Oil drops to $43 a barrel

oh, me too. Don't get me wrong, I hate car payments. Paying interest on a depreciating asset is for chumps. Until the Prius came along, I had a rule to only buy newer used cars. I basically paid for the prius in cash, so I paid the sticker price (plus tax, tag, and title, of course). Turns out it was a lot smarter than investing in the market... in the short term anyways. Paying for it up front was nice from a cash flow perspective as well.

 

I always paid cash until the car before the Prius. With a family it seemed a little different. That car was $325/mo. for 5 years, and that was a pain. We got .25% off by tying it to automatic payments from the checking account, but then it was more difficult to pay it off early. Then in the glory days of home equity loans, we accidentally got a $40K extension on our equity line of credit (without a new assessment), so there's plenty of room there to put the car payment. Then we can pay it off at our own pace, kind of like a credit card but at 4%-8% APR. For instance, we've paid off both cars about a year ago instead of having 2 years left on a standard loan.

Didn't have to worry about this on the Prius, but we also always put more than enough in cash so that the equivalent loan is never upside down. That's just craziness. Back when I bought smaller older cars, I told somebody I paid in cash and she said that was a terrible move. Then if something went wrong with the car, I didn't have any leverage with the dealer, because I didn't owe them any money. I just had to laugh at that idea. I had a warranty, if that didn't work I could go thru legal steps; or I could threaten them with not paying my overpriced loan (which is normally outsourced, I'm sure) and ruining my credit score and probably bringing fees and legal action against me instead of against them.

 

Do you think they are not going to go up again once the economy recovers?

 

Yeah prices will go up agian, but unfortunately I don't think it will be any time soon. The cratered world economy coupled with the closing of the speculation loophole will make a dramatic price unlikely any time soon.

 

The last 365 days in the used car business has been almost unbelievable. Determining what the value of a trade in is kind of like playing the roulette wheel. The fluctuations have been staggering. i hope this year is a little less turbulent.

 

that's interesting, malorn. I don't think prices are going anywhere for a while either. I also believe that global recession makes a poor basis for energy and foreign policy, so I'm hopeful that we'll see continued focus on efficiency and alternatives even while the price of oil is low. Our dependence on middle easy oil will probably increase while oil is cheap because cost of production is going to price out a lot of non-OPEC oil. We need political will to keep our eyes on the prize during these challenging times.

 

prices wont go up when the balance sheet on the economy is in the black (wont happen for at least 5-10 years)... prices will go up when confidence in our government is restored.

now that can take as LITTLE AS 6 MONTHS (ya, 6 months) or could never happen. we just have to wait and see how well Obama can lead. whether he can make the correct LONG TERM DECISIONS... because every and i mean every single dime spent on short term fixes is a complete waste of money...

you cant fix something that does not have a good foundation to stand on and all foundation fixes are VERY long term projects, renewable energy, mass transit, roads, bridges, all that stuff takes decades to pay for.

if the government cant restore faith, then it will be up to big business, and i predict the fastest they can fix it wont be anything less than 10-15 years. they simply dont have the integrity, money, and most importantly the guts to do what we need done

 

The gov't just needs to send the right price signals, Dave, and you'll see how well capitalism can work. To correctly shape the long term, we need the proper price signals in place and then, as Tom Friedman puts it, "you'll have 10000 innovators in 10000 garages and 10000 laboratories" working on these problems.... the key is having the market send the right signals to investors to make the innovation possible.

 

Tripp u nailed it!! and what does that create??

security in knowing that what you invest today will work in tomorrows political climate which in turn creates the confidence which will loosen the hold investors have on their money. iow, we have to make the PERMANENT LONG TERM COMMITMENT TO ALTERNATIVE ENERGY AND SPEND ENOUGH ON IT THAT A NEW ADMINSTRATION WILL NOT HAVE THE GUTS TO COUNTERMAND IT AND WE NEED START THAT COMMITMENT TODAY!!

sorry for the yelling, but i did feel it was necessary

 

This means the government has to regulate the price of crude oil. This is not going to happen. Crude oil is a world commodity, no one country can regulate it. This is why it is so volatile and targeted by speculators.

 

not globally, but in the US, sure. The Europeans and Japanese have been doing just that since the oil shocks of the 1970's.

 

You don't have to regulate the price of any energy. What you need is a comprehensive energy policy, the consequences of which are clear and predictable; the effect of which serves to encourage alternatives. If, for example, electricity was taxed to cover it's "real" environmental cost, say and additional $.10 kwh, then PV solar becomes viable on a kwh/kwh basis today.

What kills alternative energy projects is not the lack of technology, but rather the wild swings in energy prices. If an investor can't reasonably predict the price of his output, it makes it hard to be willing to invest in the hardware.

We cogent, clear, smart energy policy from the highest levels. If not, the next time the price spikes,,, and it will, we will be further in the dumper, and everyone will be wringing their hands saying " we should have done something!" The time is now to do something, bite the bullet, use this small window of cheap energy to move us (in a real way!) past the oil economy.

Icarus

 

Not even in our own country, Canada tried in the 70"s and didn't work.

Energy Sector: Energy Sources: Petroleum Products and Crude Oil Prices: Why Canada Doesn't Regulate Crude Oil and Fuel Prices

1974-1985: Canada does regulate crude oil

During this period, federal legislation and agreements with the oil-producing provinces placed crude oil prices under government regulation. The regulation required a complex system of oil export controls, export taxes and oil import subsidies for Canadian refineries. As a result, there was less incentive for business investment in new crude oil supplies and for consumers and businesses to consume fuels more efficiently.



It may have some success in regulating fuel prices but not crude oil.

 

Remember that Canada is not the US.

The cruel fact is that regardless of how yo feel about it, what drives the price of ALL energy is US demand. Canada (and others) have tried to control the retail price of energy, but it is US demand that controls the price,,,period!

I emphasize my point. Only when you have a comprehensive, forward thinking energy policy from the US will the dynamics of energy pricing change! The long and short of it is,,, in the net/net traditional sources of energy are getting scarce (or too expensive for the environment,,, or both!) that if we don't begin to move seriously past oil, we will have no one to blame but ourselves. In the past decade, we could blame Bush/Cheny, but now it is us!

Icarus

 

bedrock8x,

You have it backwards. The type of price controls you are talking about are self-defeating efforts to create an artificially low price.

What we actually need is a price floor so that manufacturers and consumers will make better long term choices. It's not popular to tell folks gasoline should cost $3-4/gallon and inflate every year, but that is what is needed with respect to gasoline. (Even Krauthammer sees this as the appropriate approach--not necessarily at the price levels I gave.) What do you do with the additional taxes? Rebuild neglected transportation infrastructure as a start (user pays, seems simple enough), but also provide direct incentives to R&D and implementation of alternatives and energy efficiency.

Consumers are spoiled though, they always want things to happen with no personal commitment. That's why setting price ceilings is popular, but a price floor or gas tax is not. CAFE standards were seen by consumers/voters as a way of making someone else pay, with no financial commitment on their own part. Lowering taxes is popular, balancing the budget is not. Increasing services is popular...as long as we don't pay the bill for it. This nation has sold itself on the notion of a free lunch fantasy about free market capitalism. (Home values always go up! The stock market provides superior return with only brief pullbacks! Deregulating is good! Reducing taxes produces more tax revenue via voodoo economics! Financial innovation will produce superior growth! Deficits don't matter! ...and other gems.)

 

No, I didn't get it wrong. We are talking here to set a target price for energy in the future, right?

The price of energy is determined by supply and demand. What ever price it is set could be artificially too high or too low in the future because you cannot see the future. This is my point.

Edit: Basically the price floor will be fluctuating, the purpose will be defeated.

You can regulate the price of energy by adjusting the high/low limits weekly as in the Canadian provinces. The purpose is really to prevent oil companies from gouging the consumers and it does not prevent the fluctuation of the price . As a result, the gas stations has the same price everywhere and changes the price exactly same time of the day. Yes, the Canadian stations change price as orchestrated. The price of gas is much higher than the US because of this regulation. The gas companies just set the price to the highest limit to maximize profit.

I have the same sentiment as you to try to help the emerging alternate energy automobile industry, but raising the cost of gas is not what I want and I don't think it will work.

 

No, you got it wrong. I'm not talking about setting a target price. Price controls as you invision don't work. Instead I'm talking about a price floor that will make alternatives attractive and protect them from being wiped out by price swings in the dominant fossil fuel commodity. It will take money presently paid to Saudi princes, Kuwaiti sheiks, Iranian mullahs, Venezuellan strongmen, Russian oligarchs, etc. and instead put it back into our own economy doing things we need to do anyway. Instead of lagging, we might actually begin leading again.

I can "see" the future to a limited extent. These sorts of swings are likely to be self reinforcing, locking in fossil fuel dependence. The swings create artificial barriers to entry: greatly increased risk for every project. This is true not only of alternative energy, but also to those drilling/mining today. And you know what happens when prices drop like this? Exploration budgets are slashed, capacity projects are cancelled. It only exacerbates the problem. You can expect higher oil/gasoline prices as a result, not lower.

I can see that fossil fuel sources will continue to deplete and eventually scarcity will cause a massive crash.

And there is an investment lag. Business will not invest until a crisis has been ongoing for several years. The prices used for business decisions lag. When you have whipsaws they then get pummeled on the other side. This is no good for anyone.

I'm 100% certain it will work. It is basic economics. It will take time however since consumers will begin making adjustments to their capital purchases in response and manufacturing won't turn on a dime either. Neither will infrastucture changes.

The question isn't whether or not it will work, it is whether or not the consumer has the will to change voluntarily in the near future, or would prefer to do so more painfully and involuntarily later.

 

this means what???

apparently yelling does not work you (or my kids). who said anything about controlling the price of something WE BUY???!!! better question... exactly how do we control the price of something we don t have to sell?

what i implied is to not care about what foreign oil sells for because we would not NOT BE BUYING any of it.

what i said is that right now the problem we have is that no administration is willing to invest enough into renewable energy. so what happens, every 4-8 years we have a major policy shift and that has been going on for 30 years.

well, we need to SPEND (not commit) a significant amount of money towards our energy future and do it as soon as possible. i say that nothing that can be paid for in less than 20 years is acceptable. this has to be and sweeping and it needs to start yesterday if not sooner

 

That's what I was alluding to. Though, as Icarus pointed out, US demand has a strong influence on the price. Shawn is spot on about the price floor. That's easy to do. You just have a variable tax on petrol, or oil in general. That creates a signal to the market that oil will never dip (in the US) below $80 a gallon. It doesn't matter if supply goes through the roof (which it won't, but that's irrelevant here), the minimum price of a blue barrel is $80 (in that case, most of it would be tax). This creates certainty and investors like certainty... in this case that funding alternatives to oil is a good bet... and that's precisely what we want.