For anyone who's concerned about gas prices....

[SLYinKC]

I was reading this article in a publication that goes out to CPA's in my area and I thought it was very good.  I know we are all wondering about what this summer could hold for our pocketbooks due to gas prices and the economy.  Here is the article:

Gasoline Prices to Hit $4 This Summer or Tumble to $2.50?
There are few jobs as thankless as predicting what gasoline prices will do several weeks or months from now.
There are generally more variables to deal with than a weather map. The government’s official take is that gas
prices will peak at their usual, point during the summer and probably average around $3.60 a gallon. The
Energy Information Agency also suggests that reaching $4 at times will be a distinct possibility. The
expectations are based on three assumptions. The first is that investors will still be seeking refuge from the
weak dollar and inflation and will not have abandoned the commodity markets like oil to any great extent. The
second assumption is that demand from the US consumer will be about what it was last year if not a little
higher. The third assumption is that supply issues will continue to be an issue in the oil market – either because
OPEC has no intention of adding more capacity or because there will be problems in one or more of the
world’s major trouble spots (take your pick – Nigeria. Iran, Venezuela, Russia etc.). If the past is any guide
they may be right; but there remains a significant number of analysts who are not expecting this perfect
combination of negative factors. The counter assertion assumes some variation on the above themes. The most
dramatic departure is based on the belief that investors are going to bail out of oil sooner than later. This move
could be dramatic and will likely be provoked by one of two developments. Option one is that the US
economy starts to show some real signs of recovery which prompts the Fed to stop reducing rates and possibly
even raising them. This results in an almost instant strengthening of the dollar and speculators begin to flee the
commodity markets they have been hedging in. Option two is that the US economy keeps sliding and the
recession slams demand for gasoline – reducing the demand for oil. If it is the former the exodus from the oil
market could be sudden and impressive – taking prices down by between $30 and $40 per barrel. The counter
arguments also assert that demand for gasoline will be down this summer – enough to affect the level of oil
accumulation by the refineries. They also remain dubious about any dramatic political move that would
provoke a US reaction. The deeper into the campaign it gets the less likely it is that anything drastic happens
within the Bush administration.

Analysis: The motorist is left considering two very different options. One that could make a several hundred
dollar difference in the monthly budget. The extreme scenarios in terms of pump prices are probably the least
likely so one can discount the threat of $4 gas to a degree but that also means that a return to $2.35 is not in
the cards either. Given the attempt by refineries to keep their stockpiles very low so that they can be in a
position to buy potentially cheaper oil later it is a good bet that gas prices will hover in a range from perhaps
$2.70 to $3.25 until one or the other of these scenarios begins to play out. This leaves the consumer with few
real options. There is not enough certainty to the increase in oil prices to justify some radical move like selling
the car and buying a moped or moving closer to work or locking the teenager in the basement (although there
may be other motivations for this tactic). The impact on the economy will be severe regardless as people are
already feeling the pinch and have altered expectations. This is the part that could well affect demand. The
AAA has already seen signs of reduced planning for driving trips this summer and it is those excursions that
make the peak season a peak. -CK

[PigPen]

That's kind of reassuring, or not.....but maybe it is......I'll get back to ya on that

[Paul]

That made for some really interesting reading.  It will be intriguing to see how it all plays out for us the lowly consumer.  Thanks for sharing.

[Timmay]

I think its a bunch of hogwash anyways.  And the president is worried bout stimulating the economy?  Well lower gas prices and the average american will have extra in their pockets to go spend...Dahhh!

[buddha]

I work night shift at our local hospital about 5 miles from home. I have already purchased LED head and tail lights for the mountain bike and the next expenditure will be a large size Sta-Bil for the gas tank in the ol' Bronco.
 

[RustyRuss]

How amazing do you guys consider it that, I've never seen any local stations OUT OF GAS, never seen lines waiting to fill er' up, or any indication that demand is exceeding supply.  I know the refiners are backed, or so I hear, but if all the stations, at least in Texas, have plenty well, somebody is getting mighty wealthy off this fiasco.  Not trying to get political here but, when Dick is unCheneyed he runs amuck!

RR

[Stu]

As far as I understand it, the whole reason oil is at such a high is due to the weak dollar.  In other words, price has little to do with supply.  Therefore, you don't see lines or stations running out of gas.  Demand in the US may have an impact, though, on prices at the pump.  Eliminate corporate taxes (which are a misnomer because ultimately, the consumer pays all taxes), and suddenly, more companies will choose to do business in the U.S., stimulating the economy, raising the value of the dollar, and lowering the cost of oil.  Of course, none of this addresses the problem of our reliance on foreign sources of oil, and in many cases, their dictatorial regimes.  Thanks for the read, KC.

[joergHH]

Thank you for sharing this interesting article, KC.

And please be aware: Each action in the US has its reactions and reflections on our side of the pond.
High OPEC prices are the same problem here.
The weak Dollar compared with rel. high value of EURO lowers our energy costs here a little.
Another problem are the insufficient capacities of the refineries in America. In summer, when holidays start in US and in Europe the American Gas companies buy for the American market gas in Rotterdam and our gasoline prices rise.

J

[PigPen]

The question I have always asked, is do the oil companies have to make a record profit every year? It's ridiculous when they report a record profit of 40 billion for one year. I know they need to take care of the stockholders, but what about the guy footin' the bill? Do the CEOs need a huge salary and mega bonuses? Just being the devil's advocate.....hehehehehehe

[SLYinKC]

The question I have always asked, is do the oil companies have to make a record profit every year? It's ridiculous when they report a record profit of 40 billion for one year. I know they need to take care of the stockholders, but what about the guy footin' the bill? Do the CEOs need a huge salary and mega bonuses? Just being the devil's advocate.....hehehehehehe

I don't think "NEED" even comes into play with profits and bonuses.  They do it because they can.  And they will tell you that they're enjoying good years now, but they've just come through some years when oil prices were relativly low and profit margins were slimmer.  I guess it's all about our free market system.  Usually it works.  Just sometimes we go through periods of highs and lows.  It does all go in cycles.  I just wish the highs weren't quite so "HIGH" as they are right now.

[Stu]

Politicians who hate the oil companies try to deceive the public.  They repeatedly decry record profits, but they will NEVER, EVER discuss profit margins.  If you run your own business, and say, for example you have sales (profit) of $100 and expenses of $92, you actually earn $8, or you have an 8% profit margin.  If overnight, your expenses doubled to $184, you would need to increase your sales prices to $200 to earn the same profit margin of 8%.  WOW, you have now achieved record profits on the backs of the little guys, your customers.  But wait a minute, percentage wise, you're still earning the same 8%.

This is exactly what happens with the oil companies -- a barrel of oil has increased to over $100, so you would expect profits (sales) to increase dramatically, but they still try to operate at the same profit margin.  Now if your business catered to people's discretionary spending habits, you might not even be able to pass your increased costs on to your customers.

If you hear politicians talking about taxing these 'increased' profits, so-called windfall profits taxes, BEWARE.  What they are really saying is that because the oil companies' costs, and therefore their profits, have increased, they will use their governmental powers to grab those 'profits' because it's just not fair to the people (and probably use these taxes to buy votes).  The consumer will never see any benefits passed on to them.  What they really have done is used this as an excuse to arbitrarily lower a company's profit margin.  If the market is expecting and requiring that industry to maintain a certain profit margin, and the government comes in and confiscates 'excess' profits, the company is faced with cutting expenses, which unfortunately usually translates into job cuts.  Please pay attention to the words of the politicians -- they choose them carefully.  By the way, I am not a big fan of corporations -- their executives would sell their own mothers if they had to.  Sorry for the rant, but I hate when politicians pander to people for their own careers and blatantly mislead people.

[Sgt. Pate]

I'm taking the bicycle to the shop for a Spring tune up... I may be getting a little more exercise this summer! 

Nice part though, I don't have to worry about the helmet messing up my hair!