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Oil Price Conundrum:
(January 2009) The number one energy problem of this decade is the
crazed up and down zig zag that represents the price of a barrel of
oil on a graphic statistics chart... From $40 a barrel to $150 a
barrel and back down to $37 a barrel and climbing again, in just a
little over a one year span of time makes for a serious problem for
both individuals and businesses alike.
Southwest Airlines recently took a bath because it had made a
practice of hedging its fuel
costs by taking a massive futures position in oil. It had to make a
massive margin call and then sell out its positions just a month ago
because the price of oil had fallen, and still free falling in price at
that time. It lost several millions of dollars earmarked to hedge
the cost of its jet fuel for passenger service; a practice which had
previously given it a significant competitive edge over other
carriers.
Individuals throughout the U.S.A. maxed out
their credit by buying gasoline in the neighborhood of $4.00 a
gallon on their cards, due to the extreme high cost of the barrels
of oil used to make gasoline. Once their gas bills started coming in
they had to start paying not only for the interest on maxed out
cards but for the highly expensive gas in order to get to work and
local errands like grocery shopping, too. That ended the love affair
with credit in America. The results of that disaster are still
unfolding with financial institutions taking hat in hand to the
Congress and an Eight Hundred Billion Dollar bailout authorization on the
books now and still more to come.
Right on their heels came the U.S. Automakers and their 17
Billion Dollar patch job "Loan." (Putting the total at almost One
Trillion Dollars.).
Retailers and the home market industry are drying up and blowing
away or are downsized to the point of pain; their laid off employees
are also starting to max out their unemployment benefits and money
is drying up in uncounted unexpected directions. Illegal's, which
were a significant portion of the building industry unskilled
tradesmen, are broke and having to bail out and go back to Mexico
leaving their U.S. born children in the states such that State
Welfare can support them. These consumers are taking their enthusiastic buying
habits with them; cutting out a significant 7X portion of the
economic engine with them. Americans who have been pink-slipped have
no fall back at all because the jobs are just gone.
All of these problems don't just vanish when folks get over their
fear and start putting money back into the perpetual financial
engine in the game called consumer confidence.
To paraphrase Terry Maxon of the Dallas Morning News in an
article about the airline industry:
"If you're spending billions more for fuel in 2008 than in
previous years, that's billions that will not go to new <vehicles>
debt retirement, pay raises, pension contributions, new service or
the countless other better ways to spend the money.
In addition, the volatility of fuel prices meant that
<industries> never knew what to plan for from month to month. A
business plan that works at $100 for a barrel of oil is too
conservative for $50 oil and can put an <industry> out of business
at $140 oil."
Worse, OPEC and ONGEC the two major energy sources of the world
market are both cutting back production in order to drive up the
price of oil to previous "acceptable" prices. This means that we can
expect to see a gradual increase in the price of gas at the pump and
for our home heating and for the transportation industry and other
industries, as well.
Government entities can't support highway and infrastructure
expenses on reduced oil and gas calculated in gallon quantities, either. Many state and local
governments are already placing stiff increases on the fuel that is
being sold in reduced volume in order to take up some of the short
fall of the new trend by citizens to use less gas and diesel. The U.S.
government is sure to follow shortly.
1/3/09 More to follow wr |