Category: Energy

Gas prices make people crazy.

On the one hand, you get the "serves us right crowd." You know the argument: We deserve to pay $4 a gallon, because we drive big cars and haven't been serious about energy conservation for, oh, the last 20 years. Cutting the gas tax or slapping a windfall profits tax on oil companies would be silly since everything in this market is driven by supply and demand.

On the other hand, you find the "birthright crowd." These folks basically argue that gas was a dollar a gallon when they were kids and it should be $1 a gallon now. We deserve cheap gas, because it is so important. If only we drilled enough, cut taxes enough or pressured OPEC enough things would return to "normal."

Since the beginning of our Republic, farmers and agricultural interests have accused speculators of manipulating markets and capturing the financial gains that ought to go to producers.

The lastest chapter in this long story was played out today at the Commodity Futures Trading Commission. Regulators brought together investors, ag producers and groups representing farmers to talk over recent volatility in the markets.

The investors say they're simply trying to hedge inflation risk for pension funds and other big groups. After all, people on a pension have to buy bread and beef and gas.

Groups representing farmers and bakers complain that the $175 billion poured into commodity funds in recent years has whipsawed the market adding to price swings.

The numbers are eye-popping: Rice up 123% this year, Wheat 99%, Corn 66% and Cotton 48%.

What's happening? CFTC economists say its all about demand in Asia, ethanol demand in the US, and poor crops in Australia and Canada.

Whatever it is, prepare to pay more at the grocery store.

I found it fascinating, in the process of reporting today's story on world food prices, to learn how the impact of changes in one part of the farm economy here in the U.S. can have such broad implications for the rest of the world. Perhaps you've read or heard about some of the riots that have occurred in parts of Africa, Haiti, and Bangladesh over sharply rising prices for rice. The less-obvious aspect of this story is how U.S. rice exports factor into the equation.

The U.S. exports nearly all the rice it grows...and ranks among the top five rice exporters in the world. The interesting fact, pointed out to us by Wachovia Securities grains analyst Bill Nelson, is that U.S. rice growers have in recent years devoted less acreage to rice planting -- and more to corn. Why? Because of the high prices ethanol producers will pay for corn. US acreage has dropped by some 600,000 acres in the past few years, and that's helped play a role in whether rice supplies are adequate to meet rice demand in the rest of the world.

Since record gasoline prices are on many people’s minds these days, I thought it might be interesting to tell you about the "Fuel Cost Calculator" I discovered on the AAA site today.

Here’s the link: http://www.fuelcostcalculator.com/TripGasprice.aspx

Basicially, you imput the city you are driving to and from, as well as your vehicle make and model, and it will tell you how much your trip costs. I discovered, for example, that driving from New York to DC, where my parents live, will cost about $80 round trip for gasoline.

That’s actually underestimating it because AAA uses the national average for the price of gasoline, and the price in the New York metropolitan area is always substantially higher. And that $80 doesn’t include tolls or wear and tear on the car, either.

Just when you thought food prices couldn't rise any higher, guess what happened today? Corn prices headed toward the roof.

The U.S. Department of Agriculture threw a curve ball of sorts today at Chicago grain traders when it released its annual report on farmer planting intentions. Responding to high soybean prices, U.S. farmers said they plan to plant more of that crop this year than last. That means fewer acres will be devoted to corn. On top of that, the government said we don't have as much corn in storage as many experts had projected.

All of this news couldn't come at a worse time for food manufacturers, ethanol producers, and importers who are all fighting for corn. And, if they're paying more for corn, so will consumers. So, what , if anything can be done?

Demand is down so gasoline prices are up. Go figure.

Seems the decrease in demand, and the continuing increases in the price of crude oil, are cutting into the oil refiners' profit margins. Valero Energy Co., the biggest U-S refiner, said earlier this week it had cut production because of poor margins.

No matter that margins improved this week, they are still 30 percent below last year at this time. So, no profit, no gas.

Can capitalism and speculators' greed help solve the problem of greenhouse-gas emissions? That's the debate that's occurring right now as virtual marketplaces like the Chicago Climate Exchange (CCX) offer companies and trading firms a place to trade and profit from the output of carbon dioxide gas.

There are no US laws on the books that require corporations to control carbon emissions into the atmosphere. Membership on the exchange is completely voluntary. But carbon-producing members, such as Ford Motor, Honeywell, Dow Chemical and others, are required to cut their greenhouse gas emissions of the year 2000 by at least six percent by the year 2010. Cut them by more, and you can trade those extra percentage points, or "carbon credits," to other less-efficient members for money. By 'monetizing' greenhouse-gas emissions, the theory goes, companies will have incentive to cut their carbon emissions even further.

You’ll likely pay more for airline tickets this summer. Higher oil prices have already added as much as $50.00 to a domestic round-trip ticket. While you might think the silver lining could be not having a middle seat, don’t count on it. Higher prices will certainly ground some passengers, but the weak dollar is driving demand from foreign tourists. The Federal Aviation Administration and local airport authorities are working to reduce delays, implementing “peak pricing” plans to encourage airlines to better stagger flight schedules. The FAA will also begin rolling out its upgrade of the air traffic control system, known as NextGen. But that new system isn’t scheduled to be complete until 2025. By that time, U.S. airlines are projected to be carrying 1.3 billion passengers a year, compared to an estimated 750 million people this year.

As someone who is starting to think about a summer vacation, I was particularly interested to find experts’ outlook for energy prices. Will we still be paying sky-high fuel charges for airline flights? Will driving to visit my family in DC be more expensive?

There seems to be no consensus on direction for prices.

The bulls argue that tight supplies, hedging against inflation, a weak dollar, political strife, and other factors will continue to pump up oil prices.

Inflation is rising. Growth is falling. And oil prices are at record levels.

What’s happening today seems reminiscent of the situation in the 1970s and 1980s, during the years of stagflation.

But we couldn’t find a single economist that would make that case that stagflation is even a possibility on the horizon. All agreed there are important differences today that make a similar situation unlikely.