Oil Under $60 and Gasoline Approaching $2/Gallon. Gas Guzzlers Set for a Comeback?

by John Horner

Published: November 14th, 2008

oil under 60 and gasoline approaching 2 gallon gas guzzlers set for a comeback

Commodities markets are on an even wilder roller-coaster ride than the stock market and crude oil is leading the retreat. The AP reports that Thursday’s hit of inter-day low of $54.67 / barrel and closed at $58.24. That there is almost 2/3rds down from the summer’s near $150 peak. TFC Commodity Charts publishes a dandy oil price graphic ,while the EIA puts detailed gasoline price histories online. Unfortunately for conspiracy theorists, gasoline prices have tracked crude oil prices very well in recent weeks. The national average for regular fuel for the week ending November 10th was $2.17; broadly consistent with January 2007 when crude oil was last in the $55-$60 range. Interestingly for whichever automakers stay in business is the little reported fact that steel, copper and other raw material costs have plunged even more rapidly than crude oil. Copper, for example, is falling through the floor.

So, does this mean it is time to ramp Hummer production back up? So far, signs are that most consumers remain gun shy about gas guzzlers. Democrats are beating the drum for massive infrastructure construction projects in the new year, so some relief may be in sight for the work truck market next year. The real story, however, may be the headwinds facing Ford’s European small car invasion, Honda’s new Insight and the believe-it-when-I-see-it Chevy Volt. Even if customers aren’t stampeding back to monster trucks, they might not be as keen on Lilliputian cars and expensive plug in hybrids as they were when $5/gallon seemed to be just over the next hill. We seem to be living in dog years where each calendar year counts for seven.

John Horner

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4 of 42 comments

Old Guy Ben on Nov 14, 2008
it is easy to be visionary after the fact. Yes, it is. But check this out: Workers at General Motor's Arlington, Texas, SUV assembly plant began working overtime this month and are scheduled to remain on overtime for the rest of the year. The plant, which employs 2,500 workers, is now the only GM factory building full-size sport utility vehicles like the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade. Although sales of the vehicles are still down overall, they have rebounded in recent weeks as gas prices have fallen and cash-strapped automakers have slashed prices. The vehicles have proven to be a solid source of revenue for GM. link I guess time will tell if this is visionary.

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Dean on Nov 14, 2008

The problem with dkumalcz's visionary argument is this: GM purports to be a global automaker, selling into markets in which small cars are the big volume sellers. They claim that their international business (until recently) has been a thriving, profitable enterprise. Presumably this must mean that they have the capability of producing small cars at a profit for these markets. So what is their excuse?

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FromBrazil on Nov 15, 2008

As to your question: I should hope not! The sooner the average American gets his fat ass into a SUV, the faster the prices rise for all of us again, and ultimately, to him , too. This makes it a no win situation. If American consumers remain enamored of smaller cars for a while, the Big Oil companies et. al. remain more confused about what price they can get away with, and this makes the price stay dowm for a longer while. As an aside, own here (oh you Americans whine so much) the price of gas has not fallen an iota. This means we are paying roughly twice what Americans pay, and about 60% of what Europeans pay. When you calculate that against average purchasing power we are being just fucked!! That's what you get when you socialize the market. Our beautiful Petrobras (just hammered by Moodys) has had a record profit. And why not? They have kept prices frozen at like 100 dollars a barrel for over 2 years. In that time imagine how liong the barrel has actually beem at that threshold? Yeahy like under 35% of the time. So, the Brazilian consumer is paying overprice 65% of the time, and now comes talk of a reduction in price. In 4 months time! Yeah, just enough time to guarantee (a morally undefensable) profit against our pocket book. Why 4 months? The summer driving season! Fuck consumers and after they get back to work in February, be benevolent and give them a break. But fuck the a little more. Heck anybody can pay an extra 200 dollars to the gov for revenue. After all they are rich and all driving to th beaches in their own private cars. Let the gov distribute the wealth (mainly amongst themselves). Oh yeah, and you gotta protect the super millionaires who produce ethanol in this country. No I'm soory the patriotic businessmen who invest their "talents" (cough--lobby and cough cough--gifts) in a market with no competition. Forgive the bile, but even without such virulence the truth is roughly really as I've written. LOng live capitalism

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Fallout11 on Nov 18, 2008
ra_pro : Let’s give credit where credit is due; pch101 was correct that in the short term the oil would go down. While Pch101 is a generally a very astute commentator, I would like to point out that gas prices fall EVERY year in the fall, assuming there is not a major hurricane smashing refineries. Predicting the norm is not especially prescient, e.g. I predict it will be drought like in the Sahara next year. The true test will come late next spring. However, thanks to a collapsing global economy and with it, lower demand, prices will rise but perhaps not as much as this year. On the flip side, global oil depletion is as real as the depletion of the gasoline in your tank as you drive down the road. New wells must be found to replace old ones as they wither and die. This is not conspiracy theory, but petrochemical industry fact (ask a geologist or oil patch worker). New discoveries have paled in comparison to usage and depletion rates for decades now, and no new Saudia Arabia's have been found. The IEA, whose job it is to monitor this, have pointed out that Mexico (our #3 supplier) will be an oil importer by 2014, just as the United States, Indonesia, the UK, and Norway before them have, and depletion rates for existing wells worldwide are now averaging 8-9%, while new discoveries are replacing 2-3% of total usage. Thus, peak oil is real, a simple compounding action. Oil prices, per barrel are still 5x what they were 10 years ago. We'll see $200/barrel before we see $20/barrel again, barring a complete economic collapse, and I'll bet a year's pay on it. So the real question becomes.....can a crappy global economy continue to drive down demand faster than depletion rates drive down supply? Film at 11.

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