fuel prices!!!!

[rocknK]

Saw diesel for $4.59.9 in Berkeley, CA. I'll park my truck before I pay those kinda prices. Paid $4.09.9 over the weekend.:cowboy:

[Remali]

It's crazy.... last week it was $3.75 when I put gas in the car (my car uses the 91 octane stuff), it's about $3.60 here.

[FatSpottedAppy]

3.59 here in PA... UGH. I need a car, not a truck.

[Remali]

I wonder if the Amish people are sort of laughing at us.... lol. Not saying nothing against the Amish.... maybe we'll have to teach some of these horses of ours how to drive?! :)

[Rabid_Raccoon]

It's around 3.55 here... which I thought was bad until I saw your prices! Goodness. I drive at least 1-2.5 hours every day, too, depending on the day of the week.
I'm pretty sure we're paying more for gas than groceries now. >.<

[Remali]

Fortunately I never have to drive very far, or very often.....

[AUEquine]

Well that makes me feel a little better I just paid $3.73 for diesel this weekend. We're actually driving the diesel truck most places, it gets better fuel milage than the Dakota. And with the prices being almost equal we chose it.

[Remali]

I've heard that the price of oil is driven by speculators.... and there is no oil/gas shortage..... Wall Street speculators are driving the price of gas up....

[Ragnar Danneskjold]

I've heard that the price of oil is driven by speculators.... and there is no oil/gas shortage..... Wall Street speculators are driving the price of gas up....

The price of gas (or anything) is driven by supply and demand, according to what people are willing to pay. As long as people are willing to pay it, any given price will continue to rise until people stop paying that price.

For any product, there is a price at which profit will be maximized. Sell at a lower price and they may sell more, but they'll make less. Sell at a higher price and they'll make more on each one, but will sell less. Somewhere in there, is the price where they will maximize profit by selling a price that attracts the most buyers.

Cost is irrelevant in pricing. The cost to produce an item (or a gallon of gas) does not matter for price. The only impact of cost is that that if it exceeds the price, the item will not be produced.

There you have it: Econ 101 in a box.

:)

[JackieB]

The price of gas (or anything) is driven by supply and demand, according to what people are willing to pay.

True, but Remali has a point as well. Speculators are guessing at what price the demand will warrant at a future date, so there is at least a short-term disconnect between the actual supply/demand/price relationship and the anticipated supply/demand/relationship. This can definitely affect gas prices over a period of several months.

[JackieB]

Interestingly, oil futures contracts are rarely held to maturity. They're just traded back and forth by investment firms trying to make money off the future price of oil, but with no interest in doing any refining of the oil itself.

And they don't buy the future oil to do the betting, either. They just pay for between 2% and 10% of its value for the right to bet with it.

Doesn't seem like it's a very good thing to do to help the average person just filling his/her car with gas, but I guess all commodities are traded that way.

Of course, it all has to level out in the long run becuase those futures do come due and the oil is eventually sold for market price, but the investors get to dink around with the price a lot along the way.

[twofingers]

well obama wants the price to be comparable to Europe 10.00 gal.

[Ragnar Danneskjold]

True, but Remali has a point as well. Speculators are guessing at what price the demand will warrant at a future date, so there is at least a short-term disconnect between the actual supply/demand/price relationship and the anticipated supply/demand/relationship. This can definitely affect gas prices over a period of several months.

No... speculators are people betting ahead of time, up or down on the future price of oil / gas. They don't "drive" the actual price.

[Ragnar Danneskjold]

Interestingly, oil futures contracts are rarely held to maturity. They're just traded back and forth by investment firms trying to make money off the future price of oil, but with no interest in doing any refining of the oil itself.

And they don't buy the future oil to do the betting, either. They just pay for between 2% and 10% of its value for the right to bet with it.

Doesn't seem like it's a very good thing to do to help the average person just filling his/her car with gas, but I guess all commodities are traded that way.

Of course, it all has to level out in the long run becuase those futures do come due and the oil is eventually sold for market price, but the investors get to dink around with the price a lot along the way.

None of those futures contracts really have any effect on the price of oil.

It would be like me and you betting between ourselves on the price of IBM stock at some future date. You think it will go down, and I think it will go up. I agree to buy 100 shares from you on July 1 at a price that is $5.00 above the current price. If it goes up by $10 I win money. If it stays the same or goes down... you win money.

But neither of us caused the price to rise or fall.

[Ragnar Danneskjold]

well obama wants the price to be comparable to Europe 10.00 gal.

Yes, and he's said so. So does his Secretary of Energy.

So how's that "hopey changey" thing workin' out for y'all?

[Tiz]

No... speculators are people betting ahead of time, up or down on the future price of oil / gas. They don't "drive" the actual price.

Then why does gas go up at the pump the instant the barrel price of oil is driven up by the gamblers?

It's ridiculous that commodities buyers don't have to actually buy futures when they place their bet, as Jackie pointed out. If they did, the market would certainly be less volatile, and it would resemble true supply and demand markets.

Right now, the stock market, commodities market, all of them, are driven by more of a get rich quick casino mentality. It's a sign of our greedy, one bubble after another, times. People don't seem to invest any more. It looks more like they try to hit, just like any other adrenaline junkie gambler. My opinion.

[JackieB]

Then why does gas go up at the pump the instant the barrel price of oil is driven up by the gamblers?

It's ridiculous that commodities buyers don't have to actually buy futures when they place their bet, as Jackie pointed out. If they did, the market would certainly be less volatile, and it would resemble true supply and demand markets.

Right now, the stock market, commodities market, all of them, are driven by more of a get rich quick casino mentality. It's a sign of our greedy, one bubble after another, times. People don't seem to invest any more. It looks more like they try to hit, just like any other adrenaline junkie gambler. My opinion.

I'm sure you are right about this Tiz. As in absolutely sure.

RD maintains that the price of oil (and therefore gasoline) is regulated by supply and demand. But we often see very large fluctuations in price when the demand is staying relatively steady (such as over a 2-4 week period within a season of the year) and oil producers are adjusting output (supply) to meet all of the demand.

Something artificial causes the dramatic changes in the price of a barrel of oil. Otherwise, prices would change more steadily like we see in most industries.

[natisha]

I think gas usage stays about the same all the time. If the price of oranges goes up I may opt not to buy them (though in reality I don't even grocery shop) but I tend to use the same amount of gas. I have no choice, if I don't buy I don't drive. So if the price got way out of line I would still have to drive. RD, it seems like the supply & demand rule doesn't apply to gas, except in availability of oil itself?

[Tiz]

Something artificial causes the dramatic changes in the price of a barrel of oil. Otherwise, prices would change more steadily like we see in most industries.

It's buyers having the ability to put their purchases on "lay away" by paying a small percentage of the actual cost. Nuts.

[JackieB]

It's buyers having the ability to put their purchases on "lay away" by paying a small percentage of the actual cost. Nuts.

Right. Except these buyers aren't ever even intending to buy the products they put on layaway. They just want to bet on what the eventual customers will pay. I find it hard to believe (as RD asserts) that sending all of these oil purchase agreements to Las Vegas for betting (so to speak) before delivering them to the refineries has no impact on what we end up paying.

[JackieB]

I think gas usage stays about the same all the time. If the prsice of oranges goes up I may opt not to buy them (though in reality I don't even grocery shop) but I tend to use the same amount of gas. I have no choice, if I don't buy I don't drive. So if the price got way out of line I would still have to drive. RD, it seems like the supply & demand rule doesn't apply to gas, except in availability of oil itself?

You've got that about right. The economics term is that the demand is considered to be "relatively inflexible". Demand will go down some as prices go up, but very little. Demand for cigarettes by addicted smokers would be another example. On the other end are your oranges and $50 bottles of wine.

[Tiz]

Right. Except these buyers aren't ever even intending to buy the products they put on layaway. They just want to bet on what the eventual customers will pay. I find it hard to believe (as RD asserts) that sending all of these oil purchase agreements to Las Vegas for betting (so to speak) before delivering them to the refineries has no impact on what we end up paying.

I know, Jackie, about the intentions.

RD is wrong on this, I believe.

[Ragnar Danneskjold]

You've got that about right. The economics term is that the demand is considered to be "relatively inflexible". Demand will go down some as prices go up, but very little. Demand for cigarettes by addicted smokers would be another example. On the other end are your oranges and $50 bottles of wine.

The term you're reaching for is "inelastic".

Yes, gas has a relatively inelastic demand curve, meaning that the quantity demanded changes little even when prices change a lot. But it does change! Always! Drive the price up high enough and people will change their habits. If gas goes from $3.50 to $4.00, it may make me grumble, but I'll still fill my tank and drive about the same as I always do, or perhaps only slightly less. But raise the price to $20.00 a gallon and of course I'm going to find alternatives, like get a scooter to get around town instead of my big freakin' Jeep.

The quantity demanded will go down as the price goes up. Every time. It's just not a 1:1 relationship. For an inelastic demand curve, the price just needs to change a lot more.

[Ragnar Danneskjold]

I know, Jackie, about the intentions.

RD is wrong on this, I believe.

Nope... not wrong. :)

The equilibrium price (more or less the price right now) is always set by the intersection of the supply and demand curves. Since we have established above that demand for gas is highly inelastic... we know that demand for gas doesn't change very much (or at least doesn't change very fast). This means that it's the supply of gas that has the most immediate impact on a change in price.

But "supply" means more than just what's in the gas pump today. The "supply" also means future supplies-- it's what people believe, assume, or otherwise know about not just this tank of gas, but the next one, and the one after that...

Imagine you're in the grocery store, and you see that the shelves are just loaded with bread. Overstocked even. Normally, this would mean that the seller would put the bread on sale... lower the price so they can move the inventory out. But then you notice a sign that says "This is the last shipment of bread for the next three months" (for some reason... hey, it's just a story...). NOW what happens to the price of bread? Suddenly there's going to be a run on bread as people decide to stock up. The supply is fine-- but there's a widespread belief that it won't be for long-- so even with plenty of bread on the shelves the price gets bid up again maybe even higher than it was before.

The "supply" of something doesn't happen in a vacuum. And-- supply curves are also elastic or inelastic. For some things the amount supplied doesn't change much as the price changes, and for other things the amount supplied will fluctuate wildly with only small changes in the price.

It's important to note that when we're talking about changes to supply it means that the whole supply curve shifts left or right. Then the new point on the demand curve is the new equilibrium. The supply changes, and the quantity demanded (Qd) responds. Similarly, if demand changes it means that the whole curve shifts left or right, and the quantity supplied (Qs) responds along the supply curve. What's happened in the bread example above is that the demand curve has shifted out, making both the price and the quantity sold go up at the same time.

In truth, the supply and demand curves are constantly shifting and the elusive point of equilibrium is a moving target. But it's the whole picture of demand, supply and all that people know (or think they know) about a market that moves the curves one way or another.

[Tiz]

"The supply is fine-- but there's a widespread belief that it won't be for long-- so even with plenty of bread on the shelves the price gets bid up again maybe even higher than it was before."

And let the bread speculators pay for their bids, when they are placed, lest not playing with their own money affects their willingness to splurge.

[Tiz]

"If gas goes from $3.50 to $4.00, it may make me grumble, but I'll still fill my tank and drive about the same as I always do,..."

I'm kind of surprised by this attitude. Remali's "I don't drive much anyway.", too. Everything goes up when gas goes up. When everything goes up, people have less, to no discretionary income. Unless you're in a retail business that sells food, alcohol, or cigarettes, there's a real possibility your income dries up.

The last gas fiasco started the mortgage meltdown. It destroyed the horse market, which has yet to recover. It put hundreds of dairies out of business. It almost put our little retail business under, and only didn't because we are so small, and have a little bit of savings to rob from.

I don't want to be exposed to that kind of risk, at the hands of some little get rich quick commodities gambler. Let them finance their adrenaline.

[Ragnar Danneskjold]

On the gas price comment... I'm merely observing that the demand for gas is relatively inelastic. That is: the amount purchased tends to change far more slowly with a change in price. Like cigarettes. The price can climb quite a ways but lots of people still buy them anyway. The amount purchased goes down, but not by very much. Compared to, say... Coca Cola or better yet: Vacation air travel. There, a small change in price can change the amount purchased by a lot more.

Of course gas prices have side-effects throughout the economy. Nobody's saying otherwise. Economies are complex systems of vast inter-related parts. Pull on the web here, and it moves over there.

But it is simply unfair and mistaken to blame the futures markets. Futures markets play an absolutely vital role in the wider market for all commodities. In a very real way... speculators are absorbing great risk so that the regular guy on the street doesn't have to. And futures contracts ARE paid for. Without futures markets, price fluctuations would actually be far more volatile and unpredictable.

[Tiz]

"In a very real way... speculators are absorbing great risk so that the regular guy on the street doesn't have to. And futures contracts ARE paid for."

How so?

[Remali]

Quote: "I'm kind of surprised by this attitude. Remali's "I don't drive much anyway.", too. Everything goes up when gas goes up. When everything goes up, people have less, to no discretionary income. Unless you're in a retail business that sells food, alcohol, or cigarettes, there's a real possibility your income dries up."


As usual Tiz, you are taking what I said out of context.... I am as unhappy as everyone else is about gas prices..... I was merely expressing a thought because I am on social security disability right now, so I do not have to drive a lot right now and am not driving to work.... no where does that mean I am doing a happy dance about high gas prices, I still have to drive to doctor appointments and so on. Of course I am not happy about it, I do still have to go places and this will only make everything else go up too. Why always so mean-spirited Tiz, are you just such an unhappy person that you are like this so often and make a point to lash out at others? Get a life Tiz.

[PaintedDreamer_0110]

Its about $3.53 around here and it has just jumped up recently. My question is will the price will go back down? Or are we doomed to start paying $10 a gallon. If that is the case obama better get used to the fact that he needs to raise wages extremely and that he is going to have a very un happy state on his hands.

Sad thing is I drive about 100 miles a day five days a week :(. I am very thankful I sold my 89 camaro when I did and now drive a nissan maxima but gas is still sooo pricey! Mom jokingly told me lastnight I should concider the thought of riding my horses to school, sad thing is I think it will be A LOT cheaper and am concidering it....

[Ragnar Danneskjold]

"In a very real way... speculators are absorbing great risk so that the regular guy on the street doesn't have to. And futures contracts ARE paid for."

How so?

I looked around for some explanations... and found a useful piece by John Stossel. In this... he's actually taking John McCain to task about some particularly unfortunate comments that he'd made during a debate, regarding oil speculators. Apparently, McCain isn't much of an economist. Pity, that. But anyway... here's the salient excerpt from the article:

[...snip...]
It's clear McCain does not understand how markets work or why they are good. He certainly doesn't understand the role of speculators and other middlemen. He's not alone. Speculators are among the most reviled people in history. When they were members of ethnic minorities, they have been easy targets for economically illiterate people who were jealous of their success.

McCain wonders "whether speculation has been going on." He needn't wonder. Speculation always goes on. Speculation means to take a risk on what the future holds in hopes of making a profit. The world's stock and commodities markets are based on this principle. Sen. McCain must have meant it when he said (http://tinyurl.com/7pfca), "I know a lot less about economics than I do about military and foreign policy issues".
I doubt that speculators are responsible for much of the run-up of oil prices. Why didn't they run them up sooner? Besides, there are too many other explanations: increased demand from China and India, the declining dollar and Middle East tensions.


Even if speculators did play a role, what McCain apparently doesn't understand is that speculators perform a valuable service. Most people don't realize this because on the surface speculators don't seem productive. They buy what already exists and resell it. How does that help society?

In fact, the hated speculator is a good guy because his buying and selling reduce volatility and uncertainty in an unpredictable world. He may only be out for his own profit, but that doesn't matter. As Adam Smith wrote (http://tinyurl.com/68rura), "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest".

The prices of commodities often change unexpectedly, making business risky. The speculator brings a degree of certainty to otherwise risky ventures. When supplies of a commodity are plentiful and prices low -- but speculators expect the price to rise later -- they buy -- cushioning the collapse of prices. When supplies become scarcer and prices rise, they sell -- easing the shortage and lowering the price. Also, speculators may agree to buy a commodity in the future for a price locked in today. This reduces the risk for an oil producer or farmer who fears investing because he doesn't know what price his product will sell for next year.
As a result of these activities, volatile supplies and prices are evened out over time. Occasionally, speculators increase volatility. Markets are never perfect. (Although they are better than government regulation.) But in general, speculators increase liquidity and keep the market on a more even keel. This makes long-term planning easier for everyone.
[...]
Original article here: http://townhall.com/columnists/johnstossel/2008/06/25/bless_the_speculator

I'm still looking for something from my favorite economist, Thomas Sowell. Will post it if I find it. I know he's written extensively on the topic and agrees with the above. He would say it even better.

[miatapony]

for 91 here in Las Vegas (by my house) it is $3.98 a gallon
for diesel it is $4.00 yup I'm screwed either way . because all of my vehicles are 91 or diesel..... yup...

[offgridgirl]

The last time I filled up here it was $1.23/empirical liter....UGH!! I don't want to know what that is in gallons.

How does this effect me??

I have to have three things to do, in order to drive out my driveway. Other wise I take my horse. If I run out of something, then too bad. I only go to the Big Island once every three weeks...for food, gas and etc. This is an all day event, so I have 20 things to do and buy... If someone is going to "town"(the big island) then they offer to pick-up necessities, otherwise we make do without.

What really sucks, is that Canada is sitting on huge oil reserves and buying at Market cost...WHAT FOR?? We have refineries here and plenty of oil..... GO GREEN Folks...Let get back at those playing around with our future for their gain!!:)

[Tiz]

I looked around for some explanations... and found a useful piece by John Stossel. In this... he's actually taking John McCain to task about some particularly unfortunate comments that he'd made during a debate, regarding oil speculators. Apparently, McCain isn't much of an economist. Pity, that. But anyway... here's the salient excerpt from the article:
[...snip...]
It's clear McCain does not understand how markets work or why they are good. He certainly doesn't understand the role of speculators and other middlemen. He's not alone. Speculators are among the most reviled people in history. When they were members of ethnic minorities, they have been easy targets for economically illiterate people who were jealous of their success.

McCain wonders "whether speculation has been going on." He needn't wonder. Speculation always goes on. Speculation means to take a risk on what the future holds in hopes of making a profit. The world's stock and commodities markets are based on this principle. Sen. McCain must have meant it when he said (http://tinyurl.com/7pfca), "I know a lot less about economics than I do about military and foreign policy issues".
I doubt that speculators are responsible for much of the run-up of oil prices. Why didn't they run them up sooner? Besides, there are too many other explanations: increased demand from China and India, the declining dollar and Middle East tensions.


Even if speculators did play a role, what McCain apparently doesn't understand is that speculators perform a valuable service. Most people don't realize this because on the surface speculators don't seem productive. They buy what already exists and resell it. How does that help society?

In fact, the hated speculator is a good guy because his buying and selling reduce volatility and uncertainty in an unpredictable world. He may only be out for his own profit, but that doesn't matter. As Adam Smith wrote (http://tinyurl.com/68rura), "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest".

The prices of commodities often change unexpectedly, making business risky. The speculator brings a degree of certainty to otherwise risky ventures. When supplies of a commodity are plentiful and prices low -- but speculators expect the price to rise later -- they buy -- cushioning the collapse of prices. When supplies become scarcer and prices rise, they sell -- easing the shortage and lowering the price. Also, speculators may agree to buy a commodity in the future for a price locked in today. This reduces the risk for an oil producer or farmer who fears investing because he doesn't know what price his product will sell for next year.
As a result of these activities, volatile supplies and prices are evened out over time. Occasionally, speculators increase volatility. Markets are never perfect. (Although they are better than government regulation.) But in general, speculators increase liquidity and keep the market on a more even keel. This makes long-term planning easier for everyone.
[...]
Original article here: http://townhall.com/columnists/johnstossel/2008/06/25/bless_the_speculator

I'm still looking for something from my favorite economist, Thomas Sowell. Will post it if I find it. I know he's written extensively on the topic and agrees with the above. He would say it even better.

Thanks for that, RD. I've heard John Stossel's explanation before, and agree that it sounds reasonable. Kind of simple, so I'm sure there is much more to learn. I'll step back from my wild eyed scapegoating a bit, but still think requiring more payment at point of purchase, instead of paying in the future via contracts, would make things less volatile. More risk, less gambling.

[Ragnar Danneskjold]

Thanks for that, RD. I've heard John Stossel's explanation before, and agree that it sounds reasonable. Kind of simple, so I'm sure there is much more to learn. I'll step back from my wild eyed scapegoating a bit, but still think requiring more payment at point of purchase, instead of paying in the future via contracts, would make things less volatile. More risk, less gambling.

Yah... I'm not sure what role that plays in all this. Perhaps there's something to it. But like in a casino... even if I'm playing on credit (which so far they don't let me do...) it's still my money that sooner or later comes due. Investing on margin isn't like you're playing with house chips. There's a cash-out coming, one way or the other.

Reminds me... I need another trip to the craps tables...

[Tiz]

"Investing on margin isn't like you're playing with house chips."

No, but it isn't like playing with your cash either. There is the default back door.

[Ragnar Danneskjold]

"Investing on margin isn't like you're playing with house chips."

No, but it isn't like playing with your cash either. There is the default back door.

Well, yes it is. It is playing with your own money. Whether I buy something with cash, or buy it on my mastercard... it's all still my money. I can't run out on the debt, legally.

[Tiz]

Well, yes it is. It is playing with your own money. Whether I buy something with cash, or buy it on my mastercard... it's all still my money. I can't run out on the debt, legally.

RD? Think about that, would you?

Foreclosure, bankruptcy, default.

Someone did a study on credit card use and found that people spend 30% more when they use credit, over using cash. Dave Ramsey is my source. I don't know who did the study, or how it was done, but based on my own experience, I believe it. I'm so scotch, sometimes the only way I'll make a purchase is if I use a card.

There is also the tendency for some, when using loaned money, to think in terms of what they can afford on a monthly payment basis.