Bureaucracy

Dated: 1/12/09

A lot has happened since my last column so I will change my format today to reflect a timeline.

Dec. 15, Crude jumped to $50.05, which was a considerable jump. This jump was attributed to the upcoming meeting at OPEC where they claim there would be a large cut in production in an attempt to raise the crude oil price to $100 per barrel which is double what we have today.

12-17-08 Oil hits $36.43 per barrel in spite of OPEC lowering production by 2.2 million barrels per day. Since all oil producing nations have not agreed to the cuts the oil continues to flow.

12/26/08 Oil is still bouncing back and forth from 34 to 38 dollars per barrel.

Most increases and decreases on the street are due to rack and retail, not world market.

12/29/08 3 days into the escalated Israeli/Palestinian war, oil market increases by 7% to
$38.22. This increase is blamed upon speculation that there might be a disruption of supply in the Middle East even though past history tells up that no disruption is likely at this time.

1/02/09 Crude oil climbs to 46.75 per barrel and the TC street price starts to climb. National news blames the Israeli / Palestinian war, while at the same time President Elect Obama sticks to his guns on green, alternative fuels and no new drilling.

Interesting facts;

1999 Crude oil hovered around $16 per barrel.
July 2008 oil hit an all time high of 147 per barrel.
2008 Americans drove more than 1.4 billion fewer miles in 2008 than in 2007.

Several years back Congress mandated that 75% of all Federal vehicles must be alternative fuel vehicles (flex fuel). Because of that mandate Federal agencies purchased all new fleets of flex fuel vehicles. Since the flex fuel vehicles had less power and were less efficient than their previous fleets of vehicles that were made up of mostly 4 cylinder vehicles, these agencies upgraded to 6 to 8 cylinder vehicles. Flex fueled vehicles run on multiple fuels; gasoline, electric, E-10 (10% alcohol), E-85 (85% alcohol) and other combinations of fuels.

A new study recently revealed that although Congress mandated that Federal agencies must convert to flex fuel vehicles; they failed to mandate that these same vehicles must use alternative fuels. This study showed that less than 8 % of the new vehicles purchased, actually used the alternative fuels. Yes that is correct, most of the new vehicles never used even one gallon of the alternative fuels in the past few years. Now keep in mind that most agencies upgraded from 4 cylinder vehicles to the vehicles that had 6 to 8 cylinders, so not only did they not burn alternative fuels but by upgrading to more powerful vehicles, they actually burnt more gasoline than before. Another interesting fact of this study reveals that in seven states where the federal agencies converted their fleets to the new flex fueled vehicles, alternative fuels were not available. Yes that is correct; seven of the states did not sell alternative fuels. This is your tax dollars and representatives at work.

Of course as the federal government goes, so does many states; after all going green is good for the nation. So many states followed suit and also converted their fleets to the new flex fueled vehicles and yes they had the same results, alternative fuels were not used.

California in order to combat against these new findings recently passed a new mandate that all state vehicles must burn the new fuel even though these fuels are less efficient and cost more than 50% more. What is the governor thinking? California is nearly bankrupt, they are running deficits in the billions, so what sense does it make to mandate that the tens of thousands of state vehicles must pay 50% more for their fuel at this time.

Fuel prices are down now and our Congressional leaders are now trying to convince us that the prices are to low. (Again this is beginning to look like the tobacco industry; tobacco is bad so they highly tax the industry to deter the use of cigarettes.) For years, our government has been advocating the American citizens drive less, last year Americans stepped up to the plate and drove less, not just when the price was high but all year long. So what do we get in return? Congress now wants to raise the gas tax, one plan actually advocates an increase of a buck a gallon or more. As usual the states do not want to be left behind so they are also talking about drastically increasing the state gas tax.

My fellow citizens we have just seen the impact higher gas prices have on our economy; Mortgages in default, higher transportation cost, higher food cost, a failing auto industry and a failing banking industry, that is the effect of higher fuel prices.

This United States of America is hurting right now, our economy is in the dumps, the auto industry needs to be bailed out, the banking industry needs to be bailed out, the housing market has nearly collapsed and unemployment is on the rise. With all this going on right now someone please tell me why Congress is contemplating a pay increase for themselves? This is no time for us to sit back and expect that President Elect Obama will fix all our problems.

1/13/09 Due to the slumping world wide demand for oil, supplies continue to build, and the price of crude oil has fallen again to below $37 per barrel. Understanding that the crude price is back down to below $37 a barrel you must be wondering why the street price is still at $1.869; well don’t blame it on the local suppliers this time.


On December 24th crude oil fell below $37 per barrel and the rack price was down to $1.37 (including taxes); today’s rack price is 1.785! Yes, the major oil companies have increased their margins by 41 cents per gallon.

Get on the phones, or write to your representatives, it is more important today than ever before.


Jan 23rd 2009 Traverse City UL gasoline price is 1.929, one year ago last year the price was 2.979. Crude oil today is 43.65.

OPEC and other oil producing nations continue to attempt to stop the decline in the crude oil prices while stocks continue to grow based on the shrinking demand world wide.
Hundreds of oil tankers filled to capacity continue to circle the oceans or are anchored offshore somewhere in an attempt to shrink the reserves and increase the demand for oil.

There is an interesting phenomenon in oil pricing: Starting an upward swing in prices is very difficult, once the prices do move upward often it is very difficult to stop the increases, the same applies to a downward movement, it is very difficult to reverse an upward trend, but once the prices start to fall, it is very difficult to stop the fall.

There are many oil producing nations, OPEC is just the largest organized block. Most of the time other producers will follow OPEC trends and policies, but once Humpty Dumpty falls off the wall it is very difficult to put him back together. Every nation has its own budgets and needs that they must fulfill, and with many of these nations oil makes up for 50% or more of their budgets.

You will not find many nations raising their prices unilaterally because their clients will simply buy from another supplier, so most nations or suppliers seem to just follow the pack and reap the benefits as prices increase and stabilize. The problems arises when someone breaks out of the pack and lowers their price to increase their volume of sales, this creates an imbalance in the market which can cause the prices to fall as you have seen over the past several months. When this happens, tempers fly and price wars begin.

Keep in mind that oil producing nations reap the profits from the sale of crude oil to balance their budgets and expand their militaries and economies. The world thrives on credit, and when prices fall budgets fall out of balance and nations cannot support their economies nor pay for extras such as war. In order to make up for the lost income due to falling prices, nations or suppliers will increase the production and sales of fuel, when this happens all previous international agreements on production limits fall apart. Now the war begins. It is always much easier to prevent a war than to stop one.