Oil - let's clear something up

[MSB 21]

Can someone work out the Exchange Rate on these numbers?

There seems to be quite a range to them. Is this pricing based on demand of the regions, or is the U.S. dollar that diversified?

http://money.cnn.com/pf/features/lists/global_gasprices/price.html

[CounterTrey75]

Honestly, this issue isn't important enough to me to argue further, but i'd just like to point out that your initial post (and the part of it I disagreed with) stated that this issue is "very simple".

Even if you disagree with Dr. Hamilton's conclusions (and the statistics behind them), it's fairly clear that at the very least, it's not "very simple" that rising oil is caused by falling dollars.

Agreed.

[DixieFlatline]

That's actually not true..... Oil company profits have doubled in times where crude oil prices have actually been stagnant.

The way oil companies can claim their expenses go up is not based on the price of crude, it's based on rising offshore costs which they control independent of the price of crude....

They raise refinery prices or transport fees and pass it along to the consumer and claim their prices go up. What they don't mention is they own the refineries and they own the transport companies.....

It's imposible for profits to go up 100% in one year as they did in 2000, and then have it happen again in 2002; with out some sort of collusion or anti compeditive practice.

http://www.wisgov.state.wi.us/docview.asp?docid=5490

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I admit, I haven't thought about them controlling the transport fees, refinery prices before, so that gives me something to think about. Althought with all the invesitgation Congress has given on this issue before, I wonder why that hasn't surfaced as a bigger issue (i.e. more widely known).

As for profit going up 100% being impossible, I would say while unlikely, its not impossible. I think you still need to talk in terms of profit margin or return on equity like your link does to have a better argument.

[jbooma]

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:

That might happen sooner then later because we are trying to make a deal with Brazil so we can leave OPEC

[praise_gibbs]

[JMS]

I admit, I haven't thought about them controlling the transport fees, refinery prices before, so that gives me something to think about. Althought with all the invesitgation Congress has given on this issue before, I wonder why that hasn't surfaced as a bigger issue (i.e. more widely known).

It's pretty simple. Over the passed six years the congress has been controlled by Republicans who have a libertarian streek. Libertarians and it seems Republicans don't believe monopolies are bad for the economy. Not software monopolies like Microsoft which was found in court to be a preditory monopoly just before clinton left office; and then Bush basically did not pursue the case after he got into office. Not oil companies either..

Truth be told I don't think the Republicans are inconsistant on this issue as they don't pursue the pharmasusical, insurance, healthcare, software, or oil companies.

As for profit going up 100% being impossible, I would say while unlikely, its not impossible. I think you still need to talk in terms of profit margin or return on equity like your link does to have a better argument.

I didn't say profit going up 100% was impossible. I said profit going up 100% one year and then going up 100% again a year latter was impossible without some sort of market subversion. Since 2002 when that occured big oil have set records in oil profits four years out of six.

[techboy]

Over the passed six years the congress has been controlled by Republicans who have a libertarian streek.

:laugh:

[twa]

That might happen sooner then later because we are trying to make a deal with Brazil so we can leave OPEC

Hope it works out better than the Venezuela deals did :laugh:

But it just might,besides Pemex is needing some expertise as well.

[Mark The Homer]

In today's Wash Post, first article at www.washingtonpost.com:

Confused about oil prices? So are the experts.

Executives from the giant oil companies say it's partly the fault of "speculators" or financial players. Key financial players say it's really a question of limited supply and expanding global demand. Some members of Congress accuse the Organization of the Petroleum Exporting Countries for bottling up some of its production capacity. And OPEC blames speculators, wasteful U.S. consumers and feckless U.S. policy.

Almost everyone points at China's growing appetite for fuel.

...

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/21/AR2008052100386.html?hpid=topnews

[Dictator]

This thread is full of contradiction.

I'm more confused now than I was before I entered this thread.

Thanks a lot everyone.

[The Sisko]

Honestly, this issue isn't important enough to me to argue further, but i'd just like to point out that your initial post (and the part of it I disagreed with) stated that this issue is "very simple".

Even if you disagree with Dr. Hamilton's conclusions (and the statistics behind them), it's fairly clear that at the very least, it's not "very simple" that rising oil is caused by falling dollars.

Now why did I just accept this guy's analysis when I made this point a few months ago and you posted the same link? Maybe Dr. Hamilton had just posted that and there weren't comments at that point. Or, more likely I just missed them. Regardless, trying to figure this one out makes my head hurt so I'll have to agree with the final consensus that it's not so simple a concept after all.

[twa]

This thread is full of contradiction.

I'm more confused now than I was before I entered this thread.

Thanks a lot everyone.

There is good reason for that,as there is no one cause or simple explanation.

Start with the basics of types of oil and who has control of it,then look at proven reserves vs potential,then move to production and shipping/transport,then to the limited types of oil that can be used in many refineries.

Then add in our peculiar blending and formulation requirements in different areas,then let's look a the switch from MTBE to ethanol(btw,why is there no outcry over the price of ethanol which is heavily subsidized?),then add in the fed mandate for increased use of ethanol in the future.

[The Sisko]

And, this just in from the WSJ. Looks like it is about consumption and lack of supply/production capacity after all.

Energy Watchdog Warns Of Oil-Production Crunch

The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.

The Paris-based International Energy Agency is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude supplies could be far tighter than previously thought.

A pessimistic supply outlook from the IEA could further rattle an oil market that already has seen crude prices rocket over $130 a barrel, double what they were a year ago. U.S. benchmark crude broke a record for the fourth day in a row, rising 3.3% Wednesday to close at $133.17 a barrel on the New York Mercantile Exchange.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The decision to rigorously survey supply -- instead of just demand, as in the past -- reflects an increasing fear within the agency and elsewhere that oil-producing regions aren't on track to meet future needs.

"The oil investments required may be much, much higher than what people assume," said Fatih Birol, the IEA's chief economist and the leader of the study, in an interview with The Wall Street Journal. "This is a dangerous situation."

The agency's forecasts are widely followed by the industry, Wall Street and the big oil-consuming countries that fund its work.

The IEA monitors energy markets for the world's 26 most-advanced economies, including the U.S., Japan and all of Europe. It acts as a counterweight in the market to the views of the Organization of Petroleum Exporting Countries. The IEA's endorsement of a crimped supply scenario likely will be interpreted by the cartel as yet another call to pump more oil -- a call it will have a difficult time answering. Last week, the Saudis gave President Bush a lukewarm response to his plea for more oil, saying they were already adding 300,000 barrels a day to the market, an announcement that did nothing to cool prices.

At the same time, the IEA's conclusions likely will be seized on by advocates of expanded drilling in prohibited areas like the U.S. outer continental shelf or the Alaska National Wildlife Refuge.

The IEA, employing a team of 25 analysts, is trying to shed light on some of the industry's best-kept secrets by assessing the health of major fields scattered from Venezuela and Mexico to Saudi Arabia, Kuwait and Iraq. The fields supply over two-thirds of daily world production.

The findings won't be definitive. Big producers including Venezuela, Iran and China aren't cooperating, and others like Saudi Arabia typically treat the detailed production data of individual fields as closely guarded state secrets, so it's not clear how specific their contributions will be. To try to compensate, the IEA will use computer modeling to make estimates. It will also collect information gathered by IHS Inc., a major data and analysis provider based in Colorado, as well as the U.S. Geologic Survey, a smattering of oil and oil-service companies, and national petroleum councils.

Supply-Side Gloom

But the direction of the IEA's work echoes the gathering supply-side gloom articulated by some Big Oil executives in recent months. A growing number of people in the industry are endorsing a version of the "peak-oil" theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.

Goldman Sachs grabbed headlines recently with a forecast saying that oil could top $140 a barrel this summer and could average $200 a barrel next year. Prices that high would add to the inflationary pressures weighing on the world economy and to the woes of fuel-sensitive industries such as airlines and autos.

The IEA's study marks a big change in the agency's efforts to peer into the future. In the past, the IEA focused mainly on assessing future demand, and then looked at how much non-OPEC countries were likely to produce to meet that demand. Any gap, it was assumed, would then be met by big OPEC producers such as Saudi Arabia, Iran or Kuwait.

But the IEA's pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC's spare capacity could shrink "to minimal levels by 2012." In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand. The current IEA work aims to tally the range of investments and projects under way to boost production from the fields in question to get a clearer sense of what to expect in production flows.

"This is very important, because the IEA is treated as the world's only serious independent guardian of energy data and forecasts," says Edward Morse, chief energy economist at Lehman Brothers. Examining the state of the world's big oil fields could prod their owners into unaccustomed transparency, he says.

Some critics of the IEA, while praising its new study, say a revision in the agency's long-term forecasting is long overdue. The agency has failed to anticipate many of the big energy developments in recent years, such as the surge in Chinese demand in 2004 and this year's skyrocketing prices. "The IEA is always conflicted by political pressures," says Chris Skrebowski, a London-based oil analyst who keeps his own database on big petroleum projects and is pessimistic about supply. "In this case I think they want to make as incontrovertible as possible the fact that we are facing a real crunch."

Full article here

[Dictator]

(btw,why is there no outcry over the price of ethanol which is heavily subsidized?),

Probably because that $ goes to american farmers not oil barrens in the middle east and south america.

[The Sisko]

btw,why is there no outcry over the price of ethanol which is heavily subsidized?,then add in the fed mandate for increased use of ethanol in the future.

...unless you're a poor person in a developing country and the subsidization of products like corn that were formerly only used for food is causing you to go hungry. There's plenty of crying out going on there.

[Tulane Skins Fan]

Forgetting the fact where the profits come from, why can't the oil executives in america trim some of their profits to lower gas prices? (I understand no business wants to do this too). But, whether they come from futures, or transportation, or whatever, they are making hand over fist. So, they have all this money... can't they take a hit somewhere else in their books? That is, can't they keep gas prices lower, even if they lose some money in that part of their books?

[Mark The Homer]

How come the independent stations' gas is generally cheaper than Exxon, Shell, etc? Is there a reason for that?

[The Sisko]

I understand your point TSF. However, try to understand that any CEO has a fiduciary responsibility to his/her shareholders. That means the shareholders are going to be really pissed if a CEO decides to do intentionally do something that diminishes profits. I don't think the SEC would be too thrilled either.

As long as you're not competing illegally, you're supposed to make as much money as you can. That's the American/capitalist way. It's up to the worldwide consumer market decrease consumption in order to compensate for rising prices.

[The Sisko]

How come the independent stations' gas is generally cheaper than Exxon, Shell, etc? Is there a reason for that?

The discount business model used to be that they'd buy excess production and sell at a bit of a discount to the big guys. However, as supplies tighten, there isn't as much of that and their prices end up being much the same as everyone else's.

[Dictator]

Forgetting the fact where the profits come from, why can't the oil executives in america trim some of their profits to lower gas prices? (I understand no business wants to do this too). But, whether they come from futures, or transportation, or whatever, they are making hand over fist. So, they have all this money... can't they take a hit somewhere else in their books? That is, can't they keep gas prices lower, even if they lose some money in that part of their books?

OR,

couldn't people just try to consume less?Using less energy at home will help to lower oil prices since power plants do run on oil as well. Drive less. walk more.

It's up to the consumers.

I used to be upset that the CEOs are pulling in so much money, but who am I to say what's too much for them to make. I guarantee that triming their salaries or bonus' wouldn't create much if any relief in gasoline prices.

If the company as a whole wanted to take a $1b hit on their books and cut the costs of a gallon of gas, how much do you think it'll actually help? a penny? a nickle?

[Tulane Skins Fan]

OR,

couldn't people just try to consume less?Using less energy at home will help to lower oil prices since power plants do run on oil as well. Drive less. walk more.

It's up to the consumers.

I used to be upset that the CEOs are pulling in so much money, but who am I to say what's too much for them to make. I guarantee that triming their salaries or bonus' wouldn't create much if any relief in gasoline prices.

If the company as a whole wanted to take a $1b hit on their books and cut the costs of a gallon of gas, how much do you think it'll actually help? a penny? a nickle?

I understand your point TSF. However, try to understand that any CEO has a fiduciary responsibility to his/her shareholders. That means the shareholders are going to be really pissed if a CEO decides to do intentionally do something that diminishes profits. I don't think the SEC would be too thrilled either.

As long as you're not competing illegally, you're supposed to make as much money as you can. That's the American/capitalist way. It's up to the worldwide consumer market decrease consumption in order to compensate for rising prices.

I know you guys are right about how business works, etc., but that is why we need to start regulating the oil industry, in some way. Basically right now, the suppliers are regulating the hell out of it, and sticking it to us because we won't do anything about it.

Also, sign me up: www.gm-volt.com

[twa]

Probably because that $ goes to american farmers not oil barrens in the middle east and south america.

You might be right,but why is that thinking not applied to domestic oil exploration?...I believe we send about a trillion dollars a year overseas for oil.

Kind of a double whammy(especially when you look at what countries benefit)

There was some interesting numbers (for the uninformed)put out in the testimony to congress

http://www.powerlineblog.com/archives2/2008/05/020571.php

Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States, 90 percent were purchased from others.

..

Exxon Mobil is the largest U.S. oil and gas company, but we account for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, we rank 14th. Government-owned national oil companies dominate the top spots. For an American company to succeed in this competitive landscape and go head to head with huge government-backed national oil companies, it needs financial strength and scale to execute massive complex energy projects requiring enormous long-term investments.

To simply maintain our current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day.

..

According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.

..

While all oil-importing nations buy oil at global prices, some, notably India and China, subsidize the cost of oil products to their nation's consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure a competitive advantage relative to other nations.

Meanwhile, in the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.

..