Joe Biden and Climate Hypocrisy

Let's open this posting by looking at two of Joe Biden's recent tweets from July 22, 2022:

 

...and this one on July 23, 2022:

 

...and this one on July 24, 2022:

 

...and this one on July 25, 2022:

 

Just in case you missed it (just like the overpaid and incompetent White House staffers whose hands the poster passed through), you'll notice that the average American driver will spend $35 less per month for one "peson", whatever a "peson" is.

....and this one on July 26, 2022:

 

Well, from Biden's limited perspective, he has to believe that the recent drop in the price of gasoline has to be reassuring to motorists/voters who can now afford to consume more of the precious elixir.

 

On July 23, 2022, right in the middle of the tweets about dropping gasoline prices, the world was the beneficiary of these tweets:

 

....and, most importantly, this one:

 

So, apparently, you can have your cake and eat it too when it comes to lower gas prices (which lead to higher consumption) and battling the climate change "emergency" when you live in Bidenland.  One might almost think that the current Democratic administration is irony impaired.

 

The last tweet is a tad threatening.  When you search "Joe Biden climate emergency" on Google, here are some of the results:

 

Do you think that it is possible that we are being softened up for a climate lockdown where Washington (and for that matter other governments around the world) use their newfound powers of tyranny to lock us down just as they did during the "health emergency" of the past two years?

 

If we are experiencing such a significant climate emergency, we must ask ourselves why are the ruling class members still gadding about the globe using their government-provided, taxpayer-funded jets for meetings that are completely unnecessary and that accomplish absolutely nothing?  Apparently, there are no hypocrites like elected hypocrites who stage themselves on both sides of an issue, is there?

The Connection Between the Housing Market and Gasoline

Updated June 16, 2014

The premiss of this posting is particularly pertinent given the recent rise in violence in Iraq which has pushed oil prices up to new yearly highs.

There has a been a great deal of speculation over the past half decade about the causes of America's housing market crisis but a paper written by Steven Sexton, JunJie Wu and David Zilberman from the UC Center for Energy and Environmental Economics provides us with an interesting hypothesis.

Within the two year period between 2008 and 2010, over 4 million American families had lost their homes to foreclosure and an additional 4 million families were "mortgage payment challenged".  As shown on this graph, households saw the value of equity in real estate plunge from $13.4 trillion in the first quarter of 2006 to $6.09 trillion in the first quarter of 2009, a drop of 54.6 percent:

This brought the level of total household equity in real estate to levels not seen since 1999.  As a  result of the bursting bubble, one in four American households owed more on their mortgage than the market value of their homes.

While we have a pretty good idea that low interest rates, new mortgage products and easy credit that provided mortgages for the less creditworthy among us fuelled the bubble, it is less certain what actually triggered the housing market collapse.

Let's start by looking at national gasoline prices for the United States.  For much of the period between 1990 and the early 2000s when the housing boom was taking shape, world oil prices remained relatively flat at around $30 per barrel in constant 2011 dollars and U.S. retail gasoline prices were below $2.00 per gallon in real terms.  The long period of low nominal gasoline prices over the period between 1990 and the beginning of 2004 can easily be seen on this graph from FRED:

Over the 15 year period, national gasoline prices averaged $1.19 per gallon, despite the price jump in 1999 from around $1.00 per gallon to $1.60 per gallon.

The situation began to change right at the beginning of 2005, the last time that the United States saw gasoline sell for less than $1.50 per gallon.  As shown on this chart, between the beginning of 2004 and September 2008, gasoline prices began a steady climb, peaking at $4.11 per gallon in July 2008:

During this nearly five year period, gasoline prices averaged $2.56 per gallon.

Now, let's get back to housing.  The authors note that post-World War II housing growth in the United States was related to a decline in city centre population and an increase in the population of the suburbs.  This was largely a result of the advent of the automobile that makes it easier for those living in the suburbs to commute.  The result of the move toward both suburban and exurban areas resulted in this:

Between 1971 and 2007, total vehicle miles travelled rose from 1.13 million miles to 3.04 million miles, an increase of 169 percent.  All of those miles travelled require household expenditures on gasoline.

While some suburbanites prefer to commute by public transit, a 2004 study showed that time savings for car commuters were substantial; in the year 2000, a median car commute took 24.1 minutes compared to a median transit commute of 47.7 minutes.  Urban sprawl is very closely correlated with car ownership rates.  If cars are being used for commuting, obviously, households are spending money on gasoline.  Here is a graph showing U.S. household expenditures on gasoline in nominal dollars and as a percentage of mean household income:

Notice the rapid rise in household expenditures on gasoline between 2004 and 2008?  That is the key to the author's thesis.  Household expenditures on gasoline rose from $1600 in 2004 to $2700 in 2008, a 69 percent increase.  While the extra $1100 spent on gasoline by an average household is not terribly punitive, it is the impact of higher fuel costs on the marginal households that are most severe.  According to the authors, in some cases, workers in California saw their annual commute costs rise to nearly $10,000 annually, a very substantial portion of total household annual expenditures.   The lowest income quartile households that have the longest commutes or that have older model, less fuel-efficient vehicles suffered the most from rising gasoline prices.  The authors note that, in general, the median household income of households located within 120 kilometres of a high employment density city declines one-tenth of one percent per kilometre of distance from the city centre.  This means that, in general, lower income households have the longest commutes and are most susceptible to gasoline price changes.  It is these very households that availed themselves of the banking system's no downpayment, interest only mortgages, making them the most vulnerable.

The authors analysis uses California's experience during the housing market implosion to illustrate their analysis.  California has 25 percent of the housing value in the United States.  In 2010, the state accounted for nearly 20 percent of the nation's foreclosure filings and by 2009, one in three mortgagees in California was underwater.  Seven of the nation's top twenty highest foreclosure rate markets were located in California, all in outlying areas including Modesto, Riverside-San Bernardino and Stockton.  California cities that saw the highest percentage declines in median price were located farther from major cities and three things in common; longer commutes, higher vehicle miles travelled and higher gasoline expenditures.  The fifteen cities that fared the best during the price "readjustment" were much closer to major cities and had incomes that averaged 125 percent higher than their less well-off peers and had gasoline expenditures that were lower as a percentage of household income.

What is interesting to note is the rise in household expenditures on gasoline since 2010 as you can see on the graph above.  In 2009, households spent $2000 on gasoline; by 2012, this had risen to a new peak of $2900, an increase of 45 percent in four years.  This has happened at the same time as house prices in many cities in California have risen to levels that are not substantially below the levels seen during the peak of the real estate bubble and at the same time as gasoline prices hover around the $3.50 per gallon level.  Another factor that has to be considered is the fact that real wage growth in the United States has been very low over the past decade: this means that gasoline price increases are not being met with increases in household income.

In general, economists agree that there is a direct link between energy prices and economy growth and that high energy prices are transmitted through an economy, impacting unemployment and GDP.  This study shows that the rise in gasoline prices between 2004 and 2008, in particular, may well have had a direct link to the collapsing of the real estate market.

Disconnecting the Price of Gasoline from the Price of Oil

As a geoscientist that was employed in the oil industry for nearly three decades, I still watch the world's oil markets closely.  I had been watching the relationship between the price of oil (West Texas Intermediate or WTI) and the price of gasoline for the past couple of years and have suspected that there is somewhat of a disconnect between the two.

Let's open by looking at this graph that shows the price of West Texas Intermediate in red and the price of all formulations of regular gasoline in blue since 1990:

You will notice that except for short periods of time in the mid-2000s that the price of regular gasoline tracked the price of oil quite closely.  This was the case for 21 years, until 2011 when the price of gasoline began to track higher than the price of oil with this trend continuing over most of the period between early 2011 and mid-2013 as shown on this graph:

Let's take a closer look at the relationship between the two over the period from 2010 to the present:

How much of a difference does this "new reality" make to the price of a gallon of gasoline?  In recent weeks, WTI has dropped from a one year high of $109.62 per barrel in early September 2013 to its current level of $94.00 per barrel, a drop of 14.2 percent.  Over that period, the price of gasoline has dropped from around $3.59 a gallon to its current level of around $3.29, a drop of 8.4 percent.  While there is somewhat of a disconnect between the price of oil and the price of gasoline, it is far better now than it was in the early part of 2013 as you will see.

At the end of January 2013, WTI was priced at around $98 per barrel and by early March 2013, it had fallen to just over $90 per barrel, a drop of 8.2 percent.  Over the same period, the price of a gallon of regular gasoline rose from $3.36 to $3.78, an increase of 12.5 percent.  Had the historical relationship between the price of WTI and the price of gasoline held, the price of gasoline in March 2013 should have been around $3.20 per gallon, 15.3 percent lower than it was!

I do realize that there is a lag between changes in the price of oil and the price of gasoline, however, looking back at historical data before 2006, that lag is very short other than for short periods of time after 2001 as shown on this graph:

What could have caused the breakdown in this relationship?  Here, thanks to the U.S. Energy Information Administration, could be the answer:

Exports of finished gasoline have risen by a significant amount since late 2010, hitting levels that have not been seen since the Second World War.  For example, in December 2009, U.S. refiners exported 9.536 million barrels of finished gasoline.  In December 2010, this rose to 16.022 million barrels, then to 19.103 million barrels in December 2011 and fell slightly to 18.299 million barrels in December 2012.  Overall, from December 2009 to December 2012, gasoline exports rose by 91.9 percent.  Even worse, exports in December 2012 were up 191 percent compared to December 2008!

Who are the beneficiaries of this generosity?

Here is a graph showing the growth in Mexico's imports of United States-produced gasoline:

Here is a graph showing the growth in Venezuela's imports of United States-produced gasoline:

Here is a graph showing the growth in Columbia's imports of United States-produced gasoline:

Here is a graph showing the growth in Guatamala's imports of United States-produced gasoline:

Oddly enough, here is a graph showing the growth in Nigeria's imports of United States-produced gasoline:

Last, here is a graph showing the growth in Ecuador's imports of United States-produced gasoline:

You will notice that, in almost every case, the rise in exports of United States-produced gasoline began to rise in the 2010 to 2011 timeframe.  It seems oddly coincident with the disconnect between the price of oil and the price of a gallon of gasoline at the pump, doesn't it?

Just in case you wondered, here is graph showing the number of operating refineries in the United States since 1982:

The number of operating refineries in the United States has fallen from 254 in 1982 to its current level of 139.

Now, let's look at the domestic gasoline situation.  The Energy Information Administration measures domestic gasoline consumption using the "weekly product supplied" data as shown on this graph:

Notice that the weekly supply peaked at 22.037 million barrels per day in February 2007.  Since then, it has fallen to its current level of around 20 million barrels per day, a 10 percent reduction.  Since the beginning of 2011 when exports of U.S.-produced gasoline began to ramp up, domestic gasoline supplied has increased from between 18.8 and 19.8 million barrels per day.  Obviously, fewer refineries have become either larger or more efficient and have increased their capability to produce gasoline.  Those refineries that remain are exporting a heftier percentage of their gasoline production to offshore consumers.

Here is a graph showing annual gasoline consumption in the United States, noting the slight drop in consumption levels since 2007:

Here is a graph showing the drop in gasoline consumption on a year-over year basis (in dark grey):

Notice that while gasoline consumption dropped  by just over 0.2 million barrels per day in 2011, it is expected to fall by less than 0.1 million barrels per day in 2014, a drop of only 0.4 percent.  Since 2007 

Gasoline consumption fell due to increased overall fleet efficiency and high prices which dampened the enthusiasm for light vehicle travel.  While consumption did fall, it didn't fall by as much as exports rose, suggesting that the current disconnect between the price of oil and the price of a gallon of gasoline could be related, in part, to the increased exports of gasoline.

I realize that there are many interrelated factors at play in the world of gasoline supply, demand and pricing, however, the coincidence between elevated prices and elevated exports is compelling.  In the future, when we read that gasoline prices are high because of refinery maintenance or shutdowns, perhaps we can reflect on the fact that United States refiners have tripled their exports of gasoline to other nations over the past few years, tightening the domestic supply and making American motorists more vulnerable to shortages that push the domestic price of gasoline higher, out of step with the price of the raw product.