Oil at $200/Barrel

[monsoon]

We have had the topic on the possibility of $100 oil, and it hit that level faster that I thought. It's posted on treehuggers.com that futures traders are speculating that oil will hit $200 barrel later this year and are purchasing contracts to buy at this price. So if oil hits this level what do you think it would do to the US economy.

[Rural King]

Heck, $100 dollar oil and the sub-prime mortgage crises almost has the US economy in or near a recession now.

I think $200 dollar oil (if sustained, or sustained at even halfway close to that price point) could be the catalyst for an economic recession of the likes we have not seen in over 70 years. It would bring huge segments of our economy (and the world's for that matter) to a screeching halt, from manufacturing, transportation, entertainment, to commerce. The US consumer and the national government itself is mortgaged to the hilt, add on massive inflationary pressures on to all consumer and industrial goods/services and the US economy would have a hard time coping, and probably take down the rest of the global economy into recession with it. The strains and economic hardship on the working and middle class, not to mention the poor, could be quite severe.

Internationally a severe recession created by a energy crunch could lead to a lot of global insecurity as nations fight internal pressures caused by economic hardships and tensions mount between major oil consuming nations over securing as much oil as possible for their own domestic needs. Developing nations like China and India might face real internal stablility issues as growing segments of their populaces have become accustomed to higher standards of living that are dependent on economic growth rates that could not be sustained if oil doubled in price.

However....lets hope oil has peaked for a few years so as least give some alternative fuel and energy techonologies a chance to get further along towards wide-scale marketability.

[swh1972]

We have had the topic on the possibility of $100 oil, and it hit that level faster that I thought. It's posted on treehuggers.com that futures traders are speculating that oil will hit $200 barrel later this year and are purchasing contracts to buy at this price. So if oil hits this level what do you think it would do to the US economy.

There is a subtle, yet important difference between Futures and Options, and the trades that are being mentioned are oil options, not futures. The fact that there are options being traded at the $200 level indicate that there are some individuals out there willing to bet on the chance that oil hits $200 a barrel, and if it does, they will cash in quite nicely. It does not signal a market consensus that oil will reach that level this year. If there were such a consensus (about $200 oil), the price of oil TODAY would be much higher than it is right now.

[Raintree21]

It would severely devastate our lives as we know it in our autocentric universe. Prices of EVERYTHING will double and triple. The only good thing that would come of it would be mass support of public transportation but it will take years to build it up enough to meet the demand.

[tamias6]

Gas in my area is hovering around $3.20/ gal. Granted there are many factors at play on oil's journey from ground to gas tank. But to me, $200 dollars / Barrel would translate to around $4.40 / gal. and spikes to $5.20 / gal during peak travel times such as Thanksgiving and Christmas. In short it means we would be anal raped by big Oil harder than what we are currently dealing with.

[sean]

How are we being raped by the oil companies if it is a free market? Can you not just opt out when the price prohibits your individual return on investment?

[Gard]

I was watching the "hearing" of the oil executives at the Senate the other day and a couple Senators in a nutshell told the oil executives that if they didn't get it under control, the US Government would take control of the companies and nationalize the US oil industry. I would like to also predict that we could very well start seeing drilling for oil in places inside the US that were off limits before and the rising costs justifying extracting oil from shale and tar sands.

[Raintree21]

I was watching the "hearing" of the oil executives at the Senate the other day and a couple Senators in a nutshell told the oil executives that if they didn't get it under control, the US Government would take control of the companies and nationalize the US oil industry. I would like to also predict that we could very well start seeing drilling for oil in places inside the US that were off limits before and the rising costs justifying extracting oil from shale and tar sands.

All of those companies are publicly owned and traded. How will that affect people's stocks, income, retirements, etc.?

[Gard]

^^^

Thats a good question. I would imagine that it would largely depend on how the government goes about doing it. For instance, does the government compensate the stock holders somehow, such as buying out their stocks? Does the government keep employee pay and benefits (except for the overpaid big wigs) as is? I really think the better solution is the slap a price cap on what oil companies can charge the gas stations and what the gas stations can charge the customers.

[monsoon]

^Let us not forget the oil companies would not have a business it was not the the US military protecting the oil fields where they pump oil and ships used to transport the oil, or the US Coast Guard providing protection to their platforms in the gulf, or US port facilities handling their oil, and US and state highways where not only is their product transported, but also consumed. The industry also pumps significant oil from public land. So basically this industry could not exist without extensive assistance from the tax payers.

If they want to play the ballgame of "it's not fair", then let them bear all of the above costs.

It's not unheard of for governments to nationalize their oil industries and tell the stock holders to go to hell. One only has to look south of the border at Pemex for an example.

[Raintree21]

This morning on the radio, they said that Goldman Sachs (I think that's who they said) estimated that $200/barrel oil would happen within 6 months to a year and that would equate to at least $7/gallon gas in the U.S. They said that average gas price in Europe recentlly passed $9/gallon (I know the governments tax gas much more over there, but geez).

[monsoon]

Diesel, which about 50% of the cars on the road in Europe use, just hit the equivalent to $9.25/gallon over the weekend. The blow isn't quite as hard over there because the Euro is pretty strong against the dollar.

[Captain Worley]

I'm wondering if the high gas prices have lowered the values of V8 cars. I'm seeing a lot of Mustang GTs show up on the used car lots around here. Since I only drive 24 miles a day, the fuel prices really wouldn't hurt me that much. Might be a prime time to pick up a 'stang GT or a Pontiac GTO.

[monsoon]

^If you don't drive much, then the cost of gasoline is not what costs you to own a vehicle, (depreciation, insurance, taxes, maintenance) so I would say go for it if you find a deal. On the other hand, for many people this isn't the case and the costs of gasoline are putting them in a bad way, and V8 based vehicles, which are totally unnecessary from a practical point of view, are going down in price fast.

In 1989 you could buy a Chevrolet Geo Metro, (really a Suzuki) with a 3 cyl engine that got 49mpg. That car is not available now.

[Appetite for Construction]

I read an article on CNN.com last week reporting on the increasing popularity of the Geo Metro. According to the article, a 1996 model recently sold on eBay for $7,300, about five times the blue book value.

The article also reports on a guy who has been buying up Metros and Ford Festivas over the past couple years, fixing them up and selling them.

What is the world coming to when a Geo Metro is a desireable car!!!

[Captain Worley]

I don't think the Metros were bad cars. The convertibles were pretty cute little point A to point B cruisers. I think cars were pretty much right sized back in 1989, but they look tiny vs their ancestors of today. Park an 89 Civic next to a new one.

[monsoon]

^Indeed. Even Hondas in this country are large cars now. Honda even sells a different version of the Accord outside the USA that is smaller and more efficient. If gas keeps heading up, this will change.

[monsoon]

Another causality. Ford announced today that it is going to lay off 10%-12% of it's salaried workforce in the USA.

[swh1972]

Talk about being in a tough industry right now...

Rising Oil Prices make your product more expensive to produce and operate;

Weakening economy has many Americans tightening their belts, so I assume auto sales would suffer;

For those that are in a position where they need to buy a car or truck, a tightening of credit standards will make auto loans more difficult to come by;

And finally, there seems to be really good traction for alternatively fueled vehicles, and a move away from SUVs and trucks.

[suburban george3]

^Indeed. Even Hondas in this country are large cars now. Honda even sells a different version of the Accord outside the USA that is smaller and more efficient. If gas keeps heading up, this will change.

I have several neighbors from the Phillipines who were talking about how Honda cars there are smaller than the equivalents sold here. The were mainly referring to the Accord and CRV.

As an interesting side note, FIAT has confirmed they are going to start building cars in America for sale in the US market by 2010. The cars will be sold under the Alfa Romeo nameplate. Don't know if they'll be any of the fuel efficient FIAT models (probably not.) It is possible Chrysler may build them? (They have also confirmed talking with FIAT)

[Captain Worley]

I'd heard the Fiat 500 may be coming over. I also heard the next generation Corsa will be built in the US. With Ford bring the Fiesta summer or so of next year, and Chevy building the Beat around the same time, 2010 looks like a good year for small cars.

[monsoon]

During the 70s Fiats were troublesome, very under powered, quirky cars that really did not get that good mileage considering their size and lack of power. They were not competitive with the Japanese cars that had come on the market by the mid-70s, and I suspect it was this competition that caused them to pull out of North America.

[suburban george3]

During the 70s Fiats were troublesome, very under powered, quirky cars that really did not get that good mileage considering their size and lack of power. They were not competitive with the Japanese cars that had come on the market by the mid-70s, and I suspect it was this competition that caused them to pull out of North America.

We knew several people who had Fiat's in the 70's. They were indeed very troublesome (outside of reliability, several models started rusting almost immediately after production) and hard to keep repaired. Part of the problem was a continous dealer network. I don't think any manufacturer could get away with what several automakers were guilty of in the 70's and if Chrysler is the American partner, it could stand to reason that maybe they will carry the FIAT (badged as Alfa Romeos, a marque that I think won't rekindle past FIAT mistakes in the USA) line at their dealerships..

[Captain Worley]

Fiats of the 70s also used Soviet steel that rusted if you looked at it funny. I'm hoping Fiat and their subsidiary Alfa can actually provide a good product and overcome their reputation for rust and unreliability.

Oh, as for the Alfa, I think it may be the 159 coming over, and the exotic 8C Competitionne (sp?).

[monsoon]

Any steel rusts unless it is stainless steel or galvanized if not completely isolated from air with paint and other sealants. I doubt that it had much to do with the Soviet source and was mostly due to the very poor manufacturing methods employed by Fiat.