By David Kestenbaum

I was obsessed with this question last summer before the financial crisis. Gas at the pump was suddenly $4 a gallon and economists could not agree why. It drove me crazy -- Really? We don't know why??

I called expert after expert after expert. Some said it was just supply and demand, others blamed speculators. It seemed like a question that should be answerable.

As we noted here, the WSJ reported this week that a new report may point the finger at speculators in the commodities market.

The puzzling thing is that some economists argue that's impossible. Paul Krugman makes the argument pretty clearly here. At the end of the day, actual oil goes from a supplier to a consumer. Speculators don't change that unless they're storing the oil in some secret repository, so the price should eventually be anchored to supply and demand.

I still don't know what to make of the debate.

Continue reading "Why Gas Cost $4 Last Year" >

By Laura Conaway

Remember those crazy swings in oil prices last year, when the cost of a barrel jumped by $25 in a single day and consumers paid record amounts at the pump? Back then, the Commodity Futures Trading Commission reported it was a matter of supply and demand.

That was back then. Today the Wall Street Journal reports (subs. requ'd.) that the CFTC is planning another report, one that will pin the fluctuation on speculation by oil traders. Bart Chilton, one of four CFTC commissioners, tells the WSJ the original report to Congress was based on "deeply flawed" data. From the WSJ:

Mr. Chilton dissented from the 2008 CFTC report, saying the agency's conclusions didn't go far enough. He expressed doubt about the amount and type of data received, which he called limited and unreliable. "We didn't have all the information we should have," he said. "And we gave it to Congress anyway, and we spun it."

Chilton tells the paper the new report will draw from a wider pool of sources. The CFTC begins hearings today on whether to limit speculation in the commodities market.

The Organization of Petroleum Exporting Countries -- also known as "foreign oil" -- has predicted that demand for oil has fallen so much because of the global recession that it will take four years to return to 2008 levels. You may remember gas prices hitting over $4 a gallon that year.

Specifically, OPEC says it's the global drop in industrial production -- manufacturing and mining -- that has led to cheaper prices at the pump.

It's the recession, again.

Bonus: Recession clears traffic jams.

New housing projects behind old shacks in Equatorial Guinea. Steve Coll/newyorker.com

 

An awfully interesting post by Steve Coll just went up over at the New Yorker's Think Tank blog. Coll writes that he recently spent a week in the central African nation of Equatorial Guinea researching the country's new prosperity -- he says that they are "the only country in the world that appears to be immune from the global recession."

Equatorial Guinea's good fortune surely has much to do with the fact that the country, which Coll says was among the world's poorest just six years ago, discovered large oil reserves in the mid-90s. But the fact that China has invested heavily in the country doesn't hurt. Billions of dollars in grants and loans from the Chinese government have gone toward construction projects, many staffed by Chinese laborers. China gets to buy some of Equatorial Guinea's oil at a reduced price.

Along with the wealth has come a degree of political unrest.

Continue reading "Prosperity in Equatorial Guinea" >

If you're looking for solar, it's way down at the bottom. Alan Cordova

Alan Cordova writes:

This spring, the Department of Energy updated the Annual Energy Outlook, which forecasts the prices and volumes of the energy we generate and consume, to reflect the provisions in the American Reinvestment and Recovery Act. Over the next two decades, the outlook projects that two renewable sources, wind and biomass, will generate four and 13 times as much energy, respectively, as they currently do.

By 2030, according to the estimate, they will account for 44 percent of all renewable energy (hydropower will still be king at 48 percent). For all the buzz surrounding solar power -- soon after taking office, President Obama made a visit to Denver-based Namaste Solar's field of photovoltaic generators -- it is not predicted to make much of an impact. Note: the outlook does not include solar power systems not connected to an electrical grid, such as a rooftop installation in a remote mountain home. The DOE says those will never account for more than 16 percent of domestic energy consumption.

After the jump, what's winning big.

Continue reading "Report Dims The Lights For Solar" >

America's eye is on Saudi Arabia today as President Obama kicks off his trip to the Middle East. The Arab nation's economy has taken a bit of a dip since oil revenues have fallen, so Saudi King Abdullah is trying to branch out a bit. They're building four new 'Economic Cities' in an attempt to diversify the Saudi economy.

Each city is pre-planned to foster high-energy industries like plastics, aluminum, and steel. The largest of these custom-built metropolises, the King Abdullah Economic City, already has $27 billion in private sector investments. It's set to feature such delightful-sounding neighborhoods as "Plastics Valley" and "The Education Zone."

Continue reading "We Built This City" >

Chrysler says it has the framework for a proposed alliance with Fiat, but not a final agreement. The two automakers have until April 30 to meet requirements set by the Obama administration in order to receive $6 billion more in government loans. Bloomberg reports:

The revised accord calls for Fiat to take an initial stake of less than 35 percent and hold no more than 49 percent until after Chrysler repays its U.S. loans, a government official with knowledge of the plans said in an interview late yesterday.

"The risks for Fiat remain limited. They'll have to build a new plan together," said Marco Santino, an auto-industry consultant at A.T. Kearney in Rome. "At this point it's a technicality whether Fiat takes a stake before or after Chrysler's turnaround."

Under the new arrangement, Fiat would assemble engines and vehicles in the U.S., the government official said. The Turin, Italy-based automaker hasn't sold its namesake vehicles in the U.S. since 1983, restricting the company's offerings to luxury models from Ferrari and Maserati.

Requirements set by the Obama adminstration call for Chrysler to convince its debt holders to forgive the "vast majority" of the $8.9 billion it owes, and for the company to reach a deal with the United Auto Workers union over its retiree health-care trust fund.

Click for bigger chart from Department of Energy

 

Today the Bureau of Labor and Statistics reported the seasonally adjusted producer price index rose 0.1 percent in February, less than many analysts expected. That means inflation has slowed to a near standstill, as food and energy prices continue to fall.

Nowhere is this trend more apparent than in energy prices, which rose 1.3 percent overall in February. That's much slower than their 3.7 percent pace a month earlier.

Continue reading "Remember Pain At The Pump? " >

The golden god of drilling.

Photo by evilmousse/Flickr

 

Mike sends us this letter from Tulsa, Oklahoma:

I work in Tulsa, Oklahoma which has many small independent oil & gas companies. Most independents here drill nearby in Oklahoma and north Texas for natural gas and a minor amount of oil (from a global perspective) in the basins we work. We are not really an oil economy -- we are gas driven as is much of the US exploration and production. The news from our small piece of the oil patch is that many companies here have stopped drilling because oil & gas are uneconomic. A drilling rig employs maybe 40 people as it runs 24 hours a day 365 days a year. Plus each rig has maintenance and materials associated with it like welders, drilling mud, pipe vendors, etcetera, all of whom are now idle. This obviously has a ripple effect on the local economy here. In addition, I think people tend to forget that oil & gas drilling is one of the few places left in the US that is manufacturing. Oil and gas are the commodity, but the creation of an oil well is a manufacturing process which in the end creates a product that will produce (hopefully) oil and gas. So this is not a job going to China. Perhaps as many as a hundred rigs have been laid down in the last moth or so.

Continue reading "Postcard From Tulsa " >

Listeners have been wondering about the fall of gas prices in some places. "Do the dropping gas prices in OH have anything to do w/the economy?" writes Terri Weiss. "Avg. price is $3.35 here but other places have shortages."

My daily dose of currency news from Brown Brother Harriman just landed.

Analyst Win Thin writes that yes, prices are going down because producers are worried about a global recession. Three months ago, crude sold for nearly $150 a barrel, pushing prices the pump well past $4. That same barrel is going for closer to $87 now, partly because the U.S. has more crude and gas stockpiled than expected, partly because no one's sure consumers can still take the hit.

Continue reading "Oh, No! Lower Gas Prices!" >

Just recently, fast rising oil prices appeared to be boosting Venezuela, Russia and other big oil exporters.

In August, the Kremlin engaged in an armed conflict against its neighbor Georgia. Many blamed oil: Russia ended 2007 with its ninth straight year of growth, averaging 7% annually since its last economic crisis in the late 1990s.

How quickly things can change. Cooling oil prices (the cost of a barrel of crude fell below $100 yesterday) and a possible global economic retraction are likely to dampen some chief oil exporters' confidence.

Here's an interesting recent story on the topic from the Washington Post.

On another note, folks in Nashville are having trouble finding gas for their cars. The Tennessean says that's because so many drivers rushed to fill up their tanks before Hurricane Ike rumbled through the Gulf of Mexico oil patch.

On the plus side, they're using Twitter to find what's left. Supposedly there's more gas on the way.

Drivers at some stations in South Carolina are paying more than $5 a gallon as Hurricane Ike rolls through the oil patch in the Gulf of Mexico. The state put its price-gouging law into effect at noon. Meanwhile, Gov. Mark Sanford says:

"[T]his is a time to think of ways in which each of us can make a difference on what may come our way if refineries in Texas are significantly damaged. It might mean riding to the football games with a neighbor or on Sunday riding to church with a friend. It might mean watching a video at home rather than going to the movies or riding to work with a co-worker."

You can watch it all with the Oil Drum.

The folks at the Oil Drum offer a fascinating real-time look at possible damage to oil production in the Gulf Mexico from Hurricane Gustav.

If you know something, they'd like to hear it. "Please help us find things that help convey the energy situation and problems created by this storm," the sustainable-energy types write. Click through for charts of Gustav's path through the nest of rigs out there.

Bonus: The Gustav Information Center