[Sixstrings]

Interesting infograph up on ZH today (I couldn't post a bigger pic, you might have to zoom in to see):

http://www.zerohedge.com/article/impact ... mer-primer

Bigger pic in this link:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/Oil%20Primer.jpg

So.. $220 oil would mean $7.16 gas. How bad would that be? Not the end of the world for me personally, but the economy as a whole would head back into deep recession.

[Lore]

So.. $220 oil would mean $7.16 gas. How bad would that be? Not the end of the world for me personally, but the economy as a whole would head back into deep recession.

Looking at it as a figure per gallon at the pump only scratches the surface of the cost implications. It would certainly mean a dip back into recession and worse.

If you go through 30 gallons of gas a week in a single vehicle, it would mean paying an extra $448 a month alone.

Figure at least a 30% increase in cost of food. So if your grocery bill was $200 a week now you'd be paying an additional $240 a month. Don't even think about paying for a meal out.

Just the two items above would amount to an additional $8,300 a year off the top and you'd still only be treading water. Then there is the increase in cost of heating/cooling, electricity (because one fossil fuel drives another), other goods and services and so on, but it gets to be a pretty ugly picture out from there.

[eastbay]

SS, good point. Transportation would be tough for many but not the end of the world. The increase wouldn't necessarily mean such a large monthly fuel increase because people would tend to create efficiencies in their schedules and move over time to more fuel efficient vehicles.

The biggest issue would be in food, especially in poorer countries. Increases in federally mandated crop burning not just in the US but elsewhere too will prove catastrophic for many.

[Sixstrings]

SS, good point. Transportation would be tough for many but not the end of the world. The increase wouldn't necessarily mean such a large monthly fuel increase because people would tend to create efficiencies in their schedules and move over time to more fuel efficient vehicles.

The biggest issue would be in food, especially in poorer countries. Increases in federally mandated crop burning not just in the US but elsewhere too will prove catastrophic for many.

That was my first impression, that $7 wouldn't be Mad Max collapse. I don't have a long commute, I could deal with that. Maybe I'd use a bike more for short local trips (heck that would even be good for me, more sunshine more exercise ).

But Lore has a point, $220 oil would hit everything:

Just the two items above would amount to an additional $8,300 a year off the top and you'd still only be treading water.

I remember during the last big runup in gas prices, people *were* wigging out. Having trouble getting to work due to fuel costs, freaking out at the gas station. So how would they react to SEVEN DOLLAR gas?

[Plantagenet]

Lore has a point, $220 oil would hit everything...people *were* wigging out. Having trouble getting to work due to fuel costs, freaking out at the gas station. So how would they react to SEVEN DOLLAR gas?

And we get to more expensive gas even quicker due to Bernake's stupid policy of devaluing the dollar.

Knock the value of the dollar down by 10-20%, as the FED is doing, and it hurts the economy by driving oil prices go up by 10-20 Dollars per barrel, even without a crisis in Libya and the ME.

If this administration wants to get the US off oil, it would make a lot more sense to just put a dollar per gallon tax on gas and use it to balance the budget, as Friedmann suggested, then to devalue the dollar and see gas prices rise for that reason.

[mos6507]

If this administration wants to get the US off oil, it would make a lot more sense to just put a dollar per gallon tax on gas and use it to balance the budget, as Friedmann suggested

A Sarah Palin fan endorsing taxes? You don't know whether you're coming or going.

[vision-master]

$7 gal will kill the usa. All those millions of low wage service workers, yeah the ones who keep the machine oiled will be toast.

[Ludi]

I'm more concerned about price increases impact on US "citizens", or maybe even "people."

I hate that citizens and people are called "consumers" these days.

[bratticus]

‘Peak Demand,’ Yes, But Not the Nice Kind
Why There Will Be No Recovery

By Chris Nelder
Friday, March 5th, 2010

... skip ...
Most people thought the nearly 2 mbpd decline in U.S. petroleum demand from 2007 through 2009 owed to efficiency and people driving less.

In reality, only about 15% owed to reduced gasoline demand. The other 85% was lost in the commercial and industrial sector: jet fuel, distillates (including diesel), kerosene, petrochemical feedstocks, lubricants, waxes, petroleum coke, asphalt and road oil, and other miscellaneous products.

85% of 2 mbpd is 1.7 million barrels per day of demand lost. Demand for oil fell in the summer of 2008 months before the stock market fell.

Series Title: Petroleum Products Supplied; Thousand Barrels per Day

Code: Select all

Date     kb/d         difference
-----    ------------- -----------
12/2007   20719.310   
01/2008   20246.980   -472 
02/2008   20028.827   -218 
03/2008   19830.916   -198 
04/2008   19814.981   -16   
05/2008   19797.525   -17   
06/2008   19678.063   -119 
07/2008   19556.578   -121 
08/2008   19272.290   -284   \___ supply dropped by 1.4 million barrels a day.
09/2008   17838.845   -1433  /
10/2008   19698.292   1859  <- stock market crashed after supply dropped
11/2008   19052.428   -646     a total of 2.88 million barrels a day.


stock market crashed after US supply dropped a total of 2.88 million barrels a day during the run up to $147/barrel.

Explain that.

[bratticus]

stock market crashed after US supply dropped a total of 2.88 million barrels a day during the run up to $147/barrel.
Explain that.

Thats because Sept/Oct 2008 was when the banksters couldn't hide the housing ponzi scheme they had created any more.

So the housing bubble caused the US to be supplied with 2.88 million barrels of oil a day less?

Very simply, when oil got to $120 a barrel it cut into real productivity, and forced the world’s most developed economies to shrink. At $147, it wreaked serious damage.

(same article as above)

$220 oil would mean $7.16 gas.

Impossibly high price of oil would mean impossibly high price of gas.
You will not see $220 oil or $7.16 gas in 2011.
You will see a stock market crash instead.

[TheDude]

Impossibly high price of oil would mean impossibly high price of gas.

You're obviously not a fervent leftist. Nationalize the oil companies and have them refine product at a loss, and Bob's your Utopia. We can then spend the next decade in cheap motoring bliss while transitioning to wholly renewable sources. Sound like fun? Or a basic account of a round of some RTS computer game like Civilization.

From the blogs:

Divide crude by 42 (gallons in a barrel) to get approximate refiner cost of gallon.
Add 15 cents to get wholesale price.
Add another 65-90 cents to get average national retail.

More maths required: Oil Gas Price Correlation: Energy Predictions Made Easy. The cat is skinned three ways here.

So, here’s what a $200 oil superspike would look on the wallet:

y (gas price) = -0.0078*(200)*(200) + 3.6791*(200) + 43.54 = $4.67/gallon gas

A handy table would be of use here. Of course it's not just you who's shelling out but the trucker delivering you that shipment of mini carrots and iPod cables etc.

[bratticus]

You're obviously not a fervent leftist. Nationalize the oil companies and have them refine product at a loss, and Bob's your Utopia. We can then spend the next decade in cheap motoring bliss while transitioning to wholly renewable sources. Sound like fun? Or a basic account of a round of some RTS computer game like Civilization.

You are missing the point. In order to have $220 oil you need businesses that can afford that price.

In 2008 businesses went into default at $120 oil. The loss of demand causes the price to fall.

[bratticus]

What is the impact of $220 oil and surface temperatures of 300 C and six other impossible things at once?

What is the impact of $120 - $147 oil?

Risk of airlines' default climbs
By Shannon D. Harrington / Bloomberg / May 23, 2008

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.

Fast forward to today

Airline Credit Swaps Climb for Second Day as Oil Reaches $100
By Shannon D. Harrington / Bloomberg / Feb 23, 2011

The cost of protecting U.S. airline companies against default rose for the second day as oil reached $100 a barrel and pushed jet fuel prices to the highest in more than two years.

[bratticus]

Explain that.

Already did. It was censored by TPTB. Sorry...you have been deemed to fragile to know the truth.

So where's the housing bubble this time? How many times do you have to be dragged through the exact same experience before you realize it's the exact same experience?

Risk of airlines' default climbs
By Shannon D. Harrington / Bloomberg / May 23, 2008

The cost of protecting airline bonds from default soared and bond prices plunged as oil reached a record $135 a barrel, stoking concern that carriers will run out of cash as jet-fuel prices surge.

Fast forward to today

Airline Credit Swaps Climb for Second Day as Oil Reaches $100
By Shannon D. Harrington / Bloomberg / Feb 23, 2011

The cost of protecting U.S. airline companies against default rose for the second day as oil reached $100 a barrel and pushed jet fuel prices to the highest in more than two years.

[bratticus]

Are you predicting another housing bubble, or another market crash?

Go back and read what I wrote in this thread and then you will find the answer to that question.

What is the point of posting messages in a thread when it is obvious that you don't read the messages you are replying to?

[Beery]

$7 gal will kill the usa. All those millions of low wage service workers, yeah the ones who keep the machine oiled will be toast.

Realistically, it can never reach $7 per gallon. What will happen well before that price - probably about when it reaches $5 per gallon - is that the world will go into a depression that will make the Great Depression look mild in comparison. Many of those low wage service workers (along with a lot of higher wage workers) will be out of work and begging in the streets or starving in 1930's style shanty towns. Meanwhile the price of gasoline will probably be lower than it is today, yet even so, the lack of any disposable income (except for the super-rich) will mean that almost no one will be able to drive their cars unless they're pulled by oxen.

Personally, I've ensured that my family is settled close enough to both city and farmland so that both are well within an hour's cycling or three hours' walking distance. That way, if the worst does happen, at least my family won't be wasting money on petrol that we could be spending on food. We also have more bicycles than we need, a reasonable level of fitness so we can use them, and a set of high capacity panniers for our shopping needs.

The folks I feel bad for are those who are in the suburbs, 20 miles or more away from cities, and who have succumbed to the obesity epidemic that has turned the US into an international laughing stock. They will be among the first to be out of a job, simply due to the fact that with long lines at gas stations and no alternative transportation that won't kill them (meaning that for them, a bicycle ride is a guaranteed heart attack), they won't be able to get into work. And heaven help those folks if they suffer a medical emergency or something so far from a hospital. The first sign of collapse may be that the suburban suicide rate will go through the roof.

[bratticus]

Are you predicting another housing bubble, or another market crash?

Go back and read what I wrote in this thread and then you will find the answer to that question.

I must have missed the association. Are your posts being erased as well? Makes it difficult to trace back through the conversation.

What is the point of posting messages in a thread when it is obvious that you don't read the messages you are replying to?

How can I? Or you? I've lost probably 30-40 posts in just this weekend....

You hit the page one button on this thread. *sigh*

Let me make this drool-proof for you by posting a recap of this thread.

This thread started with sixstrings posting about imaginary pseudo-price of $220 for oil being equivalent with fantasy $6 something for gas.

If you tried to raise the price of oil to $220 it would never work.

Suppose I tried to sell you a lollypop for $1000 would you buy it?

Nobody will buy $220 oil even if it means going out of business. Instead they will go out of business again just like they did when oil went to $120 - $147 in 2008. You can't raise the price but so much before the buyers fail to purchase what they can't afford. How could this be any more simple and clear?

Back in 2008 when the price of oil drove huge numbers of businesses into default and bankruptcy a stock market crash soon followed.

We are doing it again now in 2011 and the same thing will happen again.

[kildred590]

But most businesses run on tight margins.
So an affordable increase to you could mean bankruptcy to them.
Or they put up their prices - which means less money in the economy for other things, such as houses.

Most businesses weren't in the housing market.
House prices had risen for 80 years and the capital increase would pay off the loan. Low doc loans only made a small proportion of the total loan market.

House prices fell because people had less money to spend on houses, simple. Which would have triggered a recession anyway, lowering demand and causing oil prices to fall.

The financial collapse occured because of the way the loans were restructured, not because of the loans per se.

[nocar]

The folks I feel bad for are those who are in the suburbs, 20 miles or more away from cities, and who have succumbed to the obesity epidemic that has turned the US into an international laughing stock. They will be among the first to be out of a job, simply due to the fact that with long lines at gas stations and no alternative transportation that won't kill them (meaning that for them, a bicycle ride is a guaranteed heart attack), they won't be able to get into work. And heaven help those folks if they suffer a medical emergency or something so far from a hospital. The first sign of collapse may be that the suburban suicide rate will go through the roof.

Are Americans really that helpless? How about organising carpools? Or someone with a van but no job starting like a mix between limousine and bus line? With cellphones and computers it will be more feasible than ever to design the optimal routes, as well as connecting people with similar routes to each other.

The obese person who then needs to walk to the next street corner to catch the ride instead of just walking to his/her own driveway might not get a heartattack, but instead start losing a pound or two.

Of course Europe runs very well with prices over $7 gallon. Granted, the situations are not the same - we have had long time to a adapt, and public transport is a lot better. Still, it can not be the case that a $7 gallon necessarily leads to total collaps of a society.

[Beery]

How about organising carpools?

Cars run on gasoline.

Or someone with a van but no job starting like a mix between limousine and bus line?

Vans, buses and limousines run on gasoline.

With cellphones and computers it will be more feasible than ever to design the optimal routes, as well as connecting people with similar routes to each other.

Routes that no one will be able to use. Maybe you don't remember 1973. I do. According to Wikipedia:

the shock produced chaos in the West. In the United States... Politicians called for a national gas rationing program. Nixon requested gasoline stations to voluntarily not sell gasoline on Saturday nights or Sundays; 90% of owners complied, which resulted in lines on weekdays.

The American Automobile Association reported that in the last week of February 1974, 20% of American gasoline stations had no fuel at all.

The rationing led to incidents of violence... In Pennsylvania and Ohio, non-striking truckers were shot at by striking truckers, and in Arkansas, trucks of non-strikers were attacked with bombs.

The decline after the oil plateau will be far worse. I'm not suggesting society will collapse - it won't. But people won't be able to get around using gasoline, and the tens of thousands of obese suburbanites and exurbanites will essentially be disposable, because they won't even be able to feed themselves, let alone contribute to society.