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Gasoline Prices for 2009

Right now oil and gasoline prices are low, but are they likely to stay that way? This article says yes for most of 2009.

As we close the doors on the strange and tumultuous year that was 2008, analysts are looking ahead to what 2009 will bring. So far, signs are mixed. The Energy Information Administration projects crude oil will trade at an average of $51 a barrel in 2009, translating into low gasoline prices:

Along with lower projected crude oil prices, annual average retail gasoline and diesel fuel prices in 2009 are projected to be $2.03 and $2.47 per gallon, respectively…The U.S. economic recession is also contributing to lower natural gas wellhead prices. The Henry Hub natural gas spot price is projected to decline from an average of $9.17 per Mcf in 2008 to $6.25 per Mcf in 2009.

The chief energy economist of Deutsche Bank, Adam Sieminski, said recently that the demand for oil in 2009 will drop more than any other time in the last quarter of a century, due to the weak economy. Sieminski forecasts oil traded in New York falling as low as $30 and averaging $47.50 for the whole year. He says higher forecasts haven’t adequately factored in how the global downturn will hurt oil demand.

Others see the supply-demand balance starting to tip in favor of higher prices later in the year, thanks in part to OPEC’s plans to cut output. Paul Stevens, a professor at the UK’s Royal Institute of International Affairs, said:

In 2009, we will see continued prices weakness in first half or quarter of year. A lot depends on demand and that depends on the nature and depth of the economic recession…if demand does not completely collapse, my guess is that as we move through 2009, as OPEC’s determination to defend its price bears up, then prices will creep up to US$70, to US$80 that they want.

This is good news for the economy. However, OPEC is determined to get the price back up to a more acceptable level. So when the economy does recover it is likely that we could see oil prices move upwards rather sharply. Especially if during the economic downturn and period of lower prices oil companies cut back and lay off employes and cut back on new investments, especially in refining.

Related Posts:

About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. tom p says:

    Sieminski forecasts oil traded in New York falling as low as $30

    Something I have been wondering about: What are the avg costs of production?

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  2. odograph says:

    The more important story is about the folly of prediction. No one has ever been able to name both a price and a real numeric confidence. This article puts out “an average of $51 a barrel in 2009″ but with what odds? What kind of confidence? None stated.

    I’m with Taleb that this kind of prediction does more harm than good.

    (We could all take some swag at high and low bounds, and work out how they’ll impact our budget, but beyond that is futility.)

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  3. odograph says:

    Tom, average cost of production is in flux, as higher futures contracts bring more expensive fuels on-line. See the scaling back of Canadian tar sands now as an example.

    (I do believe that the Saudis enjoy 5-10 dollar production costs, but I think such cases are increasingly in the minority. We drilled, and used, the easy oil first.)

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  4. cas says:

    NOW would be the time for Congress to remove any restrictions on drilling here, on the Continental Shelf, as well as in Alaska. BUT, I won’t hold my breath waiting for it…

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  5. Bithead says:

    It tends to vary fairly wildly, if you break it down by country.
    Here’s one link which is hardly all inclusive, but should give you an idea. Pay attention particularly to the right hand columns.

    That price, though in each country, does a lot to explain a lot of the political infighting in OPEC.

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  6. Drew says:

    tom p

    I realize you said “average” cost, but I would be careful of such a statistic. This number will be situational. Different refineries are set up to refine different grades of crude – with different crude costs. Further, various refineries have various efficiencies, and are geared to various output product mixes, further altering “refining costs.” That all said, I bet the agency cited by Mr. Verdon publishes such a statistic. I haven’t been there in a while, but their website is a fascinating survey of the energy picture. (And one of the most fascinating statistics for the global warming nuts: look at projected coal consumption just to fulfill electricity needs for the next 30 years and then juxtapose against any reasonable CO2 savings estimate……all in the framework of the dire predictions of the GW nuts. We’re doomed !!!!!!! And there’s nothing we can do !!)

    Separately, to mr. verdon’s post, I would think that predicting oil prices in 2009 would be a particularly vexing problem. First, it requires a call on an economy clearly in greater than usual flux. “V” recession…”U” recession?? Second, I don’t think anyone really knows how much the speculators influenced price the last 18 months, or how much (and if they will resume) the hoarding by China and India increased prices.

    That’s quite a witches brew for the forecasting class.

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  7. BigFire says:

    For the immediate future (next 3 months) oil price is bleak for the producer. Refined gasoline inventory is currently very high. They’re also running out of storage tank for the delivery, so much so there’s currently fleets of older tanker that’s being used as backup storage. They’re literally just sitting in the ocean with crude with no where to go.

    For technical (once you start drilling, it pays to continuing drilling in Siberia) and financial reason, Russia will not reduce production.

    Beyond that, who knows.

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  8. John425 says:

    One upside of the falling oil price situation is the trouble it is causing for Iran’s and Venezuela’s dictators. They need lots of oil revenue to subsidize their restless populations and expand their grandiose schemes. Low and falling prices require higher subsidies in their respective homelands and if they aren’t maintained that means discontent.

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  9. Steve Plunk says:

    Odo is right, prediction is folly and sometimes it’s a folly that has serious consequences. There are too many variables and unknowns to bank on anything.

    Can we now expect OPEC to behave like the Federal Reserve? Inject a little oil to boost the economy, reduce production to cool it off. I understand the number one priority is price support but they just learned how high prices can dampen economic growth. Will they learn to play it both ways?

    I would ask Steve V. if he now agrees with other economists who say speculators played a major role in driving prices up last summer? I believe it was the Semgroup and it’s fall that was a clue.

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  10. Drew says:

    “I understand the number one priority is price support but they just learned how high prices can dampen economic growth.”

    Perhaps the more relevant lesson is just exactly what price level will attract investment in alternatives. eg Canadian tar sands

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  11. Steve Verdon says:

    I would ask Steve V. if he now agrees with other economists who say speculators played a major role in driving prices up last summer? I believe it was the Semgroup and it’s fall that was a clue.

    I think I’ve been fairly consistent in thinking the run up in oil prices was largely a bubble–i.e. that speuclators played a significant role.

    As for prediction/forecasting of oil prices while it may be difficult it still has to be done. Corporations have to balance both the long term and short term in terms of investments. Even consumers might find such forecasts helpful when making large scale purchases such as which kind of car to buy. I’d also add that a fuzzy a picture of the future is probably better than no picture at all. Saying something is fuzzy (imprecise, error prone, etc.) does not mean that you just stumble around blindly.

    As for the technical aspects that Odograph is complaining about that is completely beyond the scope of a normal newpaper article. Few people really grasp the concept of a 95% confidence interval–i.e. 95% confidence does not equal 95% probability for a given confidence interval. We could talk about Bayesian posteriors and probability intervals, but I doubt most would have the patience, training, or even the inclination to look into such things. However, for those who really want to know such things…Google is your friend.

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  12. tom p says:

    thanx guys (especially you bit). I knew the “avg” was hardly an exacting question, realizing that there would be quite a bit of variability….

    The reason I asked was that at $30/ barrel it seemed a # of producers would be losing money. I remember hearing somewhere that Alaska needed oil to be $64 or above. According to the chart at Bit’s link, it showed Saudi Arabia’s break even point at $54, Bahrain at $70… Which means they are already losing money.

    Seeing as so much of their economies are dependant on oil, what does this mean for a deepening of instability in the ME? What about Russia? Venezuala?

    While we are enjoying the cheap gas just now, we may be cursing it in 6 mos to a yr.

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  13. Drew says:

    tom p -

    Since Verdon had posted about gasoline prices, I assumed you were inquiring about refining costs, not to get oil at the well head.

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  14. Bithead says:

    Can we now expect OPEC to behave like the Federal Reserve? Inject a little oil to boost the economy, reduce production to cool it off. I understand the number one priority is price support but they just learned how high prices can dampen economic growth. Will they learn to play it both ways?

    I’ll tell you this; that’s the best illustration I can think of for the futility of a bunch of old men sitting around a table in Washington DC trying to dictate economic policy. The fact of the matter is, that energy is the basis for all the rest of it. Without it, anything anyone, particularly government, does, is utterly meaningless.

    We opened ourselves up for the economic collapse we just experienced, by not using what energy is available. By refusing to drill here at home. By refusing to increase refining capacity here at home. By refusing to dig what coal we have here at home. By sacrificing our energy usage to the great myth of global warming.

    By no means am I suggesting that energy independence is possible or even desirable. What I’m saying is that everybody else, (particularly countries that don’t like us very much) as levers with which to manipulate our economy. If they hadn’t figured that part out before this most recent collapse, they sure as hell have now. Our only option is to create a few levers ourselves. Given who is in control in Congress, and the White House, do you suppose there’s a snowball’s chance of it?

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  15. Davebo says:

    We opened ourselves up for the economic collapse we just experienced, by not using what energy is available. By refusing to drill here at home. By refusing to increase refining capacity here at home.

    Are you suggesting we should nationalize US oil producers and refiners?

    Because while they would no doubt love to drill off the continental shelf on both east and west coasts and the Destin Dome area of the Gulf, they have zero interest in increasing refining capacity and have made that quite clear time and time again.

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  16. Bithead says:

    Are you suggesting we should nationalize US oil producers and refiners?

    \

    Not only no, but HELL NO.

    Because while they would no doubt love to drill off the continental shelf on both east and west coasts and the Destin Dome area of the Gulf, they have zero interest in increasing refining capacity and have made that quite clear time and time again.

    All areas… ALL areas.. should be open for exploration. And restrictions on refineries shoudl be lifted. It’s the government regulations that have us not buidling new refineries and not drilling. Guess whose ideas those regulations are, hmmm?

    Get government out of the process, period.

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  17. Bithead says:

    Oh… lest there be any confusion on the point, we’re not just talking oil, here, but coal.. our biggest possible source of energy is being sacraficed on the altar of ‘global warming’. Again, get government out of the process.

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  18. Davebo says:

    t’s the government regulations that have us not buidling new refineries and not drilling.

    Drilling? Sure, in some cases. But government regulations have little to do with companies not expanding their refining capacity. Anyone who tells you otherwise is either a fool, or Dick Cheney.

    But don’t take my word for it. Ask the CEO’s of Exxon/Mobile or BP.

    And the reason why they don’t want to vastly increase refining capacity should be obvious to anyone with a basic knowledge of the industry.

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  19. Davebo says:

    As to this Bithead

    Guess whose ideas those regulations are, hmmm?

    Why aren’t we currently drilling on the Destin Dome?

    Because the culprit isn’t who you seem to believe it is.

    Name one bill to open up ANWR for production that didn’t include royalty forgiveness and tax breaks to producers. You can’t because such a bill has never been drafted.

    Why? Because now that the oil bubble is back to more historical prices companies refuse to produce there without those subsidies.

    If you want to give away our resources that’s fine. But don’t kid yourself that this is exactly what has been proposed.

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  20. Bithead says:

    Drilling? Sure, in some cases

    No, in ALL cases.

    Name one bill to open up ANWR for production that didn’t include royalty forgiveness and tax breaks to producers. You can’t because such a bill has never been drafted.

    Royalty to whom? Ah, yes, government. You were saying they’re not the problem? And tax breaks? Again, government. But why would such be needed? Because of the added expense of getting through the environmental regulations attached to such.

    Same with refining capacity.Remove the exceesive regulations.

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  21. Davebo says:

    OK Bit, now I understand.

    You want to give away natural resources on federal land to producers, and then give them tax breaks on the earnings they get from their new found free oil.

    And even though as I’ve shown, the big producers have no desire to add extensive refining capacity you’re convinced that removing regulations on them will change their mind despite the negative impact such a move would have on their profits.

    I must admit, that’s a hard position to argue with. As are most based purely on someones preconceptions who will willfully ignore all facts to the contrary.

    So I give up.

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  22. odograph says:

    As for the technical aspects that Odograph is complaining about that is completely beyond the scope of a normal newpaper article. Few people really grasp the concept of a 95% confidence interval–i.e. 95% confidence does not equal 95% probability for a given confidence interval. We could talk about Bayesian posteriors and probability intervals, but I doubt most would have the patience, training, or even the inclination to look into such things. However, for those who really want to know such things…Google is your friend.

    It there is a difference in theory, there is a worse one in practice ;-)

    All these oil pundits make predictions ‘all things being equal’ and then call a do-over when a blockade, or a revolution, or a booming Chinese economy, or a bubble, or a recession, makes things ‘not equal.’

    The real cognitive dissonance (in a true sense of the phrase) is between the prediction and the do-over.

    With do-overs predictions become somewhat less useful.

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  23. [...] at OTB’s comments section  this morning, responding to Steve Plunk, who says in part: Can we now expect OPEC to behave like [...]

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  24. Bithead says:

    You want to give away natural resources on federal land to producers, and then give them tax breaks on the earnings they get from their new found free oil.

    What gets attached to the extraction of oil from federal land ends up making things afr too expensive. Without that, tax breaks wouldn’t be needed. Or hadn’t that idea occurred to you?

    And even though as I’ve shown, the big producers have no desire to add extensive refining capacity you’re convinced that removing regulations on them will change their mind despite the negative impact such a move would have on their profits.

    They’re not interested because of the government’s regulations making it too expensive. It’s really that simple. And BTW< we’re not just talking about federal regs, in this case.

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  25. odograph says:

    Bit, have you considered your end-game? If you drill the oil reserves you mention now, what happens in 20 years?

    (The wish that GM will invent an electric, no I mean hydrogen, no I mean plug-in hybird, hasn’t panned out so well.)

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  26. anjin-san says:

    Bit, have you considered your end-game?

    Bit’s end game is very clear. He plans to bend over, grab his ankles and smile as the oil companies insert the nozzle a bit more deeply…

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  27. Bithead says:

    If you drill the oil reserves you mention now, what happens in 20 years?

    We still have another 40 years’ worth, at that point, assuming we make no more finds, or technical advancements on extraction methods, and longer if we do.

    Any more questions?

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  28. Drew says:

    Look on the bright side. Since we are supposedly going to run out of oil and will have to convert to Fred Flintstone feet peddlemobiles…….. global warming will come to a screaching halt.

    So we can skip all this mindless global warming legislative crap right now. Car emissions go to zero in twenty years when the spigot runs dry, right??………..snicker

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  29. odograph says:

    We still have another 40 years’ worth, at that point, assuming we make no more finds, or technical advancements on extraction methods, and longer if we do.

    Link? 40 years with consumption growing at what rate?

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  30. odograph says:

    FWIW, here is a paragraph I disagree with. It has to do with economics and prediction:

    Messrs Taleb and Triana do make a good point that assigning a precise value to these assets has its problems. But, models such as Black-Scholes really are meant to act as a road map. It does not include every detour and cannot predict every accident that might occur, but it does give you some guidance as to what the asset is worth. To some degree this guidance becomes (channelling Bob Merton’s father) a self-fulfilling prophecy because many others use the same model. The models are also meant to be amended as the market develops and is better understood. This guidance caused the derivatives market to grow over the last 30 years to what it has become today. So given the present circumstances, are we worse off as a result? Absolutely not.

    Just as the gas price guys must call a do-over, this essayist thinks that “maps” that must be “redrawn” are nonetheless a guide.

    That is a contradiction, and probably a dissonance.

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  31. odograph says:

    (BTW, people do often apply Black-Scholes to oil prices, so there is actually a tight connection between the two.)

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  32. Bithead says:

    Link? 40 years with consumption growing at what rate?

    A link? Hell, I’ll go one better. I’ve got a vid for you.

    (Text:Oil and natural gas powered the past. But the future? Fact is a growing world will require more, 45 percent more by 2030 along with greatly expanding alternatives. We have substantial oil and natural gas resources1 right here [NARRATOR STROLLS OVER MAP OF THE LOWER 48 STATES]. Enough to power 60 million cars3 and heat 160 million households for 60 years. With advanced technology and smart policies,5 together we can secure America’s energy future. Log on to learn more.)

    Bill Shuster, (House, 9th distriuct of PA )

    We don’t have a shortage of oil and gas reserves here at home. However, government policies restrict us from taking advantage of them. In doing so, the government is literally handing our future over to dictators in the Middle East and Venezuela. For example, the U.S. Geologic Survey estimates that the Alaskan National Wildlife Refuge (ANWR) could produce up to 16 billion barrels of recoverable oil. The American Petroleum Institute estimates that if you combine the oil and gas reserves in Alaska with our reserves in the Gulf of Mexico and other public lands, we would have enough oil and gas to fuel 60 million cars for 60 years and heat 60 million homes for 160 years. However, over 85 percent of costal waters have been restricted to oil and gas exploration and ANWR has become a haven to special interests that many politicians are fearful of angering.

    We need to explore these reserves. We need to invest in a domestic supply of energy. If we increase supply to meet demand, prices will go down. In addition to domestic exploration for oil and gas, we must also look to coal.

    If the Shuster quote doesn’t let me make this clear; By no means am I suggesting that this will deal with all our energy needs. What it WILL do however is give us leverage on the world market we’d not otherwise have.

    And by the way, Shuster shorts the production in ANWR by quite a bit, in my view. Remember how much larger the reality of Prudhoe is, versus what the predictions were? Factor that in and you can add another zero or two to Shuster’s statement. But we’ll never know until we explore the thing, will we?

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  33. odograph says:

    Your link doesn’t work Bit, and you definitely did a bait-and-switch from oil to gas.

    Show me a data link and not a promotional video, from someone reputable.

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  34. anjin-san says:

    Interesting that the rabidly anti-government Bithead cites a politician to support his argument. Guess government is cool when the politicians are telling him what he wants to hear…

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  35. Bithead says:

    Your link doesn’t work Bit, and you definitely did a bait-and-switch from oil to gas.

    It works here. (Where do you suppose I got the text?) And no, I didn’t switch, since the two are directly related. You can’t drill for oil without getting Natural gas in the process. And if you’re going to question API, I can’t help you much. Apparently your gauge of credibility is how closely their nose is to Al Gore’s backside.

    And get it outta the sunshine, Anjin. Suddenly, in your eyes, someone in government isn’t credible? Yeah, right.

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  36. odograph says:

    It can’t work there, it starts with OTB and then has text in it:

    [Link]

    It looks like you pasted the text on top of the OTB URL.

    [Comment edited to fix linewrap problem - CNL]

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  37. Bithead says:

    Hmmm.
    Lemme see about that.

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  38. odograph says:

    Sorry, my wide “code” section whacked the formatting on the whole page. Feel free trim or delete it.

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  39. anjin-san says:

    And get it outta the sunshine, Anjin. Suddenly, in your eyes, someone in government isn’t credible? Yeah, right.

    Don’t confuse my not sharing your rabid hatred of government with me loving the government, or having undue faith in it.

    We are stuck with government. So we might as well try and get the best one possible. We have seen the consequences of bad government up close and personal for the last 8 years.

    There are a lot of folks who, for a number of reasons, have trouble taking care of themselves. Government has a role in trying to people in our society from sinking to an unacceptable level of human misery. I don’t have a problem with that.

    Government is, in my view, a necessary counterbalance to the excesses of “unbridled” capitalism. We have also seen the downside of that concept very graphically under the outgoing government. Things are not black and white in the world, no matter what Hannity tells you.

    It remains noteworthy that you are perfectly happy to cite someone in the government, as long as they are singing your tune.

    A reasonable person seeks some balance in their thinking. Of course, that kind of leaves you out…

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  40. Bithead says:

    Don’t confuse my not sharing your rabid hatred of government with me loving the government, or having undue faith in it.

    We are stuck with government. So we might as well try and get the best one possible.

    Isn’t that like being a little pregnant? In any event, the ususal suspects invariably question privet enterprise when they make a statement. Quoting government sources makes for less arguments. Unless of course one is trying to find one.

    A reasonable person seeks some balance in their thinking.

    So why have I never seen anything from you but defense of the left?

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  41. anjin-san says:

    So why have I never seen anything from you but defense of the left?

    Dunno, maybe because you have your head stuck up somewhere? Here are a few quickies:

    I voted for Reagan, a fine president, twice.


    This sounds like a good thing to me. A rare win for the Bush White House. And I agree with Bit, there is such a thing as a win/win.

    Let’s wrap up 2008 with yet another of your 180 degrees from reality statements:

    In other words, the case is stronger than ever that President Bush’s tax cuts, rather than creating a budget deficit, are fueling economic growth that is swelling federal revenues and shrinking the deficit.

    If this is such horrible straits, Anjin, I’d be interested in seeing what you’d call ‘good’….
    Posted by Bithead | June 17, 2008 | 04:20 pm | Permalink

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  42. Drew says:

    Bit -

    Might I advise. In Latin: Discussionis anjinis, sillius wasteuss of timus.

    You’ll get sophomoric platitudes, off point assertions and sarcatic comments masquerading as argumentation.

    But you will NEVER EVER get facts and a point by point logical argument.

    Never.

    In English: Mission Impossible.

    You are all probably asleep. But here in Hawaii we are still waiting.

    Happy New Year all………..

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  43. sookie says:

    This fast and hard decline are not necessarily ‘good news’ for the economy of areas of the country where oil and natural gas production dumps scads of money into the local economy and tax base. It’s what has kept those areas from being thus far as badly hit as other areas, though I think that’s about to change.

    I wish we’d get the hell over the myth that oil/gas automatically = bad. A lot of people in this country make their living either directly or indirectly through all kinds of services to the oil and gas industry. It’s usually non-union and rather high paying work blue collar workers who buy cars, houses, electronics and, and, and….
    It isn’t just wealthy Arab sheiks or Venezuelan thugs who benefit. Economies in many parts of the US also benefit from profitable oil and gas prices.

    Sharp drastic drops are the equivalent to any other bubble bust. Do just as much damage in those segments. Yes there are winners. At the pump and heating your home… just as the housing bust is providing opportunities for people to buy homes that they were priced out just a couple of years ago.

    It’s part of the business cycle and will rectify itself… it’s painful for many just the same.

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