Aces High Bulletin Board
General Forums => The O' Club => Topic started by: BTW on June 09, 2008, 09:41:48 PM
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If oil companies pass along their refining expenses, their employee expenses, their oil expenses, and even their tax expenses to the consumer, why wouldn't they pass on Obama's windfall profit tax? Would they say "oh, this meant to help the consumer so we will eat the expense"?
Why wouldn't gas go from $4 a gallon to $4 + windfall profit tax a gallon?
This is the idiocy you get when Obama actually says something other than platitudes.
http://www.reuters.com/article/topNews/idUSWAT00963020080609
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Ah yes, the liberal solution to EVERYTHING, tax the profits.
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There is a limit to everything, even the air. If you continue to tax and reduce it the ability to make advances or increases in anything will diminish. Taking from some to spread to the masses didn't work for the Russians or the Chinese, it won't work here. Dem's have seen the funding for the govt. increase when taxes were drawn down yet the only solution is more taxes as far as they are concerned.
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This is what you get when 80% of our elected officials are LAWYERS, and their only time ever spent in the private sector was in a law firm, playing a legal version of Robin Hood. They really haven't an effing clue about economics, and I think libs, beyond that, refuse to acknowledge the existence of the law of supply and demand
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How stupid can one get... the cost of all taxes are always passed down to the end-user
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Or ya get this....
http://www.foxnews.com/story/0,2933,364743,00.html
Now THIS is the very type of thing we should all be thankful for .......don't ya think?
I mean come on...losing 4 million so people don't lose thier jobs...payrolls of 250,000.00 for a month....for "Sub-Par" service even? We should all be mad that we don't lose another few million of our dollars so that they can keep it run by themselves.
what a frikin crock.
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How stupid can one get... the cost of all taxes are always passed down to the end-user
Thats about it. I just wonder who feeds on that rhetoric. In highly competitive industries, taxes can cut into profits which succeeds in depressing the industry. But the US oil industry is NOT highly competitive. Any tax will be passed fully to the consumer. Obama speaks idiocy.
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Right idea. Wrong target.
The oil companies arent the problem.
Its the commodities speculators artificially manipulating the prices that need to be reigned in.
Im all for free trade. But I recognise that in some cases. Some degree of regulations are needed on vital items.
You cant just let people run amuk and do what basically amounts to extorting money out of people because they can on something they HAVE to have.
Gas and heating oil isnt like Ice cream. where if you dont like the price for Bryars this week Edys may be cheaper.
And if it isnt. You just dont buy it because really its not something you absolutely have to have.
This is something we HAVE to have.
Not to mention a higher prie permiates itself into every aspect of our lives by not only causing us to pay more for it at the pump. but also in the goods. and some of the other vital goods we consums. thus squeezing the people from both ends.
"Of the people. By the People. and For the People"
Isnt just forbig business. the very wealthy or those who stand to gain the most from a particular item.
Its also for the general good and welfare of ALL the people. The country as a whole.
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Correct. Consider this. In the last 12 months, the cost of oil per barrel has more than DOUBLED. However, the demand for oil has not doubled, or increased even 10%. Nor has the amount of oil being pumped and sold DECREASED. So, while supply and demand has NOT changed radically, the price has. Two things can cause that, speculation and regulation (regulation includes taxation). Well, the speculators, being unregulated, have more than doubled the cost of oil for us. So the response by the regulators (Congress) is a proposal to increase TAXES. On the producers. Makes perfect sense.
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I cant take it!
(said while running for cover)
Obama is a socialist and a closet communist!
there i said it! Blaa!
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Raise your hand if you actually believe that the monies gathered from a windfall profits tax on the oil companies would be paid directly back to the consumers....
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It's all lip service. Honestly people, have any of you actually listened to politicians and compared what they say to what they actually do?
He, and every other politician running for something, is simply going to say what they are told "we" want to hear.
It is what politicians/lawyers do. Yet, for the life of me I cannot figure out why we keep on voting them into power. I guess we are collectively a bunch of idiots. Politicians treat us that way, so it must be true.
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Correct. Consider this. In the last 12 months, the cost of oil per barrel has more than DOUBLED. However, the demand for oil has not doubled, or increased even 10%. Nor has the amount of oil being pumped and sold DECREASED.
Oil production has not increased. Demand is increasing.
There are 3 main variables in the oil market. Production, consumption, price.
You can't consume more than is produced (in the long term, anyway). If production is fixed, and consumption increasing, then the price has to rise to keep consumption down.
Consider that all the oil being produced is being used, with the price at $120+ per barrel. How much more oil would we be using if the price was $65 a barrel? Where would that extra oil be coming from if production is not increasing?
There's nothing artificial about the oil price, although speculation will always produce narrow price swings around the true, consumption/production driven price. If speculation was causing an unnaturally high price then consumption would have reduced and oil stockpiles would be increasing. They aren't, so all the oil being produced is being consumed at $120 a barrel.
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gas sales in a US have dropped 5% in the last year.
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In what alternate dimension, john?
This time last year I was paying just under $3.00/gal, MAYBE just over. Now I'm paying nearly $4.00, in the Midwest where prices are generally lower.
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The hole we have fallen into is one we dug ourselves. High gasoline and energy prices stem from, as has been said already:
1. What amounts to almost a moratorium on drilling in the Gulf and along the continental shelf.
2. A moratorium on drilling on the North Slope of Alaska.
3. Opposition to the development of nuclear energy.
4. Opposition to the building of new refineries.
5. An increasing dependence on foreign suppliers of oil, due mainly to 1, 2, and 3.
6. Urban families that feel a need to purchase massive SUVs to commute down interstates to work and various social functions.
7. A tendency of U.S. automakers to design vehicles at least 25% heavier than they need to be.
8. Homes (gaudy McMansions) that are at least 50% larger than they have to be and that are build with no thought toward utilizing modern energy-saving technologies.
9. A refusal of many drivers to drive at more sedate speeds in order to conserve fuel.
And that's just to start.
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Ah yes, the liberal solution to EVERYTHING, tax the profits.
Such as the Voting Rights Act.
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shuckins.. the first five things you mention are all because of democrats and they are the important reasons we are in this mess.. not to mention an increase in worldwide demand.
The last items are self regulating and no ones business but the people involved.
If osamabama taxes the oil companies more then we will feel the price increase at the pumps and all we will have accomplished is to build a bigger government.. maybe a plan to give cell phones to needy negros in harlem...
lazs
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Well Lasz, the last items are indeed related to self-regulation. As a people, we can ignore the consequences of our decisions for only so long, and no more. This proves my point, we are caught in a cleft stick of our own cutting.
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no problem with that.. I am just pointing out that the things we as individuals can do.. we will do based on how important those things are to us..
the things the democrats are doing to us... we can't seem to stop. And they are the real reasons for our problems. They are the things causing the needless pain and simply piling on.
lazs
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In what alternate dimension, john?
This time last year I was paying just under $3.00/gal, MAYBE just over. Now I'm paying nearly $4.00, in the Midwest where prices are generally lower.
He said gas sales, not the price of gas.
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they are trying to turn this into a class envy issue like they do everything else .. you know, the rich white guys are the root to all evil LOL
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There's nothing artificial about the oil price, although speculation will always produce narrow price swings around the true, consumption/production driven price. If speculation was causing an unnaturally high price then consumption would have reduced and oil stockpiles would be increasing. They aren't, so all the oil being produced is being consumed at $120 a barrel.
That's not entirely true. Not at all.
I pulled this from Der Speigel, but it was a common topic of conversation a the conference I attended earlier this month. It's also something I've discussed with guys like Tom Kloza at OPIS and analyst Peter Beutel:
The world consumes 86 million barrels of oil a day, but trading volume is 15 times as high. The difference represents bets on future price developments…
Within a year the price of a barrel of crude has doubled, from $50 to last week’s high of $100…Some analysts see prices rising to between $120 and $150, which would have dramatic consequences for the world economy. Similarly spectacular price developments have only occurred four times in the last few decades: in 1973, when the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo for the first time; in 1979, as a consequence of the Iranian revolution; a year later, when Iraq invaded Iran; and in 1990, when Iraq invaded Kuwait…
speculators now hold up to 45 percent of all oil contracts — three times as many as at the turn of the millennium. “Prices are being distorted,” says Senator Carl Levin, the ranking Democrat on the Permanent Subcommittee on Investigations, which is investigating the speculative trading of oil futures. If supply and demand were the only factors, the price of oil would be at least $20 lower.
How could this have happened?…Daniel Jaeggi, a former futures trader for Goldman Sachs, knows exactly how the business changed in the late 1990s. “The big pension funds began to diversify their investments, increasingly putting their assets in oil,” he says. The pension funds, according to Jaeggi, became the “driving factor in the market.”…Goldman Sachs was at the head of the pack. “They invented a new commodities index that also included oil,” says Jaeggi. The new index was wildly successful, and the more major investors put money into it, the more oil contracts Goldman bought and the higher the prices went. An enormous market force had been created.
Everyone jumped into the game. Morgan Stanley, Deutsche Bank and many other financial giants dramatically expanded their trading volume in oil contracts. Investment banks like Goldman even established their own oil reserves, acting as if they were energy companies like BP. They hoped to gain better insight into market events.
As a result, the trading volume in crude oil has almost tripled in the last five years, while demand for the liquid itself grew by only 1.9 percent per year.
As noted, demand is readily dropping and the automakers are moving bleatedly into anti-SUV mode. And a lot of that increase in foreign demand, in China for example, is artifically suypported through subsidies. That has a shelf life. To some extent demand is inelastic, even at $120 bbl, but given the huge percent that hinges on US transportaion fuels and our inefficient choices in automobiles in the 1990s when prices were exceptionally low that is very elastic in coming months/years. These prices are also binging more and more production on line, both traditional and non-traditional. And oil still costs $10 or so to produce in most of the world -- the cost hasn't dramatically increased and peak oil is still, at best, a theory for now.
We also don't know exactly what's going on with production limitations (real or artificial) in the OPEC countries relative to meeting that demand. I knid of doubt that OPEC and others cannot physically meet international demand increased 7 years after the need was identified, given the relatively small percentage of increased demand. OPEC itself is starting to get freaked out and apparently will be working with other producers to do something about production. As Beutel told me, this is a potential disaster for them because the counter swing will likley not be all that pretty when the bottom falls out.
The jump from $60 to $120 or more is simply not related to a supply and demand equation. Those variables haven't really changed all that much during the same time. When oil gets down to $20 per bbl or less that won't be natural either :)
Charon
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And Obama's (See his mentor Dick Durbin as well) windfall profits scheme -- what a tool. I have no problem with "change" after Bush. Didn't even vote for Bush and think he was a disaster. But one thing all of you changers need to consider is that Bush was a knee jerk call for change after the Clinton years.
Anybody but Clinton...
Well, I don't want to replace Bush with some knee jerk, lightweight, progressive disaster that will screw us over in new ways. He'll just give us the other side of the big govt. big pork big special interests shaft to go with the big liberal Bush shaft of the last 8 years.
It's also "funny" that with all of the big financial institution money that has found it's way into the Obama campaign that he's not playing up the market angle, and instead is focused on the distributors.
Charon
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So, Charon, in your professional opinion, how long before the oil bubble bursts?
Months? Years?
It's painful but to a certain extent I see this as necessary. We're not going to get serious about alternative energy, high mpg vehicles, etc., etc., until we're hurting.
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So, Charon, in your professional opinion, how long before the oil bubble bursts?
Months? Years?
It's painful but to a certain extent I see this as necessary. We're not going to get serious about alternative energy, high mpg vehicles, etc., etc., until we're hurting.
My opinion is not worth all that much on crude prices :) But, there are some smart people out there who have a pretty good track record at such things. Of course, a lot of them are shaking their heads now too. Tom Kloza basically made fun of himself for the first part of his session about how odd the market is and how off he was last year in predicting how high prices are today.
Beutel sees it within 4-8 years, but I did hear him on the radio the other day seemingly moving up that estimate. He predicts a fairly heavy pop and dramatic loss of price. Of course, unless we get the value up in the dollar we will have a 30 percent or so additional bump on whatever price we reach. The problem with the benefits from the prices is that as soon as oil gets cheap again, we forget about making the sensible choices. We are simply not a small car, small house, think green public transportation culture unless there is pain involved. If it happens too soon, we may not even see the SUVs moved into mothballs :)
Charon
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Thanks Charon. For all the good it'll do. There are those who are determined not to listen to or grasp the concept of the truth and reality.
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speculators now hold up to 45 percent of all oil contracts — three times as many as at the turn of the millennium.
But what do the speculators do with the oil? At the end of the day, they either have to take delivery of the oil and store it, or sell it.
Speculators could be really distorting the market if they were stockpiling oil, but they aren't. With oil selling for $120+ a barrel, consumption is roughly equal to production.
If prices were lower, consumption would be higher. Higher consumption isn't possible without higher production.
To some extent demand is inelastic, even at $120 bbl, but given the huge percent that hinges on US transportaion fuels and our inefficient choices in automobiles in the 1990s when prices were exceptionally low that is very elastic in coming months/years.
That's true, and I think oil demand will fall, and prices with it.
These prices are also binging more and more production on line, both traditional and non-traditional.
But will the new sources even offset the decline in existing fields, let alone lead to increased supply? The North Sea is down 2 million barrels a day from peak, and likely to decline another 10% this year. Russian oil production actually declined in the first quarter of this year, rather than increased as forecast. Mexican production is falling fast. Venezuela, which had been forecast to increase production for years to come, is experiencing major declines.
Granted politics and mismanagement plays a part in the declines in some countries, rather than a lack of reserves, but that doesn't make the declines any less real.
The world has to add a lot of production each year just to make up for the declines in existing sources. In the last couple of years the US has added new production, but that's only halted the long term decline in the US, it hasn't actually increased total production from the 2006 figure.
I knid of doubt that OPEC and others cannot physically meet international demand increased 7 years after the need was identified, given the relatively small percentage of increased demand.
Opec did increase production quite dramatically several years ago, from 31.9 million barrels per day in 2003 to 36.1 million in 2005. Opec production actually fell slightly in 2006 and again in 2007 (according to the EIA). I doubt they lack the reserves to increase capacity, but I suspect they might lack the ability to exploit those reserves.
OPEC itself is starting to get freaked out and apparently will be working with other producers to do something about production. As Beutel told me, this is a potential disaster for them because the counter swing will likley not be all that pretty when the bottom falls out.
That's one of the worrying signs. The price of oil has increased far above the target OPEC set, to a point where it is leading to major demand destruction. OPEC still haven't acted to increase supply.
The jump from $60 to $120 or more is simply not related to a supply and demand equation. Those variables haven't really changed all that much during the same time.
If it's not related to supply and demand, where is the oil going? If consumption = production at $120 a barrel, how could consumption = production at, say, $80 a barrel, unless production increased?
I don't see a way for the price to be out of line with supply and demand in the long term unless stocks are increasing, or unless oil consumption does not decrease with price. Demand is certainly inelastic to some extent, but not totally. Stocks are not increasing, in fact they have declined slightly over the last year.
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Penalizing a people or an industry with an unnecessary and subjectively based tax, such as a tax on "excessive profits (exactly who is qualified to judge what is or is not excessive?) is just about as smart and effective as the policy of "the beatings will continue until morale improves".
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hmm......
Our own oil can't be drilled - why?: http://www.americanchronicle.com/articles/63068
Windfall profit taxes didn't work in the 80's, gas production actually slowed and imports of oil increased. But for some reason, maybe it'll work now. :rolleyes:
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China is drilling on a lease from Cuba 50-60 miles offshore of Florida. Thank Cod we're protecting that coast.... oh wait.....
And when they stick those straws into that big pool of oil, do you think some of it will flow over to the straw from the US side of the line?
I'm so happy we're not drilling there; it's great to be stupid and righteous.
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But what do the speculators do with the oil? At the end of the day, they either have to take delivery of the oil and store it, or sell it.
Speculators could be really distorting the market if they were stockpiling oil, but they aren't. With oil selling for $120+ a barrel, consumption is roughly equal to production.
If prices were lower, consumption would be higher. Higher consumption isn't possible without higher production.
Perhaps the use of the term speculation is a bit of an issue, since much is not traditional speculation. There is a lot of institutional money moving into commodities, especially energy and oil that is banking on both short term and long term tightening of supplies. This level of investment has been unheard of in the industry. One would assume/hope they are not intentionally making risky bets (:aok).
Production is currently moving up notably (2 - 4 percent per quarter now) and demand similarly falling notably (or in some cases not increasing significantly). We currently have about doubled our daily surplus capacity to about 3 million bbl/day compared to 2006.
If it's not related to supply and demand, where is the oil going? If consumption = production at $120 a barrel, how could consumption = production at, say, $80 a barrel, unless production increased?
Perhaps that extra $40 is due to the belief in the futures market, right or wrong, that world events or peak oil or whatever will make $120 or $150 or $200 a natural future price for those contracts. Given the lag time for elasticity we have to eat $120 bbl for now to get on with daily life as we know it. However, if that throws us into a recession watch demand plummet and watch China and Indian growth collasp along with us. More on the rate of trading relative to actual product moving in the markets:
That brings us to speculation. Evans observes that since September 2003, the total number of open crude oil futures and options contracts rose by 364 percent. Meanwhile the global demand for petroleum rose by just 8.2 percent. "So the futures and options market has become more important than the physical supplies in driving the price," concludes Evans. "We are seeing investment flows into the oil market that don't have anything to do with the demand and supply of oil."
Investors are treating oil as a hedge against inflation and a falling dollar. Oil markets are part of a negative positive feedback loop in which higher oil prices contribute to higher inflation, which in turn lowers the value of the dollar, which boosts oil prices, and so forth. In other words, the oil market is coming to resemble the gold market (which has also been soaring). Evans notes that most gold traders don't even ask the question of how much gold was mined last year or how much spare gold mining capacity there is.
http://www.reason.com/news/show/125414.html
But, at some point they will have to: "take delivery of the oil and store it, or sell it."
Which gets to the point, are their price positions accurate?
But will the new sources even offset the decline in existing fields, let alone lead to increased supply? The North Sea is down 2 million barrels a day from peak, and likely to decline another 10% this year. Russian oil production actually declined in the first quarter of this year, rather than increased as forecast. Mexican production is falling fast. Venezuela, which had been forecast to increase production for years to come, is experiencing major declines.
Granted politics and mismanagement plays a part in the declines in some countries, rather than a lack of reserves, but that doesn't make the declines any less real.
The world has to add a lot of production each year just to make up for the declines in existing sources. In the last couple of years the US has added new production, but that's only halted the long term decline in the US, it hasn't actually increased total production from the 2006 figure.
I'm not convinced that we are quite there yet, and by yet this decade or so. But who really knows? There is a lack of transparency as to what is natural and what is artificial among producers, their capacity and reserves. And as noted politics and inefficiency come into play in Nigeria, Venezuela, Mexico and Russia (not to mention, Iraq). Easy oil is getting harder to extract, but to what extent are drops in US or North sea production simply an economic factor based upon lower cost alternatives in the Middle East? That is one of the criticisms of ANWR drilling, is that it would simply offset more slightly expensive fields that would be shut down.
Chinese and Indian demand are still somewhat artificial, propped up by the govt. subsidies and by our trade imbalance. Much of our demand is certainly artificial given the automotive trends of the 1990s onward. How long can that be sustained?
And, OPEC has kept unusually unified lately, largely by Venezuela not cheating as much, even with so much potential profit to be made. That has in the past and can again, likely, change dramatically.
I think that if peak oil were taken fully seriously, you would see a lot of investment start rolling into tar sands or shale or coal to liquid that you simply do not see today.
Charon
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But what do the speculators do with the oil? At the end of the day, they either have to take delivery of the oil and store it, or sell it.
Speculators could be really distorting the market if they were stockpiling oil, but they aren't. With oil selling for $120+ a barrel, consumption is roughly equal to production.
If prices were lower, consumption would be higher. Higher consumption isn't possible without higher production.
That's true, and I think oil demand will fall, and prices with it.
I disagree (granted, WTFGAS, eh?). When housing prices doubled in 5 years, do you really think it was due to 'supply and demand'? I guess you could say yes, depending on how you view it, but the increase in demand was an artificial increase... it was speculation. Someone would find a cheap house, fix it up, sell it for 25% more than he bought it for. Pretty soon people aren't even fixing it up, they are snapping up property to sell to the next biggest fool down the line.
There was no real increase in the demand for housing. The number of people looking for houses didn't double in 5 years. The funny thing is that even with the 'catastrophic meltdown' of the housing bubble, there has only been a 15% drop in home prices across the country. That still leaves people who owned their homes before the home flipping mania up about 85%. And prices are sticky.. they aren't going to drop down to anywhere near where they 'should' be given historical trends. People have gotten used to the idea that the house they bought for 150,000 10 years ago is worth ~300,000 now... they might sell for 285,000, but they certainly aren't going to sell it for 200,000. Even if they move, they'll hang on to that old house 'until the market recovers'. I've seen houses in neighborhoods around me on the market for as long as I've lived here (so 15-16 months).
The same thing is happening with oil. And the price of gas isn't going to go down even if the price of oil plummets. At least not for quite a long time.
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And the price of gas isn't going to go down even if the price of oil plummets. At least not for quite a long time.
According to Ben Stein you may be right. He states the price of gas is lagging behind the price of oil. How far, he doesn't say.
Finally, the worst news: Oil has been going up a lot faster than gasoline. That means gasoline might possibly have far more upward movement in price. Be prepared.
Interesting article here :
http://www.cbsnews.com/stories/2008/05/25/sunday/main4125912.shtml
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I disagree (granted, WTFGAS, eh?). When housing prices doubled in 5 years, do you really think it was due to 'supply and demand'? I guess you could say yes, depending on how you view it, but the increase in demand was an artificial increase... it was speculation.
The difference between houses and oil is the houses weren't being consumed.
I'm not saying speculation can't push up the price of oil long term, I'm saying if it was doing so stockpiles would be increasing.
After all, there's no point buying oil as an investment if you then burn it.
If all the oil being produced is being consumed, then the price is not artificially high. Demand, at that price, equals supply.
I disagree (granted, WTFGAS, eh?). When housing prices doubled in 5 years, do you really think it was due to 'supply and demand'? I guess you could say yes, depending on how you view it, but the increase in demand was an artificial increase... it was speculation.
Nobody is denying there's a lot of speculation on oil, just that that speculation isn't having a major influence on price.
From the May IEA report on oil:
With oil prices reaching $125/bbl, calls for more oil are getting louder. But do we really need more oil? To answer this, we need to look at the current balances, forecasting risks and some of the market perceptions that may have been driving the oil price. First, we need to step back from the detail and simply define that, in our opinion, this is a bull market driven primarily by demand potential outstripping slow supply growth – notably non-OPEC. With no slack in the system, prices have had to rise to choke off demand growth and bring the market into balance.
Perhaps that extra $40 is due to the belief in the futures market, right or wrong, that world events or peak oil or whatever will make $120 or $150 or $200 a natural future price for those contracts.
But how does that affect the spot price if stocks are not increasing? If consumption = production, then the price has to be right. If the price is too high, consumption is less than production.
The IEA point out that accurate stock data for most countries is delayed, so stocks could already be building, and in that case oil could already be overpriced. But that's a short term thing, only applicable whilst stocks are increasing.
That brings us to speculation. Evans observes that since September 2003, the total number of open crude oil futures and options contracts rose by 364 percent. Meanwhile the global demand for petroleum rose by just 8.2 percent. "So the futures and options market has become more important than the physical supplies in driving the price," concludes Evans. "We are seeing investment flows into the oil market that don't have anything to do with the demand and supply of oil."
Investors are treating oil as a hedge against inflation and a falling dollar. Oil markets are part of a negative positive feedback loop in which higher oil prices contribute to higher inflation, which in turn lowers the value of the dollar, which boosts oil prices, and so forth. In other words, the oil market is coming to resemble the gold market (which has also been soaring). Evans notes that most gold traders don't even ask the question of how much gold was mined last year or how much spare gold mining capacity there is.
http://www.reason.com/news/show/125414.html
If speculators think the price of oil will go on increasing, of course they will "invest" in it. But how does that raise the price?
Finally, the worst news: Oil has been going up a lot faster than gasoline. That means gasoline might possibly have far more upward movement in price. Be prepared.
Refiners have been getting very little for the gasoline they have been producing this spring. I think it's been increasing for the last couple of months, though, so gasoline might not have much further to go relative to the price of oil.
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The same way it raised housing prices.
This example may not make a helluva lot of sense, especially since I know oil isn't traded this way, but this is how I see it.
Lets say Sam and Bill are investors. Jack is a refinery. Wahib is an oil field owner. In the past, Jack paid Wahib directly for his oil. A couple years ago, Sam walked up to Wahib and said, "Hey, I'll give you $5 more a barrel if you sell to me." Well, now Wahib can sell to Jack for X, or Sam for X+5. Since Wahib isn't an utter moron, he sells to Sam. Well, Sam can't DO anything with the oil, but Jack (who can) has no oil to refine, so he has to get it from somewhere. So he buys his (more expensive) oil from Sam. At some point, Bill sees what a nice racket Sam has going on, and starts buying the oil from Sam before Jack can, and marks it up some more before selling it to Jack.
I realize there are practically an infinite number of buyers and sellers, but thats the simplistic view that I have. The speculators push up the price of oil by artificially increasing demand, much the same way they did in the housing market.
If we had a market that worked like the markets do in Econ 101, then your first paragraph would be true.
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Lets say Sam and Bill are investors. Jack is a refinery. Wahib is an oil field owner. In the past, Jack paid Wahib directly for his oil. A couple years ago, Sam walked up to Wahib and said, "Hey, I'll give you $5 more a barrel if you sell to me." Well, now Wahib can sell to Jack for X, or Sam for X+5. Since Wahib isn't an utter moron, he sells to Sam. Well, Sam can't DO anything with the oil, but Jack (who can) has no oil to refine, so he has to get it from somewhere. So he buys his (more expensive) oil from Sam. At some point, Bill sees what a nice racket Sam has going on, and starts buying the oil from Sam before Jack can, and marks it up some more before selling it to Jack.
I realize there are practically an infinite number of buyers and sellers, but thats the simplistic view that I have. The speculators push up the price of oil by artificially increasing demand, much the same way they did in the housing market.
thats the way the Enron scam worked.
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China is drilling on a lease from Cuba 50-60 miles offshore of Florida. Thank Cod we're protecting that coast.... oh wait.....
And when they stick those straws into that big pool of oil, do you think some of it will flow over to the straw from the US side of the line?
I'm so happy we're not drilling there; it's great to be stupid and righteous.
yep saw our great gov on the tele whining about the cost of gas and in the next breath state he was against drilling off our coast .. can't have it both ways Chris...
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Lets say Sam and Bill are investors. Jack is a refinery. Wahib is an oil field owner. In the past, Jack paid Wahib directly for his oil. A couple years ago, Sam walked up to Wahib and said, "Hey, I'll give you $5 more a barrel if you sell to me." Well, now Wahib can sell to Jack for X, or Sam for X+5. Since Wahib isn't an utter moron, he sells to Sam. Well, Sam can't DO anything with the oil, but Jack (who can) has no oil to refine, so he has to get it from somewhere. So he buys his (more expensive) oil from Sam.
Right. But Jack is paying more for oil, which means he is selling his gasoline and diesel for more. That means he is selling less. That means he is buying less oil, and Sam has some left over.
Sam is stockpiling oil.
t some point, Bill sees what a nice racket Sam has going on, and starts buying the oil from Sam before Jack can, and marks it up some more before selling it to Jack.
I realize there are practically an infinite number of buyers and sellers, but thats the simplistic view that I have.
So Bill and Sam are competing for the oil, and then selling it on. The price to Jack, the refiner, goes up all the time. That means he sells less all the time, and buys less oil. Bill and Sam are either stockpiling oil, or selling it for less to get rid of it. If they're selling it for less, they aren't driving the price up. And we know that they haven't been stockpiling, because stocks have been flat, or even reducing.
Speculators can certainly drive the price up, but the evidence they are doing so would be increased stockpiles. Stockpiles haven't increased. (again with the note that stock data lags, so it may have been going up for a month or two, but no more than that)
The speculators push up the price of oil by artificially increasing demand, much the same way they did in the housing market.
Again the difference with the housing market is you can invest in a house and live in it. You cannot invest in oil and burn it. If you burn the oil, it's gone, it's not worth anything.
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You're making the giant assumption that gas consumption is perfectly flexible to Supply and Demand. For a place like America, it really isn't. The demand is going to be relatively constant, despite the price.
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But the way oil is traded now is in futures... not in the actual oil.
So I can 'buy' all of Octobers oil and not have to stockpile it, the earth is doing it for me.
And as lasersailor said, gasoline is an inelastic good, especially in America. There aren't any alternatives for the majority of Americans.
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But the way oil is traded now is in futures... not in the actual oil.
So I can 'buy' all of Octobers oil and not have to stockpile it, the earth is doing it for me.
EXACTLY
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But the way oil is traded now is in futures... not in the actual oil.
So I can 'buy' all of Octobers oil and not have to stockpile it, the earth is doing it for me.
And as lasersailor said, gasoline is an inelastic good, especially in America. There aren't any alternatives for the majority of Americans
As Urchin states, it's Futures that are central to this and FOR NOW we have an inelastic demand -- oil at virtually whatever price until our habits catch up with the pain.
Charon
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And as margin rules require about 5% of the value of the contract, that is all that is at risk however up side can be limitless.
shamus
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You're making the giant assumption that gas consumption is perfectly flexible to Supply and Demand. For a place like America, it really isn't. The demand is going to be relatively constant, despite the price.
Oil demand has fallen across the developed world. OECD oil demand peaked in 2005, fell in 2006, fell again in 2007, and has fallen even further so far in 2008. And the falls in 2006 came despite the economy growing well, and at an oil price of around $60 a barrel.
But the way oil is traded now is in futures... not in the actual oil.
So I can 'buy' all of Octobers oil and not have to stockpile it, the earth is doing it for me.
And in October you find you have got a lot of oil. What are you going to do with it? Sell it. If you price it too high, you won't sell it all, and you will have some left over. In other words, stockpiles will grow.
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I think I see your point, I am still not sure I agree with it though.
The biggest problem I see is that there doesn't seem to be a "too high" price for oil. Speculators are buying it from other speculators, so when it comes time for the refineries to buy it the price has already been inflated. It could be more or less inflated depending on how many times it has been 'flipped', but it is still inflated.
One other thing... if oil demand has been falling for 2 years now, why is the price of oil skyrocketing?
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I think I see your point, I am still not sure I agree with it though.
One other thing... if oil demand has been falling for 2 years now, why is the price of oil skyrocketing?
It's the next easy money scam now that they laid waste to the housing market and it is correcting.
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One other thing... if oil demand has been falling for 2 years now, why is the price of oil skyrocketing?
It's falling in the developed world, which has economic growth rates of around 2.5%. It's rising fast in parts of the developing world, like China, which has growth rates around 10%. It's also rising fast in the major oil exporters, like Saudi Arabia, who are rolling in money at the moment because of the high oil prices. Saudi Arabia increased their oil consumption by 7.2% in 2007, China, the second largest consumer of oil, increased by 4.1%, India by 6.7%. Last year, world oil production fell by 0.2%.
You have more money chasing less oil. The price has to rise to reduce demand.
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I heard a clip from McCain today and he is of the same mindset as Obama. Here's one for you though. McCain said we should tax any industry that has windfall profits (uh who decides what windfall profits are). So basically they want to control your wages, your health, your very lives and punish anyone who succeeds. Republicans and Democrats. It's, putting it lightly, annoying. Socialism and Marxism are taking a strong grip in America.
It's pretty scary stuff.