Cheap Gas – Big Problem

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Expect gas prices to go up – a lot.gas-lead

Soon.

Not because of dwindling supply. If anything, there is too much oil. From a certain perspective.

Whether oil is abiotic (produced by geothermal or other such processes rather than via the decay over time of organic matter) and so – heresy! – renewable or simply because it is now possible to get at oil located in places where it was formerly not accessible (or at least not economically accessible) the market is swimming in oil.

There are tankers full of it parked off the Texas coast, waiting to unload. The line is long because prices are low. And prices are low because supply is high.

Good, right?

Very bad.

From a certain perspective… .

The government’s perspective.gas-prices-today

It has been hard-selling high-mileage (and high cost) cars. Not only hybrids but also conventional cars dressed out with elaborate fuel-saving equipment such as direct injection (a much more complicated system than relatively simple electronic port fuel injection), turbochargers (now being used in every type of car, even family cars) and intricate/elaborate transmissions (automated manuals, CVTs; transmissions with eight and nine speeds).

There is no market demand for any of this.

It is demanded by the government.

Not directly, but it doesn’t matter – becuase the end result is the same: We pay more for equipment we don’t need that doesn’t make the car perform any better but does make it cost more to buy and (often) much more to repair.

All because of government’s mania about fuel efficiency.

Which makes no sense when gas is $2 a gallon – and 50 cents of that, at least is taxes.

In real (inflation adjusted) terms, gas is a cheaper today than it was in 1965.

When Lyndon Johnson was president, regular cost about 31 cents per gallon. Today, more than 50 years later, it costs 26 cents (inflation adjusted).

It is among the handful of necessary things that cost less today than in the past. Food, rents – all cost much more than they used to. Toyota Prius hybrid

But not fuel.

Because supply has increased. Or access to supply.

Either way, it costs less.

Yet the government issues increasingly hysteric fatwas – regulatory edicts such as Corporate Average Fuel Efficiency mandatory minimums – that only make economic sense if gas prices are higher now than they were 50-something years ago.

Much higher.

At least $4 a gallon.

Otherwise, why would any economically literate person choose to spend thousands extra to buy a “fuel efficient” car when it would cost him less to buy a less “efficient” one that’s also larger or more powerful or simply more fun to drive?

Exactly.

Which explains why hybrids and electric cars – the leading edge of the spear, so to speak – are selling poorly and why big trucks and thirsty crossover SUVs are selling well.arrow

This no doubt infuriates the government – the government bureaucrats who are behind all the fatwas.

They have already jacked up the CAFE mandatory minimum to 35.5 MPG and are looking to almost double it, to 54.5 MPG.

This is the energy policy equivalent of the idiocy in New York outlawing the selling of soda over a certain number of ounces.

People just buy two smaller bottles instead.   

With regard to cars, people want size and power and capability and as long as gas is inexpensive, fuel economy is a tertiary consideration, if it is considered at all.

Meanwhile, the government is more obsessed with fuel economy than ever. Well, as regards our “efficiency” with fuel. The Dear Leader’s 4 MPG limo will not be swapped for an armored Prius; there will be no Tesla-ized electric tanks or solar-powered B52s.

The fatwas continue.dear-leader-car

This creates perverse – and conflicting – incentives.

In order to placate the government while also pleasing customers, the car industry has its engineers burning the midnight oil trying to figure out how to design engines that produce V8 power out of four cylinders – in order to get four cylinder mileage – which leads to heavily turbocharged/direct-injected and very small engines whose long-term reliability is questionable and whose repair costs are certain to be economically catastrophic.

This is already the case with transmissions – the automated manual, CVT and eight/nine-speed boxes that began appearing about ten years ago in mass market market cars and which are now in widespread use in new cars of every type and price. Some are not repairable; other cost so much to replace (or rebuild, if that’s even possible) that it’s not worth repairing or rebuilding them.

So the car gets thrown away.cheap-gas-2

And the only reason these centrifugal bumble-puppy transmissions are being installed in cars is to eke an extra MPG or two out of the drivetrain. In order to placate the government and its MPG fatwas.

Meanwhile, gas stays cheap.

Which is a huge problem – for the government.   

The beetle-like men (and women, if you want to call them that) who inhabit the bureaucracies of the federal government are most concerned about the effect of inexpensive fuel. To them, it is a catastrophe. The very last thing they want is abundant, inexpensive energy.johnson

That means no energy “crisis” – less for them to do. Less justification for them and their fatwas.

They have managed to contort the car market but the energy market isn’t cooperating. The price signals – inexpensive energy – are at odds with high-cost “efficient” cars.

There is only solution. The cost of energy must go up.

And it will.

Because if it doesn’t the government’s fatwas will look increasingly demented to the hoi polloi (that’s us) who may begin to wonder out loud why the government is pushing $40,000 “efficient” cars when gas costs less today than it did when LBJ was president.

It will likely happen after the election. Especially if Trump wins the election. The same people who despise cheap energy also despise Trump.

$4 per gallon fuel would be just the ticket to derail his presidency.

And not only that.

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46 COMMENTS

  1. For my entire life, or at least since I began paying attention to such things, I don’t think I have ever, not once, seen the environmentalist movement denied something in the arena of public policy. Why is this? I get that being “environmentally conscious” has a certain social panache for those who like to think themselves young and hip, but I also believe the majority of people are willing to accept reasonable compromise between ecology and industry. Yet it never works that way. Now they’re not only preventing new development, they are actively tearing down prior development. All throughout the western US they are destroying dams on behalf of snails and mushrooms.

    Why do they always get their way? The media never speak of this form of extremism, and it’s an extreme position anyway you look at it. They seem to be of the belief that there are no extremes to be found on the left side of the political spectrum.

    • Hi MissA,

      I think it’s like “racism” – a magic word. Say it, and you get your way.

      The left has done a brilliant job of co-opting the moral high ground. They do so by package dealing something pretty much everyone agrees to be wrong with many other things they believe are wrong (or right) in order to stifle any debate about those things.

      Let’s use “racism” as an example.

      Most people agree it’s wrong to lynch black people, or otherwise do them physical harm. “Racism.” But “racism” of course goes much farther than that and includes opposition to affirmative action (race-based preferential treatment).

      You are a “racist” (implicitly “hate” black people and are probably a member of the KKK) if you question AA!

      “Environmentalism” works the same way.

      Most people would agree that – as an example – it’s wrong to pour used motor oil into storm drains. That it is a good thing to not litter – and so on.

      But “environmentalism” goes much farther… like “racism.”

      It encompasses very questionable agenda items, but to question any of them opens one up to accusations of earth rape and being in the pay of Big Oil… and so on.

      This shaming is very effective. Especially as far as getting corporate people to roll on the floor and pee themselves like a cur dog fearful of a beating.

    • Short history of environmental protection. Originally there was private property rights and the commons. When someone fouled the commons or their property they got sued. The government’s courts of course decided in favor of government’s friends, the big polluters. It told people that they had to prove what was being dumped caused harm. Knowing of course the technology of the time didn’t allow it.

      Fast forward to the 1960s and 70s with rivers on fire and the other big problems statists say we would have without government (never mind they were caused by government). People are angry and technology can now prove the harm. Things are getting tough for the status-quo. Corporations can lose a lot of money. So the EPA is created. The EPA now says who can pollute how much. Just what the status-quo corporations need. New comers are blocked from entering markets because they can’t get the grants while government gets new leverage over people’s lives.

      Since then the environment has been turned into a very effective political tool for power, money, and social engineering. It’s what the political class does so well. They turn righteous anger of the people into a new tool of dominating and manipulating the people. Of course the environment, the climate, the weather is one of the oldest government scams. So now we have an old religion where we must sacrifice and obey our dear leaders or the climate will get bad and the crops won’t grow and the oceans will rise and we’ll all die.

      Thousands of years go by and nothing really changes.

  2. I’ve learned in the last 40 years that the way management works, including government managers, is they have to have a plan, and that plan will be implemented no matter whether the plan is obviously counterproductive or not. To admit failure of that plan is unacceptable.

    • PtB, looked at the link you posted. A feriner admits he tried to kill Trump with an occifer’s gun and faces up to 2 years in prison. Possession of over 4 ounces of pot will get you 10 years in the same state. That’s what I call Just Us. Just got through watching Syriana again. Some great quotes there. One I especially liked, among others, was “We want to give the illusion of Due Process”. That’s a goodun.

  3. Short of jacking up taxes so they are more than 100% of the base cost of gasoline, HOW is the govt to get to $4 a gallon gas?

    Cheapest gas here in Austin is $1.80 a gallon — so about $1.30 pre tax. Getting to $4 gas would mean taxes more than double the cost of gas right now.

    • “Short of jacking up taxes so they are more than 100% of the base cost”
      And what makes you think they have problem with that? Have you looked at the taxes on cigarettes lately?
      Not that I have any doubt the gunvermin has endless imagination at making up ways to make things cost more.

    • Short of jacking up taxes so they are more than 100% of the base cost of gasoline, HOW is the govt to get to $4 a gallon gas?

      By doing exactly that. There are now tens of millions of turd-brained morons, made so by decades of publik skool indoctrination, who believe taxes can never be too high or too many (think of a snail that’s been conditioned to react to salt as if it were a blessing).

      Sure, the tiny remnant of us who see such a move for the sheer madness that it is can scream in protest all we want, but our few voices will be drowned out by the sheeple chorus shouting “Thank you, Daddy! May we please have another?!”

  4. The article and accompanying video bring out a most salient issue which I cannot overstress. A great majority of govt employees are simply performing make-work* jobs. Therefore you can count on them to do practically anything to protect their gravy-train careers.

    They realize just as we do that cheap fuel will encourage car buyers not waste their hard earned dollars for so-called “fuel efficient” vehicles that don’t offer value for the sticker price they pay. Therefore, the typical govt solution to this “problem” is to artificially raise the price of fuel as Eric so correctly points out. These govt busy-bodies have nothing better to do all day than to think up idiotic solutions to non-problems, and this is a classic example. You can be sure these clowns will find a way to get what they want.

    What an unfailing waste of human resources.

    * Make-work
    1 : work assigned or done chiefly to keep one busy
    2 : Work of little value assigned or taken on only to keep someone from being idle.

  5. Eric, oil will rise in price, but for different reasons. After World War II, the global oil market merged and stabilized, with the price pegged at about 15 bbl. of oil / 1 ounce of gold. That ratio was close to flat during the gold standard era, which lasted until 1971. Since then, the ratio sometimes has fluctuated depending on gold’s gyrations due to Federal Reserve policy (usually bad policy), but always, over time, returns to the 15/1 ratio. That ratio last was reached in Nov. 2014, less than 2 years ago. Currently, the ratio is 29/1 ($1,323 per ounce of gold / $45 / bbl of oil on Sept. 13, 2016), meaning oil is under-priced. So it will rise against gold. (Note: If the gold price drops, as it sometimes does, see 1997-2001 and 2011-2014, then oil’s price also will drop.) Best would be to “End the Fed,” as the title of Ron Paul’s book has it, and returned to a pure, pre-1913 gold standard. But even if we returned to the pre-1971 gold standard, oil’s price would stabilize. Trump has made minor noises in that direction.

    One more thing: The price of gasoline, of course, is dependent primarily on the price of oil, but also on government policies such as taxes and regulations. For example, in California, where I barely subsist, numerous idiot regulations keep our gas prices about 15% higher than in more civilized states. Europe imposes much higher taxes even than here.

    • Hi John,

      Now, now… we can’t have objective measures of value! That would make it hard for our Dear Leaders and their string pullers to manipulate the economy (and thereby, us).

      On gas prices: One thing I didn’t mention in the article but probably ought to have is that it’s cheap in spite of much higher refining/associated regulatory costs. If you could somehow compared a 1965 gallon of regular with its equivalent today (i.e., a gallon of not “reformulated” or “oxygenated” or ethanol-enhanced plain old gasoline) I bet its pre-tax retail cost in current dollars would be about $1 or maybe even less.

  6. When I was in college there was a gasoline war going and I got ethyl for 22 cents. Some of the higher octanes like 105 were a 2-3 cents more and well worth it for people like me running those 12-1 CR’s. But in the early 70’s diesel more than doubled and gasoline did too. It had nothing to do with a shortage since OPEC was supplying about 3 % of our oil at the time and Texas has never had a shortage. This was govt. and big oil hand in hand.

    FF to the early 80’s and once again, fuel was really expensive as in $1.35 for premium and more. That was once again, big oil and govt.(RR) hand in hand.

    Prices went back down and remained fairly stable till the Shrub got in the WH and then once again(my fellow Republicans, we need to be energy independent, translates, stick it to ’em)and fuel once again got expensive. In ’08 right up to the point where the housing market went bust, I was paying(choke,choke)$5.26/gal. for diesel. We get close to election and it drops down to $4….magically and gas is a dollar less.

    Now all of you are probably saying it was less where I live. Sure, it’s always been that way. The closer to the wellhead, the higher the price, ever since I can remember. The only place fuel ever cost more than Tx. I found was Ca., land of biggest ripoffs. Even this last big go round in the patch, Big Spring had the highest fuel prices of anywhere I went. Why? That’s where the closest refinery was. Of course working in the patch it was a mixed blessing. That high price meant plenty work to do and wages were up. Then (here comes da banksters)big banks cut off the 0% money and all those start-up companies were shitting a brick. Everybody was trying to get things zipped up with minimal labor so fuel is going down(not too much)and Tx. lost 25% of non-ag jobs the first quarter of 2015, then more jobs and more jobs and cheap oil and cheaper oil and now nearly no jobs. Of course it isn’t that way everywhere. Some places never really had any jobs to lose. But we’re hanging on.. Damn right, the price of oil will come back(bomb China and Iran…..and Russia((huge reserves)) and everything will be grand. The biggest hope I have of stable oil prices came when Exxon/Mobil announced they were moving their international HQ to Midland, Tx. Of course they get a tax deal you and I could never get. And stable means much higher than it is now. But who knows? It’s not like all the majors aren’t the biggest players in Iran and China and Russia(well,they might be taking it on the chin a little there(Russia) but that just makes things better for them in Europe). Oh what a wicked web we weave……..

    WTF do you think the neocons are calling for war with Russia? Not sure how those idiots intend to militarily hurt Russia without nukes and that doesn’t work for oil nor anything else. Ok, it works for Lockheed and the plethora of arms makers(conventional)and Johnson and Johnson and General Mills and (insert large corporate name here).

      • PtB, it includes all of them. Monsanto is forefront in war, got a great boost during Vietnam with 2,4,DT(agent orange) and now they’re into everything. ADM? How could the largest supplier of food seeds and feed not be getting their dues in war?

        • “How could the largest supplier of food, seeds and feed not be getting their dues in war?”
          Well, war w/Russia will no doubt go nuclear, then ADM has no customers.

  7. On another subject, has anyone notice that gas prices have become increasingly volatile and unpredictable, this bust in prices notwithstanding? I noticed the trend in 2000 when reports came from Chicago and LA that fuel was selling for $2.25 per gallon when fuel was nationally at around $1.55-1.65. It was disconcerting to say the least. The reason: EPA Reforumulated gasoline. Other markets weren’t requiring the special blends back then. That didn’t come around until 2004-5 timeframe. From that point, when RFG became mandatory nationwide, the price would spike up in late Feb and wouldn’t drop until after labor day, when the less expensive winter blends came in. Then, in 2006 or so Low Sulfur diesel and later on, 2010 Ultra Low Sulfur diesel became a requirement. As a result, the price would spike during winter and then level back to gasoline type prices in the summer. Diesel became more expensive to refine and also it became more (and still is) more difficult for refiners to gauge demand for diesel fuel.

    In 2008, 10% ethanol became effectively mandatory, screwing up some food prices and increasing the volatility of gas prices as well. The government has intentionally screwed up fuel price predictability. Today, it takes more energy to refine and formulate gasoline that it did years ago. The fuel sold contains less energy due to oxygenation (not necessarily just ethanol) and we are getting kicked at the pump regardless of fuel prices.

    No one knows and no one cares. Nothing will be done about it either if the past is any indicator.

    • “Today, it takes more energy to refine and formulate gasoline that it did years ago.”
      Also costs more to transport, since you can’t run ‘gasohol’ through a pipeline, it has to go by truck or by rail (and then by truck).

        • Thanks 8,
          Since that link is 8 years old, and we haven’t heard more about it, I guess it turned out not to be economically viable.

          • I found a site of Kinder Morgan and it lists the fuels it puts in pipelines and where they are. It appears they use gasahol in pipelines.

            I won’t bore you with the site URL’s but I came across people who believe ethanol is a energy saver. I suppose if you didn’t need to use as much energy to make it as it delivers that would be true from a simple(very damned simple)view of saving gasoline by burning it. It’s hard to believe these people study it so fervently but ignore the energy used to produce it.

            • Yeah, I saw a post where a high school girl did a science project demonstrating that there was a net energy loss. And I don’t remember if she even calculated the energy required to grow the corn.
              But I guess I shouldn’t put so much stock in what I read on the ‘interwebs’ if they are indeed running gasohol through them.

  8. Yet another media cheerleading story on electrics. My local paper did a story on how fast electric and hybrids sell, on the USED car lots that is. They noted how the sell time (in days) was lower then gas powered cars, which may be true if you just look at it that way, which they are hoping you do.

    Of course they didn’t mention until the very end why those used cars sold pretty well. Electrics and hybrids have even worse depreciation then gas models due to the low demand. They sell for much lower prices so those priced out of the new electric car market (almost everyone) can now buy. So the poorer true believers can now have a year old 11k Nissan Leaf. Once that tiny market is filled, depreciation (and sell times) will be increasing again.

  9. Having defected from a formerly communist and totalitarian country, I’m starting to see the same nonsense in the US. Capitalism has done everything better, including its implementation of totalitarianism. Communist oppressors never managed to convince anyone that this was for their own good, but here, we have genuine believers in the state BS.

    • Hi OP,

      Yup. The “for our safety” nostrums are insufferable. I’d rather have the Stasi or NKVD… and above-board thuggery.

      Power for its sake. A boot, trampling a human face. Forever.

      • Just like some of the bosses I had over my career. The best ones? Those were the assholes, and they made no pretense about it. But you knew exactly where you stood, and they told you what was what, and fuck you if you don’t like it. The worst bosses were the ones who pretended to feel your pain. Nice to your face, everything is wonderful, meanwhile fucking behind your back. I’ll take an honest asshole any day of the week.

        • Here, here. Especially if that “nice guy” leads you to the unemployment line anyway. The American workplace started to become a festering pile of perfumed shit during the 1980s through today. The political correctness is insufferable as well.

    • We need more like you, Opposite. A bunch of my hockey buddies are Russian and among the most libertarian people I know. We have a lot of people here who don’t understand that ‘national greatness’ has nothing to do with the government. True believers have the luxury of never suffering the horrors of totalitarianism.

      And they never think it will be them that the State turns its evil upon.

      • I think this is incorrect as written, Yeti:
        We have a lot of people here who don’t understand that ‘national greatness’ has nothing to do with the government.
        It’s an inverse relationship, I think. Nations become great when given a great deal of freedom, then clamp down and extract resources from their own people, and finally, they collapse because of that government….

        Is that where you were going?

        • Yes, precisely. What made this country great once was the opportunity afforded by individual freedoms. What I meant was that many in our country think that the right ‘top men’ can restore what we’ve lost. Which, of course, is bullshit. Government of any kind hinders the individual and limits our progress.

  10. Having gotten completely cynical and having found most big government conspiracy theories to be founded in reality, I have to wonder if cheap gas is a backdoor attempt to boost us out of the greater depression we’ve been enjoying since at least 2000. Since tax cuts lessen the control they’ve been hoarding. Maybe…

    • No, I think the recent “good news” about the economy is going to be used as justification for raising the gasoline taxes, because global warming and all. And of course that will plunge us right back into limp-home mode again. Especially if Hillary gets in office. Trump, not so sure but I’m fairly certain he’d be happy agreeing to just about anything that comes across his desk if he gets a 10% reduction in the increase to crow about.

  11. Forgetting any of the government interference, as a consumer I’ve felt all along that these low gas prices are too good to be true. Hell, just a couple years ago it was more than double what it is today. You just know it ain’t gonna stay that way. After the election is probably a good guess, and then they’ll be back to sticking it to us. That’ll be good for the auto industry too. When gas is $5/gallon all the suburban warriors will dump their trucks and smoovees, then run out to buy fuel efficient cars.

    • One thing that people really don’t understand is the vast scale of oil fields. I live in gas country, mostly shale. For decades geologists were telling the oil companies that there was generations’ worth of gas under my feet, but no one knew an effective way to extract it. In the 1970s Exxon even detonated underground nuclear bombs in an attempt to unlock the gas. When modern fracking (which has been around since the 1940s) techniques were developed it lead to a massive revolution in production. Many parts of the world that are in the news lately (South China Sea, Cuba) are sitting on billions of gallons of shale oil just waiting for extraction.

      Several years ago a book came out called The End Of Oil. The author basically said that oil would continue to become more expensive to extract over time. He didn’t figure on the information age and Moore’s law having an effect on the mineral extraction business, so he was completely wrong. But thanks to confirmation bias the greens continue to believe in peak oil and other fallacies.

  12. While I do not agree with them at all, I can at least understand why those who are convinced that ‘climate change’ is an impending disaster want to regulate emissions out of existence.
    But given the seemingly constant increase in available oil, the only excuse for gunvermin mileage regulations is – control, control, control.

  13. My last fill up was 2.129/gal (or maybe it was 2.119, in any case I’ll use the higher number) A 90% silver quarter has a melt value of $3.4451 currently. 2.129/3.4451 * 0.25 = $0.154 / gallon. In terms of the money of the good old days of cheap gas, gasoline today is 15 cents a gallon.

    Even when gasoline was $4/gal silver was higher. I’ve been doing this calculation for years. I don’t recall it ever going over $0.30 a gallon by this measure and certainly not the traditional $0.35/gal. Mostly hovers in the 0.17 to 0.28 range.

    Everything possible has been done to artificially drive the price up. Regulations, effective cartel set up for refining, wars, and more. It’s now $0.154 a gallon in silver US coin. The actions, the mandates, the telling us what to do is all about shaping society and has nothing to do with anything they claim.

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