Fuel Price History

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Fuel Price History
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Fuel Price History

• Crude oil prices behave much as any other
  commodity with wide price swings in times of
  shortage or oversupply.
• The crude oil price cycle may extend over several
  years responding to changes in demand as well as
  OPEC and non-OPEC supply. 

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Fuel Price History

• In 1973 35 percent of oil was imported
• In 2000 50 percent of oil was imported
• 382.4 MillionThe number of gallons of motor
  gasoline consumed everyday in the United States.
• 5,419,000The number of barrels produced everyday
  in the United States

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Oil Prices over Past Year
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Major Consumers of Fuel

• US- 28
• China- 8
• Japan- 6
• Germany- 3
• Russia- 5
• Rest of World- 53

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Impact

• 97 experienced price increases due to rising
  fuel prices
• Mostly in inbound and outbound logistics
• 54 of Co. are partially or fully increasing
  prices to their customers
• Average fuel surcharge passed onto customer is
  25

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Mode Consumption

• Trucking- 51.4
• Air- 13.6
• Water- 7.8
• Rail- 4.1

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Impact on Trucking

• Larger companies handling increase in prices
  better than smaller companies
• Depends upon whether companies have fuel
  surcharges in place
• Causing many small companies to go out of
  business
• Trucking Co. in West Coast
• Lack of drivers inc. in difficulty transporting
  goods inc. consumer prices

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Impact on Air

• After labor, jet fuel is the second largest
  operating expense for all U.S. airlines,
  constituting 10 to 25 percent of an airlines
  annual operating costs
• Rising fuel costs led U.S. airlines to raise
  fares 12 times in 2005, and once so far in 2006
• expected to post a 10 billion net loss in 2006
• According to the ATA, at a consumption rate of
  19.5 billion gallons per year, every penny
  increase in the price of a gallon of jet fuel
  results in an additional 195 million in annual
  fuel costs for the U.S. airline industry

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Impact on Air

• Percent of Total Annual Fuel Requirement Hedged
  and Hedge Cost in 2006
• South West- 70 _at_ 36 barrel
• Alaska- 45 _at_ 40
• Air Tran- 25 _at_ 56
• Jet Blue- 16 _at_ 68
• American- 18 _at_ 60

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Factors Contributing to Price of Fuel

• unexpected difficulties in refinery operations
• new environmental regulations
• sudden surges in regional demand
• seasonal swings in demand due to weather and
  travel patterns
• supply problems caused by natural disasters
• geopolitical factors (i.e., the Iraq war and
  instability in other Middle East countries)
  market speculation

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Effects of Changing Fuel Prices

• Changes in oil prices have been associated with
  major developments in the world economy, and are
  often seen as a trigger for inflation and
  recession.
• The increase in oil prices in 1974 and then again
  in 1979 were important factors in producing a
  slowdown in the world economy at a time when
  inflation was rising.

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Reasons for Increased Prices

• Oil prices have increased over 70 this year for
  three main reasons
• There have been few new discoveries of oil in
  recent years there is greater demand for oil,
  especially from China, who is now the worlds
  largest importer of oil following the United
  States and there is uncertainty over oil
  supplies because of war and terrorism.

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Why Fuel Prices should Concern You

• In the past 30 years, higher oil prices were
  followed by recessions in 1973, 1981, 1990 and
  2000.
• Higher oil prices have historically led to
  recessions because they act as a tax on spending
  by absorbing consumer dollars that would be spent
  elsewhere, by reducing corporate profits through
  increased costs and lower demand, and by causing
  higher inflation which in turn causes higher
  interest rates.

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Effects on The Economy

• Higher oil prices cause a supply shock that
  reduces GDP while simultaneously raising
  inflation.
• The oil shocks of the 1970s and 1980s had a
  devastating impact on investors.
• 10-year US Bond yields rose from around 6 to 15
  imposing losses on fixed-income investors.

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Effects on Stock Market

• Stock market investors also lost money.
• For example, the Dow Jones Industrial Average
  lost nearly 75 of its value, after adjusting for
  inflation, between 1966 and 1982, its worse
  decline since the Great Depression.

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Other Economic Sectors Impact

• Increases in oil prices impact some economic
  sectors more than others.
• Oil stocks, for example, have been breaking out
  to new highs for the past two years.
• The airline and auto industries, which are
  heavily dependent on oil, have faltered during
  the past two years, just as they did in the
  1970s.

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Continued

• Internet retailers, such as Amazon, should
  benefit from higher oil prices because consumers
  wont drive as much as they used to.

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Some Good News

• Energy costs share of GDP has fallen from 8 in
  1973 to only 2 today.
• The global economy relies more on services today
  than in 1973 and higher oil prices have made the
  world more energy efficient.

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Inflations Effect

• Although the current price of oil is at an
  all-time high, after adjusting for inflation, oil
  is still cheaper than it was in 1981.

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Effects on Transportation

• The United States consumes an average of 20
  million barrels of oil per day (according to the
  Department of Energy).
• About 45 percent of that is used for motor
  gasoline. The rest is used for distillate fuel
  oil, jet fuel, residual fuel and other oils.

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Historical Gas Prices(Adjusted for inflation)

• Year Price Per Gallon
• 19501.91
• 19551.85
• 19601.79
• 19651.68
• 19701.59
• 19751.80
• 19802.59
• 19851.90

• 19901.51
• 19951.28
• 20011.66
• 20021.31
• 20031.52
• 20041.79
• 20052.28
• 2006 (so far)3.03
• Source U.S. DOE

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Result Of Higher Fuel Prices on Transportation

• Higher Fuel Costs result in higher freight rates
  and they also result higher total costs
• Airfares cost more due to increased Jet Fuel
  Prices
• Fuel is inelastic (though it might be more
  expensive people still have demand for it)

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Conclusions

• The impact of higher oil prices on investors is
  likely to be less severe than in the 1970s.
• Disruptions to oil supplies resulting from
  conflict in the Middle East are the primary
  concern for traders. This is the so-called
  terrorism premium that is built into the price
  of oil.

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Conclusion Continued

• The impact of higher oil prices on stocks and
  bonds should be limited, barring a severe
  disruption of oil supplies from the Middle East.

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Alternative Fuels

• Advanced Energy Initiative
• The President has set a national goal of
  replacing more than 75 of our oil imports from
  the Middle East by 2025.

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What are alternative fuels

• Alternative fuels described here are those
  defined by the Energy Policy Act of 1992,
  including biodiesel, electricity, ethanol,
  hydrogen, and natural gas.
• Non petroleum fuels

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Ethanol

• alcohol-based alternative fuel produced by
  fermenting and distilling starch crops that have
  been converted into simple sugars.
• Produced in the US
• Renewable fuel
• Cleaner emissions

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Methanol

• also known as wood alcohol, can be used as an
  alternative fuel in flexible fuel vehicles.
• methanol could possibly be the fuel of choice for
  providing the hydrogen necessary to power fuel
  cell vehicles.
• several inherent advantages as an automotive fuel

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Natural gas

• produced either from gas wells or in conjunction
  with crude oil
• consumed in the residential, commercial,
  industrial, and utility markets.
• future holds great potential for natural gas

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Biodiesel

• domestically produced, renewable fuel
• safe, biodegradable, and reduces serious air
  pollutants
• biodiesel tax incentive
• engine manufacturers are concerned about the
  impact of B100 on engine durability.
• Some biodiesel produces more nitrogen oxides than
  others

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Others

• Hydrogen
• -approximately 10-20 years for hydrogen vehicles
• -technical and cost barriers.
• Propane
• -popular alternative
• -cost of establishing propane

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Future Impact

• Alternative Fuel Impact (Positives)
• Less demand for foreign oil
• Future benefit of self dependency
• Lower future costs

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Future Impact

• Alternative fuel Impact (negatives)
• Infrastructure Costs
• Low Availability
• High initial costs
• Equipment Problems
• Training (Ex Drivers and Maintenance)

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Future Impact

• Is OPEC playing with the United States?
• Consumer Responsibility
• Plan for the future

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Questions

• 1. Which of the alternative fuels is an alcohol
  mixture?
• A. Biodiesel
• B. Ethanol
• C. Natural Gas
• D. Propane
• 2. Which transportation mode consumes the most
  oil?
• A. Trucking
• B. Air
• C. Water
• D. Rail
• E. None of the above
• 3. Which one of these options are NOT obstacles
  in alternative fuel use by transportation firms?
• A. Low availability
• B. Future control of energy resources
• C. New Infrastructure
• D. High costs in the short run
• E. None of the above