oil, refine it, or use it, except as a way to make money by arranging to buy it at one price and sell it at a higher price. Sen. Bernie Sanders (I-Vermont) wrote recently for CNN Opinion:

I've seen the raw documents that prove the role of speculators. Commodity Futures Trading Commission records showed that in the summer of 2008, when gas prices spiked to more than $4 a gallon, speculators overwhelmingly controlled the crude oil futures market.

The commission, which supposedly represents the interests of the American people, had kept the information hidden from the public for nearly three years. That alone is an outrage. The American people had a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today.

Even those inside the oil industry have admitted that speculation is driving up the price of gasoline. The CEO of Exxon-Mobil, Rex Tillerson, told a Senate hearing last year that speculation was driving up the price of a barrel of oil by as much as 40%. The general counsel of Delta Airlines, Ben Hirst, and the experts at Goldman Sachs also said excessive speculation is causing oil prices to spike by up to 40%.

Even Saudi Arabia, the largest exporter of oil in the world, told the Bush administration back in 2008, during the last major spike in oil prices, that speculation was responsible for about $40 of a barrel of oil.

Confirming Sen. Sanders’s statements are comments from Bart Chilton, a commissioner on the five-member Commodity Futures Trading Commission, which regulates the trading of contracts for future deliveries of oil, as well as other commodities:

There is currently ample supply and limited demand, which should not push prices to the places they are today. Financial regulators are not price setters, but we are supposed to ensure prices are fair, and I am concerned that today they are not. There is a speculative premium being paid by consumers and businesses alike.

New shale oil production in North Dakota and West Texas, new off-shore production, and recovering oil from the Arctic might increase global supplies a bit if the oil can be shipped to refineries, and if the refineries can increase their capacity to produce more oil products. But given the increasing demand for oil in China and other countries with newly-growing economies, it is unlikely that the price of crude oil will be permanently reduced by those small increases in production.

With speculators influencing the price of crude oil for their economic benefit, the price will continue to be significantly higher than it would be in a non-speculative market. Such speculators are rightly seen as social and economic parasites who would rather manipulate oil prices than do any productive work.

But the bottom line is that everyone in the world will pay whatever they must to get the oil they need no matter what causes price increases. And the U.S. will not be exempt from these forces. The chances that this Congress will do something about the crude oil speculation seems not very good to me, so we will continue to pay higher prices than we need to pay at the pump.

Realistically (meaning we will get no help from Congress), the best we can hope to do to lessen the impact of high oil prices is to drive more economical vehicles, switch to electric and hydrogen-powered vehicles (when they become available), or find other technologies to meet our transportation needs that don’t rely so directly on oil products.

[Lamar W. Hankins, a former San Marcos, Texas, city attorney, is also a columnist for the San Marcos Mercury. This article © Freethought San Marcos, Lamar W. Hankins. Read more articles by Lamar W. Hankins on The Rag Blog.]

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Alaskans Benefit from Free Venezuelan Heating Oil

Map reflects 2007-'08 winter. Source.
Venezuela's Chavez offers heat to villages
By Kyle Hopkins / November 28, 2008

VENEZUELAN OIL: Controversial but free program in 3rd year.

With heating oil prices approaching $10 a gallon in rural Alaska and reports of neighbors stealing fuel from neighbors to warm their homes, a Venezuela-owned oil company plans to supply free fuel to villages again this winter.

That's what a Citgo executive who oversees the company's free heating oil program told the Alaska Inter-Tribal Council earlier this month, said council director Steve Osborne.

Citgo has provided roughly 15,000 Alaska village households 100 gallons of heating oil each for the past two winters. If the company donates the same amount this year, some families will save as much as $1,000 on their fuel bills. It's part of a program providing assistance to low-income communities in 23 states.

In the Inupiat village of Noatak, north of Kotzebue, heating oil sells for $9.79 a gallon. Villagers are crossing their fingers for the Citgo assistance while locking their fuel tanks under plywood and padlocks to protect them from thieves, said Eugene Monroe Sr., a local councilman.

"You got to be watching your tank all the time," he said.

But the free oil comes with political baggage, particularly in an oil-rich state with a potential presidential candidate for governor.

Venezuelan President Hugo Chavez is a proud socialist who once referred to President Bush as "the devil" before the United Nations. He teamed with Iran to fund other nations' efforts to, as Chavez put it, "liberate themselves from the (U.S.) imperialist yoke."

The fact that the heating assistance is coming from Chavez led some eligible Alaska communities -- such as St. Paul -- to reject Citgo's gift in the past.

It would have been unpatriotic to participate, said Steve Senisch, a local councilman who voted against the gift in 2007.

He predicted the council will vote the same way this time.

"I don't think the rhetoric coming from Hugo Chavez has really changed in any way."

But Osborne said that villages that once opted out of the program, such as St. George, plan to participate this year as Citgo's program grows internationally and prices remain high in rural Alaska.

Melanie Edwards lives in Nome, where she's the vice president of the regional nonprofit that manages the heating-oil program for more than a dozen nearby villages.

"Last time I checked, (Citgo is) paying corporate taxes to the U.S. Treasury," she said. "And we figure until such time that the U.S. government is so offended by Venezuela and Citgo that they're not accepting any more funding, then we're not being unpatriotic by accepting the same."

RESOURCE REBATE HELPED

High fuel prices this year filled Alaska's coffers even as residents struggled to pay their bills. In response, the state gave all Alaskans a $1,200 "resource rebate" at the urging of Gov. Sarah Palin.

Palin's team is now working on the state budget and new state energy plan. She's also fresh off her vice presidential bid, where Sen. John McCain presented her as a leading expert on energy policy.

Palin's office did not respond to questions Wednesday about the governor's stance on the Citgo program, and whether she would call for another round of state-funded energy relief next year.

Anchorage Rep. Bob Lynn, a Republican, said he doubts the state would cut checks again because oil prices are dropping and the payment was meant to be a one-time measure.

Lynn said it's not right for Alaska to receive oil from Chavez. "We need to be able to take care of our own. The United States needs to do something about this," he said.

Still, Lynn added later, "It's one thing for me to speak philosophical thoughts here in the warmth of my home in Anchorage. It's another thing to have a wife and kids in danger of freezing to death out there."

VILLAGE COSTS LOCKED IN

Branson Tungiyan grew up in the St. Lawrence Island village of Gambell and is now the general manager.

Come January, when temperatures sink to 20 and 30 below, he'll burn up to 30 gallons of heating oil a week, he said.

But the cost has jumped from $4.75 a gallon last year to $7.65. And unlike the cities, where local fuel prices dip along with the national market, the village price is locked in place all winter.

It won't change again until the next supply barge arrives sometime this summer, Tungiyan said.

Villagers are turning to hauling driftwood that washes ashore about 10 or 15 miles out of town and burning it for heat, he said.

"We feel for our government, but we also have more concern to our families' survival to have heat in our homes ... That's what I meant by leaving politics to the politicians."

This week, the local tribal government approved a gift of its own -- 30 gallons of heating oil per household, to help with the bills, he said.

PROGRAM FOR U.S. POOR

Citgo Petroleum Corp. started the heating assistance program in 2005 after Hurricane Katrina flooded New Orleans and Chavez toured poor neighborhoods in the Bronx, officials said in 2006.

Venezuela is one of the world's top oil-producing nations and now provides low-cost or free fuel in 23 states. In 2006, New Hampshire refused the free oil, saying it was an attempt at political grandstanding by Chavez. But this year state officials changed their minds in the face of rising fuel prices, according to The Associated Press.

Company spokesman Fernando Garay, in Houston, declined to talk about the company's plans for Alaska this week. "We cannot discuss it at this point in time and once the program is approved, we will release all the pertaining information."

But over the past two winters, Citgo donated roughly 4 million gallons of oil worth more than $15 million, the company said.

About three weeks ago, a Citgo executive called Osborne at the AITC and said the company was "planning on doing the program" again this year.

The paperwork isn't finished, Osborne said.

So is there a chance Citgo wouldn't provide the aid?

"Boy, I don't think there is a way. They're good at their word," Osborne said.

The gift is available to anyone who lives in an Alaska community that is more than 70 percent Alaska Native, said Osborne, who hopes to see the program expand to other rural towns and even cities such as Anchorage and Fairbanks in the future.

Citgo doesn't actually send oil to Alaska.

Last year, the company gave oil to a nonprofit, Citizens Energy Corp. -- founded by former U.S. Rep. Joe Kennedy -- which in turn sold the oil and delivered the money to the Alaska Inter-Tribal Council, which manages the program in Alaska.

Fewer households appear eligible for the program this year because local nonprofits are finding fewer families living in Alaska Native communities, Osborne said.

"You always hear about villages closing or people moving out of villages. ... the numbers that I've received so far would seem to indicate that is the case," he said.

CONCERN IS GENERAL

With Alaskans in villages and cities alike calling for help with energy bills this year, governments at all levels are kicking in money to curb costs.

Rocketing fuel prices and worries of a migration from villages to cities dominated the Alaska Federation of Natives annual meeting in October, where Sen. Lisa Murkowski said the federal government is doubling the amount of money it's sending to Alaska to help low-income families heat their homes.

Congress approved $34 million for Alaska this year through the federal program, which is called Low Income Home Energy Assistance and sends aid to families with incomes at or below 150 percent of the federal poverty level.

Households that make slightly more money can apply for a similar state program created by the Legislature this year. Lawmakers appropriated $10 million for that program and the money is being distributed now, said Ron Kreher, chief of field operations for the state Division of Public Assistance.

President-elect Barack Obama's transition team has invited the Alaska Inter-Tribal Council and other tribal leaders from around the country to meet in Washington, D.C., on Dec. 8, Osborne said.

Obama's team wants to hear two or three priorities that the tribes think the new president should focus on, he said.

"One of them will be, I think, that energy crisis."

Meantime, the state is working on a long-term energy plan that's expected to be unveiled in time for the Legislature to consider in January.

Source / Anchorage Daily News

Thanks to Betsy Gaines / The Rag Blog

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Toll Roads : Soon to be Yesterday's News?

Toll road protest in California earlier this year.
'Ordinary people will look back on this era, shake their heads in wonder and ask: how on earth did anyone ever think toll roads were sexy?'
By Roger Baker / The Rag Blog / August 28, 2008

The latest news regarding toll roads, their current status, their long range prospects, and more, below:

There will come a time in the not-too-distant future when ordinary people will look back on this era, shake their heads in wonder and ask: how on earth did anyone ever think toll roads were sexy.

From the tulip bubble in Holland in the 1630s through to the dotcom boom of the late 1990s, otherwise rational minds have discarded logic and joined the frenzied mob in whatever investment fad promises fabulous wealth.

Without fail, they always end in tears. And so it is with the infrastructure boom.

Yesterday, Macquarie Group found itself under concerted attack from hedge funds as its shares fell 10 per cent to $41.61.

That's wiped out all the gains from the bull market and left senior executives floundering in a sea of confusion about how to stop the rout...

Roads to hell paved with debt by Ian Verrender / Sydney Morning Herald / August 28, 2008

But why? There is a key central, big-picture flaw in the management of not only the US economy, but also the whole global economy:

It all boils down to the fact that the capitalist system is based on paying interest on borrowed funds. However, a finite planet can only be milked so far before the rate of exploitation has to slow down. Nobody has put this better than Kenneth Boulding:

"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

In our times the key growth limiting factors is oil/fossil fuel (and soon enough fresh water and greenhouse gases, assuming there were a viable substitute for cheap oil to move people and goods in the global economy).

Meanwhile the health of the global capitalist economy demands that existing debts be repaid with interest, even though the production of material goods must eventually fall short of expectations. So quite naturally, the bankers persuade the governments to print up enough currency to paper over the temporary shortfall until the economy can recover and the current crisis is replaced by the anticipated recovery.

One can see where this leads. When Mother Nature finally gets too exhausted to keep expanding her physical blessings for human benefit at a rate that matches the rate of interest demanded for the normal functioning of the banking system and the capitalist business cycle, then invested savings will necessarily shrink over time, rather than rewarding the saver.

Economists are trained to be blind to the big picture, and the ultimately devastating implications of exponential growth over the long run.

Not only that, but our infrastructure is crumbling terribly nationwide, including the electrical transmission grid. The corporate empire that rules our lives has had the social character and planning perspective of an impetuous infant.

Toll roads have the short-sighted advantages over other critically needed, wise infrastructure investments by their subsidizing an established lobby centered on the road contractors, plus the suburban sprawl interests centered on the bankers, developers and land speculators. Factor in dysfunctional, special interest-based politics and it is easy to see that building new toll roads will win out over maintaining the crumbling existing infrastructure any day of the week, to say nothing of shifting our funds toward a new and more sustainable planning perspective, which by definition lacks a special interest lobby.

See Cities Debate Privatizing Public Infrastructure by Jenny Anderson / New York Times / August 26, 2008

"...The American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure..."

That is on the order of $1000 per years per capita in a population already tens of thousands in personal debt due to credit cards, home mortgages etc., while living under a government busy bailing out banks on an emergency basis while simultaneously fighting apparently endless foreign wars involving oil or something.

As we used to say, it don't take a weatherman to know which way the wind blows.

Here is the most important recent news, documenting a sharp decline in toll road use due to soaring fuel price and the downgrading of toll road bonds by Fitch, etc:

...Traffic on tax roads in the US seems to have dropped on average by 4 to 5% and on toll roads by 5 to 6% over the past year. The reduced travel is attributable almost entirely to the big run-up in gasoline prices and is about was to be expected from long-established economists' estimates of the price elasticity of demand of about -0.2. Fuel prices which dominate the marginal cost of driving are about 30% higher so you would expect traffic as measured by vehicle-miles traveled (VMT) to be 6% lower (-0.2x0.30=-0.06). Deduct one percent for the sluggish economy and you have 5%. Toll road traffic may be down marginally more than tax roads traffic because tollroads are somewhat skewed to discretionary travel...

Traffic hit hard by fuel prices / TollRoadsNews / August 24, 2008

Meanwhile, as I have recently pointed out, our three top Texas politicians (Perry, Craddick and Dewhurst) have made it clear that they would like to use state retirement funds under their control to keep building the toll roads when Wall Street is afraid to issue such debt because of the obvious risk to lenders in light of the information above. Such a policy is both a tribute to the political clout of the Texas road lobby (allied with the banks that have funded land speculation in raw land surrounding the major Texas urban areas), and also a revealing commentary on the moral character of our state political leaders. Here is the link:

Investing pension funds in toll roads is an irresponsible–and immoral–idea / Burkablog / Texas Monthly / August 23, 2008

Finally, to explain and to document the unwillingness of traditional bond lenders to fund bond projects of any sort, even of a kind much less speculative than toll roads, here are two links that explain the current situation quite adequately:

Bond fundraising costs soar / Financial Times / August 25, 2008

Bankers caught between hope and despair Financial Times / August 25, 2008

From the foregoing it is quite apparent why the road lobby is forced to turn to Texas politicians and the pension funds under their control as a last resort. Here the only risk is that Texas schoolteachers might get wind of the plan, might be smarter and more motivated than anticipated, and might be able to organize politically during the next legislative session in time to stop them. Any state bonds are nearly certain to fail because of the combined effect of the abysmal credit conditions described above and peak oil. For those who wish to document the peak oil risk in a scholarly way, here are three key links:

Crude Oil Price Retreat: Sunrise or a Lull Before the Storm? by by James Leigh / Energy Bulletin / August 12, 2008

PEAKING OF WORLD OIL PRODUCTION:
IMPACTS, MITIGATION, & RISK MANAGEMENT

Peak oil primer and links / Energy Bulletin

Also see Austin and US 290 E: You Can’t Get There From Here by Roger Baker / The Rag Blog / August 13, 2008

And Texas : Raiding Pension Funds to Build Toll Roads by Paul Burka / The Rag Blog / August 23, 2008

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John Deering / The Arkansas Democrat-Gazette
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The Economy : A Throw of the Dice

Here are the odds…
By Roger Baker / The Rag Blog / July 21, 2008

This article following these comments is a judgment by Mark Gongloff of the Wall Street Journal about "how bad" the US economy might get.

This is as seen by capitalist expansionists who are mostly blissfully unaware of the pervasive implications of resource depletion, and peak oil. While meanwhile ignoring the slowly worsening but unavoidable impact of climate change on many agricultural commodities necessary to feed the world.

Where are the economic scenarios below in error, IMO?

First of all the odds presented below have no credible basis as anything but unattributed guesses of the writer, devoid of much supporting evidence or numbers. Averaging the opinions of economists and a focus on the short term does not lead to important economic insights.

The recent drop in the price of oil from about $147 to $130, referenced below, appears to be more than anything an indication of the short-term speculation factor affecting oil price. This is the short term psychology change among traders during one week or so, rather than a reflection of long range global supply and demand
trends, which have been raising oil prices fairly steadily for about a decade.

If we look at the "Stagflation" scenario below, there is no discussion of the fact that rising oil demand is unavoidably forcing cost-push inflation into the commodity sector of the US economy while simultaneously deflating the discretionary spending sector. The federal interest rate remedy for the one problem tends to worsen the other.

More money spent on gasoline and the diesel needed to deliver food means less dollars spent at the movies and Starbucks and vacations. The falling profits in the discretionary sector like tourism and housing demand forces federal bank bailouts, due to the many trillions in credit default swaps and derivatives pervading the global economy.

These newly minted Wall Street bailout dollars are needed to inject liquidity and prevent an economic domino collapse effect. But these dollars then tend to gravitate toward the more profitable commodity sector of the economy rather than the depressed sectors like housing, worsening the cost-push inflation.

When commodity price inflation exceeds the US interest rate, the global economy tends to dump and thus devalue dollars, further worsening US inflation, and forcing even more bailouts. This steady increase in fiat currency, its inflationary effect and subsequent devaluation, can trigger a sudden panicky flight from dollars resembling a global bank run.

Let us now focus on the last scenario below, titled "Just Getting By" which is given 2 to 1 odds, This is proposed to be by far the most likely scenario:

..."We can keep muddling along, but we may have to accept more inflation and more weakness and adapt to that," says Bruce McCain, chief investment strategist at Key Private Bank in Cleveland...

Thus this favored last scenario of price inflation plus a weak economy turns out on close inspection to be nothing more than a relabeled and weaker version of the "Stagflation" scenario above it. But without the numbers or a cause and effect analysis to distinguish the two scenarios.

The missing factor linking all the scenarios is the primacy of world supply and demand for oil. The global economy, structured as we know it, cannot expand without the cheap portable energy that has stimulated global population and economic expansion for most of the last century. When all is said and done, the global economy cannot expand without decades of restructuring to replace cheap oil as a primary dependency factor.

But for this transition to be made assumes that general resource depletion, global warming, and social and political calm will cooperate to allow what is bound to be a painful and slow restructuring process involving a new global energy infrastructure. A transition that is unlikely to be in harmony with the past few decades of rapid growth of the global economy.

The Economy: How Bad Can It Get?
By Mark Gongloff / July 20, 2008

A full year into the miserable journey of the credit crisis, the economy and financial markets have come to a crossroads, beyond which lay several possible destinations, not all of them pleasant.

So far, despite bank losses of some $400 billion, a crumbling housing market and oil prices at $130 a barrel, the economy has managed to avoid a deep recession -- at least according to the common definition, which is two quarters of negative gross domestic product growth.

But federal tax-rebate checks have supported consumer spending, which drives 70% of the U.S. economy. That jolt will soon fade, potentially leading to a hangover.

A resilient export sector -- driven by a weak dollar that makes U.S. goods cheaper and more competitive overseas -- has also kept the economy going and lifted the profits of many multinational corporations. But several big overseas economies are starting to feel the bite of inflation and the troubles in the U.S., and their appetite for American goods might wane.

Meanwhile, major U.S. stock indexes remained near bear-market territory despite a big drop in oil prices that sparked an impressive three-day rally. The Dow Jones Industrial Average rose 396 points, ending the week up 3.6%. The Nasdaq and S&P 500 also rallied last week.

As heartening as last week's turnabout in oil prices was, however, the economy is still a long way from healthy. And there could be a lot more stock-market pain to come.

Where do we go from here? Here are the main scenarios most economists and analysts are considering.

Stagflation

Remember "That '70s Show"? We could be in for a rerun. Oil and other commodity prices rise relentlessly, spurring runaway inflation not seen since the 1970s. All the while, growth stays weak, a double dose of misery that crushes corporate profits and stock-market returns. There's a word for this: stagflation.

Fortunately, the odds of this history repeating itself are slim. Inflation readings are nowhere near as high as they were in the 1970s and early 1980s, when the year-over-year percent change in the consumer price index soared as high as 14.8% at one point; it was up 5% in June.

And a key driver of that era's hyperinflation is missing: In those days, strong labor unions were able to wrest wage increases at every tremor of the inflation rate. Companies passed their higher labor and energy costs to consumers in the form of higher prices, which encouraged still more wage increases, in a grim dance economists call a "wage-price spiral."

Today workers have much less bargaining power, and wages haven't kept up with inflation. That hurts consumers and the economy, but it will at least keep inflation in check.

One wild card: If the U.S. dollar continues to weaken, then that could keep inflation going despite the lack of a wage-price spiral. "This would be checkmate for the U.S. economy, turning a relatively mild recession into a severe one," Paul Kasriel, chief economist at Northern Trust, told clients recently.
Odds: 20 to 1 against.

'Lost Decade'

One word -- Japan. If stagflation is the world ending in fire, then this scenario is Apocalypse by ice. Some observers worry the U.S. is following a path Japan blazed in the 1980s and 1990s. Like the U.S., Japan had stock and real-estate bubbles fueled by easy credit.

The aftermath for Japan was a "lost decade" for its economy and stock market, an especially terrifying time for policy makers because there seemed to be little they could do to fix it. Low interest rates were useless because nobody wanted to borrow.
The likelihood of this scenario is not high, either. Unlike Japanese officials, who waited for years to try to stimulate Japan's economy, the Federal Reserve, the Treasury Department and Congress have responded quickly with rate cuts and stimulus packages and won't hesitate to break out more, if necessary.

What's more, Japan tried to keep its troubled banks alive, creating "zombie" institutions that only extended the pain of the financial crisis. U.S. officials are well aware of this history and will likely avoid it -- though some analysts warn they've merely kicked problems down the road by preventing the collapses of Bear Stearns, Fannie Mae and Freddie Mac.

Odds: 15 to 1 against.

Next Year, the Turnaround

Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.

According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it's just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.

And now, $400 billion in losses and one bear market later, they're still calling for the rosy outcome, and there's a chance they might be right, given the fiscal and monetary stimulus flowing through the system. Perhaps banks, emboldened by a wide government safety net, will start lending again to consumers and businesses eager to borrow and get back to the high life. This, along with the still-booming export sector, could cause the economy and stocks to rocket higher once again.

Unfortunately, this also seems unlikely. "This financial crisis is the worst since the Great Depression," points out New York University economist Nouriel Roubini. "The recession is unavoidable at this point."

One wild card here is the U.S. consumer, the lifeblood of the economy. Though their debts are growing and their inflation-adjusted wages are not, analysts have unsuccessfully predicted a slowdown in their spending for years. A dramatic plunge in oil prices could give them extra incentive to spend.

Odds: 10 to 1 against.

Just Getting By

If you've enjoyed the economy for the past year, then you'll love this, because it involves more of the same. The trouble is that most people haven't enjoyed it, but it's the most likely outcome, according to many economists.

In this scenario, weaker global growth cools inflation, but not by much, as China, India and other emerging economies stay hungry for oil and other commodities.
The U.S. economy improves little and perhaps slides into a mild recession, as the repercussions of the credit crunch, housing-market collapse and high oil prices work their way slowly through the system.

Banks, stung by hundreds of billions of dollars in losses and under pressure to rebuild their coffers, keep a tight lid on borrowing. Businesses, squeezed by higher costs and lower sales, lay off more workers, raising the unemployment rate.
"We can keep muddling along, but we may have to accept more inflation and more weakness and adapt to that," says Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

Odds: 2 to 1 for.

Source / Wall Street Journal

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Manny Aenlle Francisco / The Manila Times / Manila, The Philippines
The Rag Blog / Posted July 7, 2008

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Peter Bromhead / Dominion-Post Wellington and Sunday-Star Times / Auckland, New Zealand.
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This From the "Too Little, Too Late" Department

You've got to admire these essentially brainless politicians for being so remarkably and densely persistent. Oil production is consistently decreasing year over year, but they know how to resolve the issue: lower the speed limit, again !!!

I've withdrawn my support for any of these morons a long time ago. When one of them begins to talk seriously and meaningfully about sustainability, perhaps I will listen. In the meanwhile, good luck in the ensuing chaos.

Richard Jehn / The Rag Blog

Should There Be a National Speed Limit?
By H. Josef Hebert / July 3, 2008

WASHINGTON - An influential Republican senator suggested Thursday that Congress might want to consider reimposing a national speed limit to save gasoline and possibly ease fuel prices.

Sen. John Warner, R-Va., asked Energy Secretary Samuel Bodman to look into what speed limit would provide optimum gasoline efficiency given current technology. He said he wants to know if the administration might support efforts in Congress to require a lower speed limit.

Congress in 1974 set a national 55 mph speed limit because of energy shortages caused by the Arab oil embargo. The speed limit was repealed in 1995 when crude oil dipped to $17 a barrel and gasoline cost $1.10 a gallon.

As motorists headed on trips for this Fourth of July weekend, gasoline averaged $4.10 a gallon nationwide with oil hovering around $145 a barrel.

Warner cited studies that showed the 55 mph speed limit saved 167,000 barrels of oil a day, or 2 percent of the country's highway fuel consumption, while avoiding up to 4,000 traffic deaths a year.

"Given the significant increase in the number of vehicles on America's highway system from 1974 to 2008, one could assume that the amount of fuel that could be conserved today is far greater," Warner wrote Bodman.

Warner asked the department to determine at what speeds vehicles would be most fuel efficient, how much fuel savings would be achieved, and whether it would be reasonable to assume there would be a reduction in prices at the pump if the speed limit were lowered.

Energy Department spokeswoman Angela Hill said the department will review Warner's letter but added, "If Congress is serious about addressing gasoline prices, they must take action on expanding domestic oil and natural gas production."

The department's Web site says that fuel efficiency decreases rapidly when traveling faster than 60 mph. Every additional 5 mph over that threshold is estimated to cost motorists "essentially an additional 30 cents per gallon in fuel costs," Warner said in his letter, citing the DOE data.

Source. / America On Line

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World Petroleum Congress : Pointing the Finger

OPEC: It's the speculators!
By Roger Baker / The Rag Blog / July 4, 2008

The world economy depends on cheap oil. So when it disappears it is
understandable that there is dissension and finger pointing among the
sellers.

Nevertheless, when the guys selling you the fluid to which you are
addicted tells you to back off, it is wise to listen. OPEC is trying
to promote the idea that speculators are driving up oil prices.

The OPEC desire to shift the focus to speculation as a reason for high
oil price ignores the fact that OPEC is running out of capacity at the
same time as world oil demand keeps rising along with population and
the growing Chinese economy. In other words the producer nations are trying to trick the oil consumer nations into relying on them to sell oil forever, by saying the apparent oil shortage causing a price rise is imaginary.

But we're wise to OPEC's lies. Speculation could never be a factor
without smart rich investors predicting even worse oil shortages and
buying up oil futures in preparation as world oil production peaks and
declines. Financial speculation is a financial symptom of a much worse problem; permanent oil shortages.

Worried oil chiefs fail to find consensus
By Adam Plowright / July 3,2008

One of the energy industry's biggest gatherings ended Thursday in the shadow of record crude prices, with concern growing about a third oil shock but with little consensus about what to do about it.

Divisions between consumer and producer countries on who is to blame for 140-dollar oil appeared to sharpen at the World Petroleum Congress, which brought together political and corporate oil bosses for four days of talks.

Saudi Arabia, the world's leading oil exporter, expressed concern on Thursday about new records for benchmark crude of 146 dollars a barrel and again said it was committed to dialogue between consumers and producers.

But those discussions show no sign of finding a solution to market tension, with both sides citing different reasons: consumers underline supply shortage fears while producers blame financial speculators and the falling dollar.

"We are concerned about high prices," Saudi Arabian Oil Minister Ali al-Nuaimi said on the sidelines of the meeting here, adding that Saudi "King Abdullah is leading the effort" for dialogue.

Top officials from consumer and producer countries met in Jeddah, Saudi Arabia on June 22 for talks on the problem of the runaway oil market, but prices have risen since then.

Benchmark prices of oil in New York and London set new record highs around 146 dollars a barrel on Thursday and the head of Russian energy giant Gazprom forecast they would "very soon" rise to 250 dollars.

Since the beginning of this week, as an estimated 3,000 delegates gathered here, prices have hit almost daily new records, with comments by Iran's oil minister that the country would react "fiercely" to an attack stoking tension.

In one of the final speeches, Nuaimi defended the industry against attacks from "politically popular" environmentalists, saying alternative energy sources could never replace carbon-based fuels.

"The fact is carbon-based fossil fuels still are the cheapest, most efficient and most reliable energy sources for our mobile society," Ali al-Nuaimi said.

"Nevertheless, it is politically popular these days to extol the virtues of so-called alternative fuels because of their lower carbon emissions."

Despite booming conditions in the industry, there was a notable lack of optimism, with those old enough to remember previous oil shocks recalling the busts that followed afterwards.

The executive director of the International Energy Agency, Nobuo Tanaka, reminded everyone on Tuesday that "with oil prices hitting 140 dollars, we are clearly in the third oil shock."

The head of Brazilian oil group Petrobas, which hopes to become a new powerhouse after announcing huge oil discoveries, said Thursday that no-one should expect a return to low oil prices, however.

"For the future we should not expect a dramatic fall in price," said Sergio Gabrielli, who explained this was because of rising production costs that would underpin the market.

The head of French group Total, Christophe de Margerie, had said earlier in the week that 80 dollars a barrel was likely to be a ceiling for prices for this reason.

There was also open disagreement between the Organisation of Petroleum Exporting Countries and the International Energy Agency, which represents the interests of rich, consumer nations.

In a look at the medium-term outlook for the industry, the IEA predicted a tight market for the next five years on Tuesday and warned of looming tensions from 2010 as demand for oil from Asia and the Middle East continues to grow.

It also went to great lengths to refute the notion that speculators were to blame.

"Seventy percent of crude contracts on the Nymex are held by speculators... Some form of regulation is needed," OPEC secretary general Abdallah El-Badri replied on Wednesday, referring to the US commodity futures exchange.

"The market has no shortage of physical crude."

He also called on the United States to stop "harassing OPEC countries."

OPEC president Chakib Khelil also called on the US to stop the fall of the dollar to stabilise oil prices and knocked back suggestions the cartel should increase production.

Source. / AFP / Yahoo News

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