No, this beats all...

[germdoc]

[Rant alert]

OK, oil prices are rising even as demand is falling because of the weakness of the dollar, as foreign investors want to invest in something more stable than the dollar.

http://biz.yahoo.com/ap/080416/oil_prices.html?.v=10

In other words, high gas prices are more predictable to the futures market than a strong dollar.

I have 2 comments about this. Number one, the symbolism is just atrocious. We should just change our name to the United States of Petroleum and change the motto on our coins to In Oil We Trust. Politics aside, it is pathetic we have allowed ourselves to sink to this level, where oil is of more value to the world than our dollar, which is really a symbol of our power and capability.

Number 2, does anyone really understand this? The supply of oil hasn't changed a significant amount over the last year or even several years, but the price of oil and gas has gone up, up, up. Economics is an intellectual black hole as far as I'm concerned. I'd sooner trust an astrologer than an economist.

Think about it the next time you fill up your vehicle...

[rant off]

[cabinetman]

So what's your prognosis Doc?
.

[Tequila]

Part of the issue is that oil is traded in dollars, so when the dollar drops compared to other currencies, the price of oil automatically goes up. For example, the US dollar has dropped about 11% against the euro since December 2007. That's going to cause a rise in the price of oil, even if everything else (supply & demand) remains the same.

The dollar isn't falling because the price of oil is rising, it's the other way around. If our dollar was stronger, oil prices would start to drop.

[ironhat]

Anyone for conspiracy theories that purposefully weakening the will help to leverage us into an intercontinental confederation suchas Europe? I personally do not believe that because of the multilicity of economic factors which would be too hard to coordinate. But then again I recall being wrong... once... which has lasted 56 years so far.

[cgallery]

One possible explanation: Speculation.

Lots of dollars chasing marginal returns. Faced with the bursting of the tech bubble, then the real estate bubble, people are investing madly in oil and other commodities.

Like all other bubbles, this one will burst. In the meantime, it will cause substantial pain to people that can't afford $50-$100+ to fill their tanks.

Seriously, people have unrealistic ideas about what kind of returns they should expect on their investments. Just pure greed. Greed is what caused Enron. Greed is causing the max exodus of production jobs from the U.S. to China. And greed is causing the spikes at the pumps.

[Stytooner]

I was so frustrated with the rising gas prices that I decided to sit down and design an engine that runs on air. That really wasn't that difficult to do. Then I noticed that gas stations sometimes charge $1.50 for air and it may stay on long enough to top up one tire and get a little in the second. I did that math.
On to the next fuel source.
I set out to design an engine that runs on milk. Heck there is a dairy farm right in front of my house. It may have been possible to design, but learning from past experience, I decided to check out the prices of this new fuel. Well...nearly $5 a gallon.
Next I decided to design one that runs on the cheapest fuel source I could find. I figure water is pretty cheap. I decided to design and buld such a system. Then the other night, LOML wanted a bottle of water. I stop at the convenience store and it was nearly $2 a pint.

I'm beginning to see a pattern here. I guess gas is still cheaper than some alternative fuel sources. Maybe I'll move back to Germany and design one that runs on beer. That is still pretty cheap over there. I'll start out by stocking huge fuel supply in various grades, just in case. I figure by the time I actually design such an engine, my fuel supply will have been hit pretty hard and I would of course, need to restock.

[germdoc]

Rudy--you're right--it is speculation. That's why it's called a futures market--because investors think the price will go up in the future.

Joe--you're partly right. If the dollar falls, it will take more dollars to buy a barrel of oil. But, the article cited above was looking at a different issue: that foreign investors are more interested in buying oil than dollars because they think it's less risky. More demand for oil = higher price. Less demand for dollars = lower price.

[Anna]

I was so frustrated with the rising gas prices that I decided to sit down and design an engine that runs on air. That really wasn't that difficult to do. Then I noticed that gas stations sometimes charge $1.50 for air and it may stay on long enough to top up one tire and get a little in the second. I did that math.

If I were you, I'd buy me a politician (I hear they come cheap these days) and plug him into one of those engines. Presto! Endless supply of hot air.

As for supply, Russia just stated yesterday that Russian oil production has peaked. I'm thinking they're trying to spook the market.

[frumper64]

Increased Demand

Keep in mind that the world wide demand will probably continue to grow even if we cut down on our consumption. With all the dollars we have been throwing into India and China over the last several years, their populace's can now afford to buy more cars and demand more oil to run them. The last I checked, something like 1/4th of the world's population lived in China alone - that's a lot of demand if they really get to the point where most of their people can afford cars.

[dlminehart]

Guess we live in interesting times. Global food prices have almost doubled in the past year, for various reasons including higher fuel prices for food production and transportation, increased meat consumption in India and China bidding up the prices of staple grains, US subsidies of corn-based ethanol production, etc. And, with about half the world's population already spending about half their income on food, the recent surge in food costs is close to catastrophic. Expect lots of violent political fallout throughout the developing world during the next year, with the US unable to help stabilize things due to commitments elsewhere.

Basically comes down to overpopulation and, by the relatively insulated wealthier minority, overconsumption, relative to the resource base. Read Collapse, by Jared Diamond, for previous (though localized) instances.

[bigstick509]

E85

As a result of this world economy mess, we just picked up a new Avenger with a E85 6 cylinder
instead of a 3.5 liter R/T version that I normally would have chosen. As far as I'm concerned its the same old story, the little guy always gets hurt and has to make due or compromise while someone else gets richer as a result. The only consolation is its nice to be saving about 20 cents per gallon when I fill up.

[jackellis]

the little guy always gets hurt and has to make due or compromise while someone else gets richer as a result.

Some supposedly smart, very rich people have bet wrong on energy and been (largely) wiped out in the last few years. It's going to happen again.

There was a news report yesterday saying Brazil has discovered an offshore oil field that might hold as much as 33 billion barrels, equal to all of the known oil reserves (shale oil excepted) in the US. That's enough to satisfy worldwide demand for about 10 years if they're correct. It's going to cost a couple billion dollars to get that oil into production. Same with a field in Siberia that's gigantic, but in one of the most hostile environments on earth.

Fact is, we're not finding oil as fast as it's being consumed any more, which is bad because its driving up the price and good because alternatives finally make economic sense. Had the price risen very slowly, there's be no urgency to find alternatives. The faster increase causes a lot of economic dislocation in the short term but I'm hopeful this will lead to alternatives that break our dependence on foreign sources. that's much better for us in the long term. We're importing about 10 million barrels a day at a cost of close to a billion dollars (the $115 price today is for a specific type of crude - many types sell for less because they're harder to refine into gasoline). Half our trade deficit is due to crude oil purchases.

As for the folks who have lots of oil, put yourself in their shoes for a moment (even if it does hurt). Why should they sell cheap or do anything to drive the price down. If oil production really has peaked, they need to get top dollar now because once the oil is gone, its gone and the balance of economic power is going to shift pretty radically away from them to...? Faced with the same circumstances, most of us would do exactly the same thing, as in when we sell a home.

The impact of the falling dollar is a story all its own. All of us who buy goods based on price have contributed to that problem because for the most part, imports have been cheap while domestically produced goods have been expensive. I suppose I should boycott Harbor Freight but it's hard to resist those bar clamps when they're on sale

[jonmulzer]

Part of the issue is that oil is traded in dollars, so when the dollar drops compared to other currencies, the price of oil automatically goes up. For example, the US dollar has dropped about 11% against the euro since December 2007. That's going to cause a rise in the price of oil, even if everything else (supply & demand) remains the same.

The dollar isn't falling because the price of oil is rising, it's the other way around. If our dollar was stronger, oil prices would start to drop.

And that is part of the reason we are bound and obligated to do the bidding of the OPEC nations. If they decide to value their oil in something other than US Dollars, then our money has no value on an international level really. We established OPEC and now they have us by the short and curlys. Since they set values in USD it set our currency as the international banking standard by default. It has been freely and openly exchanged between nations as the standard because of this, because nations can use it to buy oil.

They briefly flirted with the idea of changing their standard to the Euro and our diplomats spent a good deal of time with their lips on Arab Prince buttocks. If they ever change, the dollar index will no longer be shown as a graph with peaks and valleys. It will be a line pointing straight down. We took our country off the gold standard and put ourselves by default on the oil standard and then gave the control of that to the Middle East.

With this being election season I keep hearing people say that the US President is the most powerful person in the world. BS. Those honors belong in equal part to the director of the Fed and the members of the board at OPEC. They effect our lives more than the President ever will and we do not elect any of them.

[jziegler]

For some of us, it isn't the gas for our cars that has hurt, it has been heating bills for our houses. The last couple of months, I have spent close to $500 a month on heating oil. Last year, the same amount was around $300, the year before that around $200, and the year before that about $150. Heating oil has gone up about 3x in three years. I have an older house that isn't well insulated (I've been working to improve that) and has some poor windows (will replace in a few years). Heating costs were a big deal this summer, much more than gas prices (I have a small car, still only about $30-$35 to fill the tank, even with higher prices, less to fill it than my last car).

Of course with the poorer economy, I'm also seeing lots of other stuff going on, like the affordable but quality supermarket near me closing, taking away my only decent supermarket to stop at on my way home from work. I now have to do all of my shopping at a wholesale club, an overpriced and somewhat out of the way supermarket, a good and reasonably priced, but very out of the way supermarket, or close and really poor stores. That hurts as much as higher energy costs. And I suspect that higher energy costs were part of the store closing too.

Jim

Like all other bubbles, this one will burst. In the meantime, it will cause substantial pain to people that can't afford $50-$100+ to fill their tanks.