A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline. A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.
They claim 700,000 vehicles – so that’s 224 million gallons / year.
That equates to a bit over 5 million barrels of oil.5 million barrels of oil is about ¼ of one day’s US consumption.
And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.
So, we all contributed to spending $3 billion to save $350 million.
How good a deal was that ???

Tips to Joe McKinney

Investment personality Jim Cramer has proposed a great and simple idea- take advantage of the cheap price of oil to build the strategic reserve to huge levels. Build more storage facilities and tankers etc. A huge strategic reserve will keep a lid on future speculators and suppliers who would use oil as a strategic weapon against us.

You can not develop new sources at the current market price. Such an idea could be a part of infrastructure development. It could even be a source of future revenue.

During the oil crisis Pelosi and Obama advocated selling off the strategic reserve. It was a bad idea to expose ourselves to greater risk at that time, even though we would have sold at a peak. But it would be a great idea to now build our reserves.

The markets have dealt our nation an opportunity we should not miss.

High oil prices brought the reality that our purchases were funding hostile regimes. We sought to be independent of imported energy for the purposes of national security.

The price of oil has fallen dramatically and now we are faced with a dilemma; do we still pursue energy independence or do we slowly revert to our old gas guzzling past. The new lower prices have already caused T Boone Pickens to abandon his plan to harness the wind and natural gas.

It appears that some government involvement is needed to get alternative energy off the ground; the difficulty is in creating a gentle stimulation without creating expensive and long lasting market distortions.

Some of my suggestions:

1. Require all new cars sold in the United States to be flex fuel compatible. This creates a market for alternative fuels such as alcohol blends and liquid natural gas. Create tax credits for fuel distributors to install alternative fuel pumps.
2. Tax imported oil to encourage domestic production. Restrict the export of locally produced oil. Remove barriers to imported alternative fuels such as alcohol especially from developing countries. Developing countries can use the relatively simple development of alcohol to pull themselves out of poverty and reduce the need for foreign aid.
3. Add a gas guzzler tax to low mileage vehicles. Create a tax credit to convert commercial vehicles to natural gas.
4. Encourage more nuclear power plants.
5. Avoid heavy government involvement in selecting and developing the future alternative industries. This action is fraught with favoritism and bureaucratic bungling. It would be best to carefully and gently to stimulate the market demand and then let the market find the best solutions.

In June with oil pushing $150 a barrel forecasters predicted higher prices yet to come. Yet with oil now below $50 a barrel and dropping, Merrill Lynch forecasts $25 oil.

The media and the forecasters always seems to ride a trend to an extreme. One would be wise to ignore them. They rarely catch the changes that matter.

How will the new low oil prices effect policy for the new president? How will he push the alternative fuel agenda when the economic incentive has dissipated? How will this change their policy toward the evil oil companies?

The drop in the economy will reduce the carbon footprint of our nation. Is that to be cheered? It will reduce the causes of global warming. Will we celebrate?

We lamented the poor consumer who had to give up food and medicine to buy gas. Will we relax now that he has more money in his pocket? If high fuel prices once choked our economy shouldn’t the dropping prices be a stimulus?

Where is the other side of the doom and gloom stories from the news magazines now that the crisis in fuel prices has reversed?

From WSJ Political Diary 9/9/08

There are two explanations for the lower oil price. The dollar has been rising relative to other currencies and gold. The near 20% fall in gold from its $1,000 peak earlier this year has driven down the price of oil, just as the collapse of the dollar relative to gold from 2001-2007 explains about 90% of the rise in the oil price over that period.

The other reason oil prices are drifting downward is consumption of oil has fallen sharply. Energy Information Administration data show that demand in the first half of 2008 dropped by 800,000 barrels a day. This is the sharpest drop in 26 years. Demand for oil is proving to be more price elastic in the short and medium term than experts previously thought. We don’t need costly government energy conservation programs when oil prices are high. Markets work in energy and if you don’t believe that, go into a Hummer dealership if you can still find one.