Why CNN’s explanation of why $80 oil won’t mean $3 gas makes no sense

From CNN (I know, I probably should not bother).

Despite oil prices recently hitting a record high of over $80 a barrel, experts say it’s unlikely retail gasoline prices will move much higher than the current national average of just below $2.80 a gallon.

…

“Gasoline season is over, we’re going into low demand time,” said Stephen Schork, publisher of the industry newsletter the Schork Report.

Schork also said the switch to winter blend gasoline should act to keep the price down, as winter blending components aren’t as expensive as cleaner-burning summer blends.

Cool. Gasoline season.

It is true: when thinking about oil prices, one can separate “oil” oil (say, crude) from heating oil:

And see that heating oil is (so far) not surging the way crude has, nor does it seem to be attracting speculation (all of their futures are up). However, cruising through this month’s Oil Watch Monthly, I see only two countries whose production is increasing – Russia and Brazil, and I just don’t see them exporting a hell of a lot to the US, anytime soon.

After that, what can we observe? A CNN article related to the first says US stocks are higher than other averages for this year. If we consider motor gasoline stocks (i.e. refined for the market that pays for the stuff by the gallon) EIA would disagree:

I also note that 2007’s trend is a mite late on turning around, relative to previous years – didn’t CNN say that gasoline season was over? On the argument that the cheapness of blends will counter the increasing price of crude:

Then there’s the overall argument that “gasoline season” is over, and/or that we’re coming into belt-tightening times, slowing down demand. If anyone producing oil truly sees declining demand ahead, I’ve yet to see evidence of it. Returning to our numbers, we see evidence of a trend we should simply take for granted: as fast/much as oil production declines

oil exports will do so faster/more

and we’d just better get used to that. OPEC’s demand for its own product doesn’t look like it’s going anywhere that helps us:

Those increases make up, on glancing, more than the million barrels per day extra that we’ve been screaming at OPEC to produce for us (meaning, produce and export).

Related to this is an interesting post over at the Oil Drum. It covers a lot of very interesting issues, such as OPEC versus non-OPEC growth, incentives for investment in excess capacity and just who is supposed to pay to maintain it (since we’re clearly not). Also one about Lord Oxbrough, former chairman of Shell UK, patiently explaining that global oil demand will outstrip supply within twenty years as production hits plateau, and that the oil price could hit $150 in the long term.

Average household water bills will rise by more than $275 a year

The numbers on desalination start to come in, then.

Average household water bills will rise by more than $275 a year – or 33 per cent – under a plan presented by Sydney Water to the independent pricing tribunal.

Of the rise, $110 will be to fund the Government’s desalination plant, which the head of Sydney Water admitted yesterday could run for 20 years without being needed.

For bigger users (the 12 per cent of households that use between 250 and 500 kilolitres a year), water charges would rise by more than $400 a year over four years (a 36 per cent increase).

The news is even worse for business and is likely to lead to price increases being passed on to consumers.

Told you – remember that name Blue Water Consortium. Wow – that seems expensive relative to, say, recycling. Or almost anything else the state government could have tried. I believe that was the argument made beforehand, now that I think about it.

So what happened? Besides the obvious, of course – that this was a bullshit exercise in PFI corporate money-making.

Sydney Water has laid part of the blame for the rises on the corporation having a poor financial position, because it has to borrow to fund infrastructure such as the desalination plant. It broke up the $275 increase into $100 to $110 for desalination, $80 to $85 for “renewals, growth and operating licence”, $30 to $35 for recycling and demand management and $50 to $55 for financial feasibility.

Again, are we to believe that our water is now in the hands of people who couldn’t even work out the likely borrowing costs? Because the rest of us saw this coming a mile away. Getting back to recycling,

Of the big-ticket item, the desalination plant, which is estimated to cost $1.76 billion to build and more than $1 billion to operate over the next 20 years, Dr Schott admitted the city might never need the water.

…

If the pricing tribunal did not grant the rises, she said, some projects might need to be dumped. But the desalination plant – which can produce up to 14 per cent of the city’s water supply – would still go ahead.

In case you ever should stop to wonder why your water is so expensive in NSW. It isn’t because a government finally responded sensibly to the fact that fresh water is a scarce resource. It is because a government, as is the fashion, responded to an easily-adjustable problem relating to a public good and constructed the most costly, profit-motive-adherent, inefficient, stupid approach to the otherwise defensible (opinions differ) theory of liberal conservatism.

So, what to do? Nothing. Like all of these idiotic enterprises, it will be ten years before something sensible can be done to undo the damage without monster lawsuit. Which is precisely why an ordinary electorate should respond negatively, tropishly, to the suggestion that a public good should involve profits and shareholders. We just never learn.