Oil - let's clear something up

[Destino]

Everyone is talking about oil and frankly I'm a little shocked at how little consistent information there is out there. You'd think after all this time we'd know what's up. So I'm going to throw out some comments that may or may not be right - correct them please. The aim of this thread is to nail down the issue somewhat.

- Oil is not your typical supply and demand. Supply is controlled and regulated. Demand is rigid with no real alternative. Free market pressures, such as competition and competing products really don't exist.

- Drilling for more oil won't solve anything because the price per barrell is negotiated and supply is artificially limited. Again there is no real "competition" here at all.

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

No liberals or conservative comments please. This is a nuetral discussion.

[#98QBKiller]

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

I would also like to know the answer to this, any insight would be greatly appreciated.

Also, how true is the claim that the same companies that drill for the oil and refine it at their own refineries own the gas stations too (therefore controlling the price through the entire process)?

[DCsportsfan53]

I agree with most of what you said except, in this case, record profits do make economic sense for the oil companies because demand, at least for the time being, will not change. If anything, worldwide, it goes up daily despite the increase in cost.

[PleaseBlitz]

Everyone is talking about oil and frankly I'm a little shocked at how little consistent information there is out there. You'd think after all this time we'd know what's up. So I'm going to throw out some comments that may or may not be right - correct them please. The aim of this thread is to nail down the issue somewhat.

- Oil is not your typical supply and demand. Supply is controlled and regulated. Demand is rigid with no real alternative. Free market pressures, such as competition and competing products really don't exist.

Its not typical supply and demand because the vast majority of that commodity is controlled by a monopolistic cartel. Another example of this is the diamond industry/Debeers.

- Drilling for more oil won't solve anything because the price per barrell is negotiated and supply is artificially limited. Again there is no real "competition" here at all.

I dont think this is true. If we can acquire a large amount of oil outside of the artificially raised price set by OPEC, it would effect the price of oil in real terms. It would depend on who 'controls' that operation.

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

The MAJORITY of Exxon's profits DO NOT come from selling gasoline at the pump. If this is still your perception of oil companies, your understanding of this subject is fundamentally flawed.

No liberals or conservative comments please. This is a nuetral discussion.

Good luck with that. :laugh:

[JMURedskins]

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

Doesn't the demand for oil being pretty inelastic have a lot to do with why the profits are skyrocketing? With chairs, if wood chair are going up in price, people can just go buy plastic chairs. With oil, as much as everyone says they try to cut down on the use, how much is the use really dropping as prices change? The demand seems to be just as high as ever, even though prices are skyrocketing.

[zoony]

In a bad economy, people put their $$$ in safe things, like housing. That's what happened when the Tech Bubble burst... people put their money into housing. It is historically among the safest investments.

Now that housing has **** the bed, people have turned to commodoties. I firmly believe that there is a commodities bubble going on right now, that is going to burst in probably a year or 2. Gold, Oil, Silver, Wheat, Food, etc... all at record highs. The reason I think is because so many investors world wide are purchasing commodoties b/c they think it is safe.

Sounds crazy, I know, but I bet in 2 years or so the price of Gas is back down below $2/gallon.

And please don't ask for any evidence or fact, I don't have any :laugh:

[Tweedr01]

In a bad economy, people put their $$$ in safe things, like housing. That's what happened when the Tech Bubble burst... people put their money into housing. It is historically among the safest investments.

Now that housing has **** the bed, people have turned to commodoties. I firmly believe that there is a commodities bubble going on right now, that is going to burst in probably a year or 2. Gold, Oil, Silver, Wheat, Food, etc... all at record highs. The reason I think is because so many investors world wide are purchasing commodoties b/c they think it is safe.

Sounds crazy, I know, but I bet in 2 years or so the price of Gas is back down below $2/gallon.

And please don't ask for any evidence or fact, I don't have any :laugh:

Dude I hope so, I don't even drive that much, but I have a truck and it sucks filling up.

[Mark The Homer]

There was a discussion on this last year at about this time. I believe what we concluded is the price of gas has more to do with oil futures and investors more than anything else.

[Destino]

I dont think this is true. If we can acquire a large amount of oil outside of the artificially raised price set by OPEC, it would effect the price of oil in real terms. It would depend on who 'controls' that operation.

Ok lets say we give PB control of all the oil in Alaska and remove you from OPEC. Where is the market pressure for you to reduce your prices if you can sell completely out at the full price caused by OPECs control? I don't see it. I understand competetion but with inelastic demand there is no pressure for oil producers to compete.

Now if US oil were nationalized and the prices of it given a ceiling within the US for the benefit of Americans... then I can see a major impact. If however left to the "free market" of global oil markets I see nothing driving the price down.

[PeterMP]

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

It makes perfect sense. The oil companies are essentially able to charge whatever they want for their product because we have no real choice so they charge enough for them to have record profits.

[PleaseBlitz]

In a bad economy, people put their $$$ in safe things, like housing. That's what happened when the Tech Bubble burst... people put their money into housing. It is historically among the safest investments.

Now that housing has **** the bed, people have turned to commodoties. I firmly believe that there is a commodities bubble going on right now, that is going to burst in probably a year or 2. Gold, Oil, Silver, Wheat, Food, etc... all at record highs. The reason I think is because so many investors world wide are purchasing commodoties b/c they think it is safe.

Sounds crazy, I know, but I bet in 2 years or so the price of Gas is back down below $2/gallon.

And please don't ask for any evidence or fact, I don't have any :laugh:

I dont buy that at all zoony. Global demand for oil is what is driving this. OPEC and the Saudi's in particular are restricting supply and China and India's demand for oil has EXPLODED over the past 10 years. Keep in mind that China and India have a combined population of 2 and a half BILLION people, roughly 8 times that of the US.

I dont know the exact figures off the top of my head, but i bet i could find them.

[Destino]

It makes perfect sense. The oil companies are essentially able to charge whatever they want for their product because we have no real choice so they charge enough for them to have record profits.

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

[zoony]

I dont buy that at all zoony. Global demand for oil is what is driving this. OPEC and the Saudi's in particular are restricting supply and China and India's demand for oil has EXPLODED over the past 10 years. Keep in mind that China and India have a combined population of 2 and a half BILLION people, roughly 8 times that of the US.

I dont know the exact figures off the top of my head, but i bet i could find them.

I don't deny that, but keep in mind that is EXACTLY what we were all told was driving up the cost of housing for so many years... an exploding population where supply could just not keep up with demand. :2cents:

[PleaseBlitz]

Ok lets say we give PB control of all the oil in Alaska and remove you from OPEC. Where is the market pressure for you to reduce your prices if you can sell completely out at the full price caused by OPECs control? I don't see it. I understand competetion but with inelastic demand there is no pressure for oil producers to compete.

What if the US government controlled it?

Now if US oil were nationalized and the prices of it given a ceiling within the US for the benefit of Americans... then I can see a major impact. If however left to the "free market" of global oil markets I see nothing driving the price down.

Yep. (I posted my first answer before reading your second paragraph )

Now, how about the rest of my post?

[JMURedskins]

There was a discussion on this last year at about this time. I believe what we concluded is the price of gas has more to do with oil futures and investors more than anything else.

I didn't see that thread, but I think that this is definitely it. I went to New York to the Commodities Market in High School and I think that I remember them talking about that. Also, I took a Theory of Public Choice class in college that went a little bit into the details more. My brain was fried from all of the classes that I took that semester and I don't remember all of the details.

[Smoot Point Really]

- Oil is not your typical supply and demand. Supply is controlled and regulated. Demand is rigid with no real alternative. Free market pressures, such as competition and competing products really don't exist.

Supply is controlled, but you could produce more supply by drilling in Alaska or drilling more offshore in the Gulf... The current supply is controlled, but that could change with fewer US restrictions on where drilling occurs. Demand is growing and there are no equivalent alternatives at this time. More US drilling, more US refineries, more methods of easy delivery (pipelines) would be a wise infrastructure investment...

- Drilling for more oil won't solve anything because the price per barrell is negotiated and supply is artificially limited. Again there is no real "competition" here at all.

It depends on where you drill and who does the drilling. BTW, it isn't just the price of oil that goes into what we pay at the pump. There are roughly 50 gallons of Gas (42 gallons of oil in a barrell, but then you add a bunch of additives to make Gas, not counting ethanol) in a barrel of oil. Oil "futures" are currently at around $130/barrel... That is $2.60... Each of those gas stations makes only a few pennies per gallon (at most). You are basically paying anywhere from 30-40% in refining, delivery, and tax... If you want to cut the cost of gas, you increase drilling, refining, delivery and reduce tax...

- Record profits don't make economic sense. If a man makes chairs and the price of wood triples and people start at least trying to buy less chairs logic would lead us to assume his profits would decrease. Exxon etc has seen crude prices sky rocket and yet their profits have done the same.

Again, if all they had to do was drill the oil and dump it into every gas tank... I'd agree with you. However, energy companies do more than that.

[PleaseBlitz]

I don't deny that, but keep in mind that is EXACTLY what we were all told was driving up the cost of housing for so many years... an exploding population where supply could just not keep up with demand. :2cents:

Ok, i see what you mean. I just dont think the same forces that caused the housing bubble to burst can effect oil, since housing is a durable good and oil is not.

[MDRedskinsFan]

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

It's a good idea, but to find those alternatives we need to consume more oil. My ultimate solution, is in the short-run, drill in ANWR and designate that oil supply strictly for defense industry and towards research for an alternative. That will lower our demand on OPEC oil, and help to drive prices back down. Long term, we will need alternative sources. Not saying to back out of oil completely, but we need options.

[PleaseBlitz]

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

I am in complete agreement and i am a huge proponent of the "energy Manhattan Project" or whatever you want to call it.

[DCsportsfan53]

I am in complete agreement and i am a huge proponent of the "energy Manhattan Project" or whatever you want to call it.

Definitely agree. That is the most important thing we could do. With worldwide demand seemingly rising exponentially, it's hard to see gas prices coming back down any time soon, if ever. I wholeheartedly believe in the ability of American ingenuity to find a solution and find alternatives, but it's going to take a national commitment and dedication of funds/resources to make it happen. Whoever the next President is, I only hope he has the foresight to make this a priority and to find a way to sell it to Congress and the American public.

[JMURedskins]

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

We definitely need to find an alternative energy source in order to put a downward pressure on oil prices. If not, the demand will remain extremely inelastic since we don't have an alternative choice that is readily available to the public.

[RedlightG20]

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

From a regular end-consumer's standpoint at the pump, do you think that once we find that magical alternative, we'll care about price of oil? I mean, I doubt that people who buy hydrogen-powered vehicles this year will be itching to get back to a gas-powered vehicle three years from now if gas prices drop. Once there's a viable alternative found, oil will be much less popular and my theory is that it will stay that way. It's a dead-end source of energy, and I'm thinking that this is why we're seeing the price slowly creep up. The end is near, and energy companies are cashing in while they can.

I remember reading a report in the late 1990s, maybe 1998, that outlined how much of the world's supply has been used to date. At that point the world had used upwards to 50% of its total oil supply. That was 10 years ago, and demand has never been higher than now. Those numbers may or may not be correct, I don't remember, but they are certainly believable, given that gas powered vehicles as we know them today have been in the mainstream since the early 1900s.

Sooner or later it's going to run out--we all know that. All the more reason to turn our focus on alternative energy and not how much we're currently paying at the pump. :2cents:

[Thiebear]

We should have all of it done:

Drilling in anwar, california, florida.

Refinaries that do 500x the efficiency.

Solar towers in Death valley

Wind towers on cliffs near the coast.

etc. etc. etc.

[frommd]

So then what we need is an alternative. Something we can choose other than oil. That would introduce at least some competition and create downward pressure on oil pricing.

I agree completely with this. The problem is it will take time to get a viable/cost-effective second option. In the meantime, I wish we could at least ease the restrictions on building new refineries. I believe some of the problem with supply, is not that there isn't enough oil, but that we can't refine it quickly enough.

[stevenaa]

In a bad economy, people put their $$$ in safe things, like housing. That's what happened when the Tech Bubble burst... people put their money into housing. It is historically among the safest investments.

Now that housing has **** the bed, people have turned to commodoties. I firmly believe that there is a commodities bubble going on right now, that is going to burst in probably a year or 2. Gold, Oil, Silver, Wheat, Food, etc... all at record highs. The reason I think is because so many investors world wide are purchasing commodoties b/c they think it is safe.

Sounds crazy, I know, but I bet in 2 years or so the price of Gas is back down below $2/gallon.

And please don't ask for any evidence or fact, I don't have any :laugh:

I agree. There was a great article in the Sunday Fort Worth Start Telegram outlining the cause of soaring fuel prices. It all comes down to the futures market. We are at a 20 year high for worldwide oil reserves. There is no shortage. This is all investment driven.