Smoke, Mirrors and Reality…

Opinions and stories on events as they happen in the News!

Archive for June, 2008

supreme court affirms gun rights

Jun 29

Posted by Ben in Current events | No Comments

Last week, The US Supreme Court ruled that Americans have a right to own guns for self-defense and hunting. This overturns the Washington DC ban on gun ownership, which was enacted in 1976.

Based on comments by council members John A. Wilson and Marion Barry upon passing the gun ban, it is clear that there was no expectation that the gun ban would have any effect on reducing gun crime. One must assume that politicians only want to be perceived as “doing something”, regardless of whether the laws they enact cause more harm than good. Banning guns disarms law abiding citizens from being able to defend themselves from criminals, but criminals who do not obey laws are given a firepower advantage over the unarmed population.

In response to the Supreme Court ruling, Washington mayor Adrian Fenty said, “More handguns in the District of Columbia will only lead to more handgun violence.” Prior to the ban, the 1969 homicide rate in DC was 287 (36 per 100,000 residents). After the ban, the homicide rate increased to a peak of 482 (81 per 100,000 residents) in 1991. As the DC homicide rate per 100,000 residents decreased to 35 in 2005, the national rate fell from 9.8 to 5.6, with over 80% of DC murders by shooting. It would appear as though the gun ban has not reduced gun violence.

Meanwhile, according to a 2005 FBI report, Right-to-Carry (RTC) states had 22% lower total violent crime, 30% less murder, 46% lower robbery, and 12% lower aggravated assault rates, compared to the rest of the country.

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Fuel Economy and Gulf Oil

Jun 12

Posted by Ben in Economy | 1 Comment

As of 1985, the Corporate Average Fuel Economy (CAFE) standard of 27.5 mpg (fleet average) for passenger cars has been in effect. Fleet averages for light trucks and SUV’s must be at least 20.7 miles per gallon.

At an April town hall in Wilkes Barre, PA, Obama said:

“If we increase fuel efficiency standards on cars to 40 miles per gallon, we would save the equivalent of all the oil we import from the Persian Gulf. And imagine what that would do to gas prices if we reduced our consumption by that much. That’s something we can accomplish right here and right now.”

The official energy statistics from the US government show that approximately 9 million barrels per day are consumed for gasoline for transportation.

Let us assume that the fleet is composed of:

  • 48.7% cars
  • 51.3% light trucks (vans, SUVs, pickups, recreational)

fleet average fuel economy = .487 * 27.5 mpg + .513 * 20.7 mpg = 24.01 mpg

Increasing the fleet average to 40 mpg, assuming the miles driven and all other factors remain unchanged, the number of barrels of oil consumed for gasoline would be reduced to 5,402,250 barrels per day. This is a reduction of 3,597,750 barrels per day.

The US crude oil imports from the Persian Gulf are 2,518,419 barrels per day (using March 2008 numbers).

In fact, it would be impossible to achieve this goal any time soon, because of the time required to replace the installed base of vehicles in service today. If 40 mpg vehicles became available today, it would probably take over a decade to completely replace every passenger car, light truck, and SUV on the road. To achieve this fuel economy, vehicles will have to be built lighter and with smaller engines. The American penchant for large, high powered SUVs will need to be radically altered to buy small, under powered passenger cars. Even Obama, who drives a Chrysler 300 at 340 hp and 390 lb-ft with a fuel economy of 17 mpg city and 25 mpg highway demonstrates a taste for a big powerful vehicle that is antithetical to his rhetoric.

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oil price inflation

Jun 8

Posted by Ben in Economy | No Comments

Contributors to the rise in the price of oil:

  1. US dollar has fallen – US dollar strength has fallen from 113 to 84 since 2002 and is continuing to decline; US prices would need to rise 35% to offset this currency devaluation. The federal reserve has been flooding financial markets with money for years.
  2. Ultra-low sulfur diesel (ULSD) – As of 2006, almost all of the petroleum-based diesel fuel available in Europe and North America is ULSD.
  3. Tier 2 Gasoline Sulfur Control – As of 2004, sulfur content is reduced from an average of 340 ppm to 30 ppm. These standards were enacted by Bill Clinton in 1999.
  4. light sweet crude demand – more easily distilled into sulfur standards compliant gasoline than heavy sweet crude, which requires more extensive and costly processing.
  5. light sweet crude supply – production has been declining steadily, whereas more heavy sour crude is being produced.
  6. older refineries – older refineries need to consume light sweet crude to produce low sulfur fuels, while heavy sour crude requires more sophisticated processing. Because of the mismatch in refining capacity as compared to the mix of light sweet crude and heavy sour crude being produced, there is now a shortage of light sweet crude and a glut of heavy sour crude. In fact, Iran has 28 million barrels of excess sour parked in tankers with no place to go, and additional tankers are being added.
  7. regulatory hurdles – new oil refinery construction to enable heavy sour crude to be used is severely choked by government regulation. This impairs the ability for refining capacity to adapt to the supply of crude oil, and meet the demand for low sulfur fuels.
  8. fuel subsidies – many nations subsidize gasoline, which lowers prices to consumers and causes demand to increase.
  9. commodities futures – speculative investors are buying futures contracts for crude oil, increasing demand. Index fund crude oil assets have risen from $13 billion in 2003 to $260 billion through March 2008.
  10. political tensions – between Iranian intransigence to international pressure to stop uranium enrichment and their pursuit of nuclear weapons, Nigerian militants disrupting oil production, insurgents and al Qaeda in Iraq, and Venezuela’s crazy Hugo Chavez, there is plenty of risk priced into oil.
  11. strategic petroleum reserve – In 2001, GW Bush ordered the SPR to be filled to capacity at a rate of 70,000 barrels per day of increased demand. This directive filled the SPR from 545 million barrels in 2001 to its current 2008 level of 703.3 million barrels. Congress suspended this filling in May 2008.
  12. exploration and drilling – regulatory restrictions on exploration and drilling along most of the US coast line and ANWR impair the ability to increase supply, regardless of the availability of reserves. Despite record highs in global oil reserves discovered by exploration, this has not translated into production. State interference to discourage investment in oil production is a factor.

As you can see, the majority of causes of the stratospheric rise in energy prices is the consequence of government policies. Despite oil and gas reserves steadily increasing and out-pacing production and demand, as exploration discovers new deposits, it is the inability to bring refined heavy sour crude products to market that is continuing to put unreasonable demands on light sweet crude.

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