Wednesday, June 4, 2008


I didn't know we (us USAns that is) had an Energy Information Administration (EIA for short). But we do. I found the graphic on the site.

I thought the graphic was interesting and there wasn't anything more recent than the $2.80 average graphic that I found at least.

Gasoline here in Oklahoma as of the time I am writing is about $4 per gallon depending upon grade and where I buy it and when.

That's still about 1/2 what I'm paying for coffee. My Venti black coffee from Starbucks is about $2 plus which works out to nearly $13 per gallon.

Most of the cost of gasoline though is in the cost of the crude oil. That hardly seems surprising to me but is apparently to a lot of people.

Something that does surprise me is that when gasoline prices follow the upward price increase of crude oil that so many people become experts in the field. I think a part of this is attributable to the fact that so many of us are users of gasoline and also that we pump it ourselves. So the kind of "hands on" part of it gives us a distorted view of our own understanding.

I find it interesting that the cost of distribution, refining, marketing, and profit has stayed pretty constant as a percentage. I don't find it surprising really but interesting. It is, after all, a relatively mature industry so the channels for distribution and processing are all pretty much finished.

Oil and natural gas are important here in Oklahoma. They aren't as important as they used to be but they're still pretty important. A lot of us have royalties of one kind or another and/or we have friends and relatives who work in the industry. My brother is a geologist as was my uncle.

Nearly every part of the oil business is really, really hard. And very dangerous, too. You can easily lose your shirt and your life in the oil business.

One of the amazing things about the oil business is how cyclical it is. Right now we are in a high part of the cycle. We've never been this high before but we've several times been in high cycles. They are always followed by huge downturns.

I don't know what will cause it to happen this time. Probably it will be the dampening of the world economy. I don't know when that will occur or even if it will but something will happen I suspect.

I wonder what the price will drop to. The last big oil bust we had there were more than 1 million jobs lost inside the industry. Thousands of businesses were wiped out. It startles me sometimes to think about what we as a nation lost in terms of knowledge and ability. It would be like losing the automobile industry several times over.

But for right now things in the industry are pretty good except for the bad press and bad publicity.

Some of that is funny, too. I watched a congresswoman the other day when oil executives were called to testify. She was threatening nationalization of the oil industry. The government does such a good job at stuff I am sure they would do an equally spectacular job in getting oil out of the ground. She couldn't get the word "nationalize" though and was tongue tied for a second.

In my experience oil has been cyclical and I suspect that will continue. I don't know why. There are those who disagree. No less than T Boone Pickens is one and his knowledge, experience, and instinct has to be given considerable weight. Still I think something will happen and the price will drop again.

Just one possibility is the Bakken Formation that lies beneath Montana and North Dakota. It is estimated that there is 3 to 4 Billion barrels of oil technically recoverable from the formation. That's at current prices and current technologies. But there may be as much as 400 Billion barrels there that's not yet technically recoverable. Well, people are recovering reserves now that no one believed possible a few years ago.

That's significant because the total production from Saudi Arabia's reserve is estimated at about 265 Billion barrels.

Seemed a good idea to write something about gasoline prices now.

1 comment:

~Betsy said...

I wish I knew more about this industry and how things got so out of control at the pumps. Someone is making a lot of money somewhere while the little guy is getting squeezed. I suspect it's our 'friends' in the Middle East.

I'm old enough to remember the gas rationing days. Dad couldn't buy gas on an even number day because his license plate number ended in an odd number. I don't remember all the circumstances surrounding this plan, but I do remember Dad complaining because the price was up over 39 cents a gallon.

It cost me $55 to fill up my Hyundai two weeks ago and $48 to fill up my son's Honda. I can't imagine filling an SUV or truck.