Why $120 oil is good

Please explain how demand is greater than supply when simple logic dictatest that if there was a shortage of supply, then there would not be a continuous stream of oil available regardless of what price was charged per barrel. In other words, if you don't have the product to deliver because demand is outpacing supply, then there would be a shortage of product on the open market.. What is drastically wrong with articles like the one in the link is that there has been no disruption of supply. You just have to pay more for it. It is called greed!!! Also known as the outrageous profits the oil companies are raking in. All these types of articles tend to do is insult your intelligence by trying to somehow legitimize getting screwed!!! I think the people writing these articles are on the oil companies payroll.. Nice try but I am not swallowing this Kool Aide...

 

The oil companies are greedy. What a surprise. The only way to bring down the price is to consume less of it. Otherwise consider participating in the free market. I personally enjoy BP, XOM, USO, UGA.

 

Hi!

I agree with you (rkskeet) in the point that the so called shortage of oil is rubbish. But see the world´s POLITICIANS - they have all the scientists they need, and right now each single one of them is telling them the same thing about the world climate. And do they even bend a knee? NO!

When you ask PEOPLE, everyone cares "so much" about the environment, but when it comes to what is standing in their garages you see how much they really care - NO ONE GIVES A SH...!

And now "they´ve" found something new: the OIL COMPANIES start increasing the prices and all of a sudden people start to buy fuel efficient cars and feign to be so environmentally friendly. (I´m one of them)

What I said two years ago is becoming true: We will always pay the same price for a full tank when only the technologies keep developing. (Today my tank takes 45 Liters and I pay € 60,- to fill it - in 7 years hopefully the whole tank of Prius IV may take only 15 Liters but I still will have to pay € 60,-.)

It´s called EVOLUTION - accommodate (prius) or die out (SUV)!

kr
wogue

 

Yep, there will always be folks that somehow imagine the entire center of the earth is a gigantic oily filled nouget, never to run low in OUR life time, even while geologists who know better continue to warn us ... ever since the 1950's. You want to 'not-believe' ... well there you go.
Too bad ~ if you'd ever taken a simple class in economics, you'd understand the principal of supply & demand. As long as you're willing to pay for stuff, you CAN get it. If supply goes down enough, you WILL pay more . . . and more. Some don't get it. You don't WANT to wait until you CAN'T get it ... you want to find another product to supplant the scarce one. Yes, oil companies will profit, just like food sellers made big profits in Alaska during the gold rush, because food was in short supply.

The answer is not, "It's simply oil company greed" ... the greed is just a sub-issue of the MAIN issue, which is that we ARE running low, and the world will soon have to pay the price for foot dragging onto a different 'way'. Do the math: ... we don't build new refineries any more, in the U.S. for a reason ... namely, because there isn't enough production to make new refineries worth the expense. There are less & less wells being drilled. There aren't enough new discoveries to even make up for the old pools coming off line. It's crunch time. The era of virtually free fuel, and the goo that we make everything out of, is almost over. Yes, the oilies are playing the system ... making a lot of dough. But if the countries that we import from ever cut us off (because we import over 1/2 the enery we need now), we'd go under BIG time. We imported less the 15% in the 70's and when that tiny part was cut off? Maybe you don't remember. It wasn't pretty, but we didn't learn 3 decades ago, and we still aren't learning.

 

Everybody is quick to go after the oil companies, nobody ever says the word OPEC, which is a cartel that sets the PRICE and SUPPLY. High oil prices are bad since they effect not only the price of gas and diesel but many other products that use petroleum. And yes large cars whill go away based on the high prices.

 

OPEC does not set the price of oil. What OPEC can do is set the supply of oil to global market that comes from their members. That is, if they could keep their member countries from cheating and overproducing, which they have never been able to do. OPEC member countries only control 40% of the worlds oil production. They can effect the price but no more than a non-OPEC country such as the US or Russia. (Saudi Arabia is #1, Russia is #2, and the US is #3 in oil production btw)

The PRICE of oil is set by global commodity traders. Oil is traded on the open market and goes to the highest bidder. That is why even though the majority of the oil that the US consumes comes from the US, Canada, and Mexico we are effected by an oil worker strike in Scotland or a pipeline attack in Nigeria. When that oil stops flowing, the buyers need to get a new supply. They turn to the global market and start bidding. If the UK will pay more for a barrel of oil that the US, then US and Canadian producers start loading tankers and sending their oil to the UK. Money talks! Now when the US as a country runs out of money to buy all the oil that we want, that is when you would see a shortage of supply.

This is no different than global commodities such as corn and rice that have seen price spikes in the last couple of months. Rice in the US may cost more but we still have it. Some poor countries that rely on rice to feed their populations can't pay and don't get enough to feed their populations. Prices spike and the poor riot. You can look at the Philippines among others for examples.

 

Define "greedy". Is an 8% profit, a 9% profit, a 20% profit?? Is any company that makes a profit "greedy"?? Who, and I mean anyone, has the right to decide how much you should charge for a commodity or good you produce and make available on a free market? The government (are they less greedy ;-))? Your neighbor, your friend??? The only group that has a right to decide how much you charge or make is the general public buying your goods or services. And when it comes to fuel, their is no shortage of consumers willing to pay $3.50 and up US/gallon. So why should they (oil companies and such) charge less? That would be an incredibly stupid business model resulting in less profits and a fleeing of investors and shareholders which make nearly all large companies possible. They, as any other well run company, simply charge what the market will bear. And the market, despite the pre election media pundits, handily pays $3.50/gallon and up for fuel.

Burritos, I have read your posts and you are the epitome of preaching absolute government control in all aspects or our lives. You simply do not understand free market economics and constantly preach solutions and arguments which consistently subscribe to "having your cake and eating it too".

If you had the keys to Exxon for a day, please enlighten us on how you would reduce the price of fuel significantly and at the same time maintain cash liquidity by keeping you investors and shareholders aboard.

Rick
#4 2006

 

The demand curve for gasoline by the USA has demonstrated itself to be pretty inelastic until gas reached the $4 level. Only now at the $4/gallon level are people looking for substitutes (public transportation, car pooling) or driving less. Given a perfectly inelastic demand curve, a drop in supply (inward shift of supply curve) results in a big change in equilibrium price but a small change in quantity demanded, which is exactly what we've see up to now (demand outstripping supply). Supply "keeping up" with demand would be both supply and demand curves shifting outward, with the result being an increase in equilibrium quantity and just a small change in price.

The increase in price of a barrel of oil is having some unintended and undesirable (at least by environmentalists and those who believe we must reduce greenhouse gases) side-effects. Previously unprofitable (at $40/bbl) oil wells are being now being restarted, and other sources of oil that require expensive extraction (shale, etc.) are being considered.

I have been saying the same thing for years. I believe the oil companies realize a new refinery will not produce sufficient ROI to choose it over alternate investments due to the inability to operate the new refinery for enough years, at sufficient capacity, to produce the profits that would make it the superior capital investment. Every time I say this, Republicans claim the lack of new refineries is due to treehuggers and NIMBY. But these are the same people who think drilling in ANWR would solve our dependency on foreign oil.

 

Unless I missed it, Burritos suggested here that using less of it is the only solution - not gov't intervention.

Understanding it is one thing. Realizing that we don't have anything even CLOSE to a free market is a whole 'nuther thing. There are precious few examples of true "free markets." Oil sure as hell isn't one of them.

 

That ranking was true for 2006.
Energy Information Administration - International Energy Data and Analysis World Energy statistics from 1980 to 2006

In 2007 it looks like Russia overtook Saudi Arabia for the #1 slot.
http://www.spe.org/spe-site/spe/spe/jpt/2008/05/2Indices.pdf
If you go down the list a little further you find...
#4 Iran
#5 China

OK. So now, keeping in mind that:
- We consume way more than we produce, and
- We get along so great (NOT) with all other major oil producing nations, and
- We are probably the best in the world at developing and commercializing new technologies.

Why is it that we are still pouring that crap into internal combustion engines to propel ourselves around? Something is really out of whack here. Now's the time to do something about this insanity.

 

OK he is a way to explain supply and demand.

I am sure you have all heard of that "Special Must Have" object for Christmas. There is a limited supply of this item and almost everyone wants it. You buy one for regular price at the store but your neighbor says that they are willing to buy it from you for triple... so you sell it.

If we use 20 million barrels of crude a day and the US only produces 6 million they we have to purchase it elsewhere. Oil prices are traded on the open market using the dollar and since the dollar is in the toilet then they charge twice (or more). The demand is more then just the US.. it is also coming from CHINA and INDIA.

The reason there are not building more refineries is because no one wants one in their back yard. They are then force to try and make them more efficient, but you can only do so much.

 

Not just expensive, but dirty. Extracting oil from the Alberta tar sands requires burning a lot of oil.

 

Simple supply and demand for beginners.
Supplier (of petrol) sets a price.
If you don't like the price (of petrol) stop buying it.

As you can see the power is in the hands of the consumer.

 

Actually natural gas is used, but still bad. Canada's CO2 emissions are way over their planned numbers because of this practice. Also developing the tar sands requires a lot of water and digs up land. In the U.S. coal gasification is much the same - mountaintop removal is mindblowing in it's destructiveness, yet somehow it never makes the news. But some kid dies in a tragic accident and suddenly everybody is afraid to venture outdoors after hearing about it over and over.

Well said. It's the poor countries that are suffering shortages, but that doesn't make our news.

Have to partially disagree here. Actually refineries have been expanded over time. No new ones built, because of NIMBY activists, but the existing ones have more production. Currently, our refineries are running at 85% capacity, and gasoline inventories are above last year's levels, yet prices are still high. Why? Cost of the raw product.


Consider these under-reported nuggets:
* Russia's production has apparently peaked, although it's a little early to be sure. Mexico has definitely peaked. Venezuela's conventional oil supply has peaked, but they have a lot of heavy crude (more expensive to refine).
* Brazil's big finds (however much it really is) won't come online for a decade, by which time it will only replace declining stocks elsewhere. Still, buy stock in Brazilian companies, their economy will do well going forward.
* The King of Saudi Arabia has announced their production rate will not be increased after next year, to preserve some wealth for their children (smartest move from that region I've seen in awhile).
* Iran says they expect to see $200/barrel in the not-distant future
* Goldman-Sachs (respected U.S. investment firm) also says we can expect oil prices at $150-$200 within two years. They've been pretty accurate so far, if anything too conservative. If the price of the raw material doubles, it's pretty obvious what happens to all of the derived materials, including fertilizer, diesel fuel for tractors, jet fuel, home heating oil, etc.

We're not going to run out of oil anytime soon, but it will continue to increase in price like this. We're nearing the peak of oil production, when the demand line and the production line separate, and soon oil production will irreversibly decline. Electric vehicles are coming to market, but only because of pain. If the government had been proactive, much pain (most of it still to come) could have been prevented.

 

OK, hypothetical question, opinions welcome:

Assume that oil hits $200 per barrel in the next 12 months (most analysts are predicting this anyway) and that a gallon of gasoline in the USA reaches $7.

How will the US economy cope, compared to a more efficient, less fossil-fuel dependent economy such as France (which has mainly nuclear power and a low fuel consumption vehicle fleet)?

Given the hugely inefficient infrastructure and vehicle fleet in the USA, is it not likely that American companies will soon find it very hard to compete with companies from more efficient countries?
Would that plunge the dollar even lower?
Would a recession not be inevitable if families can't afford to spend in the shops when all of their cash is going to fuel and food costs?

 

we are already seeing the benefits of high oil prices. mass transit ridership across the country has increased 5% (in well established systems like New York and Chicago) to 38% in smaller areas with recent expansion like Florida and North Carolina.

several articles portraying people who wrestled with the "loss of freedom" but are now happy with their decisions because of less stress driving in rush hour traffic, better use of their time with wireless internet on a laptop, and the ability to take the money they save on gas and parking fees to pay other escalating bills.

that will only continue to rise. for years, most concluded that we would not give up our cars... well, its now apparent that a certain percentage is willing, and we have not really seen real increases in gas prices yet. wait till this summer...

but higher prices will speed up the introduction of better mass transit options, EV's, etc... change has always been a constant, but has been painfully slow in the transportation field. only a few pioneers with small steps like the Prius is all we have had for decades. i think the changes in the next 3 years will outnumber the changes in the past 100 years...

 

Fuel prices traditionally go up most at the beginning of the northern winter as heating oil and other energy demands increase.

 

The U.S. hasn't seen 'hard-times' for over 60 years, when during WWII we had rationing ... gas / sugar / coupons etc. We fear the unknown especially when we've had it so good (compared to most of the world's civil unrest). If $120 crude prices are good, is $200 / $400 / $800 even better? It mean we all have to change / get out of our comfort zone / bite the bullet / do things different.

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