$200 Oil

I searched online to find out the cheapest price of corn oil. Based on the web site http://www.foodservicedirect.com/, I could obtain the best price at $65.35 for two cases of 2.5 gallons Mazola corn oil if one orders at least 36 cases. The price per gallon is $13.07 per gallon. I have seen online the same Mazola corn oil price at $10.75 per gallon. But I did not know the sources of the price. If I look harder, I might be able to find a discount price for the corn oil at $10 per gallon. In my judgment, it is very difficult to find any price below $10 per gallon for the corn oil.

I can assume that the price for gasoline can be comparable to the corn oil. The current gasoline price for the highest grade can be about $5 per gallon. So the gasoline price has to double itself to reach price parity with the corn oil price of $10 per gallon.

Similarly, the current crude oil price is $140 per barrel. I can further assume that the crude oil would have to double in order for the gasoline price to double. So the potential crude could be $280 per barrel.

Let’s assume some other sources of energy can become really effective before the final price parity between corn oil and gasoline is reached. The crude oil could reach some level between $140 and $280 per barrel. If the average of the two prices is used, then the crude could reach $210 before it can come down to some reasonable price.

A few days ago, I came up with the $190 oil from another route. Today I reasoned for $210 oil. The average of the two is a good round number of $200 per barrel. This can be a good round number for the ceiling of crude oil price.

I hope the alternative energy measures somehow can come to be effective faster so that the $200 oil would never come to be reality.

$190 Oil

There are 42 gallons of oil in one barrel of crude oil. The current price of crude oil is about $140 per barrel, which is equivalent to $3.33 per gallon. Now the price of gasoline is selling at about $4 per gallon.

One gallon equals to 231 cubic inches. One inch equals to 2.54 centimeters. Based on this relationship, one can obtain that one gallon equals to 3.7854 liters.

The energy content of one liter of fuel oil is about 11.69 KWH. There is 3.7854 liter in one gallon. So the energy content of one gallon of fuel oil is 44.25 KWH. The current average electricity price in US is about 10.2 cents per KWH. So one gallon of fuel oil should be valued approximately at $4.514 per gallon. If the price of $4.514 per gallon is used for calculating an upper bound for crude oil price, the crude oil should be valued about $189.6 per barrel. Then the gasoline price will be increased to about $5.42 per gallon.

So if everything converges at the energy content level, the potential oil price could reach approximately $190 per barrel. Correspondingly, the gasoline price could reach $5.5 per gallon.

In the above calculations, the complex energy conversion efficiencies were not considered. If the energy conversion efficiencies were considered, the crude price could be much lower. The actual future price of crude oil could be determined by burning oil for electricity. Today there might be no oil-powered electricity generating station because the oil price is too high and therefore it can not be competitive compared to other sources of energy such as coal or natural gas.

One way to estimate the energy conversion efficiency is to use the internal combustion engine efficiency. Most internal combustion engines have average efficiencies of about 20%. If this efficiency of 20% was used for calculating the energy conversion efficiency for fuel oil, the crude oil price equivalent to the current 10.2 cents electricity price would be 20% of the $190 per barrel price tag, or $38 per barrel. If most people were driving electric cars, the crude oil price should be reduced to around $40 per barrel.

But that is only in theory. We had seen that price of $40 per barrel for crude oil for a long time. When so many people were buying SUVs a few years ago, the oil owners had seen what were coming.

What should be the reasonable prices for oil? Should it be $40, $140, or $190? Everyone can be the judge.

Electric Cars

There are three types of pure electric cars:

1. Community sedan by http://www.itiselectric.com/
2. Family car by http://www.aptera.com/
3. Sports Roadster by http://www.teslamotors.com/


The electric community cars run about 25 miles per hour. The electric family cars runs around 60 miles per hour. The electric sports cars can run up to 120 miles per hour.

These electric cars will change the landscape from oil-based vehicles to electricity-based vehicles. The impacts to the oil industry will be tremendous. If most cars use electricity as the sources of energy, then oil industry will no longer have a specialized market. The oil industry will be subject to competitions from all other sources of energy: wind power, hydropower, coal-powered energy, nuclear power, and gas-powered energy. Then the oil price can come down to a price level determined by its energy-contents for generating electricity.

I envision such a day when all machines will be powered by electricity. Now there are many machines are powered by electricity already in the world: computers, cellular phones, refrigerators, washing machines, and vacuum cleaners. The list is very long. Why should we continue to operate another energy network (the oil network) just for cars? I feel the world of electric vehicles will come in three to five years.

Vanguard Total World Stock Index Fund

In April 2008 Vanguard filed with SEC for the Vanguard Global Stock Index Fund. In June 2008 its filings changed the name to Vanguard Total World Stock Index Fund. On July 16, it released the stock symbols for all three share classes:

Fund # 0628, Ticker Symbol VTWSX, Investors, $3K
Fund # 0826, Ticker Symbol VTWIX, Institutional, $5M
Fund # 3141, Ticker Symbol VT, ETF

It has an inception date of 06/17/2008. I called Vanguard yesterday to find out when the fund would be available for investors. The Vanguard representative said that they did not have the fund information yet. He also asked me to check it back in two weeks.

The fund will track FTSE All World Index. This index has 2900 components distributed among 48 countries. The largest five countries and associated weights are US (41%), UK (9%), Japan (9%), France (5%), and Germany (4%).

It has a 0.25% purchase fees. The management fees are 0.45% for investor shares. The management fees are slightly lower for the other two classes.

It is the first such kind of fund in mutual funds. I think these funds will become popular among investors to simplify their life of investing in the stock markets of the world. I may consider to start with the investor shares when it becomes available to purchase.

It is available to purchase on 06/26/2008. I bought some shares in this fund.

The Dow Mega-Trends in 100 years

There are three mega trends in the Dow Jones Industrial Average for the 100 years since the Great Depression.

The first mega trend is the 51-year period when the stock market rose and then reached its plateau from 1932 to 1982. Two third of the time was rising (34 years) and one third of the time was in plateau (17 years). This mega trend was driven mainly by industrial developments such as automobiles and the interstate highways.

The second mega trend is the 27-year period when the stock market rose and then reached its plateau from 1982 to 2009. Similarly, the first 18 year period was rising from 1982 to 2000. Then the market stays in the plateau for 9 years from 2000 to 2009. This mega trend was mainly driven by semiconductors, personal computers and the Internet.

The third mega trend might run from 2010 to 2031. This 21-year period is divided into two periods: the first 14-year rising market and then followed by the 7-year plateau period. The mega trend is driven by innovations in nanotechnologies and biotechnologies. By then the 100 years of Dow Jones Industrial Average will finish its three mega-trends.

If this dream was true, then the Dow still have two years of flat markets.

Telecom stocks at 52-week lows

In the last several days, several telecommunications companies entered their 52-week lows: MOT (Motorola), NOK (Nokia), Q (Qwest), TLAB (Tellabs), VOD (Vodafone). These are small news compared with the major meltdowns among financial companies (e.g. Lehman Brothers) and extremely high oil prices which cause all kind of fears.

Is the economy really in serious trouble? Or will the financial industrial problems propagate into other industries? Will the high oil prices force contagious all-world inflation?

I hope the world smart economists, businessmen, and all kinds of governors will find solutions to the financial problems and oil price problems. Finding solutions to these problems are their jobs.

One possible situation is that the financial problems and the high oil price problems are inter-connected problems. Capital needed for financing economic expansions such as mortgages is flocked in to bet on higher future commodity prices.

In general, investing money in stocks and bonds is for business expansions while betting money in commodity futures is to smooth out economic gyrations. Now too much money is betting on non-productive commodity futures. Not-enough money is left for expanding the productive bases of economy. So the current economic problems are caused by infeasible allocations of money.

The up-coming President of the United States might have the need and will to eventually fix these problems of run-away speculations on the commodity futures like the oil futures. So these problems can at most last a few more months.

So the oil price will not go much higher. If this is the case, then the telecommunication industry problem as shown now will not be a problem at all.