Update: Oil prices rise to $138 a barrel

Oil prices spiked sharply today, closing at $138.54, according to this report on latimes.com, which quotes a gas station owner predicting a 10-cent rise in gas prices later today:

"I'm expecting a 10-cent increase for my gasoline from Shell today," said Andre Van der Valk, who operates two Shell-brand stations and was selling regular for $4.49 a gallon. "From the consumer end of it, it's a killer."

Here's the A.P. from earlier in the day: "Oil prices shot up more than $10 to a new record above $139 Friday after a major investment bank predicted a spike to $150 in the coming weeks and rising tensions in the Middle East left investors uneasy about supply."

The connection to housing? Our region is built on many assumptions, one of them being the expectation that people here can travel easily and cheaply across vast distances without using mass transportation. I don't know of too many people who penciled out a budget that includes the cost of gas at $5/gallon, or higher. If oil prices hold at these levels it is a sucker punch to this region's economy, and by extension, to the housing market.

One more thought: The gas price pictured above, in Santa Monica on Thursday, does not reflect the $139-per-barrel price. This latest spike in oil prices hasn't hit us yet.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo: L.A. Land, from the Pain at the Pump gallery on Your Scene at latimes.com.

Comments

[CD]

Check the stock market today down 368 points at noon.
Jobless rate post biggest rise since 1986, consumer debt rises more than forecast as people rely on their Credit cards for survival. Mortgage default highest since 1979. Gas almost at $5.00. Wait until the banks try to cash on the credit cards......wait until people stop paying for their SUV and send back the keys to the dealership.
Buying a home right now?????Buy a home next to a bus stop.I want to get a big adult tricycle with a little cart behind, where does one find those ? Or maybe I will buy a mule, there's use to be a lot of horses in SFV, ranchos everywhere. John Wayne use to live up the street, a huge property, now turned into another MacTuscan nightmare.......Time to pack and leave......

[Steve]

Gas prices will now impact commuting costs. The outlaying areas of LA are going to be ghost towns. Life is going to change in LA.

[yours truly, Johnny Dollar]

Maybe going on a year ago, I opined "How can people
live in Lancaster and work in Long Beach?"
I ask the question, today.
I guess, today, I should opine "How can people live in
Carson and work in Compton?"
It's a small world; isn't it?
It's a small world; isn't it?

[David Raether]

Can we finally build the Subway to the Sea, light rail from Santa Clarita to the 10/405 interchange, extend the Gold Line to the Ontario Airport, build light rail to Whittier/Yorba Linda, build put in a trolley system in downtown, etc., etc.?

Please?

It'll be cheaper than $6 gas... which is coming.

[Juan]

To all the posters who bring up the “How is gas/oil connected to real estate?” crap – please go to a tattoo shop and have the word “IDIOT” tattooed on your forehead, because that is what you are.

[puckhead]

Morgan Stanley analyst makes a call on $150 oil. Ya think Morgan Stanley is long oil?

Yes CD, lets pack up and leave to a place where gas is cheap. Europe? Nope. Canada? Nope Hong Kong or Japan? Nope. Hope you have a nice time living in Iran or Venezuela.

[MyLessThanPrimeBeef]

I think we are getting a bubble in the misery index.

Remember, if you don't get miserable now, it maybe too late tomorrow. Hurry up, Jean Valjean, there is no escaping inspector Javert!

[TakeFive]

"I'm expecting a 10-cent increase for my gasoline from Shell today,"

That means he will need to immediatly raise his price on the gallon he sells today, to pay for the next gallon he buys. Look for price changes today.

[GDC]

And people laughed at me when I bought natural resources funds back in February. It's up 30% since then. This new bubble has a ways to go my friends - until EVERYONE starts speculating on commodities. That's the new wealth - get in early and get out when people start catching on.

[tew]

Peter - you're right that the current prices don't reflect recent crude increases. Take a look at the stock prices of the pure refiners. Tesoro is focused on California and its stock has tanked. Why? Because its "crack spread" - the margin of what it sells refined products like gasoline for vs. the cost of crude - has declined. They lost money recently. It seems we're headed for a spike to at least $5.00/gallon at expensive locations.

On the other hand my commute was tough today - lots of cars still on the road...

[kosher krab]

I'm sure my gas station takes the prize. I posted a pic on Pain at the Pump

[yours truly, Johnny Dollar]

On May 24, I mentioned that the Shell station at the
Main Street exit off I-10 in Cabazon had 87 octane
posted at $5.05 point 9. It seems that all the other
stations are racing to catch up.
I'm expecting to see $5.69 point 9 posted at that
Shell station when I drive past it come Monday.
(I thought gas would be cheaper there; I mean
with those two dinosaurs there and all that).

[George]

For this reason, I will always seek living in a residential neighborhood. I cringed when my girlfriend talked me into living near media center burbank, but three months in, I am thrilled to be able to walk to grocery stores and restaurants. Hopefully this will be come more of a trend and the Walmart/Costco way of living will dissolve a bit.

[JPG]

Hey Take 5, a relative of mine owns a gas station affiliated with one of the major oil companies, and they set her prices. So if the price increases are coming, they're being increased by the oil companies not by individual station owners.

Why is it that when the price of a barrel of oil goes up we get immediate increases in the price of gas, but when the price of oil goes down significantly (as it did recently - I think it dropped close to $4 in one day), we see no movement at the pump? Plus, doesn't it take a LONG time for oil to travel to the refinery and become gasoline??? The gas I'm buying today didn't come from $139 a barrel oil.

[Chris]

I don't mind reading seldom posts about high gas prices when there is a story directly related to it about how it may be affecting where people are choosing to live, but I don't visit this blog everyday to see photos of high gas prices. I visit this blog to read stories that are directly about real estate and the housing market.

This blog has so much going for it. I'm kind of getting turned off that this blog is focusing so much on gas prices. Aren't there other blogs that focus on that? Even on the LA Times, there are blogs more directly related to gas prices, such as the Traffic "Bottleneck Blog."

I understand a connection can be made between the two areas, but it's a little overboard lately. We could also talk about the rising cost of food prices and how that impacts people's ability to pay their mortgage, but that doesn't mean I want to see people send in their cellphone snapshots of what a gallon of milk costs in their local grocery store. Please, cut back a bit on all the gas price stuff.

[HulaGirl]

People living in those far-flung "suburbs" aren't worried about $5/gal gas commutes, they're worried about their jobs.

Commuting is no longer an issue when one is unemployed

[Rob Case]

Why is it that gas goes up instantly when oil goes up? Did the purchase price of the product in the tanks change? When and if oil comes down it takes weeks for the price drop. Should not the same accounting principles be in effect either way...

[bob co]

the perfect storm may be upon us...hi energy,food, a tanking real estate market...this all means transportation and banks coulld be in big trouble.This is what happens when you dont plan for a green common sense lifestyle with smaller car,house and public transport vs a commuter,suv,phony loan lifestyle.A lifestyle that was championed by politicians and business leaders and was immoral in many ways among them glutony and self indulgence.Interesting and challenging times ahead.

Fossil fuels are the past.
Alternative energy is the future.

[Valley Observer]

This isn't really relevant to real estate, but from this and the Catalina station, it seems the premium charged for diesel and 91 octane vs 87 octane is relatively constant as an amount, and therefore coming down as a percentage as the prices go up. That makes two kinds of relatively high-mileage non-hybrid, non-electric cars more attractive: the smaller 4 cyls with turbo that need 91 octane (high-mileage if you can resist the urge to use the turbo very often), and the smaller modern turbo-diesels. I got 31.3 mpg from the last tank in my 1.8T Passat doing a mixture of city & freeway driving, now that freeway traffic has slowed down a bit.

[TakeFive]

"Why is it that gas goes up instantly when oil goes up?"

Because everyone down the line knows the next delivery is going to be more expensive.

Think of it this way: if you were a baker and you got advance word next months delivery of flour was going to be more expensive, wouldn't it make sense to raise prices now to ensure you have cash to cover next months expenses?

[ladybug]

I don't think that it makes sense to compare gas prices going up to food prices going up. Gas prices going up has an impact on real estate, because of the commute to work. Food prices don't have this impact.
I own a rental property in Hesperia (high desert). I talked to my tenant yesterday, because his rent is late. He was laid off late last year because the construction company he worked for went bankrupt. He can't find work in the high desert. He was telling me that before he has worked down the hill, but right now he can't do that because of the cost of gas and so little work even down the hill. He has three kids and he can't find an option. He said to me, "I don't know what I am going to do, but I know I have to move out of the desert, because there are no jobs and its too far to commute with the price of gas." He has sold his second vehicle, his collectibles, and has his boat for sale, all just to pay the rent. He also complained about the high food prices, but that is not going to cause him to move.

[Michael Snyder]

ladybug
Oil prices are a direct cause of the increase of food prices. Your tenant may move to be closer to work, but a change in distance won't affect the price of groceries. To ignore the inter-connection between what's happening in the financial/bond markets and the commodities/oil markets presuming a disconnect from real estate is a fools errand. This oil "bubble" is being built by the very people who were snapping up CDOs and SIVs two years ago. Now that they know they can't trust each other, or their own "self policing"/rating system they've turned their attention to the commodities markets where the goods are at least quantifiable. While the vast majority of "investors" buying contracts for future deliveries of crude (or any other commodity) will never take delivery of the product; their speculative trading of these contracts have and will contribute substantially to the costs of these goods. A cost that is once again borne by the consumer who will realize absolutely no benefit from these machinations.

[ladybug]

Michael Snyder, I don't disagree with you. I was just responding to the post from Chis: "I understand a connection can be made between the two areas, but it's a little overboard lately. We could also talk about the rising cost of food prices and how that impacts people's ability to pay their mortgage, but that doesn't mean I want to see people send in their cellphone snapshots of what a gallon of milk costs in their local grocery store. Please, cut back a bit on all the gas price stuff."

[MyLessThanPrimeBeef]

In Spain, they are rapidly running out of fuel as truckers protest. Is this a good time to look at the second home market in Ibiza or Malaga?

[yours truly, Johnny Dollar]

A communique from your spy who is still out in the cold:
(even though I was in 107 degree temperature with
4 per cent humidity).....
In passing the Shell station at the Main Street exit on the
I-10 in Cabazon at 0920 today, the posted price for
87 octane was (is) $5.19 point 9. Always the sign of
things to come.......
But, cheer up: the price at the truck of 100LL at
SMO (Santa Monica Airport) Atlantic Aviation FBO
(Fixed Base Operator) at 1500 today was (is) $6.64;
but, hey; what-ever turns your propellor.
PS: while at home in Palm Springs, I had to order
50 gallons of propane.....but, we won't go there.