<DrumBeat: July 9, 2006The Oil DrumUK Energy Trends, Coal>

125 comments on Oil Price Poll

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Dan Ur on July 9, 2006 - 1:24pm Permalink | Subthread | Parent | Comments top
As far as it takes.   But most people can still live paycheck to paycheck by juggling things, not going out to eat as many times, not going on the cruise but going to the mountains, smaller vacations, not bigger ones.  They can for now get by with things.   Huntsville where I used to live has BRAC coming in to Redstone Arsenal and Marshall Space Flight Center has been getting more NASA work and has more people coming in.  BRAC is moving 5,000 people in to work, while this does not even touch the numbers of support jobs that will arrive too.

That area won't suffer the same fate as some other areas will when the gas prices make mortgage payments.

I am of the opinion that we can still go up to $4.00 a gallon if we phase it in slowly like $3.00 has been doing.  If its a sharp hit in a few weeks and stays there, it will hurt more than if it goes up and down but finally settles at $4.00.

But I don't drive nearly as much as I did 16 months ago.

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TenPin on July 9, 2006 - 4:57pm Permalink | Subthread | Parent | Comments top
I live in Kansas City and my friends and I don't earn much money. I don't have a car but some of my friends do. I was considering how much of a difference the $1/gal price hike we've experienced over the last year really makes to them. Most of my friends use 45 gallons a month so now they obviously have $45 less per month to spend. You probably have to factor in some inflation elsewhere too such as food prices so make it $50. None of my friends are driving any less because of this so I guess I need to ask my friends how much more gas would have to cost for it to hurt their budget.

One thing is for sure though, they are spending less money on snacks, movies, nights out, etc so the entertainment and luxury businesses are losing out on their $50 a month.

How much of the US economy is based on luxury/entertainment. Is it most commonly the first thing that people stop spending on when their discretionary income drops or do people just pile on the credit card hoping for future relief?

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Agric on July 9, 2006 - 6:01pm Permalink | Subthread | Parent | Comments top
Your thoughts are accurate, Tenpin, consumer discretionary spend will be the first thing squeezed and the signs are there already. Malwart, when reporting second quarter results last week, said that consumer staples were their strongest sector and consumer discretionary rather weak.

Consumer spend is approx 70% of the US economy, I don't know of any attempt to define consumer discretionary vs staples spend.

Most gas spend is done on credit card, as is a lot of other consumer spend. There will be a lag before increased gas spend affects behavior. Those who pay credit cards off every month will probably make changes in spending behavior quite quickly. Others may let things drift a while before cutting back drastically, yet others will juggle things into probable bankrupcy.

So, the affect of increased energy prices on consumer spend, and hence the US economy, is likely to be gradual.

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Mad Maxout on July 11, 2006 - 10:49pm Permalink | Subthread | Parent | Comments top
So far, it's like you say, with the demand destruction at the long-range-commute end of the bell curve. I already know someone who succumbed to a barrel-a-WEEK commute. He got a job a lot closer to home. Even with some pay cut, he come out ahead no longer spending $500/month on the gas.

But while the long range commuters get demand destruction first, as the prices rise, the curve will rise and get steeper like a Hubbert Curve! He gave up a $40,000/year job becuse $6,000/year in gas sunk his truck. (and the gas money is after taxes)

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seismobob on July 9, 2006 - 6:50pm Permalink | Subthread | Parent | Comments top
When gas was in the $1.50 range I moved to  Aberdeen, Scotland where gas was in the $4.50 range.  Their was clearly a suppression of driving at that gas value. One could buy a 3 year old car with 15,000 miles on it.  It probably is mitigated by the fact that the UK is a very small country compared to the US,but it will be in the $4.50/ gallon range before people start re-organizing their lives, in my opinion.

The lesser driving was also mitigated by a public transportation system which was said to be one of the best in Europe. But even so, I didn't use it to drive the 10 miles to work because it would have taken me about 1 hour to get to work from my house on the west side of Aberdeen to the office on the south side. I don't know what pain level would have made me ride the bus, but even $4.50 / gallon wasn't it.

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tommy on July 10, 2006 - 2:00am Permalink | Subthread | Parent | Comments top
You have to understand that the extra money payed for gas is not lost! The money has gone somewhere else, but it isn't lost!

This means that the people who get the money (the oil exporters) can (and will) spend it back into the U.S. economy (or buy bonds). If they don't the dollar would not keep its value. So this means that the money comes back into the U.S. either way!

Only if extracting the oil requires more manual labor (more people to extract a barrel) the economy will be hurt! But since you hear every company screaming that they can not find qualified people I think that the increase in people working in the oil sector is relatively limmited (any data on this?)

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slx on July 10, 2006 - 6:44am Permalink | Subthread | Parent | Comments top
Since the dollar is steadily dropping in the past years, that money is not coming back to the us, apparently.

How will employing more people in oil extraction hurt the economy?

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Mad Maxout on July 11, 2006 - 10:53pm Permalink | Subthread | Parent | Comments top
But we all know some of that gas money goes into the economy right... when terrorists funded by it buy fertiliser, diesel (at $3/gallon!), and cars, then tons of money ends up coming from insurance companies' portfolios to pay for the healthcare of the injured. And portfolio money comes from the gas prices too!
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