RSS
House of Pain
So as crude oil has shot up over $130 a bbl the gasoline and diesel have skyrocketed too. This is especially bad news for truckers and farmers who rely on the fuel almost 100% to run their vehicles. Gasoline here in my town in Connecticut is around $4.40 a gallon right now, and that’s for regular. 
It could be a very painful summer indeed, especially if we get a few hurricanes along the Gulf Coast. On top of all of this I just found out that my heating oil provider is raising rates significantly. Last year I locked in a rate of $2.78 which at the time sounded high. Now the oil company says the lock in rate for 2008-09 is going to be $4.33! I don’t know how most consumers are going to be able to deal with all this incredible inflation. I see dark times ahead.
Now what are the reasons we are seeing diesel and gasoline ramp up so much? Well the reasons are many but here is my good friend Byron King with some thoughts…
From: Byron King, C0-Editor, Outstanding Investments, a publication of Agora Financial, LLC
Natural Gas: Of all the bad news on the energy horizon - and there is surely much bad news - the best is in the arena of natural gas. New technology has enabled access to the “tight gas” deposits such as in the Barnett Shale, and the Marcellus Formation. This has led to plentiful supplies - albeit not at dirt-cheap prices - for North American consumers. The US and Canadian natural gas industries are well funded, and have access to all the rigs and equipment they can use. The tightest spot of the supply chain is in the labor market, because there is a shortage of qualified workers who are familiar with life on a rig.
Looking forward, the promise of gas hydrates from deep offshore waters and permafrost regions will ensure reasonable access to natural gas into the next generation or two.
The “Northern Pipeline” project is beginning to gain traction. This $30 billion (probably more) project will transport natural gas from the North Slope of Alaska eastward into Canads, and down the Mackenzie River basin into the upper Midwest of the US. Again, this project is immensely good news for industries as diverse as gas drilling, engineering, steel, equipment & machinery, and of course the industrial workforce of the US and Canada.
Heating Oil: Unfortunately, heating oil is another way of saying the word “diesel.” Homeowners who heat with heating oil are competing for liquid sunshine and its energy with over-the-road truckers, railroads, farmers and everyone else who uses diesel fuel. Compounding the problem, diesel is a global commodity that trades along intercontinental tanker routes (unlike natural gas). So the Chinese inventory buildup to the Olympics (ie, no gas lines for the international media to film), plus generally rising world demand for diesel equipped machines, is driving the proce ever upwards.
There has been a long term under-investment in diesel refining. Certainly in the US, but also in other parts of the world. Basically, there is little relief in sight for heating oil users. Better get out the chain saw and lay in some wood over the summer. Like Henry Thoreau said, “Chop your own wood and it will warm you twice.” { Of interest, Henry Ford had that saying carved on the mantle-piece of his home in Dearborn, Michigan.}
