Saturday, September 03, 2005

The Good Old Days


I was thinking about the high price of gasoline lately (as I'm sure many people are), and it made me remember a picture I took a while back. I took this picture right here in North Texas in October of 1998. I remember thinking at the time that I didn't think I would ever see gas so cheap again, and I'm sure I won't from here on out. If only I had bought some oil futures back then...

3 Comments:

Blogger Anne said...

tell me about it. are you familiar with all that Forbes is saying about the oil futures? I don't quite understand it all but he is predicting the futures are going to rise for another year and then plummet. Not that we'll ever see 2.50/gallon again..but how do the futures work? Why are they making gas so expensive? I thought it had to do with the oil companies just jacking up the prices on their own.

9/03/2005 3:39 PM  
Blogger JC said...

Anne,

I'm sure this is somewhat of a simplification, but basically futures are contracts to buy or sell certain goods at set prices at a predetermined time in the future. So if you think that oil will be $80 a barrel in six months but you can buy a 6 month future for $70, then you can make money at the six month mark. Or something like that. Watch some economist come on here and put the smack down on me!

The current price spike may be a temporary hike due to the convergence of the effects of Katrina on the Gulf oil production and the historically high prices around Labor Day. But long term trends will be up.

I would be interested to hear an argument why oil futures would be declining. There is this idea of 'Peak Oil' which states that oil production is basically a bell shaped curve because there is a finite amount of oil that can be pulled from the ground. Experts disagree on when we will hit the peak, but some people think that we are pretty close to the peak now (others think it won't be for another 20 years or more). Declining supply will result in increasing prices, as will an increase in demand from China and India as they become more prosperous (which is starting to happen already, especially with China). If there was a decline in oil price, I would expect that it would be only temporary. I would say that there is some profit taking by the oil companies, but I think that they know that oil is getting harder and harder to get, and they are passing on this cost to us now. They will have to spend more money to locate new sources of oil and pull it from increasingly hard to get to deposits.

Let's see, doing a little research brings up one article on why futures actually don't predict $80 oil:
http://economics.about.com/od/
theoilsupply/a/oil_futures.htm

So, actually I probably wouldn't have been able to make money on oil futures in 1998. Back then oil futures probably didn't predict $70 a barrel for oil. I have to say though, it seems very unlikely that oil will actually cost $57 a barrel in 2011 as the article predicts. Maybe I should buy some oil futures now!

It's also kind of scary to think about how totally dependent our economy is on oil. Everything from fertilizers to plastics to pharmaceuticals are made from petroleum byproducts. Just about every aspect of our modern life depends on oil, if we don't start figuring out some alternatives soon (and it may already be too late to not experience significant pain), we will be in deep shit when we run out of oil.

Holy shit, do I sound like a dime store economist or what?

9/03/2005 5:29 PM  
Blogger Anne said...

You did a really good job, JC, and I appreciate your efforts. I have also heard that China has grown a lot as of late and is a major consumer. What do you know about the oil companies more or less MAKING SURE that we are totally dependent on gas? Shan has always said that they buy up the new energy technologies and then squirrel them away...flywheels, solar, wind power...etc...all are so expensive to develop and then to maintain. But then, when there is no more gasoline, we will be forced to find alternatives. I can't imagine that oil is just going dry up completely one day...just gradually...but it will still hurt until we come up with new ways for fueling the economy as it were. Scary...but hell, that's life. If it's not one thing then it's another, right?

9/04/2005 10:44 AM  

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