This week we learn that the price of oil has begun to slip:

http://apnews.myway.com/article/20090602/D98IG75O0.html

As I’ve previously written on this blog, I think oil is overpriced and will eventually come down.  This is a small example.  What’s interesting is why the price is down: investors fear that inflation is on the horizon.  And they may be right.  The projected Obama budget during the next few years is expected to add more to the national debt than all the other presidents combined from Washington to Bush.  Now, I’m not a mathematician.  But that sounds like a lot of money.

Inflation is another good reason why we need to invest in renewable energy.  Energy sources like biomass are affordable and effective…and can help get us off our oil addiction.

Check out my website for more information on how our new Advanced Trailer for Biomass is changing the energy industry.

This week the New York Times reported that the Senate is getting serious about energy policy in America:

http://www.nytimes.com/gwire/2009/05/18/18greenwire-all-eyes-on-renewables-as-sen-bingaman-sprints-12208.html

In particular, Washington appears to be heading toward a “Renewable Electricity Standard” that New Mexico Senator Jeff Bingaman is advocating. Here is how the article described it:

“Last week, Bingaman said that he had reached a ‘general agreement’ on a RES, which requires utilities to supply increasing amounts of power from sources like wind, solar and biomass, but added he was not ready for an official announcement.”

This is an important step forward in energy policy in this country. The moment we stop subsidizing foreign dictators with our money is not a moment too soon. I’m not generally in favor of Washington regulations. But if the utilities are not going to invest in renewable energy, then perhaps they need a nudge.

The time has come for a change in energy policy in America.

Gas prices have gone up 13 cents in one week in San Antonio?

http://www.bizjournals.com/sanantonio/stories/2009/05/11/daily29.html

How is that possible? What has changed so dramatically in seven days? Nothing. This just shows again how irrational the oil market is. And, it just shows again how distorted the oil market is by geopolitics. As previously noted in this blog, countries like Saudi Arabia have a vested interest in seeing prices go as high as possible.

The good news is that it doesn’t seem likely the Saudis will be able to jack prices up as high as they did last year:

“Gasoline typically sells higher in the summer months in response to the uptick in consumer demand. However, analysts note that it is unlikely that this summer’s gas prices will reach anything close to the record prices drivers paid last summer.”

But the bad news is that we still live at the mercy of Middle East dictators. Isn’t it time we find a better way to fuel our economy? Yes it is. Right here. Right now.

So why are gas prices going up again?

http://online.wsj.com/article/SB124215356760911669.html?mod=googlenews_wsj

Several factors are at work. Obviously, the summer driving season is
upon us and that increases demand. And signs that the recession may be letting up are helping to encourage investors to put money back into oil.

But the main reason it’s going up again is because Saudi Arabia wants
it up. As the article notes:

“…oil prices remain below the $75 a barrel price targeted by Saudi
Arabia, OPEC’s dominant member….”

How long will we allow this dictator government to decide what we pay at the pump? As I’ve said many times, energy policy is not just an economic issue, it’s a national security issue. We need to develop
alternative energy in America. Now.

This week brings news that the price of oil may start coming down
again soon. According to Bloomberg News:

“Crude oil fell on speculation that last week’s 10 percent advance
will be undone as US inventories climb and fuel consumption
declines.” http://livetrade.com/?p=60405

But how is it that if oil inventories are high that prices got high
in the first place? This makes no sense. Unless you remember the
geopolitics that is involved in the gas market. So much of the market is distorted by factors like the people running OPEC. Every since the 1973 Yom Kippur War, OPEC has used oil as a weapon in its dealings with the West.

So when you look at the price of gas at the pump, remember that
gasoline prices don’t exactly operate like a free market. And that’s
just one more reason why we should look domestically at developing alternative energy.

So much of the market is driven by emotion, not logic.  I’ve written about this phenomenon before.  But this week brings another example from the oil industry:

http://www.bloomberg.com/apps/news?pid=20601081&sid=av8ef_3cMSmw&refer=australia

So China decides to embark on a stimulus spending spree and the price of oil goes up.  Why?  The reality is we still have an excess supply of oil, we’re still in a recession and we still have not reached the driving season (summer) yet.  It’s basic economics 101 that given those factors, the price of oil should be going down (which it mostly has been in the last few months).

But leave it to some market analysts to hear that China is pumping more money into its economy and these so-called market experts react emotionally and decide that the price of oil should go up.  Here is what was reported by Bloomberg News:

“China is key,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “They are talking about doing the right things to boost growth. An additional stimulus program will be good for commodities such as oil and copper.”

I repeat my claim based on logic and reason, not emotion: the price of oil will continue to go down.  Stimulus spending may drive up deficits, but it won’t drive up the price of oil.

-Randy Hill

Longtime readers of this blog will know that I have long believed the price of oil could eventually reach $20 a barrel.  This week brings more evidence that it just might happen:

http://economictimes..indiatimes.com/News/Economy/Sliding_demand_pushes_oil_price_below_35/articleshow/4146420.cms

Right now, the price of oil has dropped to $35 a barrel.  Last summer the price reached $147 a barrel.  What explains this drop?  Now that we are in winter, less driving goes on and that creates lower demand.  Plus, the recession is impacting everyone’s willingness to buy.  So with demand down, the price has gone down, too.

Then why haven’t prices at the pump gone down?  You may have read a recent article about this very topic:

http://www.reporternews.com/news/2009/feb/15/crude-oil-is-getting-cheaper-but-gas-is-not/

The article confusingly claims that:

“A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows….So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.”

Huh?  The fact is the worldwide recession is impacting demand everywhere, not just here.  So eventually, the price of foreign oil will also come down, and with it, prices at the pump.

It’s the law of supply and demand.  And I still believe we are heading toward even an even lower price of oil.

-Randy Hill

I believe free market enterprise is the best economic system in the world.

In fact, I believe it’s the only system.  But to work effectively, the free market depends on rational people making rational decisions and rational conclusions.  Being humans, we sometimes manage to mess with the effectiveness of the market by thinking and reacting emotionally rather than rationally.

I’ve previously written about the salmonella scare in the peanut industry.  The fact is more than 99% of all peanut products are perfectly safe. But some people continue to think emotionally.  Yesterday I was told of a man in Allendale, South Carolina, who went in a local convenience store to pick up a quick snack. When he presented his handful of items, which included a package of peanut butter crackers, the cashier immediately seemed alarmed and told the man “don’t eat that, it’s got peanuts in it.”  This is a perfect example of the public perception being influenced by emotions. I am not saying every small town convenience store in the country has cleared its shelves of products that could be on the list; I am saying 99% of all the products in all of the convenience stores across America containing peanut butter is safe.

Another example is the oil industry.  As I’ve been predicting, the price of oil continues to go down:
http://www.theaustralian.news.com.au/story/0,25197,25043297-12377,00.html

Today, a barrel of oil costs $35.  Yet gas prices at the pump have risen to about $1.80 This violates the law of supply and demand.  With inventories high and demand low, the price of gas should better reflect the price of oil.  What explains this discrepancy?  Emotional thinking.  Daily I have people comment that they think a barrel of oil will soon be back over $100 and many say they think it will happen this summer. What is the basis or economic indicator for these conclusions? Nothing! It’s all emotions and right now with all that’s going on in America: we’re letting our emotions get the best of us.

I encourage each one of you to go out today to your local Wal-Mart and buy some peanut butter. As you are driving look at the prices of gas and think back a year ago and realize that our country and economy will survive and we still may see gas prices below $1.00. And I think its going to stay cheap for a long time.

The free market system works best when rational people make rational decisions.  Come to think of it, the whole world works better that way, too.

-Randy Hill

I’ve written a lot recently about the price of oil. It’s going down, and I think it’s going to go down even more. But that doesn’t mean oil is the answer to our longterm energy needs. It just means that this is the time to get serious about other energy sources.
http://www.bloomberg.com/apps/news?pid=20601082&sid=a.s66cZPC1jY&refer=canada

Meanwhile, a 2005 Harris survey found that three-quarters of all Americans (including 60% of Republicans) said that the environment must be protected regardless of cost.  Translation: people want cheaper energy and a cleaner environment.  Can we do both?  We can and we should.

But this is not only an energy and environmental issue we’re talking about.  It’s a national security issue, too.  Consider this:

Today, 80 million barrels of oil are consumed per day throughout the world. How much of that does the US produce?  Only 7.5 million. So where does the rest come from?  It comes from tough neighborhoods of the world, like Russia, Iran, and Saudi Arabia.

That’s not who I want to rely on for my energy supply.  And that’s why now is the time to re-think alternative energy.  The answer to our energy future?  It’s blowing in the wind.

-Randy Hill

After a brief increase, the price of oil has again fallen, this time to less than $39 a barrel.
http://apnews.myway.com/article/20090112/D95LIUJ00.html

Traditionally, economists would expect the price of oil to be up at a time like this: tension in the Middle East, talk of OPEC cutting production and the dispute between Russia and Ukraine. These factors often create market pressure that causes the price to rise. So what explains the continuing decline in price?

It’s common sense, really. Higher gas prices last summer reduced demand. People began to find other ways to get to work, maybe by car-pooling or taking the train. And lower demand lowered prices. It’s that simple. Meanwhile, economic uncertainty is effecting what economists call “market psychology” and keeping prices low.

I still believe we could see $20 a barrel before too long. And I repeat my plea: now is the time to think about alternative energy. Why wait until there is an oil crisis to begin thinking about other options?

Today is the time to start building tomorrow.

-Randy Hill

Last week I predicted we would eventually reach $20 a barrel for oil.  Yesterday, we got more proof that we are well on our way:
http://apnews.myway.com/article/20081221/D957BHRG0.html

Gas prices fell nine cents nationwide in the last two weeks.  Crude prices are down also from a record high of $147 a barrel in July to $41.07 a barrel today. The result?  We now have the lowest gas prices in five years. What explains this dramatic drop from where we were last summer?

For starters, less driving is driving it.  In other words, people don’t drive as much in the winter as they do in the summer (when families traditionally load up for vacations or other long distance trips).  Since demand has gone down, so has the price.  Also, the troubles of the domestic car inudstry are impacting demand.  Fewer people are buying fewer cars and that’s helping put downward pressure on gas prices.  All of this leads me to continue believing that we are heading to $20 a barrel.

But let’s not lose sight of the big picture.  Low gas prices give us time to think about our future energy needs.  We need to work today to create tomorrow’e energy.  Our country, our economy and our future demand on it.

-Randy Hill

Our current economic crisis started on Sept 11th 2001.

The Bush administration, along with Congress and a host of others,
made great efforts to prop up the economy. The straw that broke
the camel’s back was coated with oil. The surge in oil prices broke
the economic dam of America. All the efforts to prop up our economy
that continued until mid 2007 seemed a success until the economy
slipped in the rising price of oil and continues to fall. Today,
the dollar’s decline and OPEC’s plans to reduce daily output by 2.2
million barrels had no effect other than a close below $40.

When the dam of a lake breaks and the water rushes out, its level
drops. Stopping the out flow does not fix the dam and you can’t
expect the lake to return to the past level until you stop the
decline and repair the break. In July we broke the dam of our
economy and simply believing that it will shortly return to recent
levels is foolish. It’s like thinking the lake will just fill back
up once it hits the low level and again begins to rise…….the dam
is broke and the lake will not hold water until the dam is repaired
and it rains enough to fill the body of water.

All we have seen so far is our economic dam has broken and the
level continues to drop to new lows. You never can repair a dam (economy)
as long as it is loosing water and eroding (oil prices and stock
market dropping). You must first let it fall or empty to a level
able to be repaired. Then you must repair it so it once again
will hold back the water and pray for rain (business, economic growth)
to refill the body.

We are nowhere close to the bottom of the market. I am adjusting
my comments from Sept that oil will go below $40 barrel. I think we
will soon see oil well below $20. We have not seen anything yet.

But then, like always, the price will go back up. Boone Pickens recently
said as much: http://www.oregonlive.com/business/index.ssf/2008/11/pickens_oil_prices_heading_bac.html

So oil will go down and then up again…and so will our economy.

- Randy Hill

What if we have finally broken the back of the Middle East?

What if we have finally hit the top of oil?  What if the auto manufacturers finally realize they are on the slope of destruction because they haven’t been innovative enough in their industries.  Looking back at the history of oil over the past 100 years, we have seen large spikes and massive declines.  Typically, every time we have a spike in price, it is followed by a huge fall to a level lower than what it started at when the rise began earlier.  We’ve seen this pattern over that past 100 years.

There are two words I want to talk:  ingenuity and innovation.

INGENUITY – when someone takes something already existing and does something with it – using existing technology or existing manufacturing capabilities.  When our auto manufacturers decided to start putting DVD players in vehicles, Bluetooth capabilities, GPS navigation . . . this was ingenious but not innovative.  Our auto manufacturers have used ingenuity, but they have not been innovative.  They have implemented other people’s products into their vehicles.  They have not been innovative enough – and have gotten caught with their pants down..  The gadgets have made our vehicles pretty high-tech, but, the vehicles themselves, like the big SUVs, were getting 20 mpg or less!

INNOVATION – this is not typically something that the marketing is craving, yet it is something that is practical and can be used immediately.  It is being AHEAD of the demand.  Innovation thought about putting a computer inside a cell phone.  We weren’t needing it, but it has transformed the way we live.  Innovation rises when you hit the bottom and you start seeing things from a different perspective.  Not to just get out of the hole to repeat it all over again.

Have we finally understood it?  I think that we may have reached the point that we realize we must be innovative in our energy industries!  Have we finally felt the need to employ innovation in our homes, where we start installing a small wind turbine in our backyard to capture wind energy.  So when it’s windy, like it was in West Texas the other day, we basically get free power.  Power that is generated with free energy!

The blow to the economy has penetrated so deep that we may have finally discovered the need for innovation.  What if never see oil go to $150/barrel ever again?  What if the auto manufacturers have finally understood that consumers are wanting 30 foot long SUV that gets 65 mpg?  What if they made the decision to put to work the same innovative geniuses  that created the amazing technoligies of communication, microchips and computers? What if they could help us to truly become more energy independent?

I have a motor home.  It has a Onan diesel generator that can fire up enough electricity to power 3 AC units, 2 TVs, and a microwave all at one time driving down the highway!  It burns only 1/2 gallon per hour!  This is innovation!  I RECENTLY saw on CNN recently that on the space station, we have spent $40 million on a machine to purify urine into potable drinking water!  That’s innovation! If we can do this, why can’t we use the same innovation to make a combustible engine using the most modern technology?

With the economy down, with everything in the tank, could a different outlook and different effort rise from these ashes?  Every time we make a little advance in efficiency, it makes an advancement in independence.

- Randy Hill, Texas Entrepreneur