One way to explain it--prices are up because of a demand curve shift, not because of a supply curve shift. That's the econ 101 explanation. We can get to marginal elasticities in a later course.....

I think of it this way: the aggregate demand curve is just the sum of all of the household demand curves in the country. Unfortunately, it's a form of average, in that you can't see the demand curves of the vast lower and middle classes separated from the demand curve for the wealthier classes. I suspect that for the top and bottom of the income spectrum, the demand curves are basically vertical. The poor have very little opportunity to change their consumption and for the wealthy gas is too cheap to think about.

That leaves the middle of the income spectrum that can change their demand. Unfortunately, that portion of the population has been shrinking over time, and I suspect their changes in consumption are simply being drowned out by increasing populations of lower income people and the wealthy who are ignoring the prices. We either need more time for the middle class to make adjustments, or higher prices to force the lower income population to stop driving.

The big reduction I expect to see is in the commercial sector. Eventually the reduction in construction will result in less consumption for business. I don't think most people understand how much of a bubble we've had in real estate. We need far more builders, lenders, and real estate agents to lose their jobs before we clear out this overhang. Of course, that probably means a recession as well, as in the early 70s. The stagflation is so painfully obvious now, it's a wonder the word isn't on the front pages of the papers.

As biofuels get added to the mix mpg goes down(less bang for the buck!).ie. higher demand for same miles driven.It would interesting to see stats on miles driven.

Cheers.

Well, 27 cents is not much higher than one year ago, though I confess I would expect the cumulative effect of higher prices over the last several to depress gasoline demand.

A few q's for RR or anyone: There are 200,000 gasoline stations in the US (quick and dirty research, includes con. stores which sell retail gasoline). Is the capacity of these 200,000 stations included in inventory data?

Are the gasoline inventory figures an actual count, or derived from seasonally adjusted sampling? Have there been any changes in the sampling techniques? Methods of computation? Large budget cutbacks which might decrease accuracy of sampling or polling?

Or, has the sampling been improved lately, and now we have better grip on reality than last year?

The reason I ask these q's is that in one stage of my somewhat doleful career, I worked with federal figs constantly. To the point of calling up mid-level fed staffers and "getting the poop." Deep in the bowels of the BLS or elsewhere.

When the numbers look wacky, it often was a collection glitch, not a real world glitch.

The way this year gasoline inventories shot up far above norms, then shot down below norms, and now are rebounding sharply looks like a seasonal adjustment factor, or sampling assumption, which has gotten out of whack. I am not saying that is a fact. I am only asking.

Prices go up, and Americans put the pedal to the metal... So if we really do have shortfalls, these so-called "consumers" are going to go looking for someone to blame. It won't be themselves.

I think that a mentality takes hold when the situation is hopeless. When the future is bright and there is hope, everything is measured and planned. When it's dark with little hope, people live for the day. There's no other way to explain US spending (and borrowing) habits.

When there's a plan and hope and a reason to sacrifice, people do it and have done it. No one's providing that these days, not here, not yet. Warning about peak oil and other calamities on the horizon, although a crucial first step, doesn't do it. There has got to be a political movement that takes these issues up and organizes people to deal with them.

Generally income elasticity is much larger than price elasticity. Since the economy grows each year, it takes more and more price to keep demand down.

Here's an alternative explanation that draws from Von Mises:

People arrange their wants on a scale in order of preference with the most desired things being at the top of the list and those less desired being lower on the list. For each thing higher on the scale of wants they would prefer it to something lower on the scale. THe inter-meshing of these scales of desires is what causes trade to happen. A baker has too much bread and wants bread less than the shoemaker wants it so they trade, etc. The scale is not static though and changes regularly in regard to satiation of wants, changing conditions, etc. More about this kind of reasoning over here.

So anyway, most people prefer driving to work over eating anything at all besides top ramen and having zero entertainment besides watching tv. People will live in their cars or simple temporary shelters next to walmart before they give up driving. Most suburban tract homes and neighborhoods are unlivable without cars, they might as well be located in the middle of the Sahara for most people if they couldn't drive to them.

'Running on Empty' might describe the American Consumer, who accounts for about 70% of the US economy.

http://www.atimes.com/atimes/Global_Economy/IF09Dj01.html

Above is a link to a short read by Max Fraad Wolff describing the recent state of the American Consumer. It is not a rosy picture and shows among other things: 1) Real and disposable personal income is falling while personal spending is still rising.
2) US GDP growth flat to possible recessionary.
3) Disposable personal income vs personal outlays were negative 132.8 billion in April - Negative 67.8 billion in March. The problem of more borrowing? Or, do these numbers show that the high end of consumers are distorting the picture? Nettlesome...
4) April new housing report shows 10.6% year over year sales decline and a 6.5 month inventory backlog. Decline in median home price year over year 11%. The housing sector since 2001 accounted for 20-35% (I know, a large spread) of employment growth and loaned Americans hundreds of billions of dollars for discretionary spending.

IMHO - While the term 'American Consumer' takes in a wide spectrum of people with an equally wide distribution of incomes and expenditures one has to wonder when the low end of the spectrum will begin to be priced out of the gasoline market...since we all presumeably need an address to obtain a drivers license and we all must eat and bathe occasionally. Another recent economic survey of American Consumers (appeared in my local newspaper) has shown that contrary to popular belief, the 'discretionary spening' mentioned above has been used primarily on medical emergencies, emergency household repairs, emergency vehicle repairs and other real needs vs the common myth that most home mortgage borrowing goes to purchase yachts or other luxury items. Common sense, which in no way resembles economic reality, is telling me that the low end of the spectrum of American Consumers is going to be pinched very hard and very soon.

bloomberg saying the same thing

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSG7tpjGOsyg&refer=home

also says that after memorial day things ease up on the demand from gasoline, which is not what Robert says, and I think the July August vacation time is a driver for gasoline as people rush to the beach, and other locations.

Gasoline Leads

``I think the gasoline market has seen its day,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``Gasoline should lead everything lower, which is normal after we get through Memorial Day.''

The driving season, when U.S. consumption peaks as Americans take to the highways for summer vacations, lasts from the Memorial Day weekend in late May to Labor Day in early September.

Also in a side note Gold is supposed to climb to 850 in the medium to 1000 according to JP Morgan

http://www.business-standard.com/common/storypage_c.php?leftnm=10&autono...

Quid Clarius Astris
Ubi Bene ibi patria

Ah yes, insurance and the auto,

I am curious as to how many states have a rule that you must have insurance to get plates etc.

In some states there is no such law, and in some its weak as in TN.

In TN there is a law but its weak. You don;'t have to have proof of insurance to get the tags. If you're in a wreck and don't have it then you get a ticket for that and you will loose your license until you pay of the damage and other costs from the accident if you are at fault.

There is also a "loophole" in the law. You can put up a bond of I think 500 bucks. This bond takes the place of "insurance". they can't take your license away, but you would still be liable for the money's from the accident.

I am betting people when they can will start dropping insurance because of the high cost. Which is another hidden way to still afford the gas.
Quid Clarius Astris
Ubi Bene ibi patria

Don't forget road tolls. In Toronto, the only toll road is highway 407, where they bill 17.6 cents/km. This road is packed during the rush hour. http://www.407etr.com/About/custserv_fees.asp

My car, a full size volvo sedan, uses ~9l/100km at 120km/h. So I'm only paying 9.9c/km in fuel (@$1.10 per litre). So driving on the 407 is like paying an extra $1.96/litre for fuel. Gas prices have a long way to go before people really start driving less.

I have noticed small used cars for sale have vanished...
even the older rusty civics and metros are being put back to work.

Correct.

I've been saying that for years.
It's also true for houses. The major expense for my family is the taxes on our house (close to 50% of the cost of ownership - after the mortgage is paid) followed by maintance and insurance. Energy costs would have to increase by 3x to be signif. but then we'd face the receding horizon problem because rising energy costs would increase taxes ....

Energy cost factors will not force the prudent middle class or rich to give a damm. There must be a better way - a consumption tax like a carbon tax.

We can't consume our way to sustainability.

My cost of car

A different strategy.

I bought a 1982 Mercedes Benz 240D (manual transmission) with 68,000 miles in pristine condition for $11,500 a couple of years ago. I still spent over $2,500 restoring any worn parts even if they were not close to failure (shocks were the biggest $ item). So far thus year, an Optima battery and stainless steel braid over teflon brake lines (a precautionary upgrade over rubber) were the major cost items.

Liability insurance is $720/year.

In a normal month, I drive about 120 to 180 miles and burn 4 to 6 gallons of diesel/monthly annu. Add some exceptional months (helping someone rebuild on the other side of town, evac) and I am about 2,000 to 3,500 miles/year.

Absent an accident, this should be the last car I ever own. 30 more years of driving and I will be *FAR* short of the mileage limits of this car (4 to 500,000 with excellent care). New/Refurbished seat springs & horsehair in 20 or so years, rubber will not last forever even with Armorall. New tires every 7 or 8 years to avoid dry rot.

Still, overall reasonable costs. Perhaps $1,500/year plus sunk cost to buy (and hopefully not replace).

If I drove more, repair and running (fuel, filters, tires, oil change) costs increase, as do the odds of an accident. And at 12,000 miles/year, I might actually wear the car out before I die or stop driving !

In summation, driving an extra 5,000 or 10,000 miles/year not only costs more fuel, it also requires more oil changes, filter changes, tires, batteries, windshield wipers, tolls, front end alignments, shocks, brake jobs, belts, headlights bulbs, wheel bearings, transmission work, accidents and more. And cars need to be replaced more often !

Extra miles are hardly "fuel only" charges !

Best Hopes for Ultra Low mileage cars,

Alan

Of course you might want to look at the inventories in terms of Days of Supply in excess of Minimum Operating Levels.

For the US as a whole, MOL may be as high as 185 mb, which is supported by the spot shortages we saw in the 195 mb range.

Basically, the US has probably operating on a cushion of one to two days of supply in excess of MOL. Currently, we have 1.7 Days of Supply in excess of MOL (assuming 185 mb = MOL nationwide).

In years past, the industry used to carry a much greater margin of Days of Supply in excess of MOL.

Halfin, thanks for the graphic, for a european, it's helpful to be able to visualize the districts.
Re your analasis of the stock levels, here's another slant:

The Gulf and West Coast have seen strong increases over the last 4 weeks, and are now well within the average range.
Stocks in the Rockies (small compared to other districts) have not seen equivalent gains, and remain marginally below te average range (ie lowest stocks in relevant week for 5 years).
In the Midwest, despite strong gains, levels remain well below the average range as we enter a period of expected high demand.
The situation on the East Coast is particually alarming, with levels well below the average range, and no sign of an increase in stocks.

Changes the message a bit hey? ;)

Re zero scaling, I've heard 185M bandied about as the MOL, so I'd say those graphs are pretty well presented - I imagine shortages would be kicking in well before the red line dropped off the first graph!

PAD 1 is the main import zone whereas 3 is the main internal surplus area. Colonial had a hiccup shutting down pumping from 3 to 1 for a day or so and have also put ht lines on proration which means there's more production in 3 than can fit up the lines. So makes sense that 3 is fat and 1 is lean at the moment. If demand in 1 gets beyond what imports +Pad 3 imports +local production can meet prices there will have to rise to attract more from Europe/Mid East/other to balance th system.

And you are very correct. The industry goes into a big flap over a 1% change at times when the 4 week average is nominal. I guess speculators have to have something to get the juices flowing.

PE,

Clearly, are still operating under the assumption that a physical world has physical limits.

The "New Math:"

Declining crude oil production + Increasing Consumption in exporting countries = Increasing Oil and Petroleum Product Exports.

Therefore, we can extrapolate the following US import trend "To infinity and beyond:"

http://www.theoildrum.com/uploads/28/Data_4weeks.png

(Khebab's graph)

Anyone care to take a stab at the "MOL" for crude oil in the US

Notionally, 270mb for crude and 185mb for gas (according to the IEA, p.35).

However, it's worth noting that those levels appear to be too high, given that US crude stocks fell below that "minimum" in Dec 2003.

That's not entirely surprising, since the US's minimum operating requirement fell 10% between 1988 and 1998, despite higher demand. If that trend continued, MOR would currently be about 250mb for crude and 172mb for gas.

Given those minimum levels, the EIA puts the US's discretionary petroleum (total-minimum) at about 90mb for crude and 30mb for gas, as compared to 90mb and 42mb this time last year. i.e., crude is the same, but gas is about 30% lower.

A problem? p.29 of the latest IEA OMR tells us that the OECD as a whole as of March was well-supplied with both crude and products, with more days of forward cover in stocks than 2006, 2005, or (especially) 2004.

So it looks like there should not be a problem, assuming refining and transportation of petroleum products follows its normal pattern within the OECD. An early hurricane hit to major US refining or import areas could cause difficulty, though.

Right, right, right. Conservation and substitution will get us to a more prosperous and cleaner world. We can consume radically lower amount of fossil crude – indeed, the US consumed less crude in 2006 than 2005. Mr. Price Mechanism is already stepping up the the plate. At more than $60, he is working on his power swing. Look for some home runs in years ahead, then grand slams.
Baseball is great for analogies.

No, the thing that will kill us in lack of oil.
Price is not a very good measurement because it assumes that more will eventually be available and the price will come down. Price does not reflect the fact that oil is running out. Eventually Gov. will have to get involved to allocate a scarce resource according to the common good. Otherwise only the very rich will get oil and that is a recipe for social revolution.

We will be at 55MMBD in 13 yrs. Do you really think we can conserve 31 MMBD by then? And have a peaceful world?

There are things about this belief that worry me.

The poorer third world countries are our "canaries" so to speak. And what it looks like is happening is that they use fossil fuels right up to the point they cannot afford them, and then the lights go out (rolling blackouts, shortages, etc). No biofuel industry. No PV systems. No Wind. Why? Why, if price will save us, has price not saved them? Why is their standard of living going down and not transitioning to a bright green future?

I think we need to answer a few questions to know if the problem will solve itself based on ingenuity and profit motive.

1. If the Profit Motive is active, then why has gasoline demand risen as prices have increased 50%? (Where are the new technologies? Why are the US automakers fighting legislation to become more efficient, if they are heading that way because of the market?)

Guessing the answer is "It takes time for innovation and efficiency". Ok, fine, then:

2. What are some plausible techniques for reducing consumption? (Try a parato chart of consumption)

3. How *fast* can those technologies be put into place? (preferably based on studies of prior circumstance and not just optimistic "best case" reasoning like everyone buys the most efficient vehicle money can buy).

Stuart made some efforts this direction early on (his posts can be found by following his name link on the right)

They are kind of scary. He looked at building rates, and they seem too low to rebuild our existing housing to be more Japan like in a reasonable time frame.

His analysis of vehicle efficiency was interesting, but I think it was optimistic on how fast the fleet will improve in mileage (The Hirsch Report had a more conservative set of values).

It would be really useful if someone could find data on how the US fleet MPG shifted from 2004 to 2005 and from 2005 to 2006.

Jon Freise
Analyze Not Fantasize -D. Meadows

horse stables/tack shops in urban areas. They are non-existent now

There at least 4 that I am aware of in New Orleans. Three servicing mules for the tourist buggy trade and one for City Park pleasure riders.

Best Hopes for Being Prepared for Post-Peak Oil,

Alan

dan cap
I'd sure be careful of that Haliburton recomendation, although Schlumberger and Baker Hughes are great companies, Haliburton is thoroughly tarnished itself. Their latest plan is to move the company headquarters to Dubai.
Why? Their official reason is to be closer to their customers, but I think its because they, like Michael Jackson, have figured out that they can't be extredited for their crimes. They've been implicated in billions of overcharges to the US Government, and ask old Brown And Root retirees what's happened to their stock and pensions.
So My question is: If they'll screw their employees and customers, what makes you think the investors are exempt?

There are plenty of great oil service companies out there-Corelabs, BJ Hughes, Cooper-Cameron-that haven't a hint of wrongdoing attached to their name. Look seriously at Keystone Valves, or Patterson UDI, Transocean, Rowan-but mark my words well, Halliburton is bad news.

Hello Polytropos,

I respectfully disagree. I think you are overlooking the thousands of TODer conservation and mitigation suggestions. Most posted by what I assume you would call Doomers. The trick is successfully getting this Peakoil Outreach message out to the everyday public and key leaders.

I hope you are not being a Doomer by not emailing everyone who needs to hear this message. For example: have you yet written the PGA, Tiger Woods, and Phil Mickelsen as I have done asking them to start plowing up golf courses?

Have you asked GOOGLE to feature an unlucky button as I have asked them to do?

Have you emailed various foreign embassies to warn them about Peakoil and the need for mitigative change? I have.

Have you written your govt officials asking them to go to full-on Peakoil Outreach? How often do you hit Reddit or Digg?

Have you emailed the G8 Conference asking for discussion of the ASPO Energy Depletion Protocols? I did.

Do you hand out cards, as I do, with your favorite Peakoil websites to strangers in public places? and so on.......

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

WTI is low because of logistical bottlenecks in landlocked Cushing, OK.

Brent is probably the best indication of world prices.

Which is why when gas is unavailable or upwards of $10/gal society will start to unravel. And this totoniela guy is worried about how many gas stations there will be. Who the F cares??? When people can't afford to drive to do basic things like drive to work and the store watch out!! They will blame the Oil CO's, Govt, Arabs, and whoever else is at hand. The vast majority of the public have no clue about PO or ANYTHING about oil. They just know that Arabs and the Oil Co's are greedy evil bastards. True? No. But that will not make a difference. They will go down with their preconcieved notions of how the world works.

The only people that have a chance of surviving are the people that realize that PO is real, and are ready to act on it when the time comes...