Oil is not really at record high prices

Once again, there’s a news story saying that crude oil prices are at record highs (emphasis mine):

Oil prices rose above $93 a barrel to a new trading high in Asia Monday on growing political tensions in the Middle East, a weak dollar and worries about the supply outlook ahead of the winter.

“The strong price is due to supply concerns in general, on top of which we have the geopolitical news,” said Victor Shum, a Singapore-based energy analyst with Purvin & Gertz.

Light, sweet crude for December delivery rose as much as $1.34 to $93.20 a barrel, a new intraday record, in early afternoon Asian electronic trading on the New York Mercantile Exchange, before slipping back to $93.05.

That was still up $1.19 from Friday’s record close of $91.86 a barrel. The previous trading high was $92.22 a barrel, set Friday.

Already last week, I began wondering about these stories, but I focused in my post on prices at the gas pump.  With a little help from my readers, I learned that, in terms of inflation adjusted relative dollar values, gas prices are definitely high, but they are not at record highs.  Indeed, I’m willing to bet that, to the extent that more than 50% of every dollar I spend on gas goes to various state and federal taxes, what I’m actually paying for gas is substantially lower than comparable prices in previous decades.

Because of that tax factor (and I live in one of the highest gasoline tax states), it occurred to me that it would be more useful to analyze crude oil prices, because they’re fixed by the market, not by the government.  And what I discovered is that, once again, the dollars are not really record highs.  In a simplistic way, of course, they are record highs, because gas has never before had the number 93 affixed to each barrel.  But, as I mentioned, that is simplistic, and represents the financial understanding of a grade schooler.  As with gasoline, in real dollars, adjusted for inflation, we are not setting any records.  To the contrary — we’re quite far away from the golden years of crude oil highs in the mid-1970s, and that despite a a war in the world’s oil producing region.

So, next time you’re at the gas station and feeling the pain at the pump, don’t think like a simple minded AP writer who is stuck on the dollar amount.  Instead, congratulate yourself that you’re paying less for gas than we have at times past, and think about petitioning your government to lower those damn gas taxes.

8 Responses

  1. While the current price of oil and gasoline, when put into constant dollars, are not as high as they currently seem, there is one difference between the current high prices and previous spikes in the price of oil.
    There is much less excess capacity in oil production than there used to be. In the 1980s, Saudi Arabia could turn on the spigot and help destroy the Soviet Union. Today, because we have much less excess capacity, there will be much less probability of the price of oil going down back to $30. Maybe $60, maybe $50.

    At the same time, the harsh reality is that the only motivator for reducing oil consumption, through some combination of conservation and alternative energy sources, is its high price.

    There is some light at the end of the wind tunnel. Texas, the southernmost part of the Great Plains wind tunnel, is either the second or first wind energy producer in the country, at 3352 MW installed capacity. Projects under construction are slated to increase capacity by 37 %.

    Since 1999, after passage of the Texas Renewable Portfolio Standard, when blood-for-oilman Dubya was governor, wind energy capacity in Texas has increased four times, and this exponential growth should continue.

    “Additionally, in July 2007, the Texas Public Utility Commission announced its approval for additional transmission lines that could deliver as much as 25,000 megawatts of wind energy from remote areas in the state to urban centers by 2012, depending on how many wind farms are built. New transmission infrastructure will allow all Texans to access the the state’s vast wind resources.”

    We have a long way to go. Wind energy is about 1% of national electrical capacity, but there are indications we are moving in the right direction, at least those of us who are not vassals of the Lord of Hyannisport.

    Off topic: Does Greg’s disappearance mean that he has stopped trying to post, or that his gratuitous insults are being shut off?
    (I have not had good success with embedded HTML on this blog)

  2. Gringo, after I deleted a few of the more insulting posts, Greg mostly went away. He appears occasionally, but is no longer offensive.

  3. I like the idea of wind power…..although the scammy stuff my Dad invested in back in 1970/80s California made me cringe. It was a pure tax dodge, and the equipment was crummy and overpriced, badly maintained, etc. I’m hoping it’s better these days – the more it’s a function of the market, rather than a response to some government pressure, the better off we’ll all be.

    That said, there *IS* an enormous issue with wind turbines, and that is the birds. Some wind farms “harvest” a LOT of birds. I suppose that is where government is properly involved — setting limits for the carnage. Let the designers figure out how to cut it down to a legal limit.

  4. Off topic: Does Greg’s disappearance mean that he has stopped trying to post, or that his gratuitous insults are being shut off?

    Personally I think g is on a specific diet that modulates his feeding times. It comes and goes, you can say.

  5. BW- I have had a lot of trouble with regard to putting in links/HTML posting at your site. My first posting of this didn’t go through, so I simplified the HTML. Second one didn’t go through.I learned that embedded HTML doesn’t work. I tried just putting in the links. Works sometimes. What are the ground-rules for the way your software processes HTML?

  6. I linked to you here. Thanks for this post!

  7. Earl, I hope this will help, and I hope this posting will get through, as two others did not. (This post cut in two.)

    The Altamont Pass wind turbines have killed raptors and other birds. Some have speculated that the newer wind turbines, which are higher, longer, and slower than the old turbines, will kill fewer birds. One blogger compared the difference to the fast-moving low power gear on a bicycle to the slow-moving high power gear on a bicycle: easier for birds to dodge. At the same time, as many birds fly at night, that difference could be irrelevant. We need more research on the height of bird flight paths to correlate with height of wind turbines, among other issues.

    The National Research Council, a branch of the National Academies of Sciences, recently published Environmental Impacts of Wind-Energy Projects. Here is a quote from Chapter 3, pages 71-72 of the study. (Google: National Research Council Environmental Impacts of Wind-Energy Projects)

    “Collisions with buildings kill 97 to 976 million birds annually; collisions with high-tension lines kill at least 130 million birds, perhaps more than 1 billion; collisions with communications towers kill between 4 and 5 million based on “conservative estimates,” but could be as high as 50 million; cars may kill 80 million birds per year; and collisions with wind turbines killed an estimated 20,000 to 37,000 birds per year in 2003, with all but 9,200 of those deaths occurring in California. Toxic chemicals, including pesticides, kill more than 72 million birds each year, while domestic cats are estimated to kill hundreds of millions of songbirds and other species each year. Erickson et al. (2005) estimate that total cumulative bird mortality in the United States “may easily approach 1 billion birds per year.”
    Clearly, bird deaths caused by wind turbines are a minute fraction of the total anthropogenic bird deaths—less than 0.003% in 2003 based on the estimates of Erickson et al. (2005)”

  8. Earl: some more info.
    Wind Turbines are much more efficient than they were 20 years ago. According to one presentation, unsubsidized wind energy costs without subsidy went from 40¢/kwh in 1979 to 3-5¢/kwh in 2004 . (w.awea.org/utility/040602_DeMeo_Why_Utils_Should_Invest.ppt )

    Costs are higher today, but still competitive with other sources .
    Anyone who still thinks that all government does inherently benign, should read introduced/ original version of Subtitle D on Wind Energy of HR 2337 from Rahall, a Democratic congressman from the coal-producing state of West Virginia. Here is a summary :

    • “Bar any new wind power project until new Fish and Wildlife Service (FWS) rules are issued – a process likely to take years – and require FWS certification of every turbine
    • Require all existing turbines, even small residential units, to cease operating 6 months after issuance of new FWS rules until they are “certified,” an unwieldy bureaucratic process applying to many thousands of turbines that, again, will take years
    • Make it a crime, punishable by a $50,000 fine or a year in jail, to construct or generate electricity from an unapproved turbine, even for home use”


    Fortunately, there were alert citizens and organizations, including the American Wind Energy Association and Union of Concerned Scientists, who raised enough havoc that the Subtitle D got changed to essentially have an Advisory Committee study the issue and issue recommendations. The $50,000 fine, which would have had a chilling effect on homeowners installing wind turbines, was eliminated.

    The original/introduced and changed/reported versions of the bill are at thomas/loc/gov. (google: hr 2337)

    One lesson here is that the viewpoint that government should be watched like a hawk, or like a raptor in the Altamont pass, is a well- justified one. Neither man nor society nor government is inherently benign nor inherently evil. All that is human has the capacity for good and evil, regardless of intent.

    BW- I have had a lot of trouble with regard to putting in links/HTML posting at your site. My first posting of this didn’t go through, so I simplified the HTML. I learned that embedded HTML doesn’t work. I tried just putting in the links. Works sometimes. What are the ground-rules for the way your software processes HTML? I had to cut posting in two to get it through, and take out HTML.

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