BP and Gas Prices

News about BP ( the former British Petroleum ) is everywhere since the disastrous Gulf of Mexico oil well explosion and resultant millions of barrels of oil spilled into the Gulf since June affecting the livelihoods of Louisiana, Alabama, Mississippi, and Florida residents, businesses, and workers. The recently capped well has slowed the spilling but the impact and clean up will likely go on for years.

BP ( www.bp.com ) issued a press release today noting they have already paid out $256 million in claims and have set aside 30 plus billion dollars for clean up, restoration of the Gulf, and further claims. The BP website has much information on it soliciting ideas, help, and providing round the clock access to video feeds on the oil well site. There you will find news of former CEO Tony Hayward stepping down in October 2010 and being replaced by American born and former Louisiana resident Robert Dudley, who is currently in charge of BP's cleanup operations. And there is extensive coverage on the site of BP efforts and responses to the ongoing disaster.

In light of the ongoing Gulf crisis many are wondering about the larger oil situation, namely the effect of the Gulf disaster on gas prices. What has been the effect? What will be the effect in the future? This disaster is not a natural one, such as a hurricane or tornado, but a result of human error, mistakes and lack of foresight to say the least. It is not the result of oil futures speculation that was rampant 2 years ago this month, when gas prices at the pump rose to over $4 a gallon of regular and a barrel of oil rose to $150 and brought about the collapse of the American auto industry.

So what is the effect? The answer is not what one would expect with the loss of so much oil. There has been almost no effect on gas prices. Summer is the season when gas prices generally increase. Not so thus far this year. Gas prices since Memorial Day have changed little, hovering between $2.60 and $2.80 per gallon of regular. See gasbuddy.com's Massachusetts Gas Prices for up to the minute prices in your area. This link provides current Pittsfield area's lowest prices, which are between $2.65 and $2.69 per gallon. Average Massachusetts price is $2.68. And the national average on this day is $2.74. Gasbuddy also displays a barometer measuring the direction of gas prices; currently they are going up.

Why has there been no effect on the market for oil? Future traders who traded up the price per barrel dramatically 2 years ago are laying in wait. So far prices per barrel of oil are less than $80. While prices are increasing, it's very slow, and there has been a surplus of oil. The demand has not been there. That's the lesson of the past 2 years. Consumers have conserved and cut back on their appetite for large gas guzzling cars, are investing in more economy minded cars, and taking shorter vacations. And there has been government pressure on the auto industry to supply cars with higher gas use efficiency. The recession has produced high unemployment, housing foreclosures, and stabilized gas prices.

The continuing Gulf oil crisis demonstrates forcefully the impact of spills on the environment, wildlife, tourism, local businesses, and the overall quality of life. Still oil touches every sphere of life in the global economy. Oil byproducts produce clothing, plastics, electricity. It is a foundation commodity for modern life and is why wars are fought, to control who has access the these resources. Of course, there is the current thrust from government to wean ourselves from dependence on oil, but it is likely that it is economic development and competition between governments such as China, the United States, Japan, and Europe for this resource that will determine our future. And that competition is over oil resources. Ultimately this competition will determine prices and quality of life far more the Gulf oil spill.

Oil companies have seen that the future will depend on more diversified resources such as Natural Gas. Still Exxon Mobil, which has been investing in natural gas, recently announced its 2nd quarter net profit as $7.56 billion, a 91% increase over same quarter in 2009.

So it appears that the Gulf of Mexico crisis has had little effect on oil company profits beyond that of BP, which is still profitable, though weakened.

Gas prices this summer have been remarkably stable.

2009 Year In Review -- What Recession? or What A Recession!!!

Been thinking about 2009 and what happened and what it means for 2010 now that we're in 2010.

Remember the Greatest Recession since the Great Depression comments? Remember the $700 Billion Dollar T.A.R.P bailout for companies and banks "too big to fail". TARP incidentallly means Troubled Asset Relief Program, begun by former Treasury Chair Henry Paulsen ( also former CEO of Goldman Sachs, a chief beneficiary of TARP ) during the waning months of President Bush's administration and supported by President-Elect Barack Obama. By Dec 31 2008 247 billion dollars had been sent to relieve failing Investment Banks and AIG. And at the very least Goldman Sachs was saved and is prospering quite well. It has even returned the $40 Billion dollar outlay. Quite a turnaround! So for Goldman and many other large banks, the Recession appears over. They're back to investing but not necessarily issuing credit.

On the smaller bank front for 2009 140 banks went into Bankruptcy and were saved by the FDIC -- Federal Deposit Insurance Corporations, whose own funds are nearly bankrupt. In 2010 bank failures have continued a pace -- 9 have failed since the beginning of 2010, taken over by FDIC. In 2009 over 1 million foreclosures occured jeopardizing individual families needs for shelter. Furthermore the national unemployment rate reached and has maintained the 10 % level, roughly 16 million individuals and their families. For those families the term Recession if not Depression is very real. Even Wal-Mart is closing many Sam's Club stores and laying off 11,000 workers. Jobs held by Wal-Mart former employees will be outsourced.

On the Investment and Finance front, the Dow has risen from a low of 7100 a year ago to over 10,000 on a continual basis (10,196 today) though there are still daily ups and downs but no dramatic downward shifts. Institutional investors are back playing the Market, confident that the US government and the Federal Reserve will prevent any dramatic decay. So the Investing community is moving forward even though wary of Financial Reform legislation. But there has been no real Financial Reform legislation no new FDIC or regulatory reform. Perhaps that is due to the hands off approach of former deregulators Larry Summers, Tim Geitner and Robert Rubin. Only recently has 82 year old former Treasury head Paul Volker been heard from in marked contrast to the hands off the "too big to fail" proponents.

Financial Reform like HealthCare Reform are both up in the air. Whereas TARP was okayed for 700 billion for 1 year HealthCare was for that same abount over 10 years and is stalled. Small Business have vested interests in seeing Health Care Reform though since it 's a large share of their own budgets, which operate on very small profit margins, unlike the "too big to fail" companies. The Outlook for any major Financial or HealthCare Reform in 2010 is very clouded, if not dim.

And remember that other indicator of onset of Recession that caught economists by surprise. Here I'm talking about Oil and Gas Prices. It was just July of 2008 when gas prices were a steady $4.11, a price that was a shock to individuals then and now. By the end of 2008 gas prices were back down to $1.87 nationally. By that time the US automotive market fell apart. General Motors and Chrysler filed for Bankruptcy protection, Fiat took over Chrysler and US taxpayers put a major financial stake in General Motors; Barack Obama initiated the Cash for Clunkers program to get Americans back into dealer showrooms. The automotive industry is still floundering. Only Ford did not take advantage of TARP. However, when banks do not issue credit, buyers don't buy; so government money went into GM's major financial lender, GMAC.

Now if you have been following gas prices over the last year, they have been inching back up, from aforementioned $1.86 to national prices this week of $2.78 up from $2.60 during the Christmas holiday season. In Pittsfield in December is was $2.63; a year ago it was $1.80. Economists were not even including gas prices in cost of living indexes so they missed the Depressive effects of these high gas prices. Wages simply do not go up to cover these changes. Nor do State budgets have the flexibility to meet these changes. With employment down, investment down, tax collections were down as well and States have initiated 3 to 4 rounds of dollar cutbacks, that in turn has affected municipalities, such as Pittsfield. For libraries, the entire Regional Library System is being cut in favor of one centralized system. Libraries are losing expected levels of state funding and local governments are unable to support library costs. This has resulted in cutbacks in service,days open and in some cases closing of libraries. In western Massachusetts there is no longer Bookmobile service to dozens of rural communities.

So here we are in 2010. Has anything changed? Or does the Recession continue full force. There has been no financial reform and no healthcare reform, no relief for small businesses or workers. There have been none of the great reforms that occurred during the Great Depression other than the hope given by those Great Depression agencies the FDIC and for the banks, the Federal Reserve.

So the question remains What Recession? and the answer remains What A Recession flowing full force to every sector and unit of United States citizenry with the possible exception of big banks and the wary Investment community!!

Memorial Week 2009 - A Time For Reflection And Review

Today is Memorial Day. Yes, yes, I know. The"official" holiday of Memorial Day is celebrated the last Monday of May; this year May 25. But May 30 is the original day set aside by the United States Congress in 1868 to remember the dead of both sides of the Civil War. It was then called "Decoration Day". It was since much later changed to Memorial Day -- a day of remembrance for of those no longer with us -- friends, family, and others. It is also a time for reflection and review. (For an informed overview, history of Memorial Day, see Wikipedia's entry here.)

So, this is really Memorial Week, the official start of Summer tourism in the Berkshires and throughout New England resort area. The annual migration to Pittsfield and surroundings has begun. Tourism is a major part of the economy of the Berkshires. How summer develops will reflect the economy. Will people still vacation here or stay at home? Labor Day signifies the end of Summer tourism, although for some, the true end of Summer tourism is October 12, Columbus Day.

Already gas prices have started to climb again. They really began creeping up Mother's Day. Now gas prices in the area are averaging near $2.50 per gallon rates. A year ago we were entering the $4 range with no end in sight. The prices broke in November, going down below $2 for the first time. They stayed down until May 2009. (See Motor Trend's Gas Price Locator for Pittsfield area prices and AAA's fuel gauge report on daily state and region prices.)

Reflecting on oil and gas increases to sustained $4 + prices, we see immediate and far reaching effects that have thrown the US economy into one continuing crisis after another, making it especially difficult for small businesses to stay afloat, but also major Fortune 500 companies. Witness the bankruptcy of Chrysler Corporation and the coming bankruptcy of General Motors Monday June 1st. Of course, it was more than gas prices that led to the collapse of the automotive industry in the United States, but for the consumer it was the key. Companies with large inventories on dealer's lots, inventory that did not move, together with crisis in credit financing, the bank bailouts and bailouts of the auto industry. Great losses have occurred. Even Toyota experienced billion dollar losses and Toyota has very diversified offerings, something that could not be said for either Chrysler or General Motors. Auto dealers not moving inventory are offering "going out of business" sales now. Long term relations between dealers and the auto industry are being severed through the bankruptcy restructuring process. The automobile industry will survive but not as the mega-giants they once were.

Another impact of the automotive industry collapse has been on parts suppliers and credit financing agencies such GMAC (General Motors Assistance Corporation). Part suppliers Delta and Visteon are in bankruptcy. (See Business Week article on this). For consumers availability of parts is always a problem Meanwhile the taxpayers are guaranteeing Chrysler's warranties.

Collapse of the automotive industry has been impacted by its inability to confront major trends in the manufacturing economy -- the larger context of the problem. Forbes Magazine has just published a major special report, Made in America, focusing on major manufacturing trends since 1979. These articles represent an informed analysis of what has happened and what needs to happen for the "second American century." The manufacturing sector has changed dramatically. Currently there are 12 million Americans in manufacturing where it was once 19.5 million in 1979. The 12 million that still have jobs have advanced in productiviy and efficiency. Much more is produced with 12 million than the 19.5 milion. The reason for increase in productivity in two words: the Techological Revolution. The effective mating of computer and machinery together with robots and increased sophistication. This has led to manufacturing productivity at the highest level ever $1.6 trillion, according to John Engler, President of the National Association of Manufacturers, in his Forbes article, "Forging a Second American Century", Economist Robert Reich, author of Supercapitalism, foresees in his article, "Manufacturing Jobs Are Never Coming Back" a different scenario. According to Reich unskilled jobs are not coming back and this is a worldwide phenomenon. Instead manufacturing is calling for highly skilled jobs with machines and robots doing the repititive and and even skilled work. Whatever you think this report represents a significant attempt at understanding our current predicament. It is education and continuous training that is needed.

While we're reflecting on these trends and the reemergence of increased gas prices, hopefully you'll take a moment or two to enjoy your summer vacation, wherever you take it. Even in the great recession we're going through, there are positive developments and opportunites to be had.

During this Memorial Week I hope you've taken time to Remember. Remember those no longer with you and those who are still living. And have a happy Summer! Enjoy the beautiful Berkshires!

On Being Thankful - Gas Prices Down

As Thanksgiving 2008 arrived, there seemed little to be thankful for this year. However, regardless of circumstances, there is always much to be thankful for each day and this day gives us a chance to reflect on the positive.

Let's just take one change we can all celebrate. I'm speaking, of course, about gas and oil prices. They are down dramatically. Gas prices for regular are now under $1.99 a gallon in Pittsfield, cheaper elsewhere in Massachusetts. That's more than a 50 % drop since July. A barrel of oil now goes for under $60, far from the $147 barrel high. And diesel prices are down substantially as well. (See our sidebars on AAA Gas Prices and Locators to determine prices in your area.)

The bleak consumer situation in July for oil and gas has been substantially relieved. Will it continue? Who would dare predict? All bets are off! Still we are Thankful for this relief this Thanksgiving. More money is in the pocket of the consumer and the small business. People are reluctant to spend; credit is tight; people are worried. City and State governments are worried about what 2009 will bring.

So while gas prices are declining, let us rejoice for that. Reports are spreading that with gas prices down, automotive sales may be increasing even for SUVs, which have been languishing on dealer lots.

Be worried; be careful; be thankful; get prepared for 2009.

Happy Thanksgiving!

Effects of Economic Crisis - Gas Prices Down!!

Since June 19 we've been tracking Gas Prices locally and nationally. Looking at the trend on the 19th we cautioned, "Gas prices are likely to continue to go up or at least maintain the $4 rate." Like most economic projections during the last 3 months this one was very wrong. And who would have guessed that today I would locally see gas prices posted anywhere from $2.94 to $3.25!

That's right! Gas prices under $3, down more than $1 from 3 months ago. The price of oil - also down from the high of $147 a barrel from July to under $80 a barrel! If you had bet on oil staying high as commodity traders do, you would have 'lost your shirt.' The same for gas prices.
It's rare for the consumer to benefit from economic crisis. With gas prices down as well as car prices, this is one of those rare times .

The oil and gas crisis has had dramatic effects on the automotive industry. Sales for GM, Ford and even Toyota have fallen greatly. Most of the sales decline has been attributed to GM and Ford's reliance on trucks and SUV sales. The gas crisis has literally stopped sales of these vehicles because of their gas guzzling reputations. GM and Ford's stocks have fallen below $10 a share and credit from banks has been tight if not frozen. Consumers wanting to buy cars, even those with good credit, have been turned away dealers because of bank reluctance to lend.

This set of circumstances led the automotive industry to request help from the Federal government. A $25 billion loan is being provided to help stabilize the industry. Will it be enough? Hard to say as many changes will be required and there is not a lot of time. Repercussions of the oil crisis are having widespread effect. In response to the earlier crisis (June) budgets and projections had to be altered for small businesses (trucking, for example), municipalities ( redoing budgets for a fiscal year just begun), utilities ( new projections of much higher costs), and governments (budget cutbacks and need for reallocation of expenditures for higher energy costs at a time when less revenue from taxes are coming in). An overall economic crisis.

Now energy costs are going down. Will the new plans have to be scratched? Like the commodity trader who bet on higher prices continuing and now losing their bets, will the same thing happen to other entities who have adjusted their plans? With volatile ups and downs the real question if what is the real price of anything. A full stabilization plan is called for, one that will benefit all parties and restore balance.

Congress has passed legislation providing the Department of Treasury with $700 billion dollars to start the balancing process to provide a fuel injection to those sectors that need assistance right away. banking, automotive industry, states and municipalities.

Meanwhile the consumer will hunt for bargains and hope that gas and energy prices continue to go down. According to the AAA Daily Fuel Gauge report the current national average is $3.15 per gallon just 40 cents more than a year ago. In Pittsfield today's average is $3.23. A year ago it was $2.67. Use the AAA Gas Price Locator and AAA Daily Gas Prices in our "In the Berkshires" sidebar to follow these prices regularly and plan your expenditures accordingly.

Will the $700 billion fuel recovery and stabilization? The process has just begun and is still being worked out. Now it is a worldwide problem with European governments injection $2 trilion dollars into their economies. A stabilization plan is evolving.

We can breathe a sigh of relief that at least gas prices are going down. Will that continue?
Stay tuned.

Labor Day 2008 - Gas Prices Revisited

Labor Day 2008!

You can hear the chorus everywhere. Where did the Summer go?! It's back to school time for kids and the end of Summer vacations for most. In fact the long Labor Day weekend is when families hit the road to travel to see friends, family and resort areas. But this year high gas prices have altered the plans of many and a new word invented, the "staycation". In fact high gas prices have had ripple effects throughout the American and world economy. Because of these changes I thought this would be a good time to revisit the issue of gas prices and where we stand at the end of August.

In the June 19 About Business post, "Gas Prices in the News" the average price of regular gas in Pittsfield was $4.102. The national average was $4.073. On July 17 the national average reached its highest point $4.114. Since that peak national gas prices have dropped a little over 10% to $3.682; these prices courtesy of AAA's daily Fuel Gauge Report. For Pittsfield there has been a 43 cent drop since June 19 to the current $3.674, still just over a 10% decline.

If you are traveling this Labor Day weekend, you may want to know where the lowest prices are. Which states have the "cheapest" average prices? Which cities have the "cheapest" rates? To find this information out use AAA's daily State by State averages and its Gas Price Locators. As an example I'm traveling to Connecticut from Massachusetts this weekend. Average rates in Connecticut are $3.816; Massachusetts $3.607. Pittsfield's lowest rate is $3.57; Southern Connecticut $3.82 to $3.97. This tells me I should plan my weekend gas purchases in Massachusetts. You may use these tools to plot your own purchases.

Gas prices have impacted both travel plans, how people travel, and also automobile sales. In the area of automotive sales, SUV's are languishing in dealer lots and automotive companies have launched heavy incentives to clear the lots for the introduction of 2009 models. If companies have cars with good fuel economy they are emphasizing those models. For example General Motors is touting its Chevrolet Cobalt, a car they had planned to discontinue but no more it seems. It's fuel economy is competitive. Automotive companies are downsizing their models, discontinuing many truck lines and this has been true of Japanese companies as well as they have seen their SUV and pick up truck sales decline. Labor Day is often thought as the best time to buy a new car both because of price incentives and change of models from 2008 to 2009 and this year is no exception.

CNNMoney.com has just issued a report on August automobile sales. There they report a slight rebound from the July 16 year low of 12.5 million vehicles sold. August sales are estimated at over 13 million. However this number is 3 million less vehicles sold than August 2007 sales of 16.2 million. So the automotive picture is bleak for the companies but good for buyers, who can get good bargains. Buyers have to be aware that the highest price incentive packages are for vehicles often not competitive for fuel economy. As a reminder it is the EPA that tracks fuel economy. Their guide should be looked at in the library or online if fuel economy is one of your priorities.

So increased gas prices are greatly affecting the economy and people are curtailing their plans. Back to Labor Day. What is the immediate impact for this weekend? The New York Daily News online edition of August 28 had a most interesting report by staff writer Oren Yaniv "Dropping GasPrices Signal More Travel". Yaniv makes a strong argument, using AAA/Travel Industry Association figures that people's travel plans have decline less than 1% from Labor Day 2007. But how they travel has changed. Here's AAA's estimates: 34.4 million traveling, 28.6 million by car, 4 million by air for an average distance of 888 miles and $826 in family expenditures. Labor Day appears as always to be the last fling before settling down to Fall and Winter preparations.

Generally, gas prices decline after Labor Day. This year it is increasingly difficult to predict. What will the impact of Hurricane Gustav be? Oil price per barrel is down to between $117 and $120 from highs of $147. Many towns and villages and homeowners and renters are fearful of increased energy costs for the harsh New England winters. There is the air of impending crisis for all businesses and individuals that operate on small margins.

The future will be faced with mixed feelings that come from a volatile situation. The national holiday of Labor Day at least gives people the opportunity have a release before they have to buckle down to uncertainty ahead. It's also the only time we may honor freely each other as workers.

Enjoy your holiday!

GAS PRICES IN THE NEWS

Let's face it! Gas prices have fluctuated wildly over the last year. Budgeting for businesses, municipalities, families and individuals has been affected dramatically. Business plans have not anticipated the current $1 per gallon increase in gas prices from July 2007 to now. Last year in July regular unleaded gas was $3.079; today's price, $4.102. When you look at diesel prices, increases are even more dramatic. The current price is $4.926; last year at this time, $3.051. These prices are for Pittsfield, Massachusetts.

Nationally, the prices vary little from Pittsfield, though they are lower. The national average for regular unleaded gas currently is $4.073; last year, $2.998 per gallon. Diesel nationally is $4.791 per gallon; last year, $2.895. Prices cited here are gathered on a regular basis by the American Automobile Association (AAA) and the Oil Price Information Service in AAA's Daily Fuel Gauge Report. AAA provides this report daily to the media and for public use. AAA also provides daily gas prices for Massachusetts metropolitan regions.

These tools are helpful to communities trying to gauge the impact of prices and to plan accordingly. One impact has been increased pressure on small businesses such as your local gas stations. A recent Business Week article, When Gas Stations Run Out of Gas, explores this problem in detail. For example the article notes the effect of credit card sales on stations. Margins are low and credit card charges amount to 5 cents a gallon to the owner. Last year 3184 stations closed. This year, on June 12, Exxon/Mobil announced that it is getting out of the retail gasoline business, that they will be selling their 2225 United States filling stations and convenience stores.

Trucking represents the chief engine of goods distribution in the United States. High diesel prices are showing their effects. Independent truckers (small businesses) are feeling the crunch as well as large fleet owners. Prices of crude, now at $137 a barrel affect the larger petroleum based economy. Everything from plastic bottles to polyester, lipstick to asphalt share petroleum bases. And, of course, energy costs, too, have increased and continue to increase.

Through its daily reports AAA is helping us keep our fingers on the ever shifting pulse of gas prices. It has also developed another tool, AAA Gas Price Finder. With this tool, you can find the cheapest gas prices in your community. Just put your zip code in and check radius of 3, 5, or 10 miles and AAA lists gas stations and provides a map locating the gas stations, with up-to-the- minute prices. Easy access to the AAA tools, the fuel price reports and Gas Price Finder have been provided In The Berkshires section of the About Business blog.

As library patrons at the Berkshire Athenaeum encounter these problems, there are frequent questions about cars, gas mileage, and prices. As patrons try to fathom what's going on, there are some library sources they can use. For example, there is a major reference book, Energy For the 21s Century : a Comprehensive Guide to Conventional and Alternative Sources by Roy L Nersesian. This puts the current situation in context with detailed discussions, as an example, of the 1973 oil and gas crisis. Other resources are the annual EPA Fuel Economy Guide. ( EPA does the mileage breakdowns, posted on new and used cars.) Other resources available in most libraries are the N.A.D.A. price rating books for new and used cars. It is a mark of the times that these resources are requested throughout the library day.

Gas prices are likely to continue to go up or at the least maintain the $4 rate. By using some of the tools discussed here, you'll be able to keep informed and up-to-date, and plan accordingly.