Raise the Hammer

One of the biggest reasons that the price of oil keeps increasing is because of the poor performance of the American dollar. Many are predicting that when the American economy improves (which it will), the American dollar will begin to perform better, and the price of oil will drop below $100/barrel.

No doubt the price increase is real. But...don't most currencies trade in American dollars?

Look no further than the Canadian dollar, Frank. We trade on the international market, not the US market.

Ryan is right - the price IS real. Those posted charts agree with Matt Simmons, who said the price is much more a supply problem than Dollar drop. A story this week said BP and Exxon are complaining they can't get enough oil to refine. And a OPEC exec said they have lost control of prices because they are already at maximum production. Mexico, the US #2 oil exporter, will themselves become an importer within 2 years and run out totally in 10.

US has 4% of world population, but uses 25% of world oil. That means if 16% of the world used oil like the US, the other 84% of the world would have none. Well, guess what. Suddenly the whole planet is adopting much of the Western lifestyle, from cars to Big Macs. That's why the US is in the Middle East with guns, to take control before someone else did - a desparate move for a desparate situation.

Gas should be around $2.00/L now. This time last year gas was around $.95/L and the price of a barrel was $65. It's double now but gas has only risen 30%. Where's the conspiracy theorists now?

I personally look foward to $2.50/L in 12-18 months. Then maybe a real energy solution will happen and force changes to how we live and function within this planet. Trying to figure out how how to keep gas cheap is not a solution.

i generally agree with the notion of 'looking forward to $2.50/l' gas. that said, i don't think there's a solution to our woes and that expensive fuel will ruin us, slowly but surely. in the future, life will be difficult and not the green utopia that many envision. hey, i love camping but i don't wanna do it 365 days a year - that's our future.

So why do people keep buying bigger and bigger houses?

Hey Trey.

Your math is excellent, but the cost of gasoline is made up of costs other than that of the raw material.

There's labour used in moving the oil to the refinery and from there to the gas station. In addition there would be administration costs, the cost of the actual refining process, depreciation on equipment used, etc. Oh yes, there are fuel taxes, GST and excise tax. These costs are unlikely to be rising as fast as the cost of crude oil.

We may have to wait a little longer for gasoline to rise to $2.50 per litre.

In any case, how do we predict the price level at which wholesale changes in human behaviour will take place?

Demand for oil has been exploding in the past few years, while oil production has plateaued at best. The world is coming to realize that treating a fossil fuel as a renewable resource does not make it one.

If you were Iran, Venezuela or Saudi Arabia, would you really want to scramble to bring all possible production online, so as to drive down the prices for the oil-sucking western world? Or would you cautiously cut back on production to ensure that it lasts as long as possible at a relatively high price to ensure the maximum number of remaining years of prosperity? Our politicians in Alberta could learn much from questions like these...why are we fighting to keep royalties down and subsidies up?

Ladies and gentlemen, while our parliamentarians debate the virtues of a carbon tax or "emissions trading system", the realities of oil production are imposing both. At current rates of growth, and there's no reason to believe those will slow significantly until major changes are made to the way we heat, move and feed our society, especially when billions of people in Asia are striving to catch up. The price of oil has been far too low for generations, and it's led to a world where energy is used far too frivolously for good sense, and that has meant that alternatives have never had a true opportunity to develop.

We can deal with oil depletion in one of two ways - we can lower taxes on fuel and subsidize production, we can increase automobile efficiency through smaller cars and hybrid whatnots (studies have shown that greater fuel efficiency simply lowers the price of driving, thus causing people to drive more), and we can work vigorously to bottle every last drop of oil we can get our hands on regardless of financial, environmental or human restraints - all to prolong the status quo. Or we can read the writing on the wall and go about getting a head start on the kind of changes which are coming, one way or the other. Effective transit systems, bicycles, organic farms and denser urban development.

Frankly, I have very little faith that our leaders will go with the latter, at least, until things get a lot worse. It's up to individuals like us to cry foul, to make changes in our own lives and do whatever we can to help others along that path as well.

So why do people keep buying bigger and bigger houses?

I'm not sure if the best course of action is either:

1) a real gas tax, like europe, say adding $1/L to the present tax and taking away equal amounts from income tax. This would help stabilize demand, and along with adding buffer reserves, avoid peak demand /disaster induced major shortages

or

2) do nothing for carbon tax, and allow wild price swings and seasonal, random shortages. This might actually be more rapidly progressive for alternative transport, because of the political pressure it would induce.

Wow, Ted, you have great faith in our governments.

I am trying to visualize how this would work in terms of being revenue neutral. Wasn't that what was supposed to happen with the GST?

I am thinking though that it would be a kind of moving target. As the gas tax bite takes hold, people start adjusting their driving habits, use less gasoline and the revenue drops. Would that then necessitate a retrenchment in the income tax cuts?

The other thing is that the suggested tax regime under alternative one may not be entirely equitable, as there are people who really need to drive for work reasons, such as people in the building or repair and service trades.

Perhaps your second alternative would be better, as you said. Market forces would allow people to make adjustments that they feel are best for them, as opposed to having the tax authorities make decisions for them.

Let's see, it is pretty simple. Increasing demand. Nonrenewable resource. Decreasing supply. And still applying old fashioned economic theory like market forces. Hmmm.

Count them beans, but whatever answer you get will be wrong until you change the mathematical model to deal with things like "product unavailable", which is going to happen several times in the next decade if people are allowed the freedom to decide for themselves, without really grasping or being held responsible for any consequences of that false freedom.

One thing for sure.... Ryan's "denial" will cause major economies to drive off a cliff before ever realizing a problem is coming, and the news media won't report it until there is no power left for their transmitters. There is some elastic in the economies, but once the rubber snaps, the dominoes will fall.

This is not just a matter of "getting to work" - since your work will be obsolete once customers focus on survival instead of consumption.

A staggering definition of Modern Agriculture - "the use of land to convert petroleum into food" - should also rock some worlds. Invest in vegetable seeds.