The Plebian

Pretty Economic Pictures for the Illiterate Masses

The (possibly) Great Oil Shock of 2010-2012!

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 In the last year, America (and the world) has witnessed an unprecedented decline in demand by a few percent as a result of the global economic downturn.  While America’s housing bubble played a major part in starting the global domino catastopcrapcade, oil prices also caused major consumption cutbacks in other areas once Americans began paying over $4.00+ a gallon in May 2008.  (coincidently this also led to a major decline marketshare purchase of gas guzzlers, which has since abated since oil prices are back down below $2.50 – People are so short-sighted and/or stupid). 

Anywho, one important question to ponder is what will be the near future prices of gasoline and has this recession changed projections of future prices…

Well this handy dandy chart I stole from Infectious Greed (HT Paul) gives some illustration.

oil-shocks

For those less chart savvy, the above provides three different senerios as to the severity of the recession and the resulting less demand for oil.  It must be noted that while the Western world is using less oil, this is not true for Asia (China will likely increase demand 5% this year, as opposed to 12% last year).  Global demand will likely grow as a result of growth in developing countries.

If you notice that the X-axis of this graph begins at the point where oil demand exceeded supply…the result was rampant speculation and increase in prices (see chart below, the point is the first spike in the green line)..

The Green line is the price per barrel.  To adjust this to the price of gas let’s go to this little nugget of within info from the Energy Information Agency

So let’s just make simple.  Currently Light crude is trading at $63 and price at the pump is around $2.50 nationally…

63/2.5 = future oil price projection/x

So if we put all the charts together what could we get.  Well on the first graph if we take the middle point of the middle senerio (severe economic downturn) we find supply hitting demand in about May 2011.  Now if we plug that the projected price of oil into our other formula for that date we get this…

63/2.5 = 125/x

x= $4.96 per gallon. 

THE SAD IRONY IS THAT THE LESS SEVERE OUR CURRENT RECESSION IS THE QUICKER IT WILL LEAD TO HIGH GAS PRICES AGAIN.

I would start seriously thinking about how you use energy now and make the necessary lifestyle changes that will prevent you from having to cope with high energy costs.

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