Dollar, Euros and Oil

Here is an interesting exchange at Brad Setser's blog

Q: What is the connection between materials prices and relative dollar value? Can we make any sensible connection in the case of oil?
A: OPEC, they certainly have a fair amount of market power, and one theory for the current market price of oil is that they really have a "30 euro a barrel" target ... i.e. the oil sheiks want to keep the price of their summer vacations in Europe constant, in terms of oil. That argument probably has an element of truth in it, though a bit of cold weather and evidence the global demand remains robust also seem to explain the recent run up.

If this 30 Euros a barrel theory is to be believed, and if we take in to account that dollar is most likely to continue its downward slide given the state of the trade deficits, then we might conclude that oil prices will indeed remain at 45-50 dollars per barrel for at least one more year. Very interesting. Stay tuned.

P.S. (02/24): From the FT:

Crude oil futures rose to a four-month high on Thursday after Saudi oil minister Ali Naimi said prices could stay between $40 and $50 a barrel for the rest of the year.
Mr Naimi told CNBC television: “Where the price is today, between $40 and $50, will probably be with us for 2005.” The comments by the Organisation of the Petroleum Exporting Countries’ lead producer will fuel fears that the tight supply-demand picture and high prices are here to stay.

Traders and analysts are divided over the likely length of the current rally, with some predicting it as a short-term symptom of the cold snap and others warning that the supply-demand outlook is fundamentally tight.

This may be an admission that OPEC has now agreed to stop worrying unless oil prices either drop below 40 dollars a barrel or rise too much above 50 dollars a barrel. It may, however, also be an admission that the supply is really in a very tight position, and continued strong demand and other trouble mean that OPEC does not have much control over where the prices are going.

CERAweek and CERA's oil production forecast

CEAR held it's annual conference last week. On CERA's website, you can listen to David O'Reilly's interview with Dan Yergin. On the oil day, CERA released it's tally of oil production capacity by 2010. It is hard to believe a 20% increase in capacity in the next five years, but CERA has been consistently saying that.

Perspectives on Hybrids

From the NYT driveTimes.

P.S. Why doesn't the NYT offer an RSS feed of all their articles? This one for example will go behind the NYT wall after a few days. Many others can be archived usefully, as I consistently do with other NYT articles. For example, this article about Oil prices shooting up today can be archived, and anybody should just be able to click on the article and go to it directly.

A More Refined Green Machine

Warren Brown reviews the 2005 Honda Accord Hybrid

I asked about the Accord Hybrid's Integrated Motor Assist system. My passengers and guest drivers said nothing. I told them that the car was a hybrid, reiterating the message on its glistening external "Accord Hybrid" badge. My wife, Mary Anne, responded: "I just think it's a very nice car."

And that is exactly the way Honda wants it. Yes, the Accord Hybrid has a clever gasoline engine/electric motor assistance drive system -- thus, the Integrated Motor Assist appellation. It also comes with Honda's extra-fuel-saving Variable Cylinder Management (VCM) feature, which automatically deactivates three of the car's six cylinders when the automobile is cruising at a steady, moderate speed.

In addition, the Accord Hybrid comes with what Honda calls Grade Logic Control. To put it simply, this feature eliminates the annoying, transmission-wearing, constant downshifting (more commonly called "gear hunting") associated with driving uphill in cars with traditional automatic transmissions. By automatically adjusting and holding gear ratios when moving downhill, the computerized Grade Logic Control also reduces brake wear.

Honda's Accord experiment is going to be very crucial in determining whether we see hybrid variants of many models instead of a select few. What Accord and Lexus hybrid are doing is to pack in more punch than anybody has seen or expected out of a hybrid. The early hybrids were seriously underpowered and this generation is going to remove all of those doubts from the customers minds, while at the same time improving fuel economy and other vehicle characteristics.
Warren Brown also tries to explain how there are a number of different types of hybrids. As one Toyota engineer put it

All Hybrids are not created equal, but they can be marketed as if they are equal!

This is certainly the approach that GM is taking with it Hybrid trucks. One of these days, when I have some time, I should post a detailed explanation about different types of hybrids, but I assume that such an explanation is already available elsewhere.

NHTSA Web Page

I note this because I find it funny. Why does NHTSA have two home pages? I mean that http://www.nhtsa.dot.gov/index.html and http://www.nhtsa.dot.gov/ are completely different pages.

UPDATE (02/18): This is creepy. I had noticed this discrepancy for several weeks, but posted about it yesterday, and the web site now redirects all http://www.nhtsa.dot.gov/index.html pages to the new NHTSA web page.

CAFE Review Update

You may or may not remember that I complained about not hearing anything from NHTSA about changes to CAFE Standards. Rick Popely of the Chicago Tribune gets some comments from a NHTSA spokesperson

NHTSA has been mum on what might change since it began its review. One reason is that it has had to digest more than 66,000 comments from interest groups, manufacturers and consumers last year on how to remake CAFE.
'It's an issue that resonates,' Tyson said of the avalanche of opinion. 'We asked for comments. We sure got them.'
NHTSA's timetable is to propose new truck CAFE rules this year, brace for another round of comments, and issue a final rule by April 2006 to give manufacturers time to make changes for the 2008 model year.
Before the current review was announced, NHTSA boosted truck CAFE for 2005 to 21 m.p.g. from 20.7, the standard since 1996. Next year, the standard rises to 21.6 m.p.g. and in 2007 it goes to 22.2. Because NHTSA is looking only at trucks, CAFE for cars should remain 27.5 m.p.g.
Each manufacturer has to meet those standards with the fleet of vehicles it sells, using a sales-weighted average, or pay fines that can run into the millions.
What makes a vehicle a car or truck is a major part of NHTSA's review.

I wonder if there was a press conference or this was some legwork done by the Tribune reporter? Interesting times ahead.

Voluntary Targets for Improving Fuel Economy in Canada

CTV reports that the Canadian Prime Minister is all set to accept voluntary agreement by Carmakers on fuel economy. The deal will require improving fuel economy by about 25% over the next Six years. The deal has been making for a long time, and Natural Resources Canada has been quite explicit about the 25% target from the beginning. This is an ambitious target. Combined with California's AB 1493, and the willingness of Northeastern States in the US to adopt California measures, we are in for some interesting times over the next couple of years. Stay Tuned.
P.S. Tom points to this Science Committee hearing. What I find curious is the following:

(Vice President of Government Affairs, Alliance of Automobile Manufacturers) Stanton said the automobile industry was not necessarily opposed to any increase in CAFE standards, but did not specify a level or schedule that would be acceptable.

This shows that AAM is speaking with many mouths. It has filed a lawsuite against CARB over AB 1493, it does not strictly oppose a modest increase in CAFE standards, and pretty much the same group is agreeing to voluntary fuel economy improvements in Canada. What is going on here? If you know anything, please tell me.

consumer tax incentives for advanced technology vehicles

The Alliance of Automobile Manufacturers is supporting a house bill on tax incentives for adavnced technology (fuel cell, hybrids and diesels) vehicles. I would like to know more details.

Lord Browne on Oil Prices

Bumper oil prices lift BP profits

Currently above $40 a barrel, Lord Browne predicted: 'The price of oil will be well supported above $30 a barrel for the medium term.

FT talks to Larry Burns

More publicity for Larry Burns and GM:

One big problem is cost. Fuel cell units are 10 times more expensive to make than petrol or diesel engines. The other is the lack of a refuelling infrastructure, which will need huge investment to create.

The fuel cell vehicle does not look like sharing the fate of the battery-powered car, which was 'just around the corner' for almost a century. But some other leading carmakers suggest it will be nearer 2020 before fuel cell cars start to reach the market in big enough numbers to begin affecting demand for oil even slightly.

Firstly, Cost and infrastructure are the right problems, but by no means the only problem. Since ICE vehicles are such a well developed technology, it is not good enough for Fuel Cell Vehicles (FCVs) to be comparable to them, but FCVs will need to do better to succeed. They may have to offer other attributes that current ICEs don't offer.
Secondly, it is hard to think that FCVs will make a big difference in oil consumption by 2020. Even if the FCVs are able to break 2% market share by 2020, I would consider that a pretty good deal. Just think about it this way. The Toyota Prius and Honda Insight were launched in 1997. This is 2005 and the current market share of hybrids is a little less than one percent. That is 8 years to get to one percent! Fleet turnover is a slow process and it is hard for new vehicle technology to break in.

Honda asks for stricter CAFE

As if this is supposed to make sense.