I remember when interest rates were falling in 2002 and all of a sudden, everyone and there brother wanted to buy a home. The Fed, reacting after the 9/11 tragedy, decided to lower interest rates at near historical rates in order to induce consumer spending. This has a profound effect on first time and bad credit home buyers as suddenly it looked like everyone could afford a home loan.
Since there were so many buyers on the market, home prices skyrocketed in most areas as people who normally could never afford a house found themselves getting loans for three or five times there average salary (or more) in order to get into the house they wanted.
Well, we all know how that story is playing out. The economy took a nosedive and homeowners with adjustable rate mortgages suddenly found themselves with a payment hovering at fifty percent more then they originally signed for. These people were then put in a position were they couldn't pay there mortgages and now there's a foreclosure crisis on our hands.
So what does this have to do with cheap gas? Well, what if speculation, a weakened dollar and lower then expected demand resulted in oil being overvalued. I'm not saying it is, and I doubt you would be able to find an economist at this point that would agree with that theory, but it is possible. Here's an article dated October 2007 where Russian Finance Minister says that oil is overvalued and that "Oil prices are at a speculative level and are being heated up by a host of conflicts in oil producing regions."
There is also this article where Exxon Chief Executive Rex Tillerson stated that he "cannot explain why we have $70 oil today. We are not having trouble finding oil. There is something else going on that I don't get." So, if oil is overvalued could we see a price correction at some breaking point, and what would that be? For most Americans, cheap gas had a set price, but the gas price roller coaster ride we have been on the last 5 years has made that cheap gas price rise up and up. As of this writing, gasoline is at $3.65 per gallon. If gas prices dropped to $3 people would be estatic, if it dropped even further to $2.50 per gallon it would pull us straight out of the economic doldrums we are currently in. But will it happen? I doubt we will ever see cheap gas as low as $2.50 per gallon again, but since we have even seen the high end of this gas price nightmare there's not telling what people will consider cheap gas in 2 or 3 years.
update 05.22.2008
Just to prove I'm not as dumb as I look, here's an interesting article I read today:
"Lehman's latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion's share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said.
"We see many of the ingredients for a classic asset bubble," said Edward Morse, Lehman's oil expert."
Wednesday, April 23, 2008
Monday, April 21, 2008
Cheap Gas in a Cheap Car
So you have 240,000 miles on your 1986 Volvo 740. You've used cheap gas the whole time you've owned it so you don't see any reason to use any better gas at this point in time, do you? Probably not, most owners wouldn't spend much money on any car that is worth less than a thousand dollars. Heck, most wont even vacuum it. But will cheap gas in an old bomber like that make matters worse?
Lets look at synthetic oil for example. I have heard people say that if you have a high mileage engine, using synthetic oil could make an old engine run better and last longer, but I have also heard that it is useless to use unless you started using it when the car was new. So, if cheap gas prices mean you can find some discount gas to put in your old car, should you use it?
As I have stated in other posts, there is conflicting evidence that there is any such thing as cheap gas from a quality perspective. Some groups will tell you that gas is gas and it's a waste of money buying more expensive fuels. Others people will say that certain gas stations carry premium fuel. If you decide to buy more expensive fuel that is your choice, but should you?
Well, if your cheap car is running poorly and has certain conditions, like spark knock, cheap gas can be a cause of that. You may want to try running a mid-grade or premium fuel a couple times to see if makes any difference. You could also look into buying a fuel additive to see if that helps with engine performance.
Where's The Cheap Gas At?
Lets look at synthetic oil for example. I have heard people say that if you have a high mileage engine, using synthetic oil could make an old engine run better and last longer, but I have also heard that it is useless to use unless you started using it when the car was new. So, if cheap gas prices mean you can find some discount gas to put in your old car, should you use it?
As I have stated in other posts, there is conflicting evidence that there is any such thing as cheap gas from a quality perspective. Some groups will tell you that gas is gas and it's a waste of money buying more expensive fuels. Others people will say that certain gas stations carry premium fuel. If you decide to buy more expensive fuel that is your choice, but should you?
Well, if your cheap car is running poorly and has certain conditions, like spark knock, cheap gas can be a cause of that. You may want to try running a mid-grade or premium fuel a couple times to see if makes any difference. You could also look into buying a fuel additive to see if that helps with engine performance.
Where's The Cheap Gas At?
Where are the cheap gas prices in California?
I found this off a government website as to why there are not cheap gas prices in California. I'll try to paraphrase it:
"The State of California operates its own reformulated gasoline program with more stringent requirements than Federally-mandated clean gasolines. In addition to the higher cost of cleaner fuel, there is a combined State and local sales and use tax of 7.25 percent on top of an 18.4 cent-per-gallon Federal excise tax and an 18.0 cent-per-gallon State excise tax.."
California prices are more variable than others because there are relatively few supply sources of its unique blend of gasoline outside the State.... Supplies could be obtained from some Gulf Coast and foreign refineries; however, California’s substantial distance from those refineries is such that any unusual increase in demand or reduction in supply results in a large price response in the market before relief supplies can be delivered."
That part I found pretty interesting. California is so far away from the Gulf of Mexico region that it is not cost effective to ship it to California. You can't have cheap gas when you have to transport it so far away.
"The State of California operates its own reformulated gasoline program with more stringent requirements than Federally-mandated clean gasolines. In addition to the higher cost of cleaner fuel, there is a combined State and local sales and use tax of 7.25 percent on top of an 18.4 cent-per-gallon Federal excise tax and an 18.0 cent-per-gallon State excise tax.."
California prices are more variable than others because there are relatively few supply sources of its unique blend of gasoline outside the State.... Supplies could be obtained from some Gulf Coast and foreign refineries; however, California’s substantial distance from those refineries is such that any unusual increase in demand or reduction in supply results in a large price response in the market before relief supplies can be delivered."
That part I found pretty interesting. California is so far away from the Gulf of Mexico region that it is not cost effective to ship it to California. You can't have cheap gas when you have to transport it so far away.
Cheap gas and it's effects on engines
With all the talk about cheap gas on this blog, we should talk about how cheap gas can possibly have a negative effect on your engine. after doing much research on the Internet I have found quite a few articles that state that cheap gas can cause all sorts of problems with your engine.
If you had my luck, you've gotten 'bad' gas before that caused problems with engine performance. I probably haven't had an issue in ten years with getting a batch of 'bad' gasoline, but I have experienced the issue before. What would happen is that the engine would either not start, start very hard, or run rough. Sometimes the effect of cheap gas in the tank would make the car run like it was missing a cylinder (in hindsight, the cars I drove ten years were so bad they may have been missing cylinders).
Now to make my previous point clear, when my engine ran rough I had purchased bad gas, not cheap gas. So I know that bad gas is out there, but is there such a thing as cheap gas? According to toptiergas.com, there definitely is. Top Tier Gasoline is an organization that claims to have a blessing of sorts from BMW, GM, Honda, Toyota, Volkswagen and Audi. According to Top Tiers website, these manufactures agree with the claim current EPA standards are not enough to ensure optimal engine performance. The group has a listed of recommended gasoline retailers that Top Tier brands as superior gasoline.
But there are others who claim that there is no such thing as cheap gas and that all automobile fuel is similar. For example, the Alliance of Automobile Manufactures, an automotive trade group, conducts a bi-annual study of automobile fuels and "hasn't identified any quality differences based on geography or brand," says Alliance spokesman Charles Territo. But, he adds, "That's not to say that certain vehicles won't perform better with certain fuels."
Based on the information on hand, no one believes that there is a 'cheap gas', or sub par fuel out there. What groups like the Alliance of Automobile Manufactures and Top Tier argue about is whether or not there is a 'superior' gas available to consumers, and whether or not it is worth the extra money.
Where's the Cheap Gas At?
If you had my luck, you've gotten 'bad' gas before that caused problems with engine performance. I probably haven't had an issue in ten years with getting a batch of 'bad' gasoline, but I have experienced the issue before. What would happen is that the engine would either not start, start very hard, or run rough. Sometimes the effect of cheap gas in the tank would make the car run like it was missing a cylinder (in hindsight, the cars I drove ten years were so bad they may have been missing cylinders).
Now to make my previous point clear, when my engine ran rough I had purchased bad gas, not cheap gas. So I know that bad gas is out there, but is there such a thing as cheap gas? According to toptiergas.com, there definitely is. Top Tier Gasoline is an organization that claims to have a blessing of sorts from BMW, GM, Honda, Toyota, Volkswagen and Audi. According to Top Tiers website, these manufactures agree with the claim current EPA standards are not enough to ensure optimal engine performance. The group has a listed of recommended gasoline retailers that Top Tier brands as superior gasoline.
But there are others who claim that there is no such thing as cheap gas and that all automobile fuel is similar. For example, the Alliance of Automobile Manufactures, an automotive trade group, conducts a bi-annual study of automobile fuels and "hasn't identified any quality differences based on geography or brand," says Alliance spokesman Charles Territo. But, he adds, "That's not to say that certain vehicles won't perform better with certain fuels."
Based on the information on hand, no one believes that there is a 'cheap gas', or sub par fuel out there. What groups like the Alliance of Automobile Manufactures and Top Tier argue about is whether or not there is a 'superior' gas available to consumers, and whether or not it is worth the extra money.
Where's the Cheap Gas At?
Sunday, April 20, 2008
Where's the Cheap Gas at?
Finding cheap gas has been a top priority for people in the United States for the last five years, but it has only been in the last year or so that the issue has really started to substantially hurt your wallet. I remember back in 1991, at the start of the Gulf War when gas rose to about $1.30 per gallon in my area; people were throwing a total fit. Not that there wasn’t good cause for it since the average cost of a gallon of gas at that point hovered around one dollar per gallon. So in reality, this presented us with a 33% price hike over a period of a few months. At today’s prices, that would equate to a jump from $3.35 per gallon to $4.45 per gallon in a short amount of time.
The saying has been for quite some time that adjusted for inflation gasoline is still not at its all time historical high. The previous standard was set in 1981 with an adjusted price of $3.15 per gallon. That benchmark had been surpassed in 2007; now making gasoline the most expensive it has ever been in US history. So getting to the topic at hand; where is the cheap gasoline? This can be looked at in two ways. For one, why are gasoline prices at such records highs, and two, where can you find cheap gasoline, if you even can?
The first part of that question is a lot easier to answer then the second. One of the major reason fuel prices have gone up so high is the extra demand for fuel by developing countries. For example, China’s fuel consumption is responsible for over thirty eight percent of the total growth in world oil demand. Couple that with the rapidly rising Chinese currency versus the weakened American dollars and you can see that cheap gas is more prevalent in China, therefore the demand continues to go up.
The next part of the equation has to do with refining capacity. The refinery process is what turns crude oil into gasoline. In the 1980’s, there were over 300 refinery plants owned and operated by Big Oil in the United States. This really helped in maintaining cheap gas prices. That number is now down to under 175. The main reason for this? A lower amount of refineries keeps supply limited. And with a high demand that limited supply helps keep prices high. But big oil companies profits are not the entire story, as there profits account for only twenty nine percent of gas costs. There are several small and large players that have there hands on fuel prices as well. From the start, where oil is located and retrieved, to where a barrel of oil is sold on the open market, transported, refined, transported again, and then sold at your local gas station. There’s also a gasoline tax on every gallon of gas sold. In the last 15 years or so the gas tax accounted for almost fifty percent of every gallon sold, but now that number is down to around fifteen percent.
So will we ever see the return of cheap gas prices in the United States? We will probably never see $2 per gallon gasoline again, but it is possible they we may see a fuel price ‘bubble’ that may bring a price correction at some point in time. What would precede such an event? It could be such things as a strengthened US dollar, a substantial decrease in gasoline demand due to a substantial increase in high gas mileage vehicle purchases, or just a decrease in fossil fuel demands in general due to developments in alternate energy sources.
Is there anyplace to find cheap gas? You can start by visiting a gas price tracking website like gasbuddy.com or gaspricewatch.com. These websites allow you to search viewer submitted gas prices in your region, comparing average highs with average lows. Don’t expect to find any huge bargains, but it is a start if you’re looking to maximize your fuel budget. The next best choice would be to buy a used car that gets really good gas mileage. You can check fuel mileage ratings for a large variety of vehicles at the EPA’s website devoted to the subject.
The saying has been for quite some time that adjusted for inflation gasoline is still not at its all time historical high. The previous standard was set in 1981 with an adjusted price of $3.15 per gallon. That benchmark had been surpassed in 2007; now making gasoline the most expensive it has ever been in US history. So getting to the topic at hand; where is the cheap gasoline? This can be looked at in two ways. For one, why are gasoline prices at such records highs, and two, where can you find cheap gasoline, if you even can?
The first part of that question is a lot easier to answer then the second. One of the major reason fuel prices have gone up so high is the extra demand for fuel by developing countries. For example, China’s fuel consumption is responsible for over thirty eight percent of the total growth in world oil demand. Couple that with the rapidly rising Chinese currency versus the weakened American dollars and you can see that cheap gas is more prevalent in China, therefore the demand continues to go up.
The next part of the equation has to do with refining capacity. The refinery process is what turns crude oil into gasoline. In the 1980’s, there were over 300 refinery plants owned and operated by Big Oil in the United States. This really helped in maintaining cheap gas prices. That number is now down to under 175. The main reason for this? A lower amount of refineries keeps supply limited. And with a high demand that limited supply helps keep prices high. But big oil companies profits are not the entire story, as there profits account for only twenty nine percent of gas costs. There are several small and large players that have there hands on fuel prices as well. From the start, where oil is located and retrieved, to where a barrel of oil is sold on the open market, transported, refined, transported again, and then sold at your local gas station. There’s also a gasoline tax on every gallon of gas sold. In the last 15 years or so the gas tax accounted for almost fifty percent of every gallon sold, but now that number is down to around fifteen percent.
So will we ever see the return of cheap gas prices in the United States? We will probably never see $2 per gallon gasoline again, but it is possible they we may see a fuel price ‘bubble’ that may bring a price correction at some point in time. What would precede such an event? It could be such things as a strengthened US dollar, a substantial decrease in gasoline demand due to a substantial increase in high gas mileage vehicle purchases, or just a decrease in fossil fuel demands in general due to developments in alternate energy sources.
Is there anyplace to find cheap gas? You can start by visiting a gas price tracking website like gasbuddy.com or gaspricewatch.com. These websites allow you to search viewer submitted gas prices in your region, comparing average highs with average lows. Don’t expect to find any huge bargains, but it is a start if you’re looking to maximize your fuel budget. The next best choice would be to buy a used car that gets really good gas mileage. You can check fuel mileage ratings for a large variety of vehicles at the EPA’s website devoted to the subject.
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