Sushi Money

Lots of traveling lately, but it’s time to get back to work.  I’ve had a chance to see the economy first-hand from the road.  Gas prices are cheaper, but it’s been an expensive month of traveling. Sure we appreciate that gas prices have come down recently, but will it continue?  In my opinion, not without a firm comittment by our political leadership to reign in excess oil trading and speculation.  Even though gas prices are moderating, don’t expect it to help much with food prices at the grocery store.

So many of us have shaken our heads in amazement that gas prices could rise so fast over the past year.  It just didn’t seem natural, and we wondered how so-called demand could influence the price of barrel of oil so quickly.

Well as we’re finding out, it wasn’t natural and real end-user demand had little to do with the prices seen in energy markets this year.   There was demand however, just not the kind we think of.  The demand for oil that has driven prices sky high has actually been caused by speculation demand, and the oil markets have effectively been cornered by a few large firms.  David Cho of the Washington Post lays out the arguments pretty clearly:

“…when the Commodity Futures Trading Commission examined Vitol’s books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol’s portfolio — at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.”

“The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.”

How does it make you feel that huge investment trading firms can hi-jack the global economy?  Think tighter oil trading regulation doesn’t matter?  Tell that to countless folks at the gas pump who are having a difficult time commuting and putting food on the table.  Or those small gas stations and shops that have closed their business because they couldn’t pay such high prices and attract enough customers.  Tell it to countless small towns across America that lost out on tourism and business because people just couldn’t afford to travel and visit.  Tell it to the airlines, the real estate industry and those of us standing in the grocery store aisle wondering how it came to this. 

“CFTC data show that at the end of July, just four swap dealers held one-third of all NYMEX oil contracts that bet prices would increase. Dealers make trades that forecast prices will either rise or fall. Energy analysts say these data are evidence of the concentration of power in the markets.”

I’ll be honest, this makes me angry.  And disappointed.  I think our country can do so much better, and the political leadership could stand up and say “Enough!” and do whatever it takes to reign in energy market speculation.  We’re still living with the ghosts of Enron. 

“Oh, come on…” I hear some folks saying, “It’s not that bad.”   Well if you have a pretty decent income and no problem paying bills then perhaps it’s not.  But think of all those folks on the margin of poverty and the middle class struggling to take care of their families.   The last year or two have been disastrous for so many families, compounded by and continuing to affect the real estate markets.

The hard truth is that most of the “best and brightest” in this country have argued amongst themselves over the issues while oil prices continued to rise.  Too many have stood by and watched as our economy has been shaken from the inside out, affecting consumers at every level of economic need.  It’s been a runaway energy trading bubble and may continue to be in the future if we don’t change something.  Investigating trading practices is a pretty good start.

Yet even the Commodities Futures Trading Commission can’t admit the role that speculation has played in the energy markets. 

“To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices,” CFTC spokesman R. David Gary said.

Sure it’s supply and demand… the demand created by excess speculation and trading! The bottom line is Congress must close the Enron Loophole.  We have politicians and civilian leadership that simply cannot separate their understanding of the impacts of energy trading and speculation from legitimate business need in the commodities sectors.  

“For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings.”

How do we justify allowing trading organizations to purchase unlimited quantities of “paper oil” that won’t actually be used or delivered?  It makes little sense except to wonder how we allow such sway over energy markets by the major investment firms.

“When the CFTC granted the 1991 hedging exemption to J. Aron (a division of Goldman Sachs), it signaled a major shift that has since allowed investors to accumulate enormous positions for purely speculative purposes,” said Rep. Bart Stupak (D-Mich.) Now, he added, “legitimate businesses that hedge and take physical delivery of oil are being trampled by the speculators who are in the market purely to make profit.”

A second turning point came when Congress passed the Commodity Futures Modernization Act of 2000. The law formally allowed investors to trade energy commodities on private electronic platforms outside the purview of regulators. Critics have called this piece of legislation the “Enron loophole,” saying Enron played a role in crafting it.

I’m not an oil conspiracy fanatic, but it seems as if too many politicians and civilian leaders are unwilling to admit to the damaging role that investment firms play with regard to affecting commodity prices and ultimately their impact on the economy.  Sure they also play a vital role in providing capital and smooth functioning of commodities markets.  But greed can do a lot of harm over time.  Just like the nation had to break the monopoly over oil markets a century ago, we have a new monopoly.  It’s not just the oil companies this time, it’s also the investment banks across the globe.   

Do I think we need to drill more for oil at home?  Absolutely, even knowing that it will take years to change the status quo.  We’ve also got to continue the push to alternative energy.  I think we can do both, and I think John McCain’s got it right when he says we need to stop sending billions of dollars overseas and get Congress back in their seats to hash out the debate.  

But McCain’s got it very wrong if he’s going to defend the Enron Loophole.  We need to overhaul commodities trading regulations both at home and abroad.  It’s time to take America back and chart our own energy future.  And it’s time for change and real leadership. I believe we’re going to get there.  But it won’t happen unless we continue to make the case, and tell the politicians what we think.  Let’s hope the economy hangs in there while we wait.

This past week I’ve been traveling with little opportunity to post, but what a dynamic week it has been.  Markets have been volatile and subject to the usual economic whims, but especially of the oil trades and the weather.  And two candidates, like ‘em or not, debate the energy issues with very different views for the nation’s future. 

I’ve had the chance to drive almost 2,000 miles throughout the central and northern U.S. the past week, and I can say firsthand that people are frustrated, dismayed, upset and bewildered by how fuel prices have skyrocketed so far this year.   So many families are hurting, and the higher costs of fuel take that money away from the family budget.  It’s real, it’s painful, and it’s changing how we live and drive in this nation.  I’ve seen dozens of small gas stations and other shops closed in smaller towns because they didn’t recieve enough business to pay the bills.  Tourism is way down in so many areas, and the locals are struggling.  I’ve paid for fuel from the high $3.90’s up to well past $4.25 per gallon on the trip, and never cease to find someone else at the pump groaning.  Do most of these people think alternative energy is the way to go?  Yes, if we can afford it and it doesn’t hurt the economy.   Right now, that’s not the case.

Most of these same people seem to wonder why we don’t simply produce more oil at home, and do more to get oil prices down.  It’s as simple as that.   Why are we sending trillions of American dollars to nations in Latin America and the Middle East? 

Personally I think the only way ahead for the nation to become energy independent without crippling the American family and economy further over the next 10 years is to robustly drill for more oil at home, and find new ways to generate power without using oil from foreign sources.   Senator McCain cites nuclear energy as one solution in addition to drilling more here at home.   That’s fine with me.   Senator Obama says we can end oil dependence in our lifetimes.  That’s fine with me too.  But are we going to destroy the American family and economy while keeping that smiling Green face on?   I really wish our political leaders would work harder to find a way ahead.  Until then, we still need that Energy Summit.

For most of us in the U.S. prices at the gas pump are ridiculously high.  It would almost be funny if it wasn’t such a crucial issue for the national economy and consumers.  When I filled the tank the other day it was staggering to see the difference in cost from just months ago.  We don’t know if gas prices will remain high or continue higher in the years ahead, but global demand is still growing which makes it likely. These prices are almost inconceivable in some ways, and when you’ve got to make a long commute each day it’s hard to reconcile paying a larger chunk of the monthly budget to get the same amount of miles out of a vehicle.  Those chunks of the monthly budget add up to real dollars over time- dollars that we are giving up in saving for our future retirement security.

Many people in Europe or other nations have little empathy for U.S. drivers, but our country is so large that many of us routinely drive for an hour or more one-way to work each morning. It’s not uncommon for many of us to put over 75 or 100 miles on the car each day.  It’s a fact of life based on our geography that many of our own citizens often forget.  Those of you living in the city or suburbs of a large metropolitan area may not commuite or drive quite as far.  But many other people live in rural areas far from any metropolitan city and must not only drive long distances to work, but also to see a doctor, receive medical care or simply shop for groceries.

Obviously some of us drive vehicles that use a lot more gas, and it’s dawning on a lot more people that the money we spend for gas is simply being wasted on gas fumes.  Sure we love our big cars and trucks, but at what point are we willing to give up our future retirement security by driving a comfortable car?  Do we really need such a big car?  Maybe. But I believe that more Americans will give up the luxury of a larger car for the convenience and economic bonus of driving a smaller car. 

Most of us will never really understand the reasons for the runup of oil prices.  Demand is obviously a huge issue worldwide and speculation is being looked at more closely for the impact to high prices.    It is somewhat amazing that large investment banks can control enormous trading positions in oil and gas reserves.  Even billionaire George Soros sees much of the energy price runup due to “craze-following” behavior by financial institutions.

But regardless of the cause, the energy crisis is here and is causing a major shift in U.S. consumer behavior.  The media has begun reporting on the extinction of gas guzzlers in the U.S. as well as how American companies are reeling from energy costs.   U.S. consumers have cut back on gasoline use for the third month in a row, and the airlines are struggling as never before as corporate costs will continue to be passed to consumers. 

“Pressure from higher energy costs is already being felt, with Kimberly-Clark announcing it intends to raise prices on its consumer goods products 6 percent to 8 percent in the third quarter. The maker of Kleenex tissues and Huggies diapers said higher energy and raw materials costs were to blame for the price increases.”

We’re seeing price increases all around with food, energy and a greater number of retail goods.  The point is simply that high gas prices and the related impact on the family budget are a very real personal financial planning and retirement issue.  In what way?  Based on the cost of ownership of various vehicles, including how much it costs to put gas in the tank.  Don’t get me wrong, this is a free country and I love a big vehicle to move people and stuff around when I need it.  But when I need it is the important part of that sentence.  Most of us are realizing that we don’t really need quite as much car or truck as we thought we did. 

The New York Times describes how we’re staggering under the cost of $4 gas while examining the cost of ownership of various vehicles, and why consumers are changing their minds about what they’ll buy and drive these days:

“While the F-250 costs $100,000 and a fully loaded F-150 ” the better-known, smaller Ford pickup ” costs about $70,000, a Ford Focus still costs less than $40,000 over five years. A Honda Civic Hybrid does, too. A Toyota Prius costs only a little more. A Subaru Outback station wagon runs $50,000 or so.”

“To put this in perspective, the difference between a Focus and an F-250 over five years is $60,000. The annual pretax income of a typical family in this country is also about $60,000. So choosing a F-250 over a Focus is like volunteering for a 20 percent pay cut. The relative resale values might cushion the blow a little, but not much.”

“That™s why more people are deciding that towing capacity and the other benefits of pickup trucks and S.U.V.™s are not worth the costs. The F-250 may still make sense for some business owners. But, as Mr. Fisher says, on those few occasions when the rest of us need to move some horses, we can rent a truck. œThe new economics of car buying is, ˜Don™t overbuy,™  he told me. œBuy something you™re going to need most of the time.

That’s a great example for the impact of gas prices based on the type of vehicle we drive (it’s still somehwat incredible to me that U.S. automakers have been so ill-prepared to deal with this shift in need and demand!).  

But sky-high gas prices affect everything, including retirement security for you and me.  What are we giving up in future dollars and earnings simply to drive that big truck around town?  If I were to run the numbers it would be staggering.  Think of  the tremendous amount of money over time and it’s not hard to see how $30,000 to $40,000 over five years can become an incredible sum of money.  So what we drive each day and how much money we spend on it can make an enormous difference in our ability to save discretionary income for retirement. 

It’s not all about gas prices either.  While we continue to see price increases at the grocery store, it’s only a matter of time before wage increases won’t keep up.   The fact that wage inflation is under control right now may be more due to widespread economic challenges rather than anything else.  As the business cycle heats up again in the years ahead I have to believe we’ll see stronger inflationary pressures and rising interest rates all around. Fuel prices may be even higher.  If it costs more to live in the years ahead we need to think hard about how much money we’re willing to give up from savings right now.   Every dollar we save by driving a higher mileage vehicle means more dollars saved in the years ahead.

With that said, it’s a pretty good time to re-think the monthly budget, and and how much we’re willing to spend each year on fuel costs.  I’m not willing to sacrifice my future retirement security by spending so much money on gas.  Like many people I’m just not sure what I’ll do about it yet.  But I suspect a better mileage vehicle may be in our future.

We had a quiet weekend at home for Memorial Day, and spent the time catching up and visiting with family. Did gas prices keep us from traveling? No, not really, although we are driving less. It was just time to enjoy being home and getting some things done that we’ve been putting off.

We did change our travel plans for the summer however. Instead of driving across the country in a small RV, we’re now flying. It wasn’t a hard decision- we actually found round trip airfare for less than a third of what it would cost to drive the same distance. So this way we’ll have more time once we get there, and save money as well. Up until a few weeks ago the price was comparable either way. But as gas prices have risen, driving became more expensive. Then we found some really cheap fares to fly, so that made it an easy decision.

I would like to have driven though- and stopped at different towns across the country to see how folks are doing out there. Some of our relatives have been on the road for over four weeks and said people seem busier than ever. But reading the news this morning it seems that consumer confidence has dropped to a 15 1/2 year low as reported by the Conference Board Consumer Confidence Index.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. Says Lynn Franco, Director of The Conference Board Consumer Research Center:

“The Consumer Confidence Index now stands at a 16-year low (Oct. 1992, 54.6). Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers’ confidence in the overall state of the economy. Consumers’ inflation expectations, fueled by increasing prices at the pump, are now at an all-time high and are likely to rise further in the months ahead. As for the short-term outlook, the Expectations Index suggests little likelihood of a turnaround in the immediate months ahead.”

Consumers’ appraisal of current conditions grew more pessimistic in May. Those claiming business conditions are “bad” rose to 30.6 percent from 26.5 percent, while those claiming business conditions are “good” decreased to 13.1 percent from 15.4 percent last month. Consumers’ assessment of the job market was also more downbeat. The percentage of consumers saying jobs are “hard to get” was virtually unchanged, 28.0 percent versus 27.9 percent in April. Those claiming jobs are “plentiful” declined to 16.3 percent from 17.1 percent.

Last week the University of Michigan Consumer Sentiment Survey fell to a 28 year low. Not since 1980 have consumers felt so negatively about the economy.

It’s not hard to understand why with the challenges we’ve faced over the past year. And with gas prices posting record price increases for over 20 straight days, it makes you wonder what’s really going on. It’s like there’s a buying frenzy taking place… kind of like the dot-com boom except this time with oil and energy commodities.

But for most of us it is what it is. We’ll have to deal with it until the government figures out a workable response. Over the past few months, U.S. drivers have indeed cut back on driving, but it hasn’t put a dent in gas prices yet.

But the Fed is reporting that the credit crunch is easing, and even home sales actually increased a little in April. But sales activity is still very slow and the price of single-family homes has fallen quite a bit over the past year.

Do you lie in bed at night worrying about home prices? Most people don’t. We live in a house, and usually plan to be there for a while. For me it’s a decade or longer asset, and not something we plan to borrow money from. But if you’re trying to move or sell a house, it must be a difficult time.

The economic challenges will continue to affect most of us for some time. Unless energy prices moderate soon, it’s going to get a lot tougher out there.

How long are the elected leaders within the U.S. going to let OPEC, oil companies and investors determine the price of oil and the price of gas that consumers across the country pay to put in their cars?  Oh, well maybe that’s the way the free market works. 

But when the price of oil doubles over the last year, there’s something wrong with the free markets.  Maybe they’re not so free after all, and between the oil producing nations, the giant oil companies and enormous investment and commodity trading practices, consumers are paying a premium that just doesn’t seem fair.

So now the politicians continue to blame the oil companies for these problems, wringing their hands over what to do.  Of course there’s enough blame to go around for everyone it seems, even those of us driving gas-guzzling vehicles that cost a fortune to fill at the pump. 

But the Congress itself is also to blame, even though they recently passed the symbolic NOPEC law targeting the OPEC nations for potentially monopolizing oil.  Some journalists have astutely observed that Congress is really doing the same thing that they have accused OPEC of doing:

“This [law] is designed to make OPEC™s activities illegal. But here™s the problem: All that talk about œlimiting the production of oil could apply to Congress just as much it does to OPEC. Thomas Pyle, president of the Institute for Energy Research, comments:

“The Congress itself is guilty of committing the crimes outlined in this legislation. In fact, it is a repeat offender. The only difference between the Congress and OPEC in this regard is that OPEC is willing to produce oil for its citizens and its economies. The U.S. Congress, unfortunately, is not.”

“Pyle is referring to Congress™s refusal to lease more public lands for oil and natural-gas exploration. His group receives substantial funding from the oil industry, but he makes a point that even an environmentalist can appreciate. Congressional Democrats, together with a few moderate Republicans, have killed repeated attempts to open America™s Arctic National Wildlife Refuge (ANWR) for oil exploration, and Congress has barred states from deciding whether to allow drilling on the Outer Continental Shelf in the Atlantic and Pacific Oceans and the eastern Gulf of Mexico. All these actions were taken, in part, to limit carbon emissions. But if NOPEC somehow managed to reduce oil prices (which it will not), it would do so by pressuring OPEC to increase oil production. And any OPEC increase large enough to lower prices would cause far more carbon emissions than any potential increase in American production.”

But what about the oil companies?  If the oil companies are guilty of something, it’s their ignorance and hubris at failing to understand how oil prices are affecting the American economy and consumers.  Instead of defending their profits, which of course is the goal of any business, oil companies should be working with government to solve both the demand questions and the speculative investment concerns. 

So is the price of oil running up purely because of fundamentals with demand and the price of the U.S. dollar?   From a long term view there’s little doubt that the fundamentals and global demand have determined the prices we pay.  But the debate regarding the influence of investment speculation is valid, especially in recent years.

Some have cited that it’s not like other commodities such as corn or wheat.  No one is “growing” more oil, although they could be doing more exploration to find it.  In the face of increasing demand however, and managed (aka OPEC) production, prices are generally going to head up.  Paul Krugman looks at it as a consumption versus supply storage issue, and hence prices influenced by those dynamics.  Is it that simple? 

I guess it depends on how you look at it.  If consumer demand decreases, we would like to think prices at the pump would fall because inventories would rise.  But what if the oil companies also do not demand enough oil purchases from producing entities?  In other words, rather than store excess oil,when the oil companies see reduced demand they simply don’t buy more oil from OPEC and inventories actually fall.  When inventories fall, supply is reduced and prices are going to head up.   So are the oil companies to blame? 

Maybe the oil companies don’t manage demand per se, but they do influence inventory and refinery production immensely.  Are they making money at the expense of the American consumer?  Sure looks like it.  But so are the investment banks and hedge funds. 

Are we in a speculative bubble with oil prices too?  Probably.  But unfortunately, the long term view indicates the fundamentals of supply and demand will be the primary driver governing oil prices.  Without more oil, and greater oil and gas refinining inventories, we will continue to pay higher prices.

So what else could government be doing?  The politicians could provide incentives for building new refineries, and open up regions for drilling both in Alaska and off the coasts of the nation.  One of the oil company executives made a pretty good statement when replying to one of the politicians in congress:

“This is the only country in the world that denies its citizens access to known reserves of oil and gas.”

Think increasing drilling won’t help?  Actually it would help incredibly, but takes time.  For the past decade too many people- mostly politicians- have argued against it, rather than doing something about it.

“If the nation set a goal of increasing domestic production by 2 (million) to 3 million barrels a day by opening up new sources of exploration and production, we could demonstrate to the world that we are in control of our own destiny,” Shell Oil Co. President John Hofmeister told a Senate panel.

It would probably be a lot more than that.  From the National Review article above,

“The amount of oil we could produce is not negligible. Take ANWR, just one of several untouched sites that contain known oil supplies. Based on figures from the Energy Information Administration, ANWR alone could produce enough oil (in 2004, the EIA estimated 900,000 barrels per day by 2025) to make 6.4 billion gallons of gasoline annually. Because producing and refining five barrels of oil requires energy equivalent to one barrel, this translates to a net energy gain of four-fifths that amount, or 5.1 billion gallons of gasoline annually. That is enough gasoline for 13 days of American consumption at the current rate. Moreover, Uncle Sam would make somewhere between $150 billion and $300 billion on ANWR leases over the estimated life of the oil deposit.”

That’s actually a lot of oil production, and would offset and compete with the prices for imported oil. What about off-shore drilling? We could expand or build new refineries if we really wanted to. I wonder if we’ll reach that point… more importantly, we need to develop an energy plan for the next 50-100 years for the nation.

If our elected leaders would simply throw politics aside for a moment (!), maybe we could get off the Blame Train and have that Energy Summit and start working on a way forward for the nation. 

One of these days we’re going to find ourselves not needing quite as much oil with highly efficient vehicles running around the roads.  I believe technology and the stark economic realities will foster the transition to new types of alternative fuels and the demand for oil will drop over time.  Maybe there will be some cataclysmic event or technological marvel that revolutionizes transportation.  Can you imagine what would happen if we discovered something that effectively negated the need for oil-derived fuels for public transportation across the nation?   Energy independence! What a great concept.

Whatever the future holds, the OPEC nations won’t always be showered with U.S. dollars as we buy endless barrels of oil.   Indeed, OPEC really should get smart and start pumping more oil. 

For more on The Oil Conundrum see:

• The Oil Conundrum Part III: Who’s On First?

Okay, the rebate check is in the bank and we’re going through the budget again.  I was shaking my head at the price of groceries and gas today, but it’s hard to see much of an economic slowdown by the amount of traffic out on the roads.  People must be cutting back though because everything has gone up in price recently. I’ve even heard some of the restaurants are struggling. 

We’re learning like never before how fuel prices really impact consumers and the needs of the family.  Simple things such as a trip to a nearby town are put off until really necessary, and I find myself driving a lot slower than I used to.  Some enterprising automaker should come up with a really efficient vehicle they call the Frugal.   I’d call it our Family Frugal and drive it proudly around.  Not a very sexy name perhaps, but heck I’m all about practical efficiency these days.  Actually it sounds kind of like a Volkswagon… Das Familie Frugal.

Ah but we use fuel for more than our vehicles.  We use propane fuel for some of our winter heating needs, and I usually fill the tank in late spring each year.  But with oil prices out of control, propane prices are crazy high too.  Do I fill the tank now, or wait until next fall or winter?  I’m inclined to wait and see if somebody… anybody, will do something about the rampant speculation in the oil markets out there.  At some point these high prices are bound to blow off.  It’s bad enough with gasoline, but the debate even involves diesel fuel supplies which are tighter and more expensive.  It’s a problem we need to solve because it affects everything- driving cars, trucking and transportation for goods, grocery prices, heating, etc, etc.

Members of the House Transportation and Infrastructure Committee’s Highways and Transit Subcommittee generally agreed that diesel prices have risen faster than gasoline prices, and that increases are reflected in higher food and merchandise costs. But they broke along party lines in suggesting ways to address the problem.”The conventional wisdom is that speculation provides liquidity to the market. But when you have a huge entry of people who have no intention of taking delivery of a commodity but are merely interested in making money by bidding prices higher, that’s a different matter,” Rep. Peter A. DeFazio (D-Ore.), the subcommittee’s chairman, said in his opening statement.

But Tyson Slocum, energy program director at the consumer advocacy group Public Citizen, agreed with DeFazio that speculators are exerting an unhealthy influence on energy commodity markets. “A certain amount of speculation or hedging is essential. But we have a financial bubble resulting from too much speculation. About 95% of the trades today do not involve taking delivery,” he said.

DeFazio still was interested in the possible impact of speculators on oil prices. “What would it hurt to have trades no longer opaque and off the books?”

I’m a pro-business, free market kind of guy, but when you have a critical commodity that drives every aspect of the national economic engine, how can we allow speculators and commodity investors to leverage investments in oil contracts that will never be delivered?  And if oil prices just keep going up, can the U.S. economy and consumers even survive in that environment?

Here’s one for you:  Just yesterday I was talking with the local propane company manager about fuel prices and my propane bill, and he spoke of a close friend who was a truck driver.  This guy regularly drove from the midwest roundtrip to the south and southwest, but his normal routine was to fill up his truck’s fuel tanks in Mexico!   “Why does he do that?” I asked, and the answer was that truckers can buy a cheap $20 pass to cross the border to buy fuel and they pay half the price for gas and diesel that we pay in the U.S.!   

Why does gasoline or diesel fuel cost half as much right across the border in Mexico than it does in the U.S.?

I don’t know how accurate that is, but the propane company manager I spoke with said it was true.  Perhaps Mexico has more reserves for oil, more drilling, more refineries… oh, maybe that’s why it costs less?   Even so, should petroleum products be half-price just across the border?  If it is, then we’re doing something wrong here in the U.S.  Hey, maybe we can tie in some of the immigation issues with cross-border agreements for oil or fuel?

But with the economy still teetering on the edge of a recession, at least Alan Greenspan thinks that ”the worst of the credit crisis is behind us.”   But what about inflationary costs to consumers for fuel and grocery prices?  I’m really not sure what Congress is doing beyond posturing and looking at raising taxes.  Is raising taxes on fuel and energy companies going to save consumers money?  I don’t think so.

I’m still calling for a U.S. Energy Summit however.  We’re not going to get anywhere if people don’t stop pointing fingers.  They need to sit down and map out the issues- start taking proactive measures and move forward with a plan for the nation. 

But in other news at the homefront, we’re busy planting a garden this year.  A different kind of fuel for the family perhaps, and another way to live a little more frugally.  With a little bit of space, how hard is it really to grow a few vegetables?  Especially tomatoes, but this year we’re even planting corn.  It’s much cheaper to grow your own, but admittedly it does take some effort to get started.  But if we’re successful and have enough veggies, it will cut down on the grocery bill.  And we hope to freeze and put up some of the extra to last into winter.  Now if I could figure out how to grow our own fuel for the cars we’d really be doing well. 

It’s amazing how high fuel prices have gone this year.  In short, like many Americans, I’ve simply had enough of paying so much for gas.  Honestly, it’s such a total waste of money don’t you think? The quality of the ride we’re getting at $3.50 a gallon for driving doesn’t feel any better than it did at $2.25 a gallon.  For the increased price of fuel there is no additional satisfaction or more importantly, no contribution to a greater good gained from paying more to do the same thing with a gallon of gas.  It’s actually worse, and a waste of money.  And that’s the rub for most of us.

So what am I doing about it?  Personally we’ve already drastically reduced our vehicle use, and are investigating more fuel efficient cars for the future.  But that really doesn’t change much in the face of rising prices, except maintaining the status quo.  And I just don’t think the status quo is good enough anymore. I was looking back over the past 12 months and was surprised that we were paying almost a dollar less per gallon for several months last year.  Then in late summer, prices began a slow climb, spiking after the new year and reaching an average of $3.50 a gallon this week.

So now, with a humble voice from the wilderness, I’m calling for an Energy Summit for Congress, the Administration and leading oil company experts to sit down and begin devising a strategy to take the nation out of the grip of oil dependence.  Not a new theme, but has any legislator or administration official proposed anything constructive in the face of oil price inflation?  Sure oil company executives have been called on the carpet to testify before Congress, but to what end?  Grandstanding by politicians to make us think they’re doing something? Do we realistically think companies that are in business to make a profit should start to not work to make a profit?  Is that going to benefit our economy and those who need the fuel these companies produce?  Does anyone really think that making oil companies the scapegoats will solve America’s oil dependence problems?   More importantly, has the SEC or any governing body investigated the impact of energy sector speculation or the influence that the rise of sovereign wealth funds have had on market dynamics?

As much as I believe that the the U.S. is being driven towards a greater economic crisis due to energy impacts, my frustration is really a personal issue. Which is due to the simple fact that the engine of the U.S. economy is ultimately distilled into the basic economic units of individuals and families as consumers.   We are the spending sparks of economic activity that drives this great machine, and our ability to do so is being damaged with each passing day. 

A few weeks ago I took a short poll asking if high gas prices have affected people’s driving habits.  After a fairly small response, more people indicated that gas prices only affected them “a little”, while the others said “a lot.”  But gas prices really had only been higher for a couple of months.  I’m willing to bet more people would indicate “a lot” today, and over the next few months as fuel prices remain higher.  Have you changed your driving habits?

It’s not just fuel prices though- it’s also the economic costs passed on to consumers because of fuel prices, and higher commodity prices that are causing turmoil across the nation.   So I’m the first to admit that fuel prices and grocery prices affect our family’s choices every single day.  And I feel fortunate, because technically we can afford to drive our cars, commute to work and do what is necessary each day.  So consumers are starting to feel pinched?  I think that’s an understatement.

With higher prices something else is given up to accomplish the same tasks.  We don’t go out and eat or visit new places as often as we used to.  And we won’t be traveling as much this year as last year.  We even cancelled a longer vacation we had already planned for the summer because of fuel costs.  We take fewer trips to the store, and the discretionary funds we normally spent on nice-to-have items or entertainment in the past are being used for basic needs such as food and putting gas in the tank to get to work.

But there are many other families who can barely afford to get to work or put food on the table each day.  I’ve read of some who may not have the money to pay for gas for a trip to the doctor or hospital. Many Americans live in rural areas and must travel extensively to get to work and fulfill basic needs.  High fuel prices hurt those who must travel greater distances especially hard.  This nation is larger than most nations in the world- and driving long distances is something we are accustomed to.  We are not accustomed to enormous prices for gas to be able to get to the doctor or the grocery store.

So is the government doing enough?   Is Congress and the President’s administration taking these issues seriously enough?Perhaps what really bothers me is that maybe they’ve collectively looked at it and simply shrugged, without really putting a plan together to do something about it.  The U.S. says oil prices are too high, but no one seems to have any idea what to do about it.  Instead, we push for biofuel production and increase demand for oil.  Yet biofuel production soaks up oil supplies and is being blamed for increasing hunger across third world nations as it drives up commodity prices, challenging the ability of support organizations and governments to get food supplies to people in need.

So what is going to solve the oil conundrum?   Do we not have the technology and ability to find more oil and ramp up production?  Or do we lack the collective will as a nation to do what’s necessary, simply remaining dependent on other nations for our oil needs and paying whatever the market demands?  Tapping the Strategic Reserve isn’t going to solve anything over the long term either.  I simply think we can do more as a nation to support the American family’s needs at home, that would also serve to strengthen the U.S. economy for the long term.

My hope is that we’ll see Congress and the Administration get together an conduct an Energy Summit to put a plan in place that will  support the nation’s needs.  New energy, alternative energy, new research, and yes- more oil to fulfill the nation’s needs.  One day perhaps we’ll find the holy grail that relieves our dependence on oil.  But the U.S. economy is tied to oil for countless needs right now and we risk being economically crippled for too many years if we don’t start working together more aggressively.

We are better than this dependence, and we need a little more forward thinking by our elected leadership.  We’ve put off the energy debate for so many years it’s now come back to haunt us.  Whether we enter or are in a recession now is beside the point. Consumers are spending more on fuel and food, and less on everything else.  And I think it’s a threat to our nation’s economic viability over the long term. That’s simply got to change. 

For more on The Oil Conundrum see:

• The Oil Conundrum Part II: The Blame Train and
• The Oil Conundrum Part III: Who’s On First?

Sounds like the title of a newspaper with all the recession talk these days. While millions of U.S. airline travelers are stranded across the nation, the rest of us are paying the highest prices we’ve ever seen for a gallon of gas. But Carol Sottili of the Washington Post’s Travel Section shares a discussion about what travelers can do in the face of so many airline cancellations. It’s finally bad enough that some politicians are talking about airline re-regulation again. The cost of cancellations certainly hurts airlines and passengers, but with the price of fuel skyrocketing, maybe a few extra planes on the ground doesn’t hurt their business either.

What chance many of us thought for avoiding a recession here in the U.S. is now all but certain. Many experts believe we’re already in a recession and that company earnings reports are going to get worse before getting better. Others think that understanding the recession dynamics is really pretty simple. I certainly agree that it’s all about people. I also think it’s all about people’s response to economic challenge, and these days the economic challenges have continued to grow. So if the recession is here, what do we do about it? Matt Callow shows us how to profit from the global recession.

Is it really that bad out there? While some economists think the worst of the credit crunch is behind us, some folks think that a Worldwide Depression is a Real Possibility. That sounds alarmist to me, but as Ronald Reagan once said,

“A recession is when a neighbor loses his job. A depression is when you lose yours.”

He was pointing out that it can be a matter of perspective. Are we going to see a depression? I can’t imagine it, but if gas prices don’t start retreating it’s going to get a lot harder for the U.S. economy. Business week shows us that as with much in life, how bad it is out there depends on whom you ask. But it’s a wake-up call for many as recent data shows that Americans recorded the largest-ever plunge in retirement confidence in 18 years of polling.

The markets continue to wander with many investors wondering if it’s time to step back in the pool. But The Big Picture presents some interesting data and says stocks are really not cheap yet.

As to valuations: “Its hard to really say that stocks are cheap here. At best, I believe we can argue that — assuming that historically high earnings do not fade — that stocks are not terribly expensive. But that is very different than saying they are cheap.”

It’s hard to say what’s cheap or not these days while we hang on every snippet of bad news. But for a little perspective, I like Minyanville’s 35 Signs the Market Hasn’t Hit Bottom Yet.

That’s the mantra this week as Congress is set to grill oil company executives about fuel prices and supply concerns.  Well it’s more like the political folks have a chance to give some of the heat they’ve been taking from their constituents, back to the oil companies.  I’m all for that- not just to give the oil execs an earful, but also to see our politicians trying to find some answers.

What argument can be made in defense of big oil when they are reaping enormous profits each year?  It’s a business to be sure, and they are in business to make money like any other business.  But when the oil companies profit seemingly at the expense of the national economy, and mom and pop in small towns across America, then you have to wonder where our priorities are.

The problem is that Congress in all its wisdom may decide to tax the he#l out of the oil companies, and while that money goes straight to Uncle Sam to help pay (or expand?) government programs, it’s not solving the issue of getting more oil, or becoming more oil independent.  Think it’s going to change anything for the average family?  I don’t think so- in fact, gas prices will probably get more expensive because the oil companies are paying extra taxes.

Realistically, U.S. consumers pay some of the lowest fuel prices in the world compared to many other net importers of oil.  But that doesn’t change the fact that we are paying more than we have ever paid here in the U.S., and it affects the household budget at home in many, many ways.  Not the least of which are higher grocery prices.  Overall it’s sad that we have put ourselves in this position- but it’s the truth.  When no refinery has been built in the past 30 years in the U.S., what does that say about our priorities?  When we can’t further develop off-shore or Alaskan oil fields because the politicians are too concerned about their re-election and don’t want to appear anti-environment, then we are left to import oil from every third-world nation that has it. 

We are truly slaves to the oil trade- and we will pay what the market will bear.  The oil companies are not the really bad guys, but they aren’t helping matters either.   They’re going to grit their teeth and smile that toothy smile to make their margins.  But some of those margins are squeezed as well.  For example, in order to find and get at some of the vast resources of deep oil, they need specialized deep sea rigs.   These are amazing feats of human engineering. Billionaire John Fredriksen is Norway’s richest man, worth at least $7 billion, and he leases these things.

“His units are in such demand he can charge major oil companies nearly $600,000 a day to use them. Similar rigs were earning about $70,000 a day just five years ago. With leasing rates like these, a vessel that cost half a billion dollars to build can pay for itself in as little as four years.”

So who pays for the use of such beasts?  We all do.   We are all faced with limited supply, and too much demand across the world.  The oil is there- we just haven’t planned ahead and there are too many pigs at the trough.     I say bring back the Oil Price Wars, and let the government cut out the middle-man.   Oh wait… there’s probably not enough supply to have an oil price war.We do need to lessen our dependence on foreign oil. 

We need to foster alternative technology, and yes- we need to develop and build nuclear power plants to help supply our energy needs so we aren’t using natural gas or coal to do so.  And we need to stop kicking the empty can and try to produce enough of our own oil to fulfill the needs in our own country. Or we can abandon all that when someone invents the next miracle engine, fuel or transportation device…   

Personally I think we should build out a vast network of maglev trains and small commuter vehicles.  Begin in the suburbs of the major metropolitan areas and let them grow.  This could be the rail and gold spike victory for the next century.  And somewhere during that timeframe, we might even be able to abandon the use of oil for fuel altogether.

Over the past few months we have really changed our driving habits due to rising gas prices.  I didn’t think it would affect us so much, but psychologically I find myself doing the frugal dance and calculating how much it would cost to make a trip here or there.  A short roundtrip to the gym or Wally World can cost $3 to $5 for us depending on the vehicle used.

So admittedly gas prices definitely have influenced our choices and habits at home.  We drive the fuel efficient car much more often to work, and don’t take as many trips.  When we need something at the store, we save it for a list or call each other and someone picks it up on the way home.  All normal stuff to be sure, but we are a lot more conscious of our gas expenditures now.  Honestly it kind of crept up on us, because I didn’t really think about our habits until I read that nationally over 50% to 60% of people have said they’ve changed their driving habits too. 

Lets take an unscientific poll and see what you think (this poll only works on the SushiMoney.com homepage, not in the feed).  Here’s the question:

Have You Changed Your Driving Habits Because of Gas Prices?

• No, not at all.
• Yes, a little.
• Yes, a LOT!
• I've stopped driving...

View Results

Of course high gas prices are nothing new over the past few years.  Here’s a chart showing the past 12+ years of gas prices.  Remember the good old days when we didn’t even think about it?  I wonder what kids in high school do these days… it would cost too much to do a lot of driving!

With the current national average well above $3.00 per gallon, it seems consumers really may be affected at home.   Yet over the past couple of days the price of oil has come down a bit based on weaker demand and economic concerns, so maybe reduced driving habits are making a difference in demand?  And maybe the rampant speculation by energy investors will taper off for a while.  Keeping prices lower over time would be nice, but the oil pundits are forecasting higher prices for the next decade and beyond. 

What can we do?  Some folks create a personal hedge and buy into an energy mutual fund or oil company stock (that quarterly dividend feels pretty good when you’re at the pump), but realistically we’ve got to modify our behavior.  I’m not ready to give up the ‘ole car yet, so aside from driving less, thinking about how we drive can help as much as anything.  Here’s an older, but excellent review of What Really Saves Gas at Edmunds.com.  What makes a difference for me?

• Turning the car off if sitting somewhere for more than 2-3 minutes.  Idleing the engine can really lower fuel economy.  It’s a winter habit for many of us, but spring is here!
• Don’t “mash on the gas” when driving (unless I’m really late for something!).  Gentle acceleration and coasting to stop lights at times can improve mileage and saves on brake wear.
• Keep the tires properly inflated. Low tire pressure puts more rubber on the road, and takes more “energy” aka fuel to make the vehicle go. 
• Maintain the car properly, and change the air filter on schedule.  The harder the engine must work, the more gas it uses.
• Slow down!  I don’t drive 70+ mph on the highway nearly as often anymore.  Somewhere between 55 and 65 mph appears to yield the best fuel economy.   Even some of the long-haul truckers are slowing down to improve mileage.
• Get a different vehicle!  Anybody for a Smart car or a bicycle?  Maybe in a different color…

We’re all going to have to get used to driving, and “consuming” more efficiently in the years ahead.  I’d love to hear how gas prices have affected your habits and family… what else are you doing to drive less or improve your gas mileage?  

And have you checked out GasBuddy.com before?  It’s a nice site to check out prices in your local area.  Often they’re pretty close to each other and it may not make much difference.  But sometimes you can find a station .3 to .4 cents cheaper, and I’m all for that!