China. The gas price scapegoats!

[Tmy]

I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!!

[aerocontrols]

Originally posted by Tmy
I dont buy this whole "Chinas economy driving the gas prices up" bull flop.


I've never even heard it. Where did you hear it?

[Ziggurat]

Originally posted by Tmy
I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!!

I can't say what exactly is causing the increase, but are you aware of the idea of elastic versus inelastic demand? It's entirely possible for a small rise in demand to translate into a huge price increase.

But if you think it's bad for us, it's worse for them:
http://gatewaypundit.blogspot.com/2005/08/china-facing-gas-crisis.html
http://photos1.blogger.com/blogger/7050/620/1600/china gas2.jpg

[WildCat]

China's oil consumption: (http://money.cnn.com/2005/08/11/news/international/china_iea.reut/)
Oil demand is now expected to increase by about 4.9 percent this year, down from a rapid 15 percent last year.

Expectations that China will draw in much more of the world's fuel to feed its expanding industries has contributed to a relentless rise in oil prices in the past two years.

"Demand is still strong within China but growth was exceptionally strong last year. That year-on-year growth is narrower is not a surprise," said Lawrence Eagles, head of the IEA's markets division. At the start of this year, the IEA was forecasting China's oil demand would grow 5.7 percent.
If output stays the same (and OPEC isn't increasing it) and demand increases, prices must rise as stockpiles dwindle.

Basic economics, Tmy.

[Manny]

They're not "scapegoats" and it's not a "conspiracy." It's just math and Econ 101.

China had been growing their oil consumption at about 7.5% per year (as opposed to ~1% in the US). Then BAM! China's growth in oil demand increased by 11 percent in 2003 and over 15 percent in 2004 (the US, recovering from recession, went to the +2 - +2.5% range). Basically, China is moving from a bicycle economy to a car economy. Nothing conspiratorial about it or wrong with it. It just is. That kind of growth is outstripping growth in worldwide production, as China is a net importer of oil (so all of their demand growth hits the world markets, not just some of it). When demand increases faster than supply, prices go up.

There might be some good news, at least in the short term, for oil prices. China's demand actually decreased in the second quarter. Some of that is doubtless slower growth (again, nothing wrong with that -- economies just can't grow at 9% year after year after year). But there might be other reasons.

For one, China might also have been stockpiling. They're pretty savvy at doing that in other commodities, so there's no reason to think they might not have done it with oil except that we haven't found the tank farms yet (or at least the gummit hasn't told us about it). If they're drawing down stocks, that could help oil prices in the short term; more importantly, if they were stockpiling previously that means that their end-demand never got as high as the totally unsubstainable levels of '03 and '04. It should be noted that this is a minority view.

Another possibility is that China is completing more coal-fired electricity plants. Oil is not a material source of energy for electricty here, but it is in China. Making more coal plants would reduce oil demand (and be smart, as China actually has coal, whereas it doesn't have enough oil). They're definitely doing some of this, there are debates as to how much and how it might affect global oil demand going forward.

There's a lot of other stuff going on, but I'll just let you chew on that for a little while.

[Manny]

Hey, you bastids! Stop with the pithy posts capturing all my big points while I write my thesis! ;)

[CapelDodger]

Originally posted by aerocontrols
I've never even heard it. Where did you hear it? Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand. Along with other such things as turmoil in the Middle East and - for some unfathomable reason - lack of refinery capacity.

It's all about elasticity.

I used to "pump gas" as a holiday job. During the first oil-crisis, 73-74, queues could form on a rumour, and we'd have to limit sales or run out before we could get re-supplied. The policy was account-customers and regulars only, two gallons each. Administered by Mike and me. The money people would pay for an extra gallon or two ... those were happy days. Fist-fights on the forecourt weren't unknown, but we didn't have a police presence to keep order, just a couple of big spanner-wielding guys from the workshop.

Anecdote ends.

[Tmy]

Originally posted by WildCat
China's oil consumption: (http://money.cnn.com/2005/08/11/news/international/china_iea.reut/)

If output stays the same (and OPEC isn't increasing it) and demand increases, prices must rise as stockpiles dwindle.

Basic economics, Tmy.

Econ 101.

Raise prices and profits drop. But that aint happening. The oil companies are racking it in.

And since when does a 6-9 % increase in demand cause an 80% price increase??? Seems a little quick and exterme.

As for OPEC. Isnt Iraq shippingout more oil than since the war started.-

[Tmy]

Originally posted by CapelDodger
Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand..

Yeah. Even I knew that. And I dont even read the news. I get all my info from political cartoons!:p

[CapelDodger]

Originally posted by manny
There's a lot of other stuff going on, but I'll just let you chew on that for a little while. I've noticed a few comments from China about their inefficient use of oil, about twice the per-unit of GDP of the US. If they start addressing that seriously, and they wouldn't be talking about it otherwise IMO, that could put a brake on the oil-price over the next five years.

[CapelDodger]

Originally posted by Tmy
Econ 101.

Raise prices and profits drop.Only if prices are raised above the optimum. Or lowered below the optimum. The optimum value is subject to change.

[aerocontrols]

Originally posted by CapelDodger
Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand. Along with other such things as turmoil in the Middle East and - for some unfathomable reason - lack of refinery capacity.

Not a cave, but I guess I've not paid any attention to the story. I guess my instincts were correct, since your (3 or more) reasons that every context piece mentions would tend to answer Tmy's objection - no, China's growing economy isn't the scapegoat for an 80% increase in prices, it's one of a multitude of reasons for an 80% increase in prices.

It's not hard for me to fathom why a lack of refinery capacity would drive gasoline prices up.

[WildCat]

Originally posted by Tmy
Econ 101.

Raise prices and profits drop. But that aint happening. The oil companies are racking it in.

And since when does a 6-9 % increase in demand cause an 80% price increase??? Seems a little quick and exterme.

As for OPEC. Isnt Iraq shippingout more oil than since the war started.-
You never actually took ECON 101, did you?

Prices rise to find an equilibrium between supply and demand, profits are not even in the equation.

Of course profits are going to rise big time, with prices so high oil fields that were marginal before now are profitable. They're probably turning on pumps that have sat still for years because their output wasn't enough to offset costs before, but are now.

[Tmy]

I tool Econ 101 and 150!!!!!!


Heres a factor for ya!!. PRICE FIXING!!! Everytime theres a little rain in the gulf they instantly raise prices cause "tankers are delayed...ect."

What a crock. The same tank of gas can change price 3x a week. Just by sitting there.

[Manny]

Originally posted by Tmy
Econ 101.

Raise prices and profits drop. Um, what's the word I'm looking for. Begins with an "n," just two letters.

Profits drop if realized prices decrease or if they increase more slowly than input costs. The largest portions of an oil company's costs are in exploration or acquisition of oil in the ground -- finding costs. Once they've paid that, it's fixed (subject to financing, but interest rates are low, yada yada yada). So as realized prices increase oil companies can abosorb increased costs for the inputs necessary to get the oil out of the ground and still see profits increase.

What about refiners? Well, that's a demand thing. Demand in the US has been going up faster than refining capacity has increased. It's true that China isn't much of that (though it's some, as both we and they import some finished product). Refining margins have been increasing as prices rise whereas they normally decline because of a separate supply/demand dynamic. And that increase is magnified in some local markets because of local (as opposed to nationwide) refining capacity shortages and/or gas formulation regulations which create shortages which might not otherwise exist. But that's a relatively low portion of the increase in gasoline prices. The big story is crude, and China is a big part of that.

[WildCat]

Originally posted by aerocontrols
It's not hard for me to fathom why a lack of refinery capacity would drive gasoline prices up.
What is hard to fathom is that politicians keep talking about ANWR, gas taxes, more exploration, etc but nobody seems to be talking about adding a few refineries, or mandating a national fuel standard so there's only a few grades of gasoline produced instead of the many (I think it's at least 50) designer blends we have now.

[Tmy]

Well golly. I am so wrong. After all oil has NEVER been the subject of market manipulation. Or did you all skip that chapter in Econ 101. :p

I have a questions. After oil is refined into gas, does it get exported? Or does that gas stay in the states.

[WildCat]

Originally posted by Tmy
I tool Econ 101 and 150!!!!!!


Heres a factor for ya!!. PRICE FIXING!!! Everytime theres a little rain in the gulf they instantly raise prices cause "tankers are delayed...ect."

What a crock. The same tank of gas can change price 3x a week. Just by sitting there.
No wonder there's so much teacher burnout. :p

Just how does one go about fixing prices in a publicly traded, fungible commodity?

[WildCat]

Originally posted by Tmy
Well golly. I am so wrong. After all oil has NEVER been the subject of market manipulation. Or did you all skip that chapter in Econ 101. :p
OPEC tries to control supply, that's not the same as price fixing.

I have a questions. After oil is refined into gas, does it get exported? Or does that gas stay in the states.
I don't know, I wouldn't doubt if some US refineries sell to Canada and vice-versa. It's not really relevant to oil prices though.

[Tmy]

Originally posted by WildCat
No wonder there's so much teacher burnout. :p

Just how does one go about fixing prices in a publicly traded, fungible commodity?

Com on guys. How about a little critical thinking. There are conpiracies everywhere. Limiting the Iraqi output, freaking out the futures market, distracting public outrage, the return of Lee Iococa, THE FREEMASONS!!!! The answers are there.

.......oh no, I think Ive said too much.

[Manny]

Do you actually believe any of the garbage you post? Because right now I'm seriously considering an intentional Rule 8 violation with malice aforethought.

[NoviceCrackPot]

Some might argue that the price has been held down artificially. The Saudis were fearful that high prices would bring on alternatives, so they used their enormous reserves to keep prices low. Others would say they kept it low to keep the US happy, figuring that this would help protect them from bad guys like Sadam who I believe bullied Kuwait and possibly Saudis and others into help paying for his war against Iran.

That’s all ancient history now. The legendary Saudi reserves are now widely believed to be impotent. (see Matt Simon’s Book “Twighlight in the Desert� http://www.amazon.com/exec/obidos/ASIN/047173876X/qid=1124408756/sr=2-1/ref=pd_bbs_b_2_1/102-7992827-8677735)

Having a lot of oil does not mean you can pump it out as fast as you want. The total production base has become so large, that it’s become near impossible to add on enough new production to offset declines in old fields. This is called “Hubbert’s Peak�, it’s been predicted to occur for many years around 2006 or so.

There’s no conspiracy. The refinery issue works this way: Now that production is nearly maxed out, inferior oil has to be used in suddenly increasing quantities. The inferior oil requires extra capital investment to refine that cannot be brought on line quickly. This puts a premium on the higher grades of oil which are the types which get quoted.

Some have argued that Hubbert’s Peak does not apply to the world as a whole, perhaps we get a plateau instead as oil sands and various liquification schemes, and possibly expensive new oil exploration schemes are devised. These require time and high prices to bring on line.

[The Central Scrutinizer]

Originally posted by Tmy
I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

You better buy it, because it is true.

Originally posted by Tmy
You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!!

From what I hear, gas is now $2.00 a gallon. So you are saying that 3 years ago gas was $1.10? I don't seem to recall that.

[hazyandconfused]

Originally posted by manny

What about refiners? Well, that's a demand thing. Demand in the US has been going up faster than refining capacity has increased. It's true that China isn't much of that (though it's some, as both we and they import some finished product). Refining margins have been increasing as prices rise whereas they normally decline because of a separate supply/demand dynamic. And that increase is magnified in some local markets because of local (as opposed to nationwide) refining capacity shortages and/or gas formulation regulations which create shortages which might not otherwise exist. But that's a relatively low portion of the increase in gasoline prices. The big story is crude, and China is a big part of that.

Of course they haven't been increasing refinery capacity. In 1980, there were over 300 oil refineries. Then the price of oil collapsed and companies complained of "too much capacity." So, they closed refineries. Do a google search for "oil refinery closing" and you will find news reports of a number of closed refineries and they all claim "too much capacity."

Oil companies like to blame environmental regulations, but that is just a convenient excuse. These refineries were basically compliant and the congressmen in the area fought like hell to keep them open. Jobs always overcome the environment in congressmen priorities.

Now that oil and gas prices have risen through the roof and they have record profits -- notice they have no intentions of building new refineries. Bush talks about it, but I haven't seen any reports from the oil industry hailing the idea.

Here are a few links to get you started:
http://wyden.senate.gov/leg_issues/reports/wyden_oil_report.pdf
http://www.winfieldcourier.com/w050716/Thurs2.html
http://www.eyeforenergy.com/news.asp?id=319
http://www.bizjournals.com/eastbay/stories/2003/11/10/daily32.html
http://www.arkcity.net/stories/071305/com_0001.shtml

[Ryokan]

Well, here's some thoughts from a Norwegian, a citizen of the third largest oil exporting country in the world :

THANK YOU! Thank you, thank you, thank you to all consumers of oil products!

We guys are just sitting here, enjoying our hydropower and watching the cash roll in! Yeeeha! Our country has saved up TWO TIMES what our national yearly budget is, and still the cash is rolling in!

THANK YOU! Keep burning that oil!

Of course, our gas prices are around 7 USD a gallon, so we all smirk a little about the Americans complaining when their gas costs less than a third of what ours does.

I just take the bus :)

[CapelDodger]

Originally posted by aerocontrols
It's not hard for me to fathom why a lack of refinery capacity would drive gasoline prices up. My bad : I was thinking of references I've seen to this driving up the crude-oil price.

[WildCat]

Originally posted by Ryokan
Well, here's some thoughts from a Norwegian, a citizen of the third largest oil exporting country in the world :

THANK YOU! Thank you, thank you, thank you to all consumers of oil products!

We guys are just sitting here, enjoying our hydropower and watching the cash roll in! Yeeeha! Our country has saved up TWO TIMES what our national yearly budget is, and still the cash is rolling in!

THANK YOU! Keep burning that oil!

Of course, our gas prices are around 7 USD a gallon, so we all smirk a little about the Americans complaining when their gas costs less than a third of what ours does.

I just take the bus :)
And when that runs out, you'll still have reindeer! ;)

[Tmy]

Originally posted by The Central Scrutinizer
You better buy it, because it is true.



From what I hear, gas is now $2.00 a gallon. So you are saying that 3 years ago gas was $1.10? I don't seem to recall that.

$2.00! I wish!! Last I filled up it was $2.59 for the cheap stuff.

Heres my beef. You have a commodity, within 3-5 yrs the price of said commodity has nearly doubled!!! In an econ 101 mindset you would think that there was some catastrophe that affected the market to cause such inflation. (ie a hurricane hits citrus country causeing orananges to increase in price). While there has been minor events, theres no big bang. Thats what bugs me.

At the same time you have the oil companies making incredible profits, an oil barron president, a big oil nation under new control. The whole situtation makes me suspicious.

[CapelDodger]

Originally posted by Tmy
Heres my beef. You have a commodity, within 3-5 yrs the price of said commodity has nearly doubled!!! In an econ 101 mindset you would think that there was some catastrophe that affected the market to cause such inflation. (ie a hurricane hits citrus country causeing orananges to increase in price). While there has been minor events, theres no big bang. Thats what bugs me.The concept of Peak Oil has been discussed on this forum and reached no concensus, but there is a consensus wthin the oil-producing and oil-buying community. That consensus is unemotional and it accepts the Peak Oil argument. The major event has been the tipping point where everybody in the trade realised that there was a concensus. Where the big buyers were trying not to make waves and stay below the trend, now they're into getting ahead of the trend and buying everybody else out of the pot. Meanwhile the consumer is getting educated about the new reality.

[CapelDodger]

Originally posted by Ryokan
Well, here's some thoughts from a Norwegian, a citizen of the third largest oil exporting country in the world :

THANK YOU! Thank you, thank you, thank you to all consumers of oil products!

We guys are just sitting here, enjoying our hydropower and watching the cash roll in! Yeeeha! Our country has saved up TWO TIMES what our national yearly budget is, and still the cash is rolling in!

THANK YOU! Keep burning that oil!
Don't get too smug, payback for Lindisfarne is still pending. Is Norway keeping the cash in dollars, Euros, or what? Something tells me it's not dollars. The Chinese have control of the trigger in that game.

[The Central Scrutinizer]

Originally posted by Tmy
$2.00! I wish!! Last I filled up it was $2.59 for the cheap stuff.

Maybe instead of obsessing over the price of gas, you should get a life.

Originally posted by Tmy
Heres my beef. You have a commodity, within 3-5 yrs the price of said commodity has nearly doubled!!! In an econ 101 mindset you would think that there was some catastrophe that affected the market to cause such inflation. (ie a hurricane hits citrus country causeing orananges to increase in price). While there has been minor events, theres no big bang. Thats what bugs me.

At the same time you have the oil companies making incredible profits, an oil barron president, a big oil nation under new control. The whole situtation makes me suspicious.

There are places in the country where the price of new homes has doubled in the last 5 years. And yet, strangly, you don't bitch about a conspiracy amongst home builders.

Why?

[WildCat]

Originally posted by The Central Scrutinizer
There are places in the country where the price of new homes has doubled in the last 5 years. And yet, strangly, you don't bitch about a conspiracy amongst home builders.

Why?
Because he doesn't want to "accidentally" end up in the foundation of a new home outside Boston. ;)

[Ladewig]

deleted by poster

[Tmy]

Originally posted by The Central Scrutinizer
Maybe instead of obsessing over the price of gas, you should get a life.



There are places in the country where the price of new homes has doubled in the last 5 years. And yet, strangly, you don't bitch about a conspiracy amongst home builders.

Why?

I cant get a life cause I cant afford to drive anywhere.

As for homes. More price fixing!!! But soon their uppance will come.

[SlippyToad]

Originally posted by The Central Scrutinizer
You better buy it, because it is true.



From what I hear, gas is now $2.00 a gallon. So you are saying that 3 years ago gas was $1.10? I don't seem to recall that. 3 years ago people got upset when gas went up to $1.60. Just before the Iraq war, I paid about $15 to fill up my 10-gallon tank. Now it's $2.69. I pay almost $30 to fill up my 10-gallon tank. Where is "the white zone" that you don't know these things?

[Tmy]

Originally posted by SlippyToad
3 years ago people got upset when gas went up to $1.60. Just before the Iraq war, I paid about $15 to fill up my 10-gallon tank. Now it's $2.69. I pay almost $30 to fill up my 10-gallon tank. Where is "the white zone" that you don't know these things?

Maybe if he had a life he'd know the price of gas. Hmmm Im thinking CS might really be GW Bush in real life!!

[CapelDodger]

Originally posted by Tmy
You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!! Conspiracy, you say ...

I was doing some work for the oil industry during the mid-80's oil-crisis. Efficiency changes after the oil-shocks of the 70's were kicking in, the North Sea was coming on-stream bigtime, there was major over-supply and prices were down and heading inexorably south. Faces were long, glumness abounded, projects were being cancelled or pared back. Reagan's people were shutting down their nodding-donkeys because they weren't paying their way. The Soviets were hurting. Then, in 1986, Chernobyl popped its top and it was smiles all round in the oil industry.

I'm just saying. :con2:

[The Central Scrutinizer]

Originally posted by SlippyToad
3 years ago people got upset when gas went up to $1.60. Just before the Iraq war, I paid about $15 to fill up my 10-gallon tank. Now it's $2.69. I pay almost $30 to fill up my 10-gallon tank. Where is "the white zone" that you don't know these things?

I guess I have more interesting things to think about than how much gas costs. I also couldn't tell you the price of a gallon of milk or a loaf of bread.

[Regnad Kcin]

Originally posted by Tmy
...Hmmm Im thinking CS might really be GW Bush in real life!! Nope, but he is the poster known as American.

[Tmy]

Thought Id bring this thread back from the dead. Considering the latest news on how Exxon and the other oil villians brought in record breaking profits last quarter.

Loot a TV after a hurricane and get shot on sight. Loot the entire nation after a national disaster and thats "good business."

[Iamme]

I've never even heard it. Where did you hear it?

The likes of Exxon and Shell are driving it up. THAT'S who. They made $10b and $9b respectively, in the last (3rd) qtr.!!!! A QUARTER!!!!! That's the most made by any one corporation...EVER!

Sure we all know that they had to pay more per barrel. But still...how do you account for the billions made unless they are jacking up costs at the pump? Ehhhhhh?

[Tmy]

Well Im sure the econ 101 supply/demand lemmings will let us know!

[CapelDodger]

Sure we all know that they had to pay more per barrel. But still...how do you account for the billions made unless they are jacking up costs at the pump? Ehhhhhh?If you have a vertically integrated company, pumping its own oil, you make profit down the whole line. In the UK, when prices are high, you often hear Big Oil saying "We're hardly making any profit at the pump", which is true since they make it at the wholesale level.

[Manny]

Sure we all know that they had to pay more per barrel. It suddenly occurs to me that you don't know where oil comes from. When they say on the news that oil costs, say, $60 per barrel, what does that mean? Does that mean that the operator of an oilfield has to spend $60 to get a barrel of oil out of the ground and delivered to, say, Houston? Or does it mean something else? What do you think "price of oil" means to a producer like Shell or Exxon?

[Iamme]

It suddenly occurs to me that you don't know where oil comes from. When they say on the news that oil costs, say, $60 per barrel, what does that mean? Does that mean that the operator of an oilfield has to spend $60 to get a barrel of oil out of the ground and delivered to, say, Houston? Or does it mean something else? What do you think "price of oil" means to a producer like Shell or Exxon?

Huh? I know that oil don't come from barrels. But when you hear on the news that the cost of a barrel soared from $46 a barrel to $60 a barrel in a week, the price must be to who has to pay for it, and that could be the oil companies. Frankly, I don't care to spit hairs as to what the actual cost is. You just explain to me how, if oil is costing so bloody much for us to get our hands on, that the oil companies are making that kind of profit...all of a sudden.

[Manny]

Aha. OK.

Because the price of oil to the oil companies only went up a little bit. They don't buy crude oil at $46 or $60 a barrel, they sell it at that price.

Let's take a smaller oil company which doesn't do it's own refining or marketing. Here's something they might do. First, they look for places where they think there's oil. They'll do seismic stuff, they'll test drill, whatever. This comes out to be around $3-$5 per barrel of oil which they eventually find, on average. It doesn't change much according to the price of oil. Then they'll lease some land where they think they've found theoil. Doesn't matter where -- Gulf of Mexico, Texas, Nigeria, whatever. They'll pay a price for that. Maybe it's a fixed cost, but more usually it's a price per barrel. Not much of a price per barrel. Say, a buck or so. Generally it's fixed, but even when it's variable there are caps and floors. Then they'll spend money to get the oil out of the ground. This can vary a lot according to how hard it is to get at the oil. But here's the important part -- it doesn't vary very much according to the price of oil. Only a little bit. Say it takes them $5 or so to get the oil out and another two bucks to clean it up and ship it to somewhere where someone actually wants the oil.

OK? So we've got $3-5 to find the stuff, another buck to get rights to it, another five bucks to lift it out of the ground and two more to get it to a central place. That's $11-13 per barrel that it cost them. If oil shoots up, that cost might go up, but only to maybe $17/barrel (in fact, I've never seen it that high) no matter how pricey oil gets. If prices come down, that price might come down too, but again only by a little. Say to $9/barrel. So if oil is eight bucks the oil company is SOL (in this example, other companies have lower costs) and everything above $15 or so is pure profit.

In other words, the oil companies make money when oil is high because they, wait for it, sell oil. As others have said, if they're integrated (which is to say they've got their own refineries and pumping stations and chemical plants) they've got more opportunities to make (or lose) money down the line. Right now, things favor crude producers and refiners and work against chemical manufacturers and filling stations. Guys like Exxon are happy and making money because they're in all of those things and the sum of them is very good right now.

[Scott]

I have a questions. After oil is refined into gas, does it get exported? Or does that gas stay in the states.

"In 2003, United States refineries produced over 90 percent of the gasoline used in the United States. Although the United States is the world’s third largest crude oil producer, less than 40 percent of the crude oil used by U.S. refineries was produced in the United States. Net petroleum imports (imports minus exports) account for 56 percent of our total petroleum consumption. About 50 percent of our petroleum imports are from countries in the Western Hemisphere, with 20 percent from the Persian Gulf, and 15 percent from Africa and 15 percent from other regions"

http://www.eia.doe.gov/neic/brochure/gas04/gasoline.htm

[American]

We can afford a higher price than China. Conceptually, we buy first (which sets the price), then they buy as much as they can afford at that price.

RESULT: every drop of "conservation" that happens here helps to keep the price down, which then enables China to buy more (meaning the price never really drops at all, and the Chinese can burn/develop even more -- and without all the lefty greens who pester us on this side of the world).

[merphie]

From my understanding the oil companies made a fortune during the price hike and the government is getting ready to investigate them for price gouging.

I heard on the local news they are looking into Exxon and a couple of others.

[The Central Scrutinizer]

Loot a TV after a hurricane and get shot on sight. Loot the entire nation after a national disaster and thats "good business."

The oil companies didn't "loot" me. Therefore, there is no crime.

[American]

From my understanding the oil companies made a fortune during the price hike and the government is getting ready to investigate them for price gouging.

Google is doing absurdly well.

The lack of political exploitation is telling. Let's demand inquiries!

[merphie]

Google is doing absurdly well.

The lack of political exploitation is telling. Let's demand inquiries!

So by your sarcasm I assume you disagree they should pay if they artificially raised prices?

[American]

... I assume you disagree they should pay if they artificially raised prices?

I am really unconcerned with Google, as should be demagogues with Exxon.

[Manny]

Oh, now that's just not true at all. Look, Exxon itself came out of a trust which fixed prices and has gathered much of the constituent companies back together. The oil business is characterized by an extremely large cartel which attempts to fix prices and oil finds in some of the most corrupt countries in the world.

That persons who don't understand the oil business make baseless accusations against companies against Exxon does not mean that they should not be scrutinized or that it's not possible that they are engaged in illegal and/or unethical practices which have the effect of exacerbating or prolonging the price runup we've seen.

[American]

That persons who don't understand the oil business make baseless accusations against companies against Exxon does not mean that they should not be scrutinized or that it's not possible that they are engaged in illegal and/or unethical practices which have the effect of exacerbating or prolonging the price runup we've seen.

I concur.

Average Industry Earnings (cents/sales dollar)
2nd Quarter, 2005 (source; Business Week & Oil Daily)

Banks 19.6
Pharmaceuticals 18.6
Software & Services 17.0
Semiconductors 14.6
Household & Personal Products 11.3
Insurance 10.7
Telecommunication Services 9.6
Food, Beverage, & Tobacco 9.4
Real Estate 8.9
Health Care 8.3
U.S. Industry Average...7.9
Oil & Natural Gas 7.7
Technology Hardware 7.2
Consumable Durables & Apparel 6.6
Utilities 5.7
Media 4.6
Retailing 4.2
Transportation 2.2
Automobiles 1.1


Though you won't see hearings on banks, pharmaceuticals, software & services, semiconductors, household & personal products, insurance, telecommunication services, food beverage & tobacco, real estate, health care, nor an average U.S. industry of any sort unless they happen to offend... THE EASILY OFFENDED.

[Iamme]

Aha. OK.

Because the price of oil to the oil companies only went up a little bit. They don't buy crude oil at $46 or $60 a barrel, they sell it at that price.

Let's take a smaller oil company which doesn't do it's own refining or marketing. Here's something they might do. First, they look for places where they think there's oil. They'll do seismic stuff, they'll test drill, whatever. This comes out to be around $3-$5 per barrel of oil which they eventually find, on average. It doesn't change much according to the price of oil. Then they'll lease some land where they think they've found theoil. Doesn't matter where -- Gulf of Mexico, Texas, Nigeria, whatever. They'll pay a price for that. Maybe it's a fixed cost, but more usually it's a price per barrel. Not much of a price per barrel. Say, a buck or so. Generally it's fixed, but even when it's variable there are caps and floors. Then they'll spend money to get the oil out of the ground. This can vary a lot according to how hard it is to get at the oil. But here's the important part -- it doesn't vary very much according to the price of oil. Only a little bit. Say it takes them $5 or so to get the oil out and another two bucks to clean it up and ship it to somewhere where someone actually wants the oil.

OK? So we've got $3-5 to find the stuff, another buck to get rights to it, another five bucks to lift it out of the ground and two more to get it to a central place. That's $11-13 per barrel that it cost them. If oil shoots up, that cost might go up, but only to maybe $17/barrel (in fact, I've never seen it that high) no matter how pricey oil gets. If prices come down, that price might come down too, but again only by a little. Say to $9/barrel. So if oil is eight bucks the oil company is SOL (in this example, other companies have lower costs) and everything above $15 or so is pure profit.

In other words, the oil companies make money when oil is high because they, wait for it, sell oil. As others have said, if they're integrated (which is to say they've got their own refineries and pumping stations and chemical plants) they've got more opportunities to make (or lose) money down the line. Right now, things favor crude producers and refiners and work against chemical manufacturers and filling stations. Guys like Exxon are happy and making money because they're in all of those things and the sum of them is very good right now.

Are you sure?

I follow all your costs per barrel for DOMESTIC oil. Your figures may very well be true. But what WE are talking about here is oil from the Arab Emirate States. We supposedly take OUR oil (Alaskan oil) and sell it to like Japan for a big profit. Then, our oil companies, now being short of domestic oil, have to get on their hands and knees and beg the sheiks for mercy to let us have some for under $50 a barrel. And I always thought that when the news says the cost of a barrel went up to (say a ridiculous number like..) $60 a barrel, I always thought that meant the oil companies are paying Prince Rahul Sabbi-Ur Bali Hamarukah [ :) ] this kind of money.

So...just what kind of figure on the price per barrel ARE we paying those yahoos over there?

[Iamme]

I concur.

Average Industry Earnings (cents/sales dollar)
2nd Quarter, 2005 (source; Business Week & Oil Daily)

Banks 19.6
Pharmaceuticals 18.6
Software & Services 17.0
Semiconductors 14.6
Household & Personal Products 11.3
Insurance 10.7
Telecommunication Services 9.6
Food, Beverage, & Tobacco 9.4
Real Estate 8.9
Health Care 8.3
U.S. Industry Average...7.9
Oil & Natural Gas 7.7
Technology Hardware 7.2
Consumable Durables & Apparel 6.6
Utilities 5.7
Media 4.6
Retailing 4.2
Transportation 2.2
Automobiles 1.1


Though you won't see hearings on banks, pharmaceuticals, software & services, semiconductors, household & personal products, insurance, telecommunication services, food beverage & tobacco, real estate, health care, nor an average U.S. industry of any sort unless they happen to offend... THE EASILY OFFENDED.

What do cents/dollar figures prove? iI one company has revenues in the billions, while some sucker mfg. company has sales in the measely millions, let's say, but has patented the Willy stinker-winker flying lollipop...perhaps they entiled to a .33/$1 share and STILL will *only* earn $3m let's say. But with the oil companies whose figures on evey level are in multi millions and billions, then they can afford to earn less per dollar sales, and still be hitting us up pretty hard.

I guess what I'm really getting at here is in trying to figure out what dollar sales have to do with entitling a company to a certain percent of those dollar sales, in all instances. It starts making a company look pretty greedy if they are dealing in a commodity everyone NEEDS and when you add up millions of sales times millions of cents profit, each, you come up with cents totaling in the mega millions...and I can't necessarily see the justification between such revenues and earnings, quite frankly. But I CAN for some company doing fewer sales who is selling something that is revolutionary/life-saving/etc. That company NEEDS to earn more per dollar, to afford R & D, etc.

[CapelDodger]

Oh, now that's just not true at all. Look, Exxon itself came out of a trust which fixed prices and has gathered much of the constituent companies back together. The oil business is characterized by an extremely large cartel which attempts to fix prices and oil finds in some of the most corrupt countries in the world.Quite. Most oil production feeds directly into that cartel, who make money all the way up to the retail point. The oil-price as we know it is determined by the spot-market, a relatively small market where relatively small changes in demand can have a large effect. (Relative to the whole market, of course.)

IMO, the pinch-point in the system is refining capacity. There's not much independent refining capacity about. Which, funnily enough, was where Rockefeller first honed his monopolist skills back in the SO day. Then he cannily moved on to transport, which was rail-based, but in these days of road transport that's too competitive a market.

[American]

What do cents/dollar figures prove?

Nothing. Let's not talk about anything anymore. Let's sit here and peck at our computers randomly. Here, I'll start:

f ae u r&67 7878 u ((+++novvv68v