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| June 2007 Newsletter |
2007-10-26 |
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Motormouth here,
A very warm welcome to all of our brand new, fresh out of the box, Car Connection Club members. This month’s initiation task is a well thought out one. All the Newbies will be in charge of making sure that all the vehicles belonging to our senior club members are kept in the shade at all times through out the summer heat of 2007. Our senior members must be comfortable at all times, breaking a sweat is simply not heard of. So, Newbies, think of your duty as serving others, grin and bear it, the heat that is and enjoy yourself as you perform the great car shuffle game. Oh, and remember, if the heat starts getting to you, just go to your happy place, you know, where it is as cool as a cucumber.
Well folks, the summer of 2007 has arrived a little early and a lot of us are feeling the heat. Just ask Axel. She’s a little disturbed about the chocolate melting off her donut before getting the opportunity to lick it of. How ever, knowing Axel, she is already working on a system to get this donut issue “licked”.
Mamamotormouth has officially pushed Axel and I away from the printing press this month, to bring you the inside “scoop” regarding higher fuel prices. You know, the “big squeeze”, the “crunch”, “gas pains”, you know what I mean? So listen up to what Mama has to say. She has spent several hours playing “gum shoe” to get you the “skinny” on why the sudden “BIG” increase on fuel prices these days. So sit down, strap yourself in and enjoy our June edition news letter.
Understanding the Squeeze at the pumps
Is the price of gas giving you “gas pains”? Over the next several newsletters we will attempt to help you understand what factors are involved and what role they play in the price of gasoline.
Americans drive more that 2.5 trillion miles a year in cars, light trucks and SUV’s. That’s equal to 14,000 trips around the sun. In 1980 Americans drove 1.5 trillion miles. Our personal vehicles alone use 140 billion gallons of gasoline and diesel fuel per year, up 3.2 % from one year ago.
The average consumption in the United States is 20 million barrels of oil per day (bbl/d). 45% of that is used for motor gasoline. The rest is used for distillate fuel oil, jet fuel and other oils. Each barrel equals 42 US gallons/159 L and yields 19 to 20 gallons/75 L of gasoline. In the United States an average of 178 million gallons of gasoline is consumed daily.
There are 4 Factors that make up the price of a gallon of gasoline.
April 2007 April 2006
Crude Oil 50% 55%
Refining 28% 22%
Distribution & Marketing 8% 4%
Taxes 14% 19%
Average Retail Price $2.85/gallon
Crude Oil
The biggest factor is the cost of crude oil. Statistics for April 2007 show that crude oil made up 50% of the cost of a gallon of gasoline. So if a gallon of gas costs $2.85, crude oil accounts for about $1.43 of that.
We are going to explore Crude Oil in this months Newsletter. 50% of what you pay goes to the crude oil-oil suppliers. This is determined by oil-exporting nations, and in particular OPEC (the Organization of the Petroleum Exporting Countries). The amount of crude oil these countries produce determines the price of a barrel of crude oil. In 2004 crude oil prices averaged $37.00 per barrel. After Hurricane Katrina some prices were almost double that. In May 2007, crude-oil prices averaged $60.00 per barrel.
OPEC, traditionally, sets limits on how much oil a member country can produce. This is to keep the price higher than it would be if it were a truly competitive market, but not so high, that it would encourage the development of alternatives fuels.
Big oil companies make most of their money in the production of crude oil. The oil companies do not set the oil prices, the global market does. They invested in oil fields when the prices where lower, with the expectation of breaking even at a certain point. For talking purposes let’s say $25.00 per barrel. Now the market price is more than that, about $70.00 a barrel. This extra money is gravy for them. It’s like the farmer who raises corn for $1.50 a bushel. If the market price is $1.75, he makes $ .25 a bushel. If the market price jumps to $2.25, his profits go up as well. If the market crashes and the price drops to $1.00 he loses money. This can happen to the oil companies too. Like the farmer, they benefit from the high market prices, and, like the farmer, they have no control over the prices. If they could control the market they would not have allowed the price to drop to $10.00 a barrel in 1998.
Basically, the global market decides what the people are willing to pay. A lot of this has to do with the fact that the world, in general, is getting richer. Developing countries such as India and China have created more of a demand for oil and gas. The demand in the United States is still at full throttle, and, at the same time there have been supply disruptions and political instability in the major oil producing nations. So, in a nut shell, we have a situation where demand has been growing steadily and relentlessly and the supply system is very vulnerable. This unfortunately translates into higher prices.
For example in January 2003, before the U.S invasion, Iraq produced 2.5 million barrels of oil a day. Production dropped during the invasion, and recovered to 2.3 million barrels a day in 2004. In 2005 Iraq rarely produces 2 million barrels a day and by January of 2006, 1.6 million barrels a day. On its own this would not be a huge loss to the world market. Add supply problems in Nigeria, Venezuela and the Gulf of Mexico, and you have a different story.
Short term fixes to this problem are:
1. Increase supply. Unless global peace suddenly breaks out crude oil supplies will remain tight.
2. Decrease demand. Decreasing demand is our best hope in the short run.
Long term fixes to this problem are:
1. Increase supply. Developing new oil fields, building new refineries
2. Decrease demand. Replace our gas guzzlers and researching alternative fuels. In the long term we have more opportunities to do this.
On a personal note, Nile and I are very concerned about what is happening to the climate globally. We do what we can to conserve energy. In the winter, we put on more layers and keep the house at 68F during the day and down to 60F at night. We try not to do any unnecessary driving by planning our trips and getting as much done as we can in one trip. We don’t leave lights on in rooms we are not using, and the T.V. is not on when we are not sitting down to watch it. We don’t water the grass (who needs to encourage it to grow when you have an acre to cut), and water the plants outdoors once a week, unless otherwise needed. And we wash our clothes in cold water. These are all small things but they all add up.
Gas Saving Tips
1. Slow Down
Each 5mph you drive over 60 mph is like paying an additional $1.15 per gallon. Aggressive driving (speeding, rapid acceleration and hard braking) wastes gas.
2. Keep you car maintained and running smoothly
Tune ups, clean air filters, properly inflated tires and the proper grade of oil all help.
3. Use your engine wisely
Avoid excessive idling (some communities have an anti-idle by-law) and use the cruise control and over drive gears.
Air Conditioning tip #3: Even though you may have had you’re A/C system pressure tested and verified that it is operating to manufacturers spec’s. It is very important to make sure that we have the right amount of air flow exiting from the dash panel vents. A plugged or partially plugged cabin air filter will cause a restriction, hindering proper air flow in the heating/air condition system of your vehicle. Although the A/C system under the hood of your vehicle checks out fine, restricted air flow could be the cause of the cabin area of your vehicle taking a long time to cool down. Most vehicles today are equipped with a cabin filter that requires replacing regularly. Consult your owner’s manual, ask your technician, or call the dealership that sells your model and ask them if your vehicle is equipped with a cabin filter, heppa filter, or something. If your vehicle has a cabin filter, replace it if you haven’t already.
Air Conditioning tip #4: This is a goodie folks. The coldest A/C temperature is achieved by using a low fan setting not a high setting. Try this method to get your vehicle cooled down quickly.
1. Set you’re A/C to “Max”
2. Set your fan speed on Medium.
3. Set vent control to Floor, open windows about 2”, then drive with the windows open. Cold air is heavier that hot air and will drop to the floor. Air flow outside the vehicle will create suction, pulling the hot air out and the cold air up. Once you feel the colder air rising, close the windows. The vehicle will cool down much faster and help the A/C system remove the humidity from the air more effectively. Check it out, it works!! I have used this method, which I learnt in A/C training for years.
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