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Energy cost --- Equilibrium?
Old 06-08-2008, 05:54 AM   #1
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Energy cost --- Equilibrium?

It appears that people are rushing out to buy more fuel efficient cars in the US.

It would seem that prices will stabilize at a certain point.

I have not researched the stats... but if 20% (on average) of the gas hogs (13 - 18 mpg) vehicles are replaced with 25-33 mpg vehicles in the next 2 or 3 years, we reduce US fuel (gas) consumption by 10%. This would roughly translate to 3/4 of a billion barrels of oil reduction per year.

However, while US consumption is lowering, international demand would still grow.

International demand in developing nations will reach an equilibrium because of the cost. If oil is too costly, they will demand less.

Where do you think gasoline/diesel prices will stabilize in the next few years? $5/gal??
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Old 06-08-2008, 06:06 AM   #2
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I could believe $3.50/gal (and that would not be all bad IMHO) this year and then moving up from there and then a sharper slope upward than in the past. What prevents me from predicting are:

a) Is speculation significant in current pricing (I don't think it's as significant as some say, but I'm not sure)
b) the value of the $US vs other currencies (even more clueless here, although oil itself is a factor and if the $US strengthens, it will hurt our exports...).

Will be interested in seeing over POV's.
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Old 06-08-2008, 06:12 AM   #3
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Stabilize? I think you mean arrive at a settled price and then move up from there. I personally think, if the dollar stabilizes, the price will come down at some point and then resume it's slower continuous trend upward. The question I am asking is "when will the volatility decrease"? $11/day jumps are really quite ridiculous when they will probably see $11/day drops down the road as a consequence. Deciding where the average will be ($4,$5,etc.) when the dollar and interest rates are not very inviting is hard. How long will the US keep the weak dollar policies and low interest rates? Will dollar pegs unpeg?

If I had to pick a number for the "stability", I would go for $3.50/gal gasoline (today's dollars) with a sharper slope upward than in the past. I just cannot provide the timing for this estimate.

Will they try for $150/barrel, $200/barrel? Perhaps, but only temporarily to keep high profits. Then too, I am more often than not - wrong.
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Old 06-08-2008, 06:19 AM   #4
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Yes there are many variable to the cost of fuel... each of which affects the price of it. Supply, demand, new efficiencies, alternative fuel sources, currency strength, etc.

I do mean stabilize... For example over the next year or so, prices will hover around a certain cost per gallon for several years.

On the other hand, if you do not believe the price of gas will stabilize, because of the fluctuations of the variables.. that is a legitimate point of view also. But I would not believe it unless new circumstances emerge.

Governments are beginning to view it as a threat. G-8 to fight oil prices with efficiency, tech: Financial News - Yahoo! Finance

The problem can be resolved.
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Old 06-08-2008, 09:49 AM   #5
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Quote:
I have not researched the stats... but if 20% (on average) of the gas hogs (13 - 18 mpg) vehicles are replaced with 25-33 mpg vehicles in the next 2 or 3 years, we reduce US fuel (gas) consumption by 10%.
Prompted by one of ERD50's posts, I was thinking about what happens when you replace a gas guzzler. It certainly doesn't go to the dump, so it's still on the road.

Usually, I'd guess that the price of a guzzler goes low enough that someone figures it will be worth the increased gas cost.

However, I'll bet that people who drive less are more likely to buy a guzzler. For example, a guy who drives 30,000 miles/year sells his SUV to someone who drives 5,000/year. So in those cases, we are decreasing the number of high MPG vehicles on the road.

Also, I'd guess that an older SUV is more likely to be retired (to the dump) than an old efficient car.
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Old 06-08-2008, 01:57 PM   #6
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My guess is that we are somewhere north of equilibrium now and within a few years we'll spend some time south of equilibrium. It seems we lurch from one bubble to the next, with decreasing duration between . . . Internet stocks, housing, now commodities. Each was prefaced by rationalizations why the ever increasing prices were justified. Oil is up something like 150% in 18 months and the reason, I'm told, is that the world just realized that India and China have 2 billion people between them. Count me a skeptic.
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Old 06-08-2008, 02:52 PM   #7
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Originally Posted by TromboneAl View Post
However, I'll bet that people who drive less are more likely to buy a guzzler. For example, a guy who drives 30,000 miles/year sells his SUV to someone who drives 5,000/year. So in those cases, we are decreasing the number of high MPG vehicles on the road.
I am having a little trouble following you in this paragraph, Al. Could you possibly restate it differently?
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Old 06-08-2008, 03:02 PM   #8
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I am having a little trouble following you in this paragraph, Al. Could you possibly restate it differently?
I'm not Al, but I think I am following his logic (hopefully). I am thinking that for example I drive 4400 miles per year or less. The increase in the price of gas has made no difference in my life, really. I have thought of buying a gas guzzler SUV because it can carry a lot. The mpg really doesn't make much difference to me and bad gas mileage wouldn't cost me much. Most of my vehicle expenses are in purchase price, which isn't increased by rising gas costs. In fact, the latter might lower the purchase price significantly.

But some guy driving 30K miles/year might think twice, because it would cost more for him in the larger quantity of gas he buys.

Suppose rising gas costs mean that I pay $300/year more than I would have at some unspecified time in the past. If the SUV is $3000 cheaper than it would have been at that time, then I will be ahead of the game for several years.

But in contrast, the guy driving more miles than I drive might spend $2000/year more than he would have at that same unspecified time in the past. Suppose he buys the same SUV that is $3K cheaper than it was before. After two years, he is no longer ahead of the game.

So, people like me who drive little have a greater motivation to pick up gas hogs than do people who drive farther than I do each year.
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Old 06-08-2008, 06:13 PM   #9
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Thanks for the reply. I see how someone who does not drive much would not be very concerned about gas mileage, and the savings on the price of the vehicle could offset the increased cost of fuel.

The part I don't quite get is how someone who drives 30,000 miles/year selling his SUV to someone who drives 5,000/year would decrease the number of high MPG vehicles on the road, unless we are assuming that the 5,000/year SUV buyer would have bought a more fuel effecient vehicle if he had not bought the gas guzzling SUV. But when the 30,000 miles/year driver replaces the SUV, that the SUV would have to go somewhere and be driven unless the SUV was at end of life.

Quote:
Originally Posted by TromboneAl View Post
So in those cases, we are decreasing the number of high MPG vehicles on the road.
We all appear to be on the same page. I probably have made this harder than it needs to be.
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Old 06-09-2008, 08:39 AM   #10
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If you consider 15000 miles a year average, then an SUV going 30000 would be equivalent to 2 vehicles. If it drops to 5000 miles it is .3333 vehicles, therefore reducing the number of gas hogs on the road by a significant amount.

I had thought about it till reading this thread but many low income people (and cheap LBLYM people) that are driving old large cars because they are cheap, will be able to move up to newer and nicer SUVs. Since the old warn out large cars are no great on mpg it is about a wash for fuel cost and hopefully they do better on maintenance cost with the newer SUV.

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Old 06-09-2008, 09:40 AM   #11
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I would think it would be somewhat easy to model this. Feels like too much work though.

Assume a bell curve distribution with the bulk of the bell between 10,000 and 18,000 miles. Then, go to the fridge and get a beer and forget about it.
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Old 06-09-2008, 10:22 AM   #12
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Assume a bell curve distribution with the bulk of the bell between 10,000 and 18,000 miles. Then, go to the fridge and get a beer and forget about it.
My current plan is to follow this advice sometime between 7:30 and 8:00 P. M. this evening. Best idea so far ...
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Old 06-09-2008, 10:30 AM   #13
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My current plan is to follow this advice sometime between 7:30 and 8:00 P. M. this evening. Best idea so far ...
Be sure to repeat the study between 8 and 8:30... it's the scientific process!
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