Friday, May 23, 2008

More eggs and chickens.

WallStreet Journal
If $4 Gas Is Bad, Just Wait
Thursday May 22, 11:29 pm ET
By Anna Raff and Jessica Resnick-Ault

...Many analysts consider $4-a-gallon retail gasoline across the U.S. a foregone conclusion this summer driving season, a period of typically peak demand, but those estimates take only current record-high oil prices into account. Thursday, light, sweet crude futures breached $135 a barrel, more than double the price a year ago.

If oil hits $200 a barrel, which is the upper end of Goldman Sach's prediction for prices over the next six months to two years, the gasoline picture changes quite dramatically. At $200 a barrel, crude alone would cost $4.76 a gallon. Add on the costs of refining and distributing as well as taxes, and pump prices could rise to a range of $6 to $7 a gallon...

...In regions of the U.S. that have been particularly hard hit by weakness in the housing market and economic instability, the fall in gasoline demand has already outpaced the national average, said , an energy analyst with New York investment bank Caris & Co.

"There would still be additional hurt if there was further escalation in gasoline pricing, because other parts of the country would become involved," Ms. Kohler said.

As huge swaths of developments are becoming abandoned or foreclosed to death, naturally the gas consumption in those areas goes way down. Many of the people who used to live there have moved closer to their jobs, where they can bike or walk, or moved to areas where they can use mass transit. But there are only so many strategically located homes - supply and demand will price many low and moderate income people out of such opportunities. At that point, the decline in gasoline usage will plateau. But the price will still continue to rise, because any increase in conservation on our part will be matched or more than matched by increases in consumption in places like China and India who are marching full steam ahead into the modern economy.

So prices will be bumpy for the foreseeable future - up some, back a little bit, up some more, back a little bit...but the overall trend is going to remain upward. We may as well plan for that reality, because it's here to stay.

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