Gasoline price increase: Why? Does anyone here see shortages?

[stufl]

There are many factors for the current increase. The media and industry sources blame the usual: increasing worldwide demand.

Republicans blame Obama for the latest increase and see this as an opportunity to drive a political agenda. They call for increased domestic drilling which will lead to reduced dependence on foreign oil.

But, gasoline prices dropped 69% from the Bush high in 2008 as a reflection of the declining world economy and resumed their ever increasing rise ever since.

http://www.nrdc.org/energy/gasprices/?gclid=CK-Yqpy2p64CFULe4AodexlqQw

"Natural Resources Defense Council: The United States will never control world oil supplies or gas prices…we don’t have the oil.
The United States has been drilling aggressively for the past century, with more active wells than the rest of the world combined. But even if we were to drill a hole everywhere in the country we know to have oil, and drain out every drop of proved reserves, we'd have enough to last us 1,094 days – just three years.
That trickle won’t ease gas prices. The price for a gallon of gas is set globally, …look at Canada – they produce a million barrels more than they consume daily, and have ten times more proven reserves than we do. But it doesn’t matter – price spikes at the pump there mirror ours."

http://mediamatters.org/research/201202160012

"Feb, 14 Bloomberg Businessweek: Analysts: Speculation & Refinery Closures Currently Pushing Up Prices. :
Strangely, the current run-up in prices comes despite sinking demand in the U.S. "Petrol demand is as low as it's been since April 1997," says Tom Kloza, chief oil analyst for the Oil Price Information Service. "People are properly puzzled by the fact that we're using less gas than we have in years, yet we're paying more."

Kloza believes much of the increase is due to speculative money that's flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers.

On Feb. 15 Fox News, A.B. Stoddard said: 'I think the increase of gas prices since President Obama has been in office is high and it will be a good talking point for Republicans. However, I don't think that it is going to be a driving campaign issue if the economy continues in the direction that it's going.' "

[TreasonousBastard]

1. This time it's basically speculation because of Iran...

and the possibility that the Straight of Hormuz might be closed if things get really hot.

(As reported by BBC, NPR and the NY Times.)

[Owlet]

2. I'm shocked..shocked that this could possibly be considered as a cause

"Kloza believes much of the increase is due to speculative money that's flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers."

Banking on the disruptions to the oil supply due to the upcoming war with Iran, no doubt.

(edited to correct multiple typos caused by daughter's cat leaping onto the keyboard. )

[rfranklin]

3. there is too much cash chasing higher returns in commodity futures such as oil...

The 1% have lots and lots of moola to "invest." They don't actually have the time or inclination to create businesses that provide jobs and provide a reasonable return on investment. Instead they throw the money at hedge funds which then look around for eye-popping returns. What better way than to game the commodity system. It can provide huge returns because you can control the commodity with leverage. For instance, you can buy a future on $50,000 worth gasoline for only about 20% of its actual value, or $10,000. If the contract increases in value by 10% you have made $5,000 on a $10,000 investment. That's what they are hoping for.

[Yo_Mama]

4. In December the ECB started its unlimited cash program to banks

In December it auctioned almost 500 billion euros. The expectation is that this month's auction will give banks almost that much again. In USD that will be over 1.2 trillion dollars extra money given to banks in three months.

Articles:
http://www.reuters.com/article/2012/02/17/markets-money-idUSL2E8DH6YT20120217
http://www.reuters.com/article/2012/02/16/bankaustria-idUSL5E8DG38F20120216

The ECB did this because people didn't want to lend to European banks any more due largely to the sovereign debt crisis and the capital rules, so banks were in a very bad position. Banks would have had to significantly cut lending to corporations (pull back money) to pay off their own creditors, which would have produced a very bad recession in Europe. And then there was the sovereign financing problem, which was massive.

Now, what happens to this money is that European banks are putting some of it back on deposit at the ECB and are using quite a bit of it to pay off loans coming due. When the banks pay off loans coming due, that releases a flood of money back onto the market. That money has to go somewhere.

It's likely that the significant amounts of the money going back out is going into commodities, since there are currency concerns in all this and since the pace of world growth is slowing.

The scale and pace of the ECB auction is much greater than the US Fed's operations of late 2010 and the first half of 2011, and those operations raised inflation worldwide, not to mention in the US. The US bought 600 billion (USD) of US securities over about a six month period. In one month, the ECB dumped more than that in, and it is going to double down this month.

So look for world inflation to shoot back up.

China reported CPI for January (1 month) at +1.5%. It was their New Year, so the number will probably drop this month. Annual food inflation in China was 10.5% in January.

Consumers all over the world are about to get clobbered.

[Yo_Mama]

5. It's really the cost of oil

I think you are right about money flowing into commodities boosting prices in excess of demand/supply factors, but since all this money is being inserted into the world economy, you have to expect that.

[NickB79]

6. Simple. China and India are still booming economically, and so is their demand for oil

The drop in US demand has been more than offset by the increased demand in China, India, Brazil, the Middle East, Russia, etc. Even the Japanese tsuanami has had an impact, since they're now importing much more oil and diesel in order to make up for energy shortfalls caused by the shutdown of their nuclear reactor fleet.

Secondly, many areas of the world that are seeing growth in oil demand are also countries that have historically exported oil, such as Mexico, the Middle East, and Russia. As their domestic demand grows, they're forced to restrict oil exports to supply demand at home: the expected land export model strikes again.

Beyond that, the new oil sources we're now adding to replace the declines in conventional fields are all from much more cost and labor-intensive fields. A conventional Saudi oil field could cost as little as $10/barrel to produce from, while the Bakken shale oil or Canadian tar sands fields need a price floor of $40 or more to make them profitable due to the higher inputs of manpower and technology. That's the true kicker of peak oil: it's not that we'll start to run out of oil anytime soon, it's just that the CHEAP oil is all gone. We might still be able to produce the same amount of oil for the next decade or so, but that oil will continue to increase in price as we're forced to extract the deeper, more isolated, more costly stuff.

We're basically treading water right now with regard to oil production, and our legs are getting tired.

[CAPHAVOC]

7. Refining capacity?

I heard that the refining capacity is down. That could cause a price increase.

[AnneD]

8. Capacity is coming down...

because demand is going down. We are awash in petroleum now. Unless they gin us up for another war, prices will have to drop or the Oil companies will do something stupid like export our oil to China.

[CAPHAVOC]

9. I am using as little as possible.

[KrazeeKrewe]

10. Tax increase at the pump is 100% responsible for the rise in Gas Price.

Every gallon of gas sold at the pump contains 10% ethanol & is called E10. Ethanol had replaced 15% of the gasoline sold in this country. 10% was sold as E10 & 5% was sold as E85. On January 1, 2012 the 45 cent tax cut on ethanol was not renewed because the USG needs more tax money. This increased the tax everyone paid at the pump by 5 cents since all gasoline is E10. For E85 users the tax increased by 38 cents per gallon. E85 users switched to E10 gasoline driving up gasoline demand 5% since then. The sudden price spike on the first day of 2012 is the tax hike & the continuing rise is caused by demand increase until the price rises by 38 to 45 cents so E85 use will compete once again holding gas prices in check. Also North Carolina increased their gas tax by 20 cents on the same date.