Falling Prices — Chart of the Day
Kurt Brouwer July 23rd, 2008
Source: Carpe Diem
For more on inflation and prices, see Does the Government Understate Inflation?.
Archive for the 'Business' Category
Demand For Oil Products Falls
Kurt Brouwer July 23rd, 2008
U.S. Oil Demand Falls In First Half of 2008 (API, July 21, 2008, Bill Bush)
U.S. oil demand was significantly down for the first six months of 2008, API said today in its Monthly Statistical Report. While U.S. refiners churned out record and near-record amounts of oil products, imports – especially product imports — fell substantially.
Deliveries of all oil products – a measure of demand – fell 3.0 percent compared with the same first-half-year period in 2007, with gasoline deliveries slipping 1.7 percent. For the preceding three years, oil demand had essentially held steady.
API statistics manager Ron Planting said, “At 20.08 million barrels per day, total demand was the lowest in five years. And the decline in gasoline demand was the first significant one recorded in 17 years. Higher pump prices and a slowing economy were undoubtedly factors.”…
As we saw in the previous post, the supply of oil will be going up a bit as the new Alaskan fields come on line beginning in 2010. Now, we see that demand for oil products has fallen due to higher prices.
Individually, these changes in supply and demand are not hugely meaningful. But, millions of such decisions are being made each and every day. Oil producers want to produce more to take advantage of higher prices. Consumers want to use less because of high prices. These forces — supply and demand — operate all the time. As demand falls and supply increases, prices should stabilize. Who knows, they might even continue the recent downward momentum.
I do hope they do not go down too much though. That may sound contradictory, but I believe high prices for oil will stimulate the growth of alternative energy sources and, in the long run, that’s a good thing. See Oil Prices — Too Low For Too Long and A New Strategy for Energy Independence — T. Boone Pickens.
Big Expansion in Alaskan Oil Exploration
Kurt Brouwer July 23rd, 2008
Interior Department Opens 2.6 Million Acres For Oil Exploration (New York Times, July 17, 2008,
The Interior Department on Wednesday made 2.6 million acres of potentially oil-rich territory in northern Alaska available for energy exploration. At the same time, it deferred for a decade any decision to open 600,000 acres of land north of Teshekpuk Lake that is the summer home of thousands of migrating caribou and millions of waterfowl.
The decision will open up for drilling much of the northeast section of the Northeast National Petroleum Reserve-Alaska, holding an estimated 3.7 billion barrels of oil, Tom Lonnie, Alaska state director for the Bureau of Land Management, said in a conference call with reporters.
The northeast and northwest portions of the reserve could yield eight billion barrels of oil, he said.
Mr. Lonnie said he expected the first oil production to begin in the easternmost part of the reserve, west of the Colville River, from 2010 to 2012. A fully developed oil complex exists on state lands on the eastern banks of the river…
The first oil production could begin in 2010? That’s fast.
Drivers Cut Back On Driving — Highway Taxes Hardest Hit
Kurt Brouwer July 21st, 2008
Oh the humanity! Due to higher prices, Americans are driving less. It’s the old supply - demand syndrome. Higher prices leads to lower demand. We’ve been told we needed to cut back and we did. So, that’s all good, right?
Not exactly. Now, we find out the Federal highway trust fund is going to go broke if we keep cutting back. From the Los Angeles Times, this piece tells the story [emphasis added]:
U.S. Highway Trust Fund Veers Towards Crisis (Los Angeles Times, July 21, 2008, Richard Simon)
Soaring gasoline prices are hurting Uncle Sam in the wallet too.
As motorists cut back on their driving and buy more fuel-efficient cars, the government is taking in less money from the federal gasoline tax.
The result: The principal source of funding for highway projects will soon hit a big financial pothole. The federal highway trust fund could be in the red by $3.2 billion or more next year.
The fund, set to finance about $40 billion in transportation projects next year, is increasingly strained. And the problem has taken on greater urgency as lawmakers face a backlog of projects to maintain the nation’s aging interstate highway system and ease traffic congestion.
“The situation has only been exacerbated by rising fuel prices, which are causing motorists to drive less and resulting in less revenue for transportation improvements,” said David Bauer, senior vice president for government relations at the American Road and Transportation Builders Assn.
California risks losing $930 million, or about a third of its federal highway allotment, Caltrans Director Will Kempton said in a letter to the state’s congressional delegation. Kempton warned that unless Washington acted to address the shortfall, projects could be delayed, reduced or canceled.
In the short run, lawmakers are scrambling to figure out how to close the gap. Federal highway spending nationwide could be cut by a third beginning Oct. 1, according to the American Road and Transportation Builders Assn.
“The condition of the highway trust fund has been deteriorating for years, but skyrocketing gas prices have made an already dire situation worse,” said Sen. Patty Murray (D-Wash.), head of the Senate transportation appropriations subcommittee. “We are now less than a year away from a bankrupt trust fund, which would leave critical construction projects in peril.”
In the long run, lawmakers must figure out whether the 18.4-cent-a-gallon federal gasoline tax, which helped bring in money when fuel-hungry SUVs were hot, is still a viable way to fund transportation projects amid heightened concern about gasoline prices, U.S. dependence on foreign oil and global warming.
The federal gasoline tax is tied to every gallon sold, not every dollar spent, so federal gas tax revenue goes up only if consumption increases. This year, consumption is projected to drop for the first time since 1991.
Vehicle miles traveled on the nation’s roads are trending downward for the first time since the oil shocks of the late 1970s and early 1980s, according to the Cambridge Energy Research Associates consulting firm…
No doubt this will get resolved. However, in a broader sense, it is a good reminder of just how complex our economy is and how we have to pay close attention to the unintended consequences of a particular change. The highway trust fund was, essentially, predicated on a continually rising number of miles being driven such that revenues from gas taxes would go up and up. Life does not always work that way though. Just pointing this out…
Via: BrothersJuddBlog
Subprime Lending Bubble Is Over — Chart of the Day
Kurt Brouwer July 17th, 2008
Source: Carpe Diem
As we can see from this chart, current subprime loan originations have fallen from the high levels of the bubble years (2004-2006) and now they are well below the pre-bubble period (2001-2002). Eventually, subprime loans will come back a bit, but at a sustainable level. The data on subprime mortgage loans is from a Harvard study on the state of nation’s housing market.