California: Leveraged to Gasoline Prices and Nearing the Breaking Point 29 comments
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California has over 36 million residents. But 60% of the state’s population, over 22 million people, live in the five big counties of the south: Los Angeles, Riverside, San Bernardino, Orange, and San Diego. Given that California (just like the US) has nearly as many vehicles on the road as people, this means that Southern California not only contains roughly 7.00% of the US population, but also 7.00% of our nation’s vehicles. For a region built originally for car commuting between vast tracts of single family homes, 100 dollar oil in 2008 was quite painful. However, as we head towards 80 dollar oil here in 2009 we should consider the economic situation is more fragile than one year ago. And thus, California’s breaking point from high gasoline will now come more quickly.
At this week’s ASPO conference in Denver there was a convergence of thinking that when oil rises above 4.00% of GDP, the US economy starts to falter. An additional problem is that new oil really needs global prices above 70.00, on average, to make it worthwhile to pursue. As one analyst out of New York put it:
Houston needs 70.00 to create new supply, but the US economy is vulnerable once we get above 80.
To these remarks I would simply add that compared to last year, GDP is lower, unemployment is of course higher, and here we are knocking on 80 dollar oil. Additionally, California is not the only region that is leveraged hard, to gasoline prices. Florida, Texas, and the mid-Atlantic states are also quite vulnerable. But among all these, California’s unemployment rate has now taken the lead. One wonders how the next move upward in gasoline prices will translate to the public mood, and the fortunes of current politicians.
In a number of posts the past few months, I have suggested that once California reaches 15% unemployment at a time of 100 dollar oil, the American public will finally understand that we are in an inflationary depression. While the combination of these conditions may have seemed unlikely just six months ago, it’s worth considering that for every reasonable objection one might make to such an outcome–the confluence of high unemployment and high petrol prices can also come about in a mutually supportive progression. We might think of the process as a ratchet, building its way to a hard-won conclusion.
We are much closer to that conclusion now, than many assume. Oil at 80.00 is an easy lay-up to 100.00. Just recall for example the action in oil from the Fall of 2007 to June of 2008. There was a brief lingering at 90.00 in mid Winter, and then 100 was easily overtaken. Additionally, while California currently suffers 12.2% unemployment using the conservative, headline measure, that state is already at 17.7% using the broader and more accurate U-6 figure. Only Oregon and then Michigan, which most regard as being in a classic depression already, have a higher U-6 unemployment rate, above 18% and 19% respectively. So let me ask, which is more dangerous: 2008’s average 100 dollar oil (with the several month spike towards 150) flowing over California last year, when its U-6 unemployment averaged 13.4%, or, the current 80.00 dollar oil (with a threat to go higher) over 17.7% U-6 unemployment?
Last night I used an easily searchable public website to search gasoline prices in California. I found that I could get fairly close to many of the gas stations I used often, during my days in the Golden State. At Fairfax and Sunset, the 76 station is offering petrol at $3.09. Closer to the ocean (a last stop on my way to Topanga), I see that gas is over $3.15 in Santa Monica. Given that yesterday’s weekly oil report from EIA, which showed a massive drop in gasoline inventories, sparked a big rally in both oil and products on the US exchanges, I’ll venture those petrol prices are even higher tonight.
Photo: Rennet Stowe: Freeway Pillar and Dwellings, Central Valley California. | Topanga Canyon, 1930’s
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Well, now that prices at the gas pump are set to ramp up again, we (*) don't want to hear you squawk about how the economy has people down and out unable to afford another bout of high energy prices. YOUR economy has gotten that way because you have elected worthless liberal morons who can't add 2 plus 2 and have taxed everything that moves. My economy is just fine: we haven't let our entitlements get so far out of balance like you have.
Drill, Drill, Drill!
(*) me and the frog in my pocket
However, it still remains unwise to drill much for oil in the offshore areas since our coasts and ocean floors are riddled with earthquake faults. The Great San Francisco Earthquake of 1906, the Santa Barbara Earthquake of 1925, the Long Beach Earthquake of 1933, the Daly City Earthquake of 1957 and the Petrolia Earthquake of 1992 suggest the risks of oil spills in coastal regions. The California economy, such as it is at this level, cannot afford more coastal oil spills and frankly, any more severe earthquakes.
Still, what we clearly need much more of is public transit.
GREAT COMMENT and points for conciseness - - we are all bombarded with information !
Gregor: here in Florida the yeng yangs are screaming about drilling off the coast. Incredibly, we are debasing our currency to buy oil from countries who hate us and finance attacks on us. We need to seek domestic energy supplies while we are transitioning to alternative transportation fuels. Sometimes I think mass insanity has taken over the land.
We can deal with the oil seepages without much fuss.
On Oct 16 03:03 PM Jimbo wrote:
> Valley Boy: even as we breathe, mother nature is seeping oil into
> the ocean off California. How do you know the earthquake potential
> would be amplified by drilling?
> Gregor: here in Florida the yeng yangs are screaming about drilling
> off the coast. Incredibly, we are debasing our currency to buy oil
> from countries who hate us and finance attacks on us. We need to
> seek domestic energy supplies while we are transitioning to alternative
> transportation fuels. Sometimes I think mass insanity has taken over
> the land.
You folks make me chuckle!
Now go eat some of that California produced food while chugging the fine California wines and watching that fine Hollywood Entertainment.......
On Oct 16 11:34 AM The Geoffster wrote:
> To paraphrase Maggie Thatcher, I guess they've finally run out of
> other people's money in California. Then again, maybe the virus has
> killed the host.
Not likely. To the North West I fear.
Even worse than importing resources is the fact that the manufacturing jobs in California are vanishing...
On Oct 16 08:57 AM pockyclips 2020 wrote:
> Things can only get worse. As long as we import resources instead
> of using what we have, and moving toward renewables, we are on the
> Highway to Hell. We deserve to be kicked in the arse.
Certain industries with political backing such as cleantech and renewable energy are favored over other industry groups. See the governor's press releases on this subject at his website at ca.gov.
On Oct 16 05:25 PM Student of History wrote:
> pockyclips ...::
>
> Even worse than importing resources is the fact that the manufacturing
> jobs in California are vanishing...
Until Goldman goes away, long oil and short reits may be the play.
On Oct 16 09:00 PM Gary A wrote:
> Goldman Sachs traders don't care about the price of oil, except to
> make money. Don't worry, they have shorted the rest of America, most
> likely, and are prepared for the meltdown.
>
> Until Goldman goes away, long oil and short reits may be the play.
In 1979 a Honda Civic got a highway mileage of 55 mi/gal, now it is about 36. (I know the mileage cycle is tougher now, but not that much.) With a more modest 0.25 to 0.5 gm/mi standard for NOx we could be driving small cars now that get 50 to 70 mi/gal with greatly reduced CO2 output and better balance of trade for the entire U.S.
If California were to secede from the US it would kick the 49 remaining states in the ass. others would be begging to join them.
They are facing their darkest hour now but it is always darkest before the dawn and the new energy efficiency economy will be led by CA.
Yes, the investment banks were also at fault. But that's the nature of banksters. It is their job and in their DNA to make money for themselves and their clients, whether going long or short - yes even at the expense of the national or even world economy. It is the job of the government to ensure they do not get out of hand and more importantly not to create the environment for excessive risk taking -- and zero interest rate encourages excessive risk taking. We need sound monetary policy.
The scorpion was stranded in a flood and asked the frog to give him a ride across the river. The frog was reluctant as he was afraid the scorpion would sting him. But the scorpion managed to convince the frog that he wouldn't sting him. So the frog gave the scorpion a ride. Once they reached the other side, the scorpion immediately stunk the frog. The dying frog asked why. The scorpion replied: That is my nature.
Wall Street bankers are scorpions. Don't blame them for behaving the way they do.
On Oct 16 10:28 PM Ron2008 wrote:
> So correct. The Ron Paulites may want to blame the gov but it is
> the deregulated and unharnessed Goldman and others that will kill
> any recovery with their inflated oil prices.
Nope, didn't think so....
The Republican Congress repealing Glass-Steagall and Phil Gramm's (R) deregulating is what got us in this mess. That is what gave the investment banks access to too much money.
On Oct 17 11:02 AM ron_paulite wrote:
> If the Fed didn't keep interest rate so low for so long, Goldman
> Sach and the other investment banks wouldn't be able to get so much
> cheap money to play with. Many investors would have been quite
> happy to leave a lot of their money in bank saving accounts rather
> than handing it over to Wall Street.
>
> Yes, the investment banks were also at fault. But that's the nature
> of banksters. It is their job and in their DNA to make money
> for themselves and their clients, whether going long or short - yes
> even at the expense of the national or even world economy. It
> is the job of the government to ensure they do not get out of hand
> and more importantly not to create the environment for excessive
> risk taking -- and zero interest rate encourages excessive risk taking.
> We need sound monetary policy.