[Rhodes22-list] Lies, Damn Liars, and Oil

[Brad Haslett]

John,

Let me take the easy one first.  "The Hidden Penny" is custom, a way for
stations to squeeze one last bit out of you at the pump.  Perhaps squeeze
isn't the right word since most filling stations make more money selling
bottled water than they do gasoline.  The profit margins at the retail level
are extremely thin. The hidden penny isn't there at the airport - different
set of customs. How they came up with the fairly consistent 10 cent spread
on the various octane levels is beyond me. How much is hidden in the 9/10
added to the price?  126 Billion $$ in 2006. The Seven Sisters were the OPEC
of their day which is why President Teddy went after them.  The remnants of
the 7 (all now rejoined with one another in some fashion) only produce about
15% of the worlds oil as opposed to nearly all of it at the turn of the 20th
century.  The fundamental shift in the marketplace is the change in demand.
Here's all you need to know about that - China and India. The worlds supply
of oil is so tight that a very small change in supply, say a 2% shortage,
sends prices soaring.  The price you see quoted daily is the NYMEX futures
price which factors in a lot of things but includes a lot of speculation
based on fear.  If Iran starts rattling its sabres about closing down the
Straights of Hormuz the NYMEX price goes skyrocketing. You are correct that
most people don't have a clue what percentage of stuff they buy is based on
the price of fuel.  Some services (like the one my employer provides) is
fairly straightforward, look at your invoice and it will clearly state "fuel
surcharge" on the face of the invoice.  Passenger airlines can't seem to
figure this out, poor things.  Eventually, businesses large and small, have
to pass the cost on to the consumer.  In my construction company alone we've
seen our fuel costs go up about about $300 per week.  We have no choice but
to raise our prices to cover those costs. But the real bug-a-boo is not the
percentage of fuel costs in the price of goods or services but the rate of
change.  Some analysts have suggested that we could adjust to energy prices
going up 10% per annum indefinitely.  What we can't adjust to quickly enough
is giant leaps.  We need not speculate on this, we experimented with it in
1973 and again in 1979.  It was painful!  The economy will be fine at
$200/barrel oil but not if it happens overnight. You are also right about
the dollars the OPEC nations get not being worth as much and occasionally
you hear them grumble about demanding euros. Still, their profits in real
terms have gone way up.  The good news (if you're looking for some) is that
Iraq's oil production is nearing the pre-war level and their record profits
should help accelerate the improvements in their infrastructure now that
most of the bad guys have been rounded up and their government, however
inept they may be, is in the market for butter, not guns.  As for oil
companies selling off retail leases, go back to the first part of my
response.  There is more profit in selling condoms than in gasoline at the
retail level.

Brad

.

On Nov 16, 2007 12:47 AM, john Belanger <jhnblngr at yahoo.com> wrote:

> brad,
>  i have a couple of questions for you. where do we get the price
> difference between regular, middle, and high test being .10 difference
> between the 3 (until very recently), regardless of whether the price for
> regular is .88 or $2.88? and what is the story with the 9/10 of a cent on
> the end of the price. is gasoline the only oil product priced like that or
> is it also used on aviation gas, heating oil, etc. and if oil is now run by
> opec, didn't they learn how from the 7 sisters? everybody that uses oil as
> part of their business passes along the cost of oil to the consumer. how the
> cost is broken down to all the players isn't really known by the public, its
> kept secret, and probably, we could care less as long as we keep getting it.
> the dollars value keeps dropping so the oil producing countries and the oil
> company profits are not as high as they look. more dollars are not buying
> more product. oil companies selling off gas stations to leasees, and
> government wants higher
>  taxes on gas. lions, tigers, and bears, oh my! john b
>
> Brad Haslett <flybrad at gmail.com> wrote:
>  Ed,
>
> Here's a little item I stumbled across in my pre-bedtime reading ritual.
> When I answered earlier in the day I was just 'winging' it based on a
> hunch. This article agrees with my "off the cuff" response. We had a high
> level meeting of all the big executives of our construction company at he
> corporate aviation hangar (my brother was driving from Gulfport to Mom and
> Dad's). Let's see, there was my brother Gary, myself, and well, all the
> important people were there. One of the items discussed was pricing. All
> the bigwigs decided that we have to charge more to cover the rising fuel
> costs. This ain't rocket science! If I were the Captain of this economy
> I'd tell people it's time to fasten your seatbelts.
>
> Brad
>
> -----------------------
>
>
> US inflation reaches 14-month high
>
> By Eoin Callan and Krishna Guha in Washington
>
> Published: November 15 2007 15:55 | Last updated: November 15 2007 15:55
>
> Bond yields tumbled as US annual inflation reached a 14-month high and
> signs
> of trouble in the economy mounted.
>
> The cost of living increased 3.5 per cent compared to a year ago after
> consumer prices rose another 0.3 per cent last month, driven by higher
> fuel
> costs, according to official figures.
>
> The big jump in prices underlines the Federal Reserve's concern that
> inflation could pick up pace and make it more risky to continue cutting
> interest rates to keep the threat of a recession at bay.
>
> US stocks fell and the yield on benchmark 10-year US Treasury bonds
> dropped
> 2 basis points to 4.23 per cent as investors priced in less likelihood of
> rate cuts despite fresh signs of a weakening job market.
>
> The Fed on Wednesday unveiled far-reaching plans to adopt many of the
> features of an inflation-targeting regime, while stopping short of stating
> a
> formal inflation target.
>
> The US central bank said it would start publishing more frequent, more
> detailed and longer-range economic forecasts, including its first
> forecasts
> for "headline" inflation which includes volatile food and energy costs.
>
> The fresh emphasis on headline inflation suggests last month's sharp
> increase in overall consumer prices will be a concern for policymakers.
>
> The rise is being driven mainly by higher energy prices, which climbed
> 1.4per cent last month as electricity costs spiked and the price of
> fuel at the
> pump breached $3 a gallon.
>
> Economists said record oil prices were likely to continue pushing
> inflation
> higher, predicting prices could rise this month by as much as 1 per cent
> to
> an annual rate of 4.5 per cent.
>
> There are also signs that the growing amounts American consumers are
> spending on fuel is eating into their other household spending at a time
> when the economy is thought to be weakening.
>
> JC Penney, the department store operator, warned on Thursday of a
> "dramatically" weaker sales, undermining investor confidence.
>
> But core prices – which exclude food and energy costs – increased by a
> more
> modest 0.2 per cent to an annual rate of 2.1 per cent, despite a jump in
> medical care costs an increase in rents.
>
> Core inflation is favoured by central bankers as a better guide of future
> inflation trends and has been relatively stable at just above 2 per cent
> in
> recent months.
>
> This suggests an inflation trend that is slightly more elevated than the
> Fed's more hawkish members are comfortable with. But it is not likely to
> be
> sufficiently high for there to be a consensus among policymakers that
> inflation presents a greater risk to the economy than the threat growth
> will
> stall.
>
> The Fed left open the possibility this week that it could adopt a formal
> inflation target in the future, and provide investors with greater clarity
> about its intentions. But it stopped short for now for fear of sparking a
> fight with opponents of such a move in Congress, who suspect that a target
> would make the Fed more concerned about inflation than growth.
>
> Copyright The Financial
> Times Limited 2007
>
> On Nov 15, 2007 12:50 PM, Brad Haslett wrote:
>
> > Ed,
> >
> > "Brad, tell me how that not is a lie? Tell us how to see thru the fog of
> > misrepresentation."
> >
> > There is no 'misrepresentation' but let's not play games with ourselfs.
> > Inflation is still low but it won't stay that way at $100/barrel oil.
> > Here's a good benchmark; follow the sales of Dollar General stores.
> Their
> > CEO bought a farm down the road from my old one but that isn't
> important.
> > Dollar General sells to the people who can't afford to shop at WalMart.
> > When the cost of filling your pickup tank rises, the purchases at Dollar
> > General goes down. We're in a pickle here. At $100 per barrel, the
> economy
> > won't tank but it will adjust - painfully. I'm anticipating a recession
> for
> > two reasons (1) this business cycle has run its course (2) oil drives
> the
> > market. If you are thinking long term the time to buy into the market is
> > soon approaching. Then again, if you are thinking long term, any day is
> the
> > right time to buy into the market. At any point in history there has
> always
> > been an "ism" that was a threat. Right now it is the radical Islamists.
> > They have been proactive for the last three decades and they will either
> win
> > or we will prevail over the next fifty years. Whether you think Iraq was
> a
> > mistake or GWB is the biggest asshole on the planet won't matter in the
> long
> > run. There will be more battles and more US leaders without a clear
> vision.
> > As long as we keep sucking down their oil we fund their side of the
> battle.
> > Don't panic anyone, we've faced bigger hurdles and prevailed. Where was
> I
> > on this? Oh yeah - inflation! Coming to a theatre near you soon.
> >
> > Brad
> >
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