Joined: Oct 25, 2004 Posts: 1331 Location: Stalag 13
Posted: Mon Jun 16, 2008 7:44 pm Post subject: The disastrous effects of $250 oil
Gazprom CEO's $250 Oil Forecast- the disastrous effects if he's correct
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At $250 a barrel for crude oil, food prices double. The U.S., Japan and Europe plunge into deep recession. Companies go bankrupt. Airlines are nationalized. Sport-utility vehicle sales dry up as gasoline tops $7 a gallon.
The scenario may not be unimaginable. Alexei Miller, chief executive officer of OAO Gazprom, the world's biggest natural- gas company, said June 10 that crude will climb to $250 a barrel in the ``foreseeable future.'' Prices may reach that level only after a war or attack on major oil installations, says Jeff Spittel, an analyst at Natixis Bleichroeder Inc. in New York.
While executives, elected leaders and economists disagree on the probability of Miller's vision, there is consensus that the price would jolt everyday life.
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Some investors are already betting on Miller's forecast. At least 3,008 options contracts have been purchased giving holders the right to buy oil at $250 a barrel in December, data compiled by Bloomberg show. The options closed at 64 cents on June 13.
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``At $7-a-gallon gasoline, you're probably looking at food prices almost double,'' says Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut.
`Massive Shutdown'
Crude oil prices reached a record $139.89 a barrel today, more than double what they were a year earlier. Goldman Sachs Group Inc. and Morgan Stanley forecast the cost may reach $150 in the next few months.
At $250, ``there would be a massive shutdown of companies,'' says Carlos Mattei, procurement vice president for glassmaker Vitro SAB in Monterrey, Mexico. ``Many of these small companies have to choose between paying the gas bill or payroll.''
Posted: Mon Jun 16, 2008 7:54 pm Post subject: Re: The disastrous effects of $250 oil
Surely there's a formula of some kind to determine cost of gas (per gallon) based on prevailing cost per barrel? For instance, if oil is $250 a barrel, what is it per gallon?
And my bigger question, has the $140 a barrel oil hit the pumps yet? Is $4.00 a gallon reflecting the recent increases? And if NOT, how long does it take for the jump in price per barrel to be reflected at the pump?
Joined: Oct 25, 2004 Posts: 1331 Location: Stalag 13
Posted: Mon Jun 16, 2008 8:00 pm Post subject: Re: The disastrous effects of $250 oil
MonteQuest wrote:
As crude oil rises in price it's share or effect on gasoline, jet fuel, and diesel prices will be much more sigificant.
In 2007, the price of crude oil averaged about $68 per barrel and accounted for about 58% of the national average retail price of a gallon of regular grade gasoline, while in 2000 to 2007 it averaged about 48%.
At $100.00/barrel it was 68 % of the pump price of gasoline.
In April, 73 percent of the price of gasoline was the cost of crude oil.
At $134.00/barrel it must be well over 75%.
Connect the dots about the quick rise in the cost of gasoline we can expect as we head towards $140.00 and beyond.
The price of gasoline still has not caught up to the current price of oil. It has become 'detached' lately, but will soon catch up. I still expect $6-$7 gasoline by this winter. _________________ Now why didn't I think of that?
Posted: Mon Jun 16, 2008 8:46 pm Post subject: Re: The disastrous effects of $250 oil
hope_full wrote:
Surely there's a formula of some kind to determine cost of gas (per gallon) based on prevailing cost per barrel? For instance, if oil is $250 a barrel, what is it per gallon?
No, no set formula. Both crude oil and gasoline are market priced.
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A general rule of thumb for gas prices is that for each $1 that's added to the price of crude, gasoline prices will rise about 2.5 cents per gallon. So if the price of crude rose to $200, from $100 today, average gasoline prices in the US would rise from about $3 to about $5.50 a gallon.
---Jan 2008
As the cost of crude rises, it will affect gasoline price more. And with a possible ethanol shortfall this year, that could mean a 10 to 15 % jump in gas price alone.
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And my bigger question, has the $140 a barrel oil hit the pumps yet? Is $4.00 a gallon reflecting the recent increases? And if NOT, how long does it take for the jump in price per barrel to be reflected at the pump?
Some rise is immediately felt, but 3 to 6 months is the lag time I've read. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Last edited by MonteQuest on Mon Jun 16, 2008 8:59 pm; edited 1 time in total
Joined: Oct 23, 2004 Posts: 5897 Location: New Jersey
Posted: Mon Jun 16, 2008 8:49 pm Post subject: Re: The disastrous effects of $250 oil
Oil has been driven by diesel demand since about the end of February. More specifically, large profits on diesel has made it worthwhile to refine oil even when gasoline profits are below average.
US refiners are most optimized for gasoline, so they are letting their crude and gasoline inventories run down because of low profits. When either crude or gasoline inventories fall to their minimum operating levels, gasoline supplies will fall low enough that the profit margins for gasoline will improve.
It's also possible that worldwide diesel demand will stay so strong that gasoline margins will stay low because more gasoline is made outside the US to make up for falling US output, but with China increasing demand for gasoline rapidly in the last two months, I don't think that will happen.
This is a very complicated game, plus you must consider the cost and availability of ethanol, additives, and blending components. _________________ It's already over, now it's just a matter of adjusting.
Posted: Mon Jun 16, 2008 9:04 pm Post subject: Re: The disastrous effects of $250 oil
Now, in June 2008...
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Experts say that a common rule of thumb for relating crude oil prices to retail gasoline prices is that every one dollar increase in the price of crude oil is matched, roughly, by a five cent increase per gallon of gasoline.
Up we go! _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Posted: Mon Jun 16, 2008 9:14 pm Post subject: Re: The disastrous effects of $250 oil
Just out:
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EIA analysis of the petroleum market points to the cost of crude oil as the main contributor to the record high gasoline prices that we are now experiencing.
The cost of crude oil now accounts for about 73% of the gasoline pump price. World crude oil prices are at record highs due mainly to high worldwide oil demand relative to supply. Other contributing factors include political events and conflicts in some major oil producing regions, as well as other factors.
Posted: Mon Jun 16, 2008 11:14 pm Post subject: Re: The disastrous effects of $250 oil
threadbear wrote:
Serial_Worrier wrote:
I won't be able to afford $7/gallon gas.
What will you do?
This is where I think many people just don't get it. Of course, there is going to be some cutback in gas use (mainly from consolidated trips, I imagine) but for the most part, people are going to pay whatever the price is, and cut something else instead.
They may cut out travel, but that impacts a lot of employed people.
Connect the dots.
The majority of Americans are not going to stop driving their cars until they literally can't buy gasoline at any price.
You watch and see. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Oct 25, 2004 Posts: 1331 Location: Stalag 13
Posted: Mon Jun 16, 2008 11:41 pm Post subject: Re: The disastrous effects of $250 oil
I'm still trying to figure out why so many people cannot see the big picture. Maybe they don't want to see it.
Newer members here, please listen to what MQ and DP are saying. They know what they are talking about.
There is no realistic, large scale replacement for crude oil and natural gas. None. That's what makes peak oil so serious. Unrestricted growth cannot continue any more. We have reached the limits of modern society. So-called alternative technologies are all dependent on the availability cheap oil and gasoline to build and maintain. So is large-scale farming (fertilizers, farm equipment, and food transportation).
Gasoline isn't the only thing that will soon become unaffordable. Everything is about to become very expensive, because modern society cannot function normally without cheap and abundant fossil fuels.
And Monte, I agree about gasoline use in the US. Most Americans will cut back on everything else to be able to continue driving. The dependence and automobile love affair runs that deep _________________ Now why didn't I think of that?
Posted: Mon Jun 16, 2008 11:46 pm Post subject: Re: The disastrous effects of $250 oil
With gasoline rising 2.4 cents/gallon for every dollar increase in the price of a barrel of oil, so that gas comes up about $1.00 for every $40 increase in oil's price, can expect, gas to come up from about $4.00/gallon now to $7.00/gallon then. That still won't make that big an impact outside of the big 3 auto-makers, airlines, and rvs. Yes, there will be more unemployment due to declines in tourism. However, most everyone in the states will still be driving or riding around in cars and trucks.
Posted: Mon Jun 16, 2008 11:55 pm Post subject: Re: The disastrous effects of $250 oil
MonteQuest wrote:
....
The majority of Americans are not going to stop driving their cars until they literally can't buy gasoline at any price.
You watch and see.
I think the point where a person will seriously cut back on gasoline is when they lose their job. It makes sense right? You no longer have to commute to work! ha ha
I don't think $7 is the breaking point. If I have to pay $10 for gas that means I will be making cut backs elsewhere, for example NO more Starbucks coffee. That means the Starbucks store will have to close down and get rid of it's employees. Suppose the employees at Starbucks like to go out and eat McDonald's hamburgers (at least when they used to have a job).
Now multiply this throughout the economy.
Eventually enough people will lose their jobs and that will lessen the demand for gasoline therefore putting a "ceiling" on how high it can go. What is the magic breaking point price? For some reason I like number $10.
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