Tuesday, September 18, 2007

$80 a barrel but $2.50 a gallon! What gives?

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The image With the lack of major storms out in the US oil patch and apparent high short term supplies, fuel prices seem modest. In New Jersey, the price was below $2.50 a gallon! Why worry? Everything is fine! Well, not exactly. At $80 a barrel, mid-winter heating prices are liable to be steep this year. $78 is the recent high, back about 2 years ago. There is no major change in the overall view of near- and mid-term petroleum supplies. World oil production is still very close to world oil demand. Refineries are straining and weather and terrorism are still out there as unpredictable variables.

As we found out back in the '70s and '80s, there isn't a good way to stockpile you own supply of fuel. All you have is your vehicles fuel tank. Let's say we have 200 million gasoline vehicles with 20 gallon capacity. Well, that is a potential 4 billion gallons (worth about $12 billion dollars) just in our gas tanks! Most vehicles have tanks large enough for a 300-350 mile range. That means we are running between 15 and 17.5 MPG. That does sound about right when you consider all those SUVs we have (BTW, I have nothing against real SUV people. Its the SUV wannabes here in the crowded Northeast that clog up our roads. I hope all your leases run out soon and you can get something a bit smaller, leaving a little bit more road space for the rest of us).

So, what gives? Fortune magazine has a quote from the former CEO of Exxon, Lee Raymond. He feels the world market is adjusting to the potential of all the new biofuels, which don't really add up to a big part of the total market. We are going to depend on petroleum for another few decades. He expects oil's next high water mark will be $100 a barrel by next summer. Think about that when you make your next vehicle purchase decision. And more and more people are talking about a carbon tax.

 

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