Thursday, October 05, 2006

A look at economy inflation versus oil inflation...and OPEC's continued greed.

While I was reading some of the news regarding oil I was particularly irked by some of the statements coming from OPEC. Of note is this over at CNN Money
"OPEC is concerned about prices but the most important thing they are concentrating on are inventory levels," the delegate said.
They are concerned about price when just back in July prices were at $78 per barrel. Another snippet from this article irked me even further, from back when this horrible price gouging started to become its worst.
"The senior OPEC delegate said Saudi Arabia will reduce its production by 300,000 bpd from September's 9.1 million bpd, the senior delegate said, taking the kingdom's production to its lowest since May 2004."
In normal business you usually charge more because of a change in the product or an improvement in the quality of the product. If Intel, AMD, IBM, and Viatech slashed production of processors to justify an inflated price you can bet there'd be massive outrage. The justice department would get involved, mass lawsuits would be filed, and some people would probably end up in jail or severely fined.

How can they justify this? I don't see how other than despicable and grotesque amounts of greed. Let's look at this from a different angle. I did some thinking and it occurs to me that we should look at how this impacts inflation. With that in mind, thanks to Google handily returning some queries I found this nifty tool for figuring today's dollar against yesterday's. A brief foreword, the reason this shows 2005's figures is because we're not done with 2006 yet. With that in tow I decided to look back at 2002 just to illustrate where we've come in such a short while.

Google then lead me here (among a few other places). In April of 2002 the cost of crude oil per barrel was $21.47. Today it's hovering around $60. That's triple the price. According to this little graph we also show that unleaded gasoline was at $1.37. This is nearly triple the price. All of this is without adjusting for inflation. If we adjust for inflation we find that $21.47 is roughly $23.25 and $1.37 is around $1.55. What is today's prices against yesterday's dollar? $60 equates to around $52 or $53 and $2.75 was about $2.45 depending on the index you rate against. This is why so many people have experienced the "lowered quality of living" during 2006. It's only going to get worse too. When they say that the 80's were the worst it's ever been they are lying there as well. In some of the searching I also stumbled upon this URL, an inflation adjusted chart detailing peak prices and we're at the highest it's ever been.

What's my beef? Let's take a look at the timeline, the initial cuts were done back in 2004 when China was projected to have serious demand for fuel. The supply was already being hit hard and OPEC cut production on us. The motivation? %100 greed nothing else. They opened a freaking ski area in Dubai for crying out loud.

Now we have OPEC stating that they are concerned about prices and need to cut production. I'm afraid the only thing OPEC is concerned of is how to fatten their monetary gluttony even worse.

The oil is out there, the reserves are out there, and the energy companies continue to experience record profits. The only thing I'm surprised about is that we aren't rioting. If anything now I'm quite glad we went after Iraq and I'm that much more comfortable with the prospect of going to war over oil. Apparently that's what it's going to take. If Bush could just be honest about why we're going to war I'd have a much easier time supporting that decision. At the same time I would want every possible hindrance to getting alternative energy vehicles removed. Unfortunately we live in a corrupt country with corrupted motivations. It's up to "we the people" to understand and realize the facts.

Another popular hypothesis that's gaining ground is the actual origin of oil itself. As noted here oil reservoirs are refilling themselves. Now there's a depressing thought, that this price gouging is sustainable in the long term for many years to least we probably won't run out of oil...we'll just be in a world where it's $100+ per barrel while economy inflation is far far behind...


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