Petroleum shortages and 30-50 cent retail gasoline price increases BEFORE yearend. : LUSENET : TimeBomb 2000 (Y2000) : One Thread

While RC his boys and the polly techies battle it out on whats gonna happen to the oil industry on rollover, let me interject some stats, trends and concerns on an inevitable problem that's gonna ensue in Dec. The hand writing is on the monitor. You aren't gonna like it. Its time to sell that SUV and get the ol bike out.

First, oil industry stockpiling already started showing up in October- normally a slow oil consumption month. The US consumed nearly 20 million barrlels a day in crude and products. This is the highest level since the Iranian induced oil shortage in Feb of '79. Worldwide oil stocks have been drawn down at the rate of 1.8 million barrels a day in Sept and 2.5 million in Oct. Quoting Cent. for Glob Energy Studies, "...hardly any spare [crude] stocks at sea, in temp. storage or in non-ODEC (3rd world) countries." Based on expectations crude stocks would get damn tight even without this y2k thing. We are gonna see RECORD WORLDWIDE CRUDE OIL STOCK DRAWS BY YEAREND.

Here in the US the stats are even more disconcerting. Crude stocks are down to 309 million barrels, 30 mil below last year and close to 45 mil below a 5 year average for this time of year. The transAtlantic Brent arb is dictating that imports are gonna diminish at the same time refiners increase their purchasing due to post-Fall refinery turnaround demand.

US gasoline stocks and demand trends are really depicting upcoming probs. The minimum operating rate is considered to be 200 million barrels. With this weeks 5 mil draw, we're down to 189 mil barrels. Its like we're seeing summer type demand levels on gasoline concurrent with winter type demand levels on distillate (heating oil & diesel) in the 'shoulder season'. Distillate stocks are also low- 14 mil barrels below last year. What's gonna happen when it really gets cold?

So are refiners gonna crank it up into these improving economics? On gasoline production, they can't. Conversion (gasoline producing), as opposed to basic distillation, capacity is running flat out and has for years. This is what happens when you don't allow new refineries to be built and environmental mandates dictate specs beyond the capacity of refineries (ie Calif).

So dovetail this upcoming pre-rollover hoarding with the scant stock levels already in place and whatever senario you see unfolding after year end. Gasoline prices have to skyrocket. And with the US, with 4% of the world's population, consuming 26.7% of the world's total (based on Oct stats) don't bag on the oil companies. You've been warned.....

-- Downstreamer (, November 18, 1999


Please excuse the venom of my previous post on this subject. Here is the short version:

1) The USA is the richest country in the world. Staggeringly, astonishingly rich.

2) If we lose 20% of oil production worldwide, you can still buy all you need. If we lose 50% production, YOU CAN STILL BUY ALL YOU NEED.

3) The current gasoline price at the pumps in Britain right now is about $5.35 a gallon, most of which is tax. And yet, somehow, we live with it, compete in a world market, and experience surprisingly little rioting and cannabalism over it.

4) You can too.

Any more questions? ;)

-- Colin MacDonald (, November 18, 1999.

You're correct, but I factor in the disruptions that I still maintain will happen, both here and in the Mid-east, and price may not even be the main consideration.

Think rationing.

-- Dog Gone (, November 18, 1999.

Mmm, quite right. Sorry, no offence or pollyism was intended. It's just that when you pay $5.35 a gallon, it's hard to stop your teeth gritting when you are reminded how cheap petrol is in the USA. :)

Fingers crossed there's enough for all of us...

-- Colin MacDonald (, November 18, 1999.

I also believe there will be rationing - as well as SUBSTANTIAL price hikes. For our farm tanks, we are taking delivery of 1,000 gallons of gasoline today. By this time next week, I would expect it to be at least 25 cents per gallon higher; both because of the trends mentioned above - plus the meetings now on-going with oil ministers, plus S. Hussain's upcoming weekend decisions. Time will tell.

-- jeanne (, November 18, 1999.

The cheapest gas at my favorite station yesterday was 1.49 a gallon.

-- Paula (, November 18, 1999.

Colin, the difference is that high oil taxes are indirectly funneled back into the economy to pay for all those Keynesian government services, good roads, and universal health care. It is like a sales tax, a semi-value-added tax connected to the overall health of the economy. (What you pay in taxes for stuff like doctor's visits we must pay "out of pocket.") People have worked around it in Britain, as you say. While social democracy might not be the most efficient way to manage an economy (fewer choices and flexibility), at least SOME of it feeds back into economy in productive ways.

However, under a pure shortage situation, the only people getting rich and benefitting are the Saudis and Venezuelans (maybe a few Texans...but domestic oil really ain't extracting what it used to) The people who will suffer from an oil shock include both Brits and Americans. Brits who pay 5 bucks a gallon will suffer when they have to pay ten. It will generate far more friction in ALL western economies.

But that's just my humble opinion. Perhaps if I am in some error you could help point them out...

-- coprolith (, November 18, 1999.


Think of it this way... Even if it's JUST the prices that rise, it will "hit home" for every American, not too mention the cost of American-made products. This could very well cause large lay-offs in both the U.S. and also overseas where companies MIGHT depend on American parts, supplies or services. The oil $$$ increase might either cut down on the available supply or might start the vicious circle of inflation (raise the prices to the point that an increase on other companies prices would be mandatory).

Of course, the same thing could be said of Great Britain, Japan, Germany, etc... If the increase in oil prices hit one country, it will soon affect the others as well.

We truly are in a domino-effect economy.

-- Deb M. (, November 18, 1999.

The geographic realities of America, particularly the West, are much different than Europe. I live in a rural area and work at the county seat - a drive of 32 miles. There is no mass transit service here, no neighbors to carpool with. You drive for transportation or you don't work. You drive a four wheel drive in winter, or you don't get over the pass.

My wages are not too much above the minimal and I work two jobs. At the last price hike in California, it was borderline as to whether I could afford to continue to work. With the prices that you are projecting, I will definitely be in large doo-doo land. Would actually make a greater take-home on welfare.

-- anon (anon@anon.calm), November 18, 1999.


Downstreamer, any comments on the threads below (Iranian refineries, etc.), or does this post cover it for you?

-- nothere nothere (, November 18, 1999.

To Downstreamer and Gordon Gecko,

Thanks for your informative posts on the energy sector. I'm interested in learning more about the fundamentals of the industry and would like to know where you get your information from. Could you guys please provide some links to good sites, reference materials, books, etc?


-- Clyde (, November 18, 1999.


Self serving answer:

The oil industry is inhabited by dinasours. There aren't any good websites for oil market info but look for mine after the start of the year: Good oil market info (spot and futures) and the whys behind the moves + the capacity to lock into oil and gasoline economics on line.

-- Downstreamer (, November 18, 1999.

Colin - In case you haven't noticed, our economy leads the world. When Russia defaulted on their debt it rocked the world for a couple of months. What do you think would happen if our pump price doubled in a month? First our transportation stocks would nosedive and the pump prices are automatically passed down the line to the consumer and I'm not sure how large our trade deficit can go before it finally manifests with a major negative impact. If our stock markets take a dump, the rest of the world is going to follow suit. I've already done all I can do. I own two Geo Metros. Also I work at home - no commute.

-- Guy Daley (, November 18, 1999.

Colin said:

2) If we lose 20% of oil production worldwide, you can still buy all you need. If we lose 50% production, YOU CAN STILL BUY ALL YOU NEED.

Due respect, Colin, from a guy who first crossed the pond as a toddler to visit his Liverpool grandparents in 1950, but I remember the energy crisis of '73-'74 and the "crunch" of '79. In the former, we lost, max, 7 percent of production, and we had odd-even gas days, lots of gas station closures for lack of product, people shooting each other in line at the ones that were open, unofficial rationing, and the worst recession since the Big One in the '30s. I was traveling cross- country when the Shah fell in '79 and I'm here to tell you we could NOT buy all we needed -- most places had $3 limits, if they were open at all. I finally had to bribe a gas station attendant with a tenner to get enough fuel in the truck to make it home. And that was mostly a shortage caused by nerves, not actual production losses.

Yes, we are obscenely rich, and yes we do consume way more that our fair share of the resources. And yes, it is all going to come home to roost, probably a lot sooner than anyone expects.

got firewood?


-- Cash (, November 18, 1999.

Colin wished:

If we lose 50% production, YOU CAN STILL BUY ALL YOU NEED.

You must be nuts.

-- a (a@a.a), November 18, 1999.

We can lose 100% of producation and still get what we need! ;-) Yeah, right.

-- Jim (x@x.x), November 18, 1999.


Any idea where in the oil sector there might be a place to put some money. Have cash, gold, and all the rest but have extra cash for an investment.

-- Unemployed (, November 18, 1999.


I'm scared of the stock market and I have very little money there. I'm certainly not in a position to advise accordingly. If I was gonna make a recommendation it would be the oil service sector- Schlumberger, Baker Huges, Neighbors, Helmrich & Payne....

My game is oil and gas futures and options but I can't recommend that either because of the high risk and high attrition rates of rookies. There's plenty of on-line commodity brokers. Set up an account and go long gasoline futures but you're gonna twitch on days like Thurs when gasoline futures were down over 2 cents or +$1,000 a contract.

Sorry I couldn't be of more help.

-- Downstreamer (, November 19, 1999.

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