Friday, May 16, 2008

A Ramble on the Rising Cost of Fuel - What the *~*~*?

So I went to the gas station to fillup three weeks ago and the price of gas was $3.36 a gallon, the next week it was $3.49 per gallon, last week I paid a $3.51 and this morning I paid $3.72 per gallon. For those of us that have to buy gas to get to and from work this is at the very least an aggravation at the most an unjustifiable outrage. When hear of record profits from the large oil producers, and growth of income in the oil rich nations, how can this outrageous pricng be justified.

Here is a little Reality
So we are clear on the issue we actually have it realtively easy compared to much of the rest of the world. Below is a brief comparison of Gas prices between the US and some of the major European countries.

As you can see it's not all bad. However, it still hurts when you have to consider that we as a country have a true love affair with our cars, and have chosen not to rely on public or alternative transportation. The US is a country that has built a major part of our lives, social character and work around our cars, and it's quickly becoming a reality that most us will need to change or at the least be decreased our use of the car. What hurts worse is filling up compared to filling up only one year ago, OUCH!!!

One more Reality Slap
The US economy works on a 10 - 12 year cycle. The US economy is currently in one of those downturns after very robust number of years. Of course, the issues are compounded by the mortgage banking problem, but this is no worse than the Savings & Loan collapse in the 1970's. Unfortunately, most Americans are feeling the brunt of the downturn in the US economy. Regardless of what our world famus highly paid Chief Economist may say we are in a "Recession". By the time they come around to calling the cycle what it is the US will be back on it's feet. Most will hate to hear this, but we are in just in one of our adjustment cycles, unfortunately demand is still relatively strong and this is supporting price increases. As demand falls prices will also fall. Guess what this is true of fuel prices as well. Fuel prices may not fall back to the $1.25 per gallon price, but they will come down and the economy will bounce back. The US is the single largest economy in the world and yes China will challenge this, but as long as the communist rule China, they will never have the economic growth the US possess, China will never have the economic flexibility to address a continually dynamic global economy.

So Why the High Prices?

The oil companies realize one thing and that is they have to make their money now while they still have the ability to do so. These profits will provide the future flexibility to modify their business and move in a direction that will allow them to be close to or as profitable as they are today. Given that we are still, as a country, at the low end of the pricing range, and that Americans are still buying gas at close to $4.00 per gallon, with only a minor preceived inconvenience, pricing will stay where it is and will rise until the companies see a drop in demand.

There is one component that appears to be going completely unnoticed as we all move towards a true global economy; the automotive manufacturers. There has been a paradyme shift with the US Auto Manufacturers in that they have finally made the shift to view sustainable growth only if they are able to build and deliver cars on a global basis. This means they must standardize manufacturing and designs so that their productline can be sold cohesively across all countries not country specific. This is the only way they can control manufacturing cost and build their business. This ultimately means no more building gas sucking "Land Yachts" and "Giant Trucks" only for the US market, they must build fuel efficient economical vehicle that can and will be marketed and sold globally with only very minor modification. These higher gas prices will force US auto buyers to think about buying the same or similar vehicle as Europeans, Asian and South African buyer, thus providing more profit to the Auto Manufacturer.

So this is our reality. The good old days of cheap gas are effectively over. Now this is not to say that gas will not come down some in the future, but I truly believe that we are looking at a future where the fuel pricing will become more closely tied to the global economy and demand. Pricing will always be a function of supply and demand, and let's face it when someone can control production supply and proportionately align this production with demand, pricing will stay high. So I guess now may be a time for all of us to begin looking at alternative fuels, and give the oil companies something new to look at for future profits, and probably make the enviromentalist a little happier at the same time. Not a bad thing for all of us to think about, but definately will require some dramatic changes. Those are my thoughts for happy begining to the summer.