Wikinvest Wire

The California SUV Fill Up Index

Thursday, August 11, 2005

Have you ever wondered what goes through the mind of the owner of a large SUV as they stand next to their vehicle, filling it with gas at the local station? Waiting and waiting for the tank to fill, gas pump in hand, watching the numbers on the display go higher and higher.

It's kind of funny because a particular gas pump will dispense gas at the same rate, regardless of the price. When the price is higher, the numbers increment faster, somehow giving the impression that the gas is coming out faster. But it's not.

Gas tanks for sedans and small SUVs range from 15 gallons to maybe 22 gallons. The tanks on the larger SUVs, however, are much higher in capacity. With gas prices rising briskly in recent months, and with more increases to come as a result of the recent spike in the price of oil to $65 a barrel, it is natural to ask just how much gas these larger SUVs hold, and just how much it costs to fill them up.

After compiling the first of its kind "California SUV Fill Up Index", we now know the answer to both of these questions - and we have a pretty good idea how to answer the question posed in the opening paragraph.

A price of $2.70 per gallon is used in the first publication of this index, which is corroborated here - roughly midway between the highest and lowest price for regular gas as of this writing, and consistent with what we see while driving around. Gas prices are a bit higher here than in other parts of the country due to pollution controls and other factors, which, based on the size of the vehicles seen on the road these days, does not seem to have influenced buying decisions at all.

As indicated by the red line in the chart, today there are four SUVs that cost $100 or more to fill up. The next time you see one of these vehicles at a gas station, stare at the person filling it up and shake your head a bit - see what kind of reaction you get. They surely know how much it costs to fill one of these up - now you do too. There must be some level of self-consciousness when standing there, for what seems to be an eternity, while the huge tank fills.

Or, maybe that's why some owners start the pump, then hop back inside, waiting for the clicking sound indicating that the pump has turned off, so they can hop back outside and finish the transaction - all with a minimum of scrutiny by others in the area. Or, maybe not.

This chart will be updated in future posts - watch the red line.

Peak Oil

So, why are gas prices so high and about to go higher? And, why have the world's economists done such a horrible job forecasting where the oil price would go?

It wasn't too long ago that oil was expected to return to between thirty and forty dollars a barrel and stay there. That never happened. A few months ago, it bottomed out in the mid forties, only to defiantly surge back past $50, then past $60, and then to $65 yesterday. And, this price action was achieved with no major supply disruptions - if something bad were to happen, there's no telling where the price might end up.

If you want to hear something really scary, try listening to the Jim Puplava interview with Matthew Simmons over at Financial Sense Online. He's the author of "Twilight in the Desert" which makes some dire predictions about future oil production - here's an excerpt from the transcript:

"It was really an incredible exercise of trying to collect the data no one had ever actually thought of doing before, and that’s, what are the top oil fields in the world – field by field. And the background for me doing this is that I’ve participated 2 years in a row in an energy supply workshop, conducted by the energy analysts of the CIA in Washington, where they got about 10 of the best oil experts together, and we’d spend a day doing a discussion of all the key countries, and how much oil capacity they had in place over the course of the coming 3 years. I sat there listening aghast at all of these experts with their laptops that kept looking at their supply models, and it’s how China will be producing 3,217,000 barrels/day this year, and 3,281,000 barrels/day. And I basically said: “how do you all even know that. What are the 3 or 4 top fields in China?” And no one had any answers."
If you want the take from a couple economists, have a look at this Wall Street Journal debate:
"James Hamilton writes: Although it's true that some people are predicting that the peak in oil production will occur before the end of the year, I agree that it is likely to be a bit further down the road, though perhaps much sooner than 20 years from now. The market seems to share our view as well, since it's possible on today's futures market to buy oil for delivery in December 2011 for $60 a barrel, something to which traders would never agree if they thought world production was just about to enter the declining phase."
So, James Hamilton is assured that peak oil is not near because the market is not pricing it that way. Hmmm... Perhaps this logic should be evaluated in light of Matt Simmons' assertion that no one really has a good idea about what the reserves really are. This was demonstrated some time ago by Royal Dutch/Shell when they made some massive downward revisions to their reserve estimates - it seems the part-time employee who was responsible for the reserve estimates had been providing faulty data.

Maybe this is one of the reasons that economists don't do well with their oil price forecasts - they believe all the reserve estimate numbers.

Peak Oil and the Fed

One of the most intriguing aspects of peak oil and its impact on oil and gasoline prices is the role of China and the U.S. Federal Reserve. It is clear that the monetary stimulus applied by the Fed since 2001 has had a large role in the economic boom in China and has resulted in a dramatic increase in oil consumption in that part of the world.

This increased demand is, to some degree, driving today's oil price. Whenever peak oil does occur, it surely will be sooner than it otherwise would have been had U.S. monetary policy not so stimulated these economies half way around the world.

Did the Greenspan Fed cause $65 oil? No, but they sure haven't helped to keep the price down.

17 comments:

Anonymous said...

This is freakin' hilarious.

Anonymous said...

I remember back in the '70's when they were predicting $100 a barrel oil, and the Club of Rome came out with a study saying the world would run out of oil by 1985.

I know, I know -- "This time it's different."

Anonymous said...

Anonymous said...
I remember back in the '70's when they were predicting $100 a barrel oil, and the Club of Rome came out with a study saying the world would run out of oil by 1985.

I know, I know -- "This time it's different."

Here's what someone who has actually read the Club of Rome report (Limits to Growth)has to say: "After reading The Limits to Growth, I was amazed. Nowhere in the book was there any mention about running out of anything by 2000. Instead, the book's concern was entirely focused on what the world might look like 100 years later. There was not one sentence or even a single word written about an oil shortage, or limit to any specific resource, by the year 2000."

This was written by Matthew Simmons at http://www.energybulletin.net/1512.html

Anonymous said...

A question to ask the SUV owner at the gas station is as follows:

How does it feel to have had money?

Anonymous said...

OK, I stand corrected. Here is what Wikipedia has to say (in part) about "The Limits to Growth":

"The exponential index has often been misquoted, for example, The Skeptical Environmentalist states: "Limits to Growth showed us that we would have run out of oil before 1992" (page 121). What Limits to Growth actually has is the above table [set forth in the encyclopedia article] which has the current reserves (that is no new sources of oil are found) for oil running out in 1992 assuming constant exponential growth."

While the Earth's resources are finite, two things that are not finite are humankind's ingenuity and the ability of the market to adapt to and regulate supply and demand.

The oil shortage of the '70's turned into the glut of the '80's, and it will happen again.

"The Limits to Growth" is what you get when you use an engineering mentality to try to solve an economic problem.

Anonymous said...

And, to pile on a little more, here is part of Wikipedia's article on "The Club of Rome":

"Critics have charged the Club of Rome with "Neo-Malthusianism" and strong elitism in its membership which interlocks with European power elite groups such as Bilderberg and to a lesser degree Anglo-American elite members.

"Furthermore some critics dismiss the Club's warnings as motivated by a Left-leaning political agenda, rather than scientific fact."

(I'll leave out the part about what the conspiracy theorists think.)

I think the charge of "Neo-Malthusianism" has some validity. Whether or not the Club of Rome is motivated by a "left leaning political agenda," it is also true that the policy prescriptions which one derives from such studies tend to involve some sort of expansion of state power and increased government regulation of private conduct, which is, after all, what the left is generally in favor of.

Anonymous said...

Mish: I love the your new California SUV index. Consider adding a column showing the average MPG. Drivers of these vehicles are not only paying a tidy sum to fill up, they are burning through the fuel at a rapid clip as well.

Thoroughbred said...

I have a 2003 Hummer H2, I think the tank is only 28 gallons, but what's $10 amongst friends. My favorite thing to do is pull up next to a small car and offer "I'll pay for your gas if you pay for mine" I get a laugh, but no takers. PS I try to find a small car with a cute lady to extend this offer

Anonymous said...

"A question to ask the SUV owner at the gas station is as follows: How does it feel to have had money?"

And the question you may be asked in return: "How does it feel to have enough money that you don't have to worry about stupid, inconsequential things like the price of gas? Oh wait, I know how that feels."

Anonymous said...

So... what you're really doing is blaming Greenspan for not making it easier for you to go buy an SUV?

This is actually an interesting study... too bad it's tainted by your opinions.

Anonymous said...

Why is everyone so down on SUV's - some of the smaller ones get the same or better gas mileage than the average car.

Anonymous said...

I'd love to see one more column in your chart--the number of miles that vehicle would last on one tank, split city/hwy.

John B said...

Regarding The Club of Rome and Limits to Growth, it's been 30 years or more since I read it but I do remember the constant domesday scenarios presented. Funny, since I used be a geologist but left the field after it imploded due to low metal prices (in real dollars that is). Most of my classmates have quit too. I read somewhere that commodity prices (in constant dollars)have been declining since the time of Napoleon.

The economy has a remarkable ability to adjust to shortages (and rising prices). Too bad though that high prices just pump more money into Saudi Arabia.

Anonymous said...

> The economy has a remarkable ability to adjust to shortages
> (and rising prices). Too bad though that high prices just
> pump more money into Saudi Arabia.

Exactly the reason why I find the Republican free-market mantra
shallow - money does not care about politics or religion. The
money we are sending to Islamic fundamentalists contradict our
desire to contain them.

Brings back to mind the old communist quote about selling
rope to capitalists....

M. K. said...

Hi Guys,

I think this gas chart is great.

After reading all the comments, I think most of you have missed the boat or are in the process of missing the boat.

This is a great quote from the article "Hummer Overfloweth" ( http://themessthatgreenspanmade.blogspot.com/2005/11/hummer-overfloweth.html ):

"The reason that the story of rapidly rising Hummer inventory is so interesting and so amusing, is that America's most ostentatious Sport Utility Vehicle, the Hummer SUV, is a metaphor for America in the world today - overweight, overpriced, inefficient, and unloved.
"

Furthermore, if you actually consult the BP Oil Annual Report (you can find it on their website), and actually look at the tables and charts, all the major oil fields will reach maximum pressure around 2012. More statistics can be found here: http://dieoff.com

Who cares what garbage or nonesense your/our/the world's politicians and industrialists are spewing on a daily basis. All of that are just lies and smokescreens.

The point is that we are near the end of cheap, yet powerful, per unit energy sources which Mother Earth has provided us. And even more importantly, pollution and environmental destruction is at an alltime high because of increasing human activities (e.g. 6.5 billion ppl on this planet and growing daily). Laws of supply and demand are very visible. Our oceans are overfished and natural disasters will only increase as the polar icecaps melt.

Buying an outdated and inefficient SUV only shows that you are out of touch with what is going on with mother nature and planet earth. And if after reading these statistics and hearing/seeing the massive hurricanes down south you still choose to drive your SUV in the city to pick up groceries, you are only contributing to the problem, not solving it.

Anonymous said...

man, some people are truly idiots

plymster said...

it is also true that the policy prescriptions which one derives from such studies tend to involve some sort of expansion of state power and increased government regulation of private conduct, which is, after all, what the left is generally in favor of.

This is absolutely correct. That's why the most bloodthirsty and controlling regimes in history (Hitler, Franco, Mussolini, Napoleon, Hussein, etc.) have all been hard-core leftists.

The soft-core leftists (Peoples' Republic of China, Europe) have gone crazy with their zany rules and regulations. This is why their power is diminishing, and why America's power has risen so much in the past 7 years in the hands of Right-thinking conservatives like George Bush, Dick Cheney, Tom Delay, Dennis Hastert, Mark Foley, Ken Lay, etc. They only create invasive rules to protect us from ourselves (like "sneak and peeks", jailing Americans without due process, wiretapping, using the Justice department to attack political rivals, etc.).

Darned leftists and their oily lies...

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