Oil Price: Easy Target, but Not the Right One

[mjd1001]

So now we know: it’s all the fault of those damnable speculators. They’re the ones to blame as the price of oil tops $140 a barrel.

It’s not our government’s fault for failing to come up with a credible energy policy — that can’t be it. Nor is the problem the weak dollar, or the voracious energy appetite of the Chinese, or those pesky rebels in Nigeria who are trying to blow up their country’s oil pipelines. And it’s certainly not the fault of you and me for driving gas-guzzling S.U.V.’s. It has to be those speculators. They are the only villains in sight.

And what about all those commodities, like coal or barley or sulfur, that don’t trade on any futures market but have risen as fast as or faster than oil? Or how about the recent decline in cash flows into many commodity funds — why have prices kept going up if the money has stopped pouring into those funds? My speculator friends tell me that in the last two weeks, trading volumes have been cut in half. Indeed, what I hear is that much of the speculative money that remains in the market is betting against higher oil prices.

In fact, I’d be willing to go a step further. Even if you eliminated speculation entirely, the price of oil wouldn’t fall. Thankfully, no one is proposing to go that far (though Senator Lieberman was toying with the idea), because even members of Congress understand that futures markets serve a crucial purpose. They help companies hedge their oil prices, and they help energy companies manage their risk, for starters.

The energy speculators I spoke to say that Congress has it exactly backward: the futures market is actually taking its cues from the physical market, where the buyers and sellers of oil do their business. Last week, the Saudis promised to produce an extra 200,000 barrels a day. But it is pricing that oil so high that oil companies are balking at paying for it. The Saudis didn’t arrive at their price by looking to the futures market — but if they get that price, it will certainly affect the futures market.

Full article here: http://www.nytimes.com/2008/06/28/bu...2&ref=business

[smith7629]

Trucks and SUV's from the 1960's, 1970's and 1980's got anywhere from 8 to 13 mpg with 3 speed autos. Today they get upwards of 20 with a heck of lot better emmisions. Someday we'll have 35mpg SUV's and trucks and they'll get labeled "gas guzzling" too because the cars are getting 50mpg. What is the appropriate mpg to appease the suburbanite family haters? So what happens if we all switch to driving 35mpg cars and we consume less fuel? Do you really think the oil companies and suppliers will keep the same outputs and let the price and profits fall? I have a feeling we'll just be at their mercy no matter how much we cut back. The answer lies with energy indepenence and energy diversity.

[osv_alero]

Originally Posted by smith7629

Trucks and SUV's from the 1960's, 1970's and 1980's got anywhere from 8 to 13 mpg with 3 speed autos. Today they get upwards of 20 with a heck of lot better emmisions. Someday we'll have 35mpg SUV's and trucks and they'll get labeled "gas guzzling" too because the cars are getting 50mpg. What is the appropriate mpg to appease the suburbanite family haters? So what happens if we all switch to driving 35mpg cars and we consume less fuel? Do you really think the oil companies and suppliers will keep the same outputs and let the price and profits fall? I have a feeling we'll just be at their mercy no matter how much we cut back. The answer lies with energy indepenence and energy diversity.

Though I do like the idea of improving our fuel consumption, I do agree with you. Even if we all drove 50+mpg vehicles, the oil companies would still find a way to make even more profits.

[tgunnd39]

Well, it took the author nearly 80% of the available text to make the point: 'we don't have enough oil!'

Who didn't see that one coming?! And in response I say, of course we don't, we aren't availing ourselves of every opportunity to extract the oil necessary to fulfill the world wide need for this resource. Beyond the politics here, it is really all about supply and demand. And please, all of the conservationst's stop and think about this point before you attack:

If we were talking about food, and about millions of people going without it or not having enough, would we not exploit every available means of producing food that we could? And would we not use every available technological resource at our disposal to produce that food? Of course we would. And that is my point. We are not doing enough, both in the extraction of oil and in the move to wean ourselves off of it, to alleviate the problems we now face as a result of sky-rocketing oil prices.

When we take a two pronged approach, which is what I have been advocating in various other posts that touch on this subject, rather than a 'this or that' tack, then we stand a better chance of solving and or eliminating this and other problems.

Until we get beyond the politics and the demonizing we will continue to feel the pressure of escalating oil prices. And this will hurt all of us, not just the other guy.

My .02

[smith7629]

Is there any proof that supply is an issue? Has anyone gone to the gas station and seen signs "Sold Out"? Think about it, if anyone in the U.S. needs to buy gas right now, they can...its available. So I really wonder if producing more oil will help the issue.

[Stewie007]

There is more to it than just supply and demand. Supply and demand alone doesn't account for a 140% increase in a commodity. There are a lot of other governing factors that the press pays attention to only one at a time in an exaggerated manner.

[fan]

Well, US should at least have the extraction capability in place to allow it to manage the price of oil. In tough times use all the capacity; in good times use 10% of it.
So, when tensions occur somewhere in the world make use of the extra extraction capacity for a few months\ a year till the problem is settled, avoiding 9$\gallon prices for 3 tensioned months which would artificially send the country into a recession. This would also make it harder for others to use oil blackmailing.

[YupYupYup]

Originally Posted by smith7629

Is there any proof that supply is an issue? Has anyone gone to the gas station and seen signs "Sold Out"? Think about it, if anyone in the U.S. needs to buy gas right now, they can...its available. So I really wonder if producing more oil will help the issue.

You forgot about the other side of the equation -- DEMAND. If people are willing to buy it at a "high" price, then anyone in their right mind would sell it at that. If you had a garage sale and someone offered you $1,000 for your old 13" tv, would you take it? Exactly. So do not blame the oil companies, because someday they will be out of oil to sell and who will be there for all the employees who lose their jobs as a result?

People might complain, but they are not changing their driving habits. Obviously they feel it must be still a good value, or they would stop buying it. People need to stop bitching about the "massive, huge, gigantic oil companies" and start changing their habits. All talk, no action.

[jbartley]

there's plenty of supply. and yes oil companies are making record GROSS profits, their NET profit is only still 7-10%...hardly something i'd call excessive.

it's the market speculation.

[GM-Joe]

All of the things listed in the NYTimes column does lead to higher oil prices. A combination of a weak dollar, huge trade deficit, developing countries consumption, and of course future speculation. As with anything in economic theory, price is set to the amount of demand. So to fix those 4 things above, the U.S. would have to set up as an exporter of electric or alternative energy autos to the rest of the world and thus this would raise the strength of the dollar, eliminate the trade deficit, govern developing countries oil consumption and this would in fact traumatically shrink the price for U.S. consumers; but of course the U.S. government, nor the other governments of the world would allow this to happen.

[MonaroSS]

There is another way for prices to rise that does not rely on speculation and can even defeat speculation, if the article is true that most are now speculating a fall in price.

Price-fixing.

[cmutt]

Originally Posted by jbartley

there's plenty of supply. and yes oil companies are making record GROSS profits, their NET profit is only still 7-10%...hardly something i'd call excessive.

it's the market speculation.

I disagree completely. 7-10% is outrageously expensive for a volume-based industry. In comparison, Walmart (our nation's largest retailer) makes 2% net. In comparison, our oil firms make 4-5 times that amount. Exxon Mobil is the most profitable company in the ENTIRE WORLD. Sound excessive yet? Worse yet, everything we consume uses oil. Think of the transportation costs and what fuel prices do to our costs of every good and service purchased. These oil firms, through their $billion$ of profit have put a wet blanket on our economy and we all suffer for it. Lastly: I work for an accounting company. When an company reports x% profit, you can better believe that what is being reported is 'what remains after everything else has been hidden and sheltered.' You might be able to safely inflate any companies profit-margin by a factor of 1.5-2.0, depending on how good their accountants are -- and just seeing the size of these oil companies, my bet is that they can afford the very best of accountants.

[armycam68]

We are in trouble. The fight for natural resources is on. Our President should take the bull by the horns and invade the Middle East and take all the oil. Why should those people have it. Why play games with those half-humans over there? Our oil companies have the right to the profits not some guy in the Middle East. I think we should scare the hell out of the American populace with high rices and inflation so that it would make more sense to attack, attack, attack!

Oh...........I guess that's what we "are" doing...............

Gas-up...it will be all ours soon!

[tgunnd39]

Originally Posted by cmutt

I disagree completely. 7-10% is outrageously expensive for a volume-based industry. In comparison, Walmart (our nation's largest retailer) makes 2% net. In comparison, our oil firms make 4-5 times that amount. Exxon Mobil is the most profitable company in the ENTIRE WORLD. Sound excessive yet? Worse yet, everything we consume uses oil. Think of the transportation costs and what fuel prices do to our costs of every good and service purchased. These oil firms, through their $billion$ of profit have put a wet blanket on our economy and we all suffer for it. Lastly: I work for an accounting company. When an company reports x% profit, you can better believe that what is being reported is 'what remains after everything else has been hidden and sheltered.' You might be able to safely inflate any companies profit-margin by a factor of 1.5-2.0, depending on how good their accountants are -- and just seeing the size of these oil companies, my bet is that they can afford the very best of accountants.

I just love it when those in the 'know' attempt to tell others what is acceptable and what is not, particularly in the areas of profit. I own and operate a successful business and my profit margin is 22%. Is that excessive? Quite frankly I don't care whether anyone thinks it is or isn't. It's my business and in this country, (we are still a capitalist nation are we not,or did I miss something?!), I have every right to generate whatever profits the market will bear. If you choose not to assist me in generating those profits by buying my product, then so be it. The same applies to any business concern.

The oil companies are convenient scapegoats right now because they are in the forefront of the news and as this article points out, scapegoats are the first thing we turn to when the true cause of the problem is ourselves.

So stop crowing about the 'horrendous profits' the oil companies make. Until and unless making a profit is suddenly outlawed, (watch out, that may be right around the corner!), then any solvent business is expected to make it; its the system!

[smith7629]

Originally Posted by YupYupYup

You forgot about the other side of the equation -- DEMAND. If people are willing to buy it at a "high" price, then anyone in their right mind would sell it at that. If you had a garage sale and someone offered you $1,000 for your old 13" tv, would you take it? Exactly. So do not blame the oil companies, because someday they will be out of oil to sell and who will be there for all the employees who lose their jobs as a result?

People might complain, but they are not changing their driving habits. Obviously they feel it must be still a good value, or they would stop buying it. People need to stop bitching about the "massive, huge, gigantic oil companies" and start changing their habits. All talk, no action.

No, not forgetting anything here. I was merely commenting with regards to the train of thought that pumping more would ease our problems. Very recently, Saudi agreed to put more oil on the market and within a week it jumped another $10/barrel. I think we can all agree that there is way more to factor here than just supply and demand. By the way, what makes you think no one is changing their driving habits? Any data to back that up?