$/ga gasoline by 2012

[Atash Hagmahani]

http://money.cnn.com/2010/12/27/markets/oil_commodities/index.htm?hpt=T2

OK, one of them says $5/ga in 2012 which is slightly over 1 year off. The other one says no it will take a little longer than that because the "mature" (ie, dying western) economies will be stuck in recession. (Both could be true...)

NEW YORK (CNNMoney.com) -- The former president of Shell Oil, John Hofmeister, says Americans could be paying $5 for a gallon of gasoline by 2012.

In an interview with Platt's Energy Week television, Hofmeister predicted gasoline prices will spike as the global demand for oil increases.

"I'm predicting actually the worst outcome over the next two years which takes us to 2012 with higher gasoline prices," he said.

Tom Kloza, chief oil analyst with Oil Price Information Service says Americans will see gasoline prices hit the $5 a gallon mark in the next decade, but not by 2012.

"That wolf is out there and it's going to be at the door...I agree with him that we'll see those numbers at some point this decade but not yet." Kloza said.

"The demand is still sluggish enough in some of the mature economies."

[Mike]

The author has assumed 'constant dollars' and to have an intelligent conversation, we have to do the same.

(IMO, it is entirely reasonable to expect hyperinflation or hyper-deflation at any time.  But, back to oil in constant dollars:)

Some would expect a smooth and efficient rise in oil prices to reduce demand and ration oil supply.  But this is extremely unlikely since oil markets are far from free.   Numerous oil producers subsidize oil to their citizens (Venezuela, Saudi Arabia) while Europe's consumption is burned under heavy taxation.  Oil is not consumed under true market conditions in very many parts of the world.  Worldwide, oil consumption is essentially planned; not exactly centrally, but in autonomous national blocks via gas tax.

In a market economy, the economy is made stable through many sellers and buyers, each trying to get a good deal.  I don't think this is the situation with oil.  So there will probably be volatility in price and supply.

[The Future]

Man I would really enjoy paying $5 a gallon.

Like most places, outside of the USa, Iraq, and a few others, we already pay $7.50.

[Dame]

We are supposedly oil self-sufficient and are paying more than is the current price in most of USA.

Seems to be a property rights issue here.  If it is my/our oil, and I/we want to use it why do I/we have a moral/economic responsibility to pay the same or more for it as an American who does not already own it.  How does using my/our own oil get to be deemed a subsidy?  Or, alternatively; how is your paying less than me/us for my/our oil a free market transaction?

[offdalip]

If it is my/our oil, and I/we want to use it why do I/we have a moral/economic responsibility to pay the same or more for it as an American who does not already own it.  How does using my/our own oil get to be deemed a subsidy?  Or, alternatively; how is your paying less than me/us for my/our oil a free market transaction?

It might be a Refinery capacity issue

[Mike]

We are supposedly oil self-sufficient and are paying more than is the current price in most of USA.

Seems to be a property rights issue here.  If it is my/our oil, and I/we want to use it why do I/we have a moral/economic responsibility to pay the same or more for it as an American who does not already own it.  How does using my/our own oil get to be deemed a subsidy?  Or, alternatively; how is your paying less than me/us for my/our oil a free market transaction?

I was shocked by Mexican gasoline prices that were higher than American prices.  Mexico exports oil to the US.

Locals like their socialized health care and government programs for the poor.  Everybody likes 'free.'  The problem is funding must come from somewhere.  Political leaders have figured out that funding through fuel taxes can kill two birds with one stone.  It can reduce fuel imports while simultaneously fund 'free government service.'

One claim market economists make is that through the profit system, the lazy free-riders get no free lunch.  But the most important aspect of a market economy is price signaling via undistorted pricing.  It is presumptious for politicos to think they can better plan asset consumption and allocation by hiding costs and funding, e.g. 'free' healthcare paid for by hidden fuel taxes.

Americans have the same problem in another guise.  Our fuel prices are subsidized by military diplomacy and borrowing for military adventures diplomacy.  The American market receives no reliable market signals for the cost of the American Military nor American oil consumption.

[Atash Hagmahani]

The Iranian government has just cut gasoline subsidies.

My guess is that this was actually one of the hidden objectives of the economic sanctions on Iran, despite the intentionally deceptive rhetoric. By cutting subsidies they are reducing local demand and thereby increasing the amount available for export.

[Mike]

Or maybe Iranian politicos discovered it was just too expensive to subsidize gasoline?

[offdalip]

By cutting subsidies they are reducing local demand and thereby increasing the amount available for export.

That is not correct.

Since the Iranians have basically no Refining capacity what they must do is first Export all of their oil AND then Import all of their gasoline

Their gas just went up from $0.10 a gallon to $0.40 a gallon

[Atash Hagmahani]

Good point and the effect is the same, which is all my point was. Reducing Iranian consumption has the effect of making more oil available globally; whether it is precisely "their" oil or doesn't matter.

The issue of Iranian gasoline price subsidies has come up in high-level discussions before which implies that someone outside the country had some concerns.

[offdalip]

If I had the expertise to run a nuclear weapons program

my priority would be to establish a refinery program at least on par with the weapons program.

their military will run out of diesel a few days into any military campaign.

and at least you could justify the gas price hike by saying you are using the proceeds to build refineries.

Much Iranian strategy just doesn't make sense, . They are lucky to have Chinese friends (who will disavow them as soon as they don't ship oil)

[Dame]

It might be a Refinery capacity issue

It is not a refinery capacity issue: we are net exporters of refined petroleum products.

Locals like their socialized health care and government programs for the poor.  Everybody likes 'free.'  The problem is funding must come from somewhere.  Political leaders have figured out that funding through fuel taxes can kill two birds with one stone.  It can reduce fuel imports while simultaneously fund 'free government service.'

There is nothing particularly hidden about fuel taxes.  And we are well aware that health care and social programs are not free.  My complaint is that offshore oil prices are less than onshore prices (before taxes).
 

[Mike]

My complaint is that offshore oil prices are less than onshore prices (before taxes).

I didn't know that.  Why do you think that is?

[Dame]

Don't know, would have to ask the guys driving around in trucks marked Haliburton.  Seems to me I see pics of the same trucks driving around in Iraq.