Gotta get this off my chest...
#1
05-10-2011, 02:20 PM
Gotta get this off my chest...
For all you motorists out there that think oil companies are responsible for driving up the cost of a gallon of gasoline; and that the record profits these oil companies are reaping is somehow proof of your assertion; and that you firmly believe something should be done to punish the profits these corporations have earned... take a breath and ponder this:
Let's begin with some fundamentals: first, the world-market price for a barrel of crude is determined by supply and demand AND the value of the American dollar on the world market – not Exxon/Mobil. Exxon/Mobil, Chevron and Connoco/Phillips do not have the market power to drive a barrel of crude up from $75 to $100. Not when Saudi Arabia ALONE owns 20% of the world's proven oil reserves.
What's responsible? In order, the culprits are:
>Consumption.
>The value of the American dollar on the world market.
>Perceived risks (in both exploration and drilling, and business operating – ie: healthcare costs).
>The anticipated future cost of oil (ie: speculation),
Consumption is mainly responsible. China's and India's booming economies and their needs for energy are significant contributors, to be sure. Whenever there is more demand than availability, prices will rise. Gasoline, milk, cheez whiz and concert tickets are all susceptible to this market force.
An equally significant contributor is the value of the American dollar on the world market. Barrels are priced in US dollars, and if you’ve checked the greenback against the Euro lately, you’ll understand why it takes more dollars to buy a barrel of oil today.
The dollar is extremely weak because of the Fed’s multiple quantitative easing exercises and the multiple “stimulus” packages that the Obama regime have deployed. There are literally billions more dollars in the world economy, and at home, that’s causing inflation.
Perceived risks to the world supply of oil also impacts pricing. When a dozen terrorists tried to take out Saudi Arabia's largest oil refinery in 2006, the markets got jittery and crude oil rose as commodity traders began bidding up the price of future oil and gas deliveries. Again, the law of supply and demand drove these changes (in the short term) and you saw some immediate price increases at the pump because the retailers' "cost of replacement" of the gasoline they were selling that day went up.
Speculators, perhaps rightfully spooked at the audacity of the attack in '06, figured that future attacks would follow – and they bet their dollars (Euros?) that the price of petroleum would escalate. (It's 2011, and they were right. Oil IS more expensive today.)
Please allow me a quick detour, regarding dynamics of retail pricing: "Cost of replacement" is the reason why you drive by a gas station in the morning and gas is $3.75/gallon. And when you drive by in the afternoon, it's $4. Price isn't driven by what the retailer paid for the fuel sitting in his underground tanks. It's driven by the cost of replacement. Have you ever seen a retailer -- any retailer-- sell out their existing inventory of a product by keeping its price fixed at the amount they first calculated it to be when they brought it into their inventory? No, you haven't. And you won't. Ever. By the way, this phenomenon works in reverse, too. Ask any IT company who's had to clear out inventory for less than the cost of producing it because the technology got old or a newer technology made it obsolete.
Understanding supply and demand brings us to addressing another point of view regarding the profits made by oil companies. Some say oil companies should give up the profits they made because of the run up in the world price of crude. Why does it make sense for Exxon to sell the oil they drill for for less than what is being charged on the world market??
A significant portion of Exxon's profits came from the sale of their own sourced crude on the world market. In order to bring down the companies' profits from "obscene levels" they would have to sell their crude oil for what? – $90 a barrel – or less? – when the real world price is $100. This would not cause a decrease in the cost of your gallon of gas, nor would it cause the world price for a barrel of crude to drop… except for in the immediate very, very short term – or until Exxon ran out of its ability to supply oil thru retail transactions and then next lost their ability to sell options for their oil.
Both situations would no doubt be rapidly taken advantage of by arbitragers, and the net effect would be: yep, barrels of oil originating from Exxon selling for $100 on the open market. The profits you distain so much would simply go into the pockets of commodity traders instead, and your gallon of gas would still be $4.
Let's also dismiss the myth that the cost of a gallon gasoline is directly proportional to the cost of a barrel of crude oil. If it were, we'd be paying $8.95 per gallon. (The cost of a barrel of crude during the hey-days of the Clinton administration was under $20; and the cost of a gallon of gas was approximately $1.79. Do the math and be thankful these two variables aren't linked by a 1:1 proportional relationship).
If you'd like to know the real culprits behind the rise in the price of gasoline, consider this: You remember MBTE? The winter/summer gasoline additive that allegedly helped lessen smog and pollution? Lawsuits over its alleged cancer-causing characteristics have forced manufacturers of this additive to shut down operations. The gov't decided that a suitable alternative would be ethanol, and they have mandated that ethanol be blended with gasoline sold in the United States. But ethanol is primarily manufactured in the Midwest. And unlike MBTE, it cannot be blended in at the refinery before shipping (it collects water). Instead, it must be carted out via rail and truck to local distribution points where gasoline retailers blend it in themselves.
Furthermore, domestic manufacturers of ethanol cannot meet current demand (there's that pesky "law of supply and demand" again). Short supply means higher prices (to be fair, shouldn't we windfall tax the ethanol manufacturers, too?) We could mitigate the rise in ethanol prices by allowing foreign producers of ethanol to enter our market thereby increasing supply, but the gov't doesn't want to lift the 2.5% tariff AND $0.54/gallonduty it charges on imported ethanol. They're beholden to both the tax revenue it generates and a powerful agricultural lobby that continues to seek protection while siphoning off even more government subsidies. (For the record, President Bush supported this lifting of punitive tariffs; but obstructionist Democrats refuse to budge).
How about drilling for oil in ANWR and off of more of our coastlines? Both have been stymied by left-wing environmentalists and the Democrat politicians who are in bed with them.
The Alaskan pipeline has proven that man can both drill for oil and be a responsible steward of the environment. Of course, accidents do happen in the oil exploration industry. It's naïve to say that they won't. But forgoing oil exploration and domestic energy production because statistically it can be proven that an oil spill or other event will happen is just plain stupid.
As bad as the Exxlon Valdez oil spill was, today, unless you're a pointy-headed academic with a microscope, you're gonna be hard-pressed to find traces of it on either the wildlife or the environment. Furthermore, naturally occurring oil "seepage" from seafloor crevices in the Gulf of Mexico leak out more oil each year than most of man's oil spills. These slicks are clearly and routinely seen from aircraft.
Ask your liberal friends to look out the window the next time they fly to Cancun for a DNC meeting about the minimum wage, and then ask them why government makes it so difficult for corporations to find the new oil reserves that are obviously underneath that body of water.
Oh, yes. And do please tell me where all the environmental destruction from BP’s uncapped deep-floor oil tap went. I’m still waiting to see Florida beaches covered in black ooze and slime.
As long as the left-wing environmentalists and the Democrat politicians block domestic oil exploration and production, you're gonna pay more for gas at the pump. Get used to it, or vote the obstructionists out of Congress.
Now let's talk about the hard numbers. At the absolute top of the profit range, oil companies grab $0.20 on each gallon of gas sold to consumers. Not all oil companies see this sort of profit; it's dependent upon many factors, including whether or not the gas that was sold was created from the oil company's own inventory of crude (best profit scenario) or whether it was bought on the world market (worst profit scenario).
Of course, other factors such as refinery efficiency and distribution costs impact profitability as well. But the point I'm trying to make is, no one seems to be outraged that the US gov't is making $0.50 profit on each gallon of gas sold… or that state governments are taking another $0.15-$0.25 per gallon. Why excoriate oil companies for being profitable at $0.20/gallon when the gov't is fleecing us for more than three times as much??!! So until you raise holy hell with this gov't taxation, don't talk to me about egregious oil company profits.
Here's an even scarier scenario that gives credence to the old adage "be careful what you wish for": legislation was bandied about in congress during W’s presidency that promised to punish oil companies by placing a windfall tax on the inventories of U.S.-based oil producers (such as Exxon and Chevron),while foreign producers pay nothing. Watch for this to come back by Democrats anxious to deflect examination of their governing incompetence and escalating gas prices.
As reported in the Wall Street Journal at the time, "…this is an energy policy only Arab oil sheiks could love, because it drives their production and profits up, at the expense of home-grown producers."
The Journal goes on to point out that when Congress last passed a windfall tax on oil in 1980, America's domestic crude oil production plunged and demand for foreign oil increased by almost 15%. They report that "…we effectively imposed a tax on ourselves and OPEC nations got the windfall."
Heck, let's just also point out that it even added to the trade deficit!
Another claim that liberal Democrats like to trot out is that it's only fair to tax these oil companies on their profits because they got these offshore leases from the government for a mere pittance. Congressman Schumer of New York would like you to conveniently forget that Uncle Sam (ie: congressmen and DOE committee people) freely entered into these contracts with these oil companies at the time.
Again, the Wall Street Journal points out that "…oil companies were the ones who took the risk of investing billions of dollars in new exploration and production, even in the 1990s when prices were then $15 a barrel and profits were even smaller. Trying to retroactively tax these same oil companies on deals made a decade ago simply because they turned out well for these firms [is] confiscatory."
Additionally, these punitive measures will do nothing to lower your price for gasoline (now or in the future), and they most certainly will not promote additional exploration and investment – by either our own domestic companies or by foreigners.
So to sum everything up: we live in a capitalistic society. When prices are left to determine themselves through the unfettered operation of the laws of supply and demand, the market efficiently allocates resources and capital. The efficient allocation of resources and capital are fundamental tenants of any economy that aims towards sustainable growth and prosperity for its people.
Allowing our government to recklessly spend and print money devalues our currency and causes inflation.
If you’re really upset about the price of a gallon of gas (like I am), then get serious about energy. Forcing auto manufacturers to develop and market electric cars is NOT an energy policy.
And I have yet to find a full-size hybrid (or all-electric) SUV that can perform like our beloved Excursions.
Find, encourage and support your local Tea Party representative or true Reagan conservative and vote them in in 2012.
And drill, baby, drill!!!
Let's begin with some fundamentals: first, the world-market price for a barrel of crude is determined by supply and demand AND the value of the American dollar on the world market – not Exxon/Mobil. Exxon/Mobil, Chevron and Connoco/Phillips do not have the market power to drive a barrel of crude up from $75 to $100. Not when Saudi Arabia ALONE owns 20% of the world's proven oil reserves.
What's responsible? In order, the culprits are:
>Consumption.
>The value of the American dollar on the world market.
>Perceived risks (in both exploration and drilling, and business operating – ie: healthcare costs).
>The anticipated future cost of oil (ie: speculation),
Consumption is mainly responsible. China's and India's booming economies and their needs for energy are significant contributors, to be sure. Whenever there is more demand than availability, prices will rise. Gasoline, milk, cheez whiz and concert tickets are all susceptible to this market force.
An equally significant contributor is the value of the American dollar on the world market. Barrels are priced in US dollars, and if you’ve checked the greenback against the Euro lately, you’ll understand why it takes more dollars to buy a barrel of oil today.
The dollar is extremely weak because of the Fed’s multiple quantitative easing exercises and the multiple “stimulus” packages that the Obama regime have deployed. There are literally billions more dollars in the world economy, and at home, that’s causing inflation.
Perceived risks to the world supply of oil also impacts pricing. When a dozen terrorists tried to take out Saudi Arabia's largest oil refinery in 2006, the markets got jittery and crude oil rose as commodity traders began bidding up the price of future oil and gas deliveries. Again, the law of supply and demand drove these changes (in the short term) and you saw some immediate price increases at the pump because the retailers' "cost of replacement" of the gasoline they were selling that day went up.
Speculators, perhaps rightfully spooked at the audacity of the attack in '06, figured that future attacks would follow – and they bet their dollars (Euros?) that the price of petroleum would escalate. (It's 2011, and they were right. Oil IS more expensive today.)
Please allow me a quick detour, regarding dynamics of retail pricing: "Cost of replacement" is the reason why you drive by a gas station in the morning and gas is $3.75/gallon. And when you drive by in the afternoon, it's $4. Price isn't driven by what the retailer paid for the fuel sitting in his underground tanks. It's driven by the cost of replacement. Have you ever seen a retailer -- any retailer-- sell out their existing inventory of a product by keeping its price fixed at the amount they first calculated it to be when they brought it into their inventory? No, you haven't. And you won't. Ever. By the way, this phenomenon works in reverse, too. Ask any IT company who's had to clear out inventory for less than the cost of producing it because the technology got old or a newer technology made it obsolete.
Understanding supply and demand brings us to addressing another point of view regarding the profits made by oil companies. Some say oil companies should give up the profits they made because of the run up in the world price of crude. Why does it make sense for Exxon to sell the oil they drill for for less than what is being charged on the world market??
A significant portion of Exxon's profits came from the sale of their own sourced crude on the world market. In order to bring down the companies' profits from "obscene levels" they would have to sell their crude oil for what? – $90 a barrel – or less? – when the real world price is $100. This would not cause a decrease in the cost of your gallon of gas, nor would it cause the world price for a barrel of crude to drop… except for in the immediate very, very short term – or until Exxon ran out of its ability to supply oil thru retail transactions and then next lost their ability to sell options for their oil.
Both situations would no doubt be rapidly taken advantage of by arbitragers, and the net effect would be: yep, barrels of oil originating from Exxon selling for $100 on the open market. The profits you distain so much would simply go into the pockets of commodity traders instead, and your gallon of gas would still be $4.
Let's also dismiss the myth that the cost of a gallon gasoline is directly proportional to the cost of a barrel of crude oil. If it were, we'd be paying $8.95 per gallon. (The cost of a barrel of crude during the hey-days of the Clinton administration was under $20; and the cost of a gallon of gas was approximately $1.79. Do the math and be thankful these two variables aren't linked by a 1:1 proportional relationship).
If you'd like to know the real culprits behind the rise in the price of gasoline, consider this: You remember MBTE? The winter/summer gasoline additive that allegedly helped lessen smog and pollution? Lawsuits over its alleged cancer-causing characteristics have forced manufacturers of this additive to shut down operations. The gov't decided that a suitable alternative would be ethanol, and they have mandated that ethanol be blended with gasoline sold in the United States. But ethanol is primarily manufactured in the Midwest. And unlike MBTE, it cannot be blended in at the refinery before shipping (it collects water). Instead, it must be carted out via rail and truck to local distribution points where gasoline retailers blend it in themselves.
Furthermore, domestic manufacturers of ethanol cannot meet current demand (there's that pesky "law of supply and demand" again). Short supply means higher prices (to be fair, shouldn't we windfall tax the ethanol manufacturers, too?) We could mitigate the rise in ethanol prices by allowing foreign producers of ethanol to enter our market thereby increasing supply, but the gov't doesn't want to lift the 2.5% tariff AND $0.54/gallonduty it charges on imported ethanol. They're beholden to both the tax revenue it generates and a powerful agricultural lobby that continues to seek protection while siphoning off even more government subsidies. (For the record, President Bush supported this lifting of punitive tariffs; but obstructionist Democrats refuse to budge).
How about drilling for oil in ANWR and off of more of our coastlines? Both have been stymied by left-wing environmentalists and the Democrat politicians who are in bed with them.
The Alaskan pipeline has proven that man can both drill for oil and be a responsible steward of the environment. Of course, accidents do happen in the oil exploration industry. It's naïve to say that they won't. But forgoing oil exploration and domestic energy production because statistically it can be proven that an oil spill or other event will happen is just plain stupid.
As bad as the Exxlon Valdez oil spill was, today, unless you're a pointy-headed academic with a microscope, you're gonna be hard-pressed to find traces of it on either the wildlife or the environment. Furthermore, naturally occurring oil "seepage" from seafloor crevices in the Gulf of Mexico leak out more oil each year than most of man's oil spills. These slicks are clearly and routinely seen from aircraft.
Ask your liberal friends to look out the window the next time they fly to Cancun for a DNC meeting about the minimum wage, and then ask them why government makes it so difficult for corporations to find the new oil reserves that are obviously underneath that body of water.
Oh, yes. And do please tell me where all the environmental destruction from BP’s uncapped deep-floor oil tap went. I’m still waiting to see Florida beaches covered in black ooze and slime.
As long as the left-wing environmentalists and the Democrat politicians block domestic oil exploration and production, you're gonna pay more for gas at the pump. Get used to it, or vote the obstructionists out of Congress.
Now let's talk about the hard numbers. At the absolute top of the profit range, oil companies grab $0.20 on each gallon of gas sold to consumers. Not all oil companies see this sort of profit; it's dependent upon many factors, including whether or not the gas that was sold was created from the oil company's own inventory of crude (best profit scenario) or whether it was bought on the world market (worst profit scenario).
Of course, other factors such as refinery efficiency and distribution costs impact profitability as well. But the point I'm trying to make is, no one seems to be outraged that the US gov't is making $0.50 profit on each gallon of gas sold… or that state governments are taking another $0.15-$0.25 per gallon. Why excoriate oil companies for being profitable at $0.20/gallon when the gov't is fleecing us for more than three times as much??!! So until you raise holy hell with this gov't taxation, don't talk to me about egregious oil company profits.
Here's an even scarier scenario that gives credence to the old adage "be careful what you wish for": legislation was bandied about in congress during W’s presidency that promised to punish oil companies by placing a windfall tax on the inventories of U.S.-based oil producers (such as Exxon and Chevron),while foreign producers pay nothing. Watch for this to come back by Democrats anxious to deflect examination of their governing incompetence and escalating gas prices.
As reported in the Wall Street Journal at the time, "…this is an energy policy only Arab oil sheiks could love, because it drives their production and profits up, at the expense of home-grown producers."
The Journal goes on to point out that when Congress last passed a windfall tax on oil in 1980, America's domestic crude oil production plunged and demand for foreign oil increased by almost 15%. They report that "…we effectively imposed a tax on ourselves and OPEC nations got the windfall."
Heck, let's just also point out that it even added to the trade deficit!
Another claim that liberal Democrats like to trot out is that it's only fair to tax these oil companies on their profits because they got these offshore leases from the government for a mere pittance. Congressman Schumer of New York would like you to conveniently forget that Uncle Sam (ie: congressmen and DOE committee people) freely entered into these contracts with these oil companies at the time.
Again, the Wall Street Journal points out that "…oil companies were the ones who took the risk of investing billions of dollars in new exploration and production, even in the 1990s when prices were then $15 a barrel and profits were even smaller. Trying to retroactively tax these same oil companies on deals made a decade ago simply because they turned out well for these firms [is] confiscatory."
Additionally, these punitive measures will do nothing to lower your price for gasoline (now or in the future), and they most certainly will not promote additional exploration and investment – by either our own domestic companies or by foreigners.
So to sum everything up: we live in a capitalistic society. When prices are left to determine themselves through the unfettered operation of the laws of supply and demand, the market efficiently allocates resources and capital. The efficient allocation of resources and capital are fundamental tenants of any economy that aims towards sustainable growth and prosperity for its people.
Allowing our government to recklessly spend and print money devalues our currency and causes inflation.
If you’re really upset about the price of a gallon of gas (like I am), then get serious about energy. Forcing auto manufacturers to develop and market electric cars is NOT an energy policy.
And I have yet to find a full-size hybrid (or all-electric) SUV that can perform like our beloved Excursions.
Find, encourage and support your local Tea Party representative or true Reagan conservative and vote them in in 2012.
And drill, baby, drill!!!
#2
05-10-2011, 03:06 PM
Logistics Pro
#5
05-10-2011, 04:11 PM
Yes he will. I know the oil can extract won't last forever and the future is in alternative fuels etc, but the real culprit is the population explosion which can be cured by making it a law that everyone has 2 kids or less. Also. if we drill more here and now it will curb the need for oil and drop the prices for the time being. The population is something nobody wants to touch but it is the root of the worlds problems.
#7
05-10-2011, 04:23 PM
Trending Topics
#8
05-10-2011, 04:25 PM
Yes he will. I know the oil can extract won't last forever and the future is in alternative fuels etc, but the real culprit is the population explosion which can be cured by making it a law that everyone has 2 kids or less. Also. if we drill more here and now it will curb the need for oil and drop the prices for the time being. The population is something nobody wants to touch but it is the root of the worlds problems.
Regarding oil supplies, read this: » The mystery of Eugene Island 330 and self-renewing oil supplies · Offshore Oil & Gas Future Development
Regarding "overpopulation," all 6.5 billion people on earth could fit on the island of Puerto Rico if they each were standing on their own square meter of real estate. Now tell me that the earth doesn't have enough room or food production capability. (It does). The problem isn't overpopulation, it's greed that inhibits/prevents development of poorer nations (mostly by their despot rulers).
Let's bring this thread back to our beloved trucks.
Long live the Ford V10.
#10
05-10-2011, 06:50 PM
#11
05-10-2011, 10:24 PM
I don't want to sound condescending, but those two claims are absolute fallacies that need to be purged from the American psyche. They are lies. Absolute, flat-out, lies.
Regarding oil supplies, read this: » The mystery of Eugene Island 330 and self-renewing oil supplies · Offshore Oil & Gas Future Development
Regarding "overpopulation," all 6.5 billion people on earth could fit on the island of Puerto Rico if they each were standing on their own square meter of real estate. Now tell me that the earth doesn't have enough room or food production capability. (It does). The problem isn't overpopulation, it's greed that inhibits/prevents development of poorer nations (mostly by their despot rulers).
Let's bring this thread back to our beloved trucks. Let's not.
Long live the Ford V10.
Regarding oil supplies, read this: » The mystery of Eugene Island 330 and self-renewing oil supplies · Offshore Oil & Gas Future Development
Regarding "overpopulation," all 6.5 billion people on earth could fit on the island of Puerto Rico if they each were standing on their own square meter of real estate. Now tell me that the earth doesn't have enough room or food production capability. (It does). The problem isn't overpopulation, it's greed that inhibits/prevents development of poorer nations (mostly by their despot rulers).
Let's bring this thread back to our beloved trucks. Let's not.
Long live the Ford V10.
#12
05-11-2011, 12:56 AM
The 6.5 billion people are rapidly sucking up the natural resources and the explosion is occurring at an alarming rate. This is why China has or had a limit on the number of kids you can have. I would rather see 2 flourishing kids than 5 broke and hungry ones and I still think more drilling in the US would be beneficial. It dosn't matter that you can fit them all on one island (or 2 islands). You have lots of "facts" and figures but I am not seeing much common sense.
By the way, we have all been commanded to multiply and fill the earth. It was made for us, to enjoy and protect, to build things and prosper. Everything on this earth points to God! Mountains, the ocean, sunsets, the unfathomable size of the universe. The more we learn, the more questions we have. We don't even understand how our own bodies work! But yet you have some omniscient capability to know what the solution is?
In my experience, the only people that say these things are people that have never had children. I'll pray for you...
And oh, I think I can say this now:
#15
05-11-2011, 07:48 AM
I'll try to keep it short:
I run bio fuel in both my gas and diesel vehicles. Why? Because first and foremost it is better for the environment. I'm sure we enjoy breathing in clean air and we should do our best to keep the air clean.
Drill baby Drill? First off the profits from drilling in US waters is not shared with working class America so I find it hard to support that argument. On top of that the oil is sold to other countries and the profit does not circulate in the US economy. Also the blue collar workers who do all the dangerous work are paid pennies compared to the executives and CEO's. People must not let these powerful corporations use them as their political puppets.
The cost of fossil fuel today is just a big game for Oil Companies. If you and your friends or a group of people controlled the majority of the World's oil production you could do whatever yall feel like. I don't mind high fuel prices because it makes people start to think smarter. The higher the price per gallon at the pump creates new ideas towards a alternative energy tomorrow.
Whoever says yes to population control should get there ***** chopped off first
"Lead by Example"!
The future is renewable energy whether it be from solar power, hydroelectric, thermal, etc.
My future personal transportation plans are to build a hybrid electric Excursion with a small diesel generator powering 2 electric motors capable of 1000 ft-lb of torque. We need to move into the future instead of living in the past.
I run bio fuel in both my gas and diesel vehicles. Why? Because first and foremost it is better for the environment. I'm sure we enjoy breathing in clean air and we should do our best to keep the air clean.
Drill baby Drill? First off the profits from drilling in US waters is not shared with working class America so I find it hard to support that argument. On top of that the oil is sold to other countries and the profit does not circulate in the US economy. Also the blue collar workers who do all the dangerous work are paid pennies compared to the executives and CEO's. People must not let these powerful corporations use them as their political puppets.
The cost of fossil fuel today is just a big game for Oil Companies. If you and your friends or a group of people controlled the majority of the World's oil production you could do whatever yall feel like. I don't mind high fuel prices because it makes people start to think smarter. The higher the price per gallon at the pump creates new ideas towards a alternative energy tomorrow.
Whoever says yes to population control should get there ***** chopped off first
"Lead by Example"!
The future is renewable energy whether it be from solar power, hydroelectric, thermal, etc.
My future personal transportation plans are to build a hybrid electric Excursion with a small diesel generator powering 2 electric motors capable of 1000 ft-lb of torque. We need to move into the future instead of living in the past.