There’s no one harder hit by fuel prices than the nation’s truckers, and they’re going bankrupt at near record rates. The price of diesel jumped a nickel a gallon nationwide today, to $4.649, which is $1.72 a gallon above the price a year ago. In California, diesel is on average just three cents a gallon shy of $5.00, up $1.82 over the year, according to AAA. (the data changes daily) Who’s going to transport Americans’ stuff?
The trade publication Oil Express (subscription only) today said that "the first quarter of 2008 brought the highest rate of trucking industry bankruptcy filings in seven years, and the second quarter is shaping up to be even worse."
Too bad they can’t all go to Mexico for fillups. News reports put the price of Mexican diesel, as of May 13, at $2.10 a gallon, in part because of national subsidies. Some who’ve tried to do this, though, have run into trouble with U.S. Customs. Is our government, which has only come awake to the fuel-price damage in the last few weeks, in the business of protecting U.S. refiners’ market share?]]>
Watching the same pack of oil executives troop to the House of Representatives today and the Senate yesterday was mostly a deja vu experience. The execs’ canned testimony was from the same outline they used earlier this year and in 2005 and 2006
hearings–high prices aren’t our fault; everything will be better if
you let us drill in the Arctic and off the California coast; don’t you
dare touch our tax breaks. Only the numbers change, continuously for
the worse. Today brought the added nonentertainment of a House hearing
to question federal Energy Secretary Samuel Bodman, arguably
the most boring and inactive member of President Bush’s cabinet. He
hewed straight to the oil company line: prices are just supply and
demand; there’s no speculation driving the price of oil; there’s no
reason to sell oil from the federal reserve, even though Bill Clinton
did it in 2000 and prices fell. Bodman’s statement about the
"globalization of energy" sounded straight from a Chevron ad.
most unexpected statement in the two days of hearings came from Shell
President John Hofmeister, who allowed that his company could turn a
profit on oil at $35 to $65 a barrel. Here’s the Senate exchange:
With light, sweet crude for July delivery soaring $4.19 a barrel
Wednesday to close at a breathtaking $133.17 on the New York Mercantile
Exchange, and gas prices — according to AAA — averaging nearly $3.81 a
gallon nationwide for regular, lawmakers wanted to know where the oil
executives thought oil prices should be.
Shell’s Hofmeister said a price range of $35 to $65 a barrel would be consistent with "our ability to run a successful company."
But Chevron Vice Chairman Peter Robertson argued a company can’t
produce oil from the kind of areas now available to them for that kind
of price. And ConocoPhillips’ Lowe argued that price would be north of
$90 a barrel.
Hofmeister, the first to answer, spoke an insiders’ truth. After
all, the same companies made record profits in 2005 and 2006, when oil
was exactly within that range.
The link between skyrocketing oil prices and food prices, for instance, or airline bankruptcies, is obvious and immediate. But the housing crisis? A new study makes the case: a direct correlation between commuting distances and collapsing prices. The group CEOs for Cities, which encourages urban revitalization, says:
A new analysis shows that high gas prices are not only implicated in
the bursting of the housing bubble, but that the higher cost of
commuting has already re-shaped the landscape of real estate value
between cities and suburbs. Housing values are falling fastest in
distant suburban and exurban neighborhoods where affordability depended
directly on cheap gas.
A news release has the short version and the study itself (big pdf alert) has the data and backup.
Here’s what we used to call in the news business the "nut paragraph"–no, not crazy talk, but the heart of the matter:
The run-up in gasoline prices has re-written the calculus of suburban housing economics in two key ways. First, there has been an income effect: suburban households spend more of their income on transportation and gas and have therefore taken the biggest hit to their budgets. As a result, they have less income to spend on housing. Second, there has been a price effect: because living in distant suburbs requires more driving, potential buyers are now willing to bid less for houses at the suburban fringe.
Yeah, in 1990, with gasoline just above $1.00 a gallon, that 4-bedroom 2-bath out in the fringe ‘burbs made economic sense. At $4.00 a gallon, even $3.00, it can be a choice between commuting and falling behind on the mortgage.]]>
The shareholder revolt against Exxon is going global. Four big institutional investors in Britain have joined a shareholder resolution demanding that Exxon have an independent chairman of the board, and the new support should bring the chance of passage to about 50-50. Currently, the chairman title is just another perk for CEO Rex Tillerson, whose attitude is from aloof to hostile about renewable energy and climate change. Exxon faces numerous shareholder rebellions at its annual meeting May 28 in Dallas. Another significant one by pension funds and other large investors seeks to fire board member Michael Boskin for ignoring the investors’ multiple requests for a meeting on climate issues.]]>
Just as the White House grudgingly agreed to stop buying record-priced oil for the federal Strategic Petroleum Reserve and Saudi Arabia grudgingly agreed to put 300,000 more barrels a day of oil into the market, the investment bank Goldman Sachs made another self-serving prediction. It called Friday for $141-a-barrel oil for the next several months. Oil prices promptly spiked above $126.00.
Everyone else gets to pay Goldman Sachs and its investors. Gasoline prices roared Sunday to above $3.75 a gallon for regular nationwide and Connecticut had the painful distinction of an average price for regular above $4.00 a gallon. Diesel hit $4.80 in some areas, adding to inflation across the board, to say nothing of the truckers barely able to stay in business.
The only sure thing about such a prediction is that Goldman Sachs will make money as speculative investors rush to make it come true. Many "commodity funds," like those that Goldman sells, have a majority investment in energy futures. But they also blend in agricultural commodities, like wheat, corn and soybeans. So investors rushing to get in on the gusher are also continuing to drive up food prices.
Not everyone is on the Goldman wagon, as a chief Canadian news outlet, the Globe and Mail, reported yesterday:
Lehman Brothers analysts are as exceptional in their bearish sentiment as Goldman is for its bullish forecast. Lehman forecasts the oil prices will peak this year, then slump to as low as $70 (U.S.) by the final quarter of 2009.
In an interview yesterday, Lehman energy analyst James Crandall said his bank believes Chinese demand is artificially inflated as the country stockpiles supplies to avoid shortages during this summer’s Olympics.
He said Lehman is also more optimistic that Saudi Arabia will succeed in boosting supplies, in defiance of more hawkish OPEC members like Iran.
But Mr. Crandall noted that the Saudis have a massive capital expenditure plan designed to boost output from 10 million barrels per day to 12.5 million by 2012.
"Many of our competitors don’t believe it. But we think there are reasons to believe it will occur," he said.
And finally, Lehman Brothers suggest that exploration and production costs have flattened out, after rising for several years, a fact that will encourage more non-OPEC production to come on stream.
Goldman Sachs sees $150 and up next year. Lehman sees $70. The gap mocks any idea of a competitive market. Even if Lehman is right, billions of dollars of damage have been done, to families and the staggering economy. Getting a regulatory handle on purely financial energy trading (Goldman and hedge funds obviously aren’t selling or buying real oil) has to be the top priority for a new Congress and and new president.
5-16-08 by simpson
Chevron Corp. just gave $100,000 to Gov. Schwarzenegger’s Dream Team Committee making the oil giant the 14th biggest contributor to Arnold since 2003. Chevron has given his various committees a total of $765,800. The most recent infusion of cash came on May 5 just before the Public Utilities Commission signed off on a whopping 89.7 percent rate increase for the Chevron-owned water company serving the tiny hamlet of Casmalia.
Susan Kennedy, the governor’s chief of staff, used to be a PUC commisioner and still retains huge clout at the agency. So, was there a quid pro quo when the commission approved the rate increase May 15, the same day the gift was made public?
More likely Chevron was just routinely greasing the wheels of government, ensuring access as usual. After all, the oil giant had asked for a 138 percent increase in Casmalia. But Chevron’s big-money status in the Schwarzenegger administration and Kennedy’s PUC access, make suspicion come easy.
Folks in the Central Coast town, who say the soaring water rates may kill their community, will see average monthly rates rise from $115 to $148 immediately. They’re set to hit $216 a month in 2010. That’s in a place where the average median household income is around $30,000. Nearly 9 percent of median household income would ultimately go to pay Chevron’s water bill.
The old adage you get what you pay for seems to hold true for Chevron, though not for customers of its water company. If you live in Casmalia, then Chevron shafts you at the gas pump and then a second time when you drink a glass of water.
Early adopters of the Prius and other gas-electric hybrids weren’t
doing it for the money, since the extra cost would take five or
more years to make up with gasoline savings. Not so now. At current gas
prices, at least some models really are both cheaper and cleaner. For
instance, a hybrid Toyota Camry takes only 1.6 years to make up in
gasoline savings the $889 premium cost over a gasoline Camry, according to a study commissioned by USA Today. The Prius takes 2.6 years and the hybrid Nissan Altima 3.4 years over the gasoline Altima.
time frame would be even shorter if gasoline prices hadn’t driven up
demand for hybrids, so it’s not possible right now to make deals on
them. But as more hybrids hit the market, they’ll get back into
Of course, as LA Times auto poet Dan Neil recently wrote, there are some great-handling gasoline cars, like the Honda Fit, that get mileage in hybrid territory for actual subcompact car prices.
a Prius driver, I’ll admit that its greatest satisfaction is driving
past the gas station, over and over and over. But when I do buy
gasoline, I see more folks all but spooning a couple of careful gallons
into the tank of an older sedan, enough to get to the store or to work
or, as a recent "La Cucaracha" cartoon strip put it, "to the next gas station." It’s a constant reminder of why cleaner also has to be cheaper.
The sweeping farm bill that passed the Senate today and is headed for President Bush’s desk is more pork than policy, but I’m still celebrating. OilWatchdog’s most-wanted bill to curb energy speculation was tucked into the farm legislation. The measure, now almost certain to become law, will close the so-called Enron Loophole, regulating electronic and over-the-counter energy trading that helped bring us $125-a-barrel oil. Lack of regulation made oil and natural gas trading open to price manipulation, and lack of oversight made shenanigans impossible to find. Sen. Dianne Feinstein of California, who has tried to close the loophole for years, talked to the San Francisco Chronicle about the farm bill and her victory:
Feinstein said she does not
support the $2.5 million annual income limit the bill sets for cutting
off crop subsidies to farm couples but that the bill was supported by
all agriculture groups in California.
Feinstein was thrilled about a provision she added that closes what
she called the "Enron loophole" in energy trading on electronic
platforms. The new measure extends federal regulatory oversight to
electronic energy trading and requires record keeping that would end
what she called excessive speculation.
Feinstein said she has fought for the measure since California’s
electricity crisis in 2001. "This has been a long, hard road and this
is a major legislative victory," Feinstein said.
Getting a handle on unregulated, Wild West energy trading, and the resulting $125-a-barrel oil prices, won’t be fast or easy. Part of the problem is that the regulators at the Commodity Futures Trading Commission have been short on staff, funding and authority under the current administration. The Enron Loophole bill will also boost the CFTC budget, so Feinstein deserves major credit for her tenacity and wiliness in gettng the measure passed.
I had wondered about the wisdom of tucking the energy trading measure into the farm bill, and worried that it might be traded away for somebody’s pork. But the bill as a whole now has a veto-proof majority in Congress, so the Enron loophole is toast, no matter what the oil and hedge fund buddies at the White House think. For some details on what Feinstein’s measure will do, click here. And for more on OilWatchdog’s analysis of the loophole, click here.
The latest campaign finance reports, from OpenSecrets.org, show Sen. John McCain closing in on the defunct Rudy Giuliani as Big Oil’s bet in the presidential race. Oil money these days is as nasty as tobacco money, and all the candidates ought to be refusing it, though at least the last round of campaign finance lawmaking curbed direct corporate spending on candidates.
Since the last batch of campaign reports, Giuliani’s $6-million-plus total hasn’t budged (for the obvious reason) and a surge of oil industry contributions to McCain nearly doubled his total, to
$515,486. McCain was hardly a blip when Giuliani and Sen. Mitt Romeny dominated in their primary fight, but oil companies appear to be swallowing their doubts about backing a maverick–albeit one who hasn’t threatened oil company profits.
Sen. Hillary Clinton, at
$353,723, is still behind the long-gone Romney, and Barack Obama, who has more or less pledged to kick oil lobbyists out of his office, is at a hedge-bet level of $266,097.
One certainty is that once the presidential race is one-on-one, oil will be putting its money into guaranteeing the industry a voice in the next administration. The test of the winner will be whether he or she actually does some ejecting of oil influence in the White House.]]>
I hope the nay-sayers who insist that stopping the flow of oil into the federal Strategic Petroleum Reserve won’t drop prices were watching today. On news that U.S. petroleum supplies went up 200,000 barrels, the price of oil dropped by up to $2.24 a barrel. So… If President Bush stopped putting 70,000 barrels of oil a day into the reserve, that would add 490,000 barrels a week to the market. Supplies could rise 2 million barrels in a month just from capping the reserve alone. That’s about 10 percent of daily U.S. oil consumption–a big number in what’s known as an inelastic market. Growth in projected world oil consumption is also dropping, which should also push oil prices down over the next few months.
And as oil prices go down, gasoline will automatically come down, right? That ought to be the case, but another figure in the federal supply reports gives pause. U.S. gasoline supplies on hand fell by 1.7 million barrels, or 71 million gallons (equal to about 20% of daily nationwide consumption). This means refineries are cutting production, not because they can’t make the gasoline, but to keep the price of gasoline up and increase their profits.
That’s why Congress can’t just do one thing. The big oil companies extract, buy and sell oil–including to their own refineries. There,they make and sell gasoline and diesel. They demand ever-rising profits from both ends of the business, and see recent refining profits as anemic, despite record-busting overall profits ($123 billion for the biggest 5 companies in 2007).
So what if their profit wrecks the economy.
And that’s why Congress should also require that oil companies and refineries produce enough to keep national gasoline supplies on hand at a reasonable level–about 30 days’ worth, up from a recent average of about 22 days.]]>