Will We Sit Back and Do Nothing About the Cost of Oil?

Gas prices bottomed out at $1.61 per gallon in January 2009. This morning I looked out the window and it's $3.49 per gallon. That's a nearly 120% increase in 2 years. We as a nation have done nothing since our last oil scare in 2008. Unless you call bailing out GM and their poor management. And the US taxpayer paying into their hugely unfunded union pension coffers.  We screwed over the common shareholders, and what we got was the Chevy Volt, a car that will go 40 miles between charges. Now, its 2008 all over again but instead of paying $3.50 for a gallon, this year we are looking at $5.  Wake up America!

Our energy policy hasn't changed forever. We think raising the Corporate Average Fuel Economy (CAFE standards) a few miles per gallon over 5 years really does anything for America's fuel economy? No! Trucks and SUV's don't even count in the formula. How come some cars get almost 50 mpg, but most get 18?  Because they can't achieve it? Really? The chart below shows the rest of the world can, so why can't America.

Obama has a moratorium on drilling. The world is also wanting to pull nuclear power off the grid as well. A new oil refinery hasn't been built since 1974. Don't use coal is produces carbon. Even if we were to ramp up electric cars and solar/wind energies, we will remain grossly dependent on oil for another 25 years. We have enough oil in North America to handle our demand. Enough that we wouldn't need any oil from the Middle East.  We just arent producing it. Why? Look at the chart below:

World consumption, especially in developing countries like China, India, and Brazil is skyrocketing. Any unrest like we currently have in the Mid-East, any little problem, and oil skyrockets again.  Look at the estimated world consumption in this chart:

Does it take a rocket scientist to realize that gas is headed for $5/gallon and then even higher. It's already that price in may places all over the world. 

There is no plan for America in sight. We have no leadership willing to tackle this problem. It may cost them "votes".  We have to make changes and develop a plan now. Any plan implemented will take years to develop.  We need more fuel efficient cars. And we need to drill and develop our own natural resources. If we don't I hope you enjoy a future of long lines waiting for rationed fuel. Tiny cars. And much higher prices at the pumps.

D

Are Things Getting More Expensive?

It seems like more and more when I get back from buying anything at the store I have less and less. I went to get groceries and I came in saying, "You know, I remember when groceries averaged $20 a bag, and now you cant even touch them for that...".  Well, it's true. Wholesale prices rose the most in 36 years last month. The chart below shows the CRB foodstuffs index.

What is going on? Well, how about a quick look.

Oil)  Oil was $1.61 per gallon in January of 2009. Today it averages $3.54 a gallon today, a 120% increase in just over two years. Everything gets transported in one way or another and oil is consumed. The further it travels the more it costs.

QE) Quantitative Easing. Look back at my older post for an explanation on QE2, and my thoughts about it making commodities go higher. Oil, Gold, Silver, Wheat, Beans, even Coffee. It's an explosion of food price increases across the globe, including Cabbage. Yes Cabbage! In third world countries this is enough to start revolutions, since eating is the central task in life to them. 

Now it's hard to prove that QE2 has been single handedly the cause, but consider this: The FED is pumping $70 Billion in cash per month into the World economy. The FED's balance sheet was $895B in September 2008. Today it's $2.55 Trillion!  That's a lot of money floating around the world competing for the same products. Hence, higher prices.

World Unrest)  Markets hate uncertainty. Uncertainty leads to hoarding of commodities for fear the World may run out of them. This drives prices up. Just look at Oil. Protests in the Middle East drove up our gasoline 50 cents a gallon in a few days.  And the feuding countries only produced about 3% of the worlds oil.

Weather) Freezing crops in Florida and South America. Quakes and Tsunamis in Japan. Record snow in the Midwest. Flooding in the Northeast and fires in California. Food is more scarce this year, worldwide. Corn and Beans have nearly doubled in one year.

The question is, "Where does it end?" Well its one less bag of groceries or even two, if this persists.

D