The Price of Oil

mugaliens · #1 (**permalink**) 15-May-2008, 11:18 AM

I've already done a BAUT search on this, and while I've found related topics, I didn't find that any directly addressed what I'm about to address.

So...

Why is diesel fuel is more expensive than gasoline, given that it's a lot closer to crude (less refining, far fewer additives) than is gasoline, and $100 per barrel (42 US gallons) crude is just $2.38 per gallon?

Yes, I know taxes eat up a lot of the difference.

What I'm really asking is why oil is at $100 per barrel? If it's that high, we should be pumping our own wells completely dry, selling it to US citizens at half that while dumping it on the market at the full price.

Still, with 1.2 trillion barrels (not including oil sands) of known reserves and an annual consumption of 84 million barrels a year, we won't run out for another 14,000 years.

This figure VASTLY contradicts earlier estimates obtained from the Department of Energy's website.

So.

Supply? Demand? Supply isn't, or shouldn't, be a factor, and demand is fairly steady. Thus, we should be paying approximately 10% to 20% more than all the taxes, pumping costs, and transportation costs.

About $1.10 a gallon.

Not $4.00 a gallon.

Someone is ripping us off!

Neverfly · #2 (**permalink**) 15-May-2008, 12:24 PM

Quote:

Originally Posted by mugaliens

Someone is ripping us off!

Gee, ya think?
I've been saying this for years but no one ever listens to me.

Hello - PIPEFITTERS UNION.

Guess what happened to all the oil we pumped out and "STOLE" from the middle east during the Gulf War?

ETS: Few years ago, diesel was less costly than gasoline.
It was after the hikes on price that they started charging MORE for diesel.

In fact, remember when gas first started going up and folks were talking about buying diesel cars?

Warren Platts · #3 (**permalink**) 15-May-2008, 12:59 PM

Quote:

Originally Posted by mugaliens

What I'm really asking is why oil is at $100 per barrel? If it's that high, we should be pumping our own wells completely dry, selling it to US citizens at half that while dumping it on the market at the full price.

. . .

Supply? Demand? Supply isn't, or shouldn't, be a factor, and demand is fairly steady. Thus, we should be paying approximately 10% to 20% more than all the taxes, pumping costs, and transportation costs.

About $1.10 a gallon.

Not $4.00 a gallon.

Someone is ripping us off!

Wow, this is amazing! Just last night you were lecturing me on how corporations and the economy work, saying anybody has the right to charge any amount for whatever they sell.

Quote:

Originally Posted by mugaliens

Please, speak for yourself and explain again why you think an incorporated (publically-held) company should invest hundreds of thousands of dollars in research then give away those results for free, essentially throwing their shareholder's financial interests, to which they're legally, ethically, morally, and fiduciarily liable, out the window?

At this point, I must ask: Do you know anything of corporate finance, fiduciary law, etc.?

. . .

I really can't believe, Warren Platts, that you don't get it. The authors don't own those pieces. The corporations, companies, LLCs, GmBH's, and Corporations own their works.

Their works belong to them, by law, and for good reason - they funded and supported the research which lead to that information.

And you want to magically deny them the opportunity to capitalize on that information simply because you believe that information is "scientific."

Tell you what. Get a government willing to "relieve" them of their information, and I guarantee your taxes will be increased WELL beyond $34 a year to pay for that release of information.

For each and every release of information.

And for each and every company.

Please, and in deference to the rest of us, and our own tax responsibilities, put down your gun, and stop your unintended efforts towards moving us into having to pay for every such request as your until our taxes reach 80% (you really haven't the slightest clue as to what you're proposing, economically, do you...??? ??? in case you didn't get the hint, ???)

Please.

Go back to science.

Economics has a way of evolving, quite rapidly, on it's own, and from my perspective, it's very close on track.

I tire of this. Please find something else to talk about in which you're far more well educated. Thanks.

I must say, however, I'm pleased to know that you now think there is such a thing as price-gouging. The only problem is that you've got it completely backwards: the corporations controlling the primary scientific literature are engaging in price gouging, whereas the oil companies are not.

Unlike scientific information, oil is a fungible comodity. American oil companies don't set the price of oil, the world market does.

And you're wrong that demand for oil has been "fairly steady": worldwide demand is growing rapidly because demand for new oil in China and other emerging markets is going through the roof. And the falling U.S. dollar doesn't help.

And American oil companies cannot sell domestic oil for half-price. Most domestic production is relatively marginal to begin with. Just about all the low hanging fruit was picked decades ago.

And oil company profit margins are not out of line. They are in fact much less than Google, for example:

Quote:

The average net profit margin for the S&P Energy sector, according to figures from Thomson Baseline, is 9.7%. The average for the S&P 500 is 8.5%. So yes, energy companies are more profitable than many others...but not by an inordinate amount.

Google, for example, reported a net profit margin of 25% in its most recent quarter. Should we have an online advertising windfall profit tax?

Acolyte · #4 (**permalink**) 15-May-2008, 01:00 PM

Diesel went through the roof as soon as the efficient diesel motors were on the market. When BMW started saying 70mpg for diesel, the price doubled overnight.

We pay in Oz, $1-30 to $1-50 per litre - not just recently but for the past year or so. Now I know US gallons are small, but that's still (@ $1.40) $5.30 per US Gallon.

Now the subject is broached, anyone wanna talk about Banks?

NEOWatcher · #5 (**permalink**) 15-May-2008, 02:21 PM

Quote:

Originally Posted by mugaliens

...Why is diesel fuel is more expensive than gasoline, given that it's a lot closer to crude (less refining, far fewer additives) than is gasoline, and $100 per barrel (42 US gallons) crude is just $2.38 per gallon?

At risk of being drawn into another oil, conservation, and business debate...
I just wanted to expand on what Acolyte said.

You can only get a certain percentage of each distallate from the oil (within some range of flexibility). If demand for one (diesel) goes up without demand for the others going up then you will be left with extra distallates whether you need them or not. Therefore, that one distillate in demand is going to rise higher in proportion to the others.

The Gasoline users (primarily the average consumer) is squeezing what they can out of thier usage. My guess is that Gasoline use has gone down with these high prices.
Diesel users (primarily commercial use) probably doesn't have as much flexibility or fluctuation in their usage. So my guess is that diesel demand has stayed relatively stable.

Extravoice · #6 (**permalink**) 15-May-2008, 02:43 PM

A while back, I heard this story on National Public Radio. I believe that the consensus was that although demand was up, and the dollar is down, these factors can not account for for the current price of oil. The bottom line was that "speculative investment" is the main driver for higher oil prices. Perhaps there is an "oil bubble" that will pop, just like the real estate bubble.

I imagine that a popping oil bubble could be messy, though

Warren Platts · #7 (**permalink**) 15-May-2008, 02:59 PM

Quote:

Originally Posted by Acolyte

We pay in Oz, $1-30 to $1-50 per litre - not just recently but for the past year or so. Now I know US gallons are small, but that's still (@ $1.40) $5.30 per US Gallon.

I heard on the radio the other night that gas is going for 1.25 CAD in Montreal--that's about 4.75 USD per gallon. Americans have got it good and ought to stop whining.

Spock Jenkins · #8 (**permalink**) 15-May-2008, 03:02 PM

Quote:

Originally Posted by Warren Platts

I heard on the radio the other night that gas is going for 1.25 CAD in Montreal--that's about 4.75 USD per gallon. Americans have got it good and ought to stop whining.

If my parents beat me twice a day, should I stop whining if I find out the neighbor kid gets beat three times a day?

Warren Platts · #9 (**permalink**) 15-May-2008, 03:02 PM

Quote:

Originally Posted by Extravoice

A while back, I heard this story on National Public Radio. I believe that the consensus was that although demand was up, and the dollar is down, these factors can not account for for the current price of oil. The bottom line was that "speculative investment" is the main driver for higher oil prices. Perhaps there is an "oil bubble" that will pop, just like the real estate bubble.

I imagine that a popping oil bubble could be messy, though

Since you like NPR, you should love what Paul Krugman has to say:

Quote:

The only way speculation can have a persistent effect on oil prices, then, is if it leads to physical hoarding — an increase in private inventories of black gunk. This actually happened in the late 1970s, when the effects of disrupted Iranian supply were amplified by widespread panic stockpiling.

But it hasn’t happened this time: all through the period of the alleged bubble, inventories have remained at more or less normal levels. This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China. The rise in oil prices these past few years had to happen to keep demand growth from exceeding supply growth.

Warren Platts · #10 (**permalink**) 15-May-2008, 03:05 PM

Quote:

Originally Posted by Spock Jenkins

If my parents beat me twice a day, should I stop whining if I find out the neighbor kid gets beat three times a day?

That's not a very good analogy: there's nothing immoral about the price of oil.

mike alexander · #11 (**permalink**) 15-May-2008, 03:06 PM

Careful of denominators. Current pertroleum production is roughly 84 million barrels per day. That's about 31 billion barrels per year.

Spock Jenkins · #12 (**permalink**) 15-May-2008, 03:13 PM

Quote:

Originally Posted by Warren Platts

That's not a very good analogy: there's nothing immoral about the price of oil.

I'm not talking of the morality of it. I'm speaking of the simple unpleasentry of paying that much. Since the main difference in price between the two countries is taxes and distribution, there will always be a gap favoring the US. So if gas is up to $10 a gallon here, it would be $12 - $15 there. Would we be allowed to whine because it's over $4.75, or still prohibited as it's still cheaper than Canada?

Warren Platts · #13 (**permalink**) 15-May-2008, 04:06 PM

Quote:

Originally Posted by Spock Jenkins

I'm not talking of the morality of it. I'm speaking of the simple unpleasentry of paying that much. Since the main difference in price between the two countries is taxes and distribution, there will always be a gap favoring the US. So if gas is up to $10 a gallon here, it would be $12 - $15 there. Would we be allowed to whine because it's over $4.75, or still prohibited as it's still cheaper than Canada?

I guess you're right. It's a free country, so feel free to whine all you want. . . .

Extravoice · #14 (**permalink**) 15-May-2008, 04:22 PM

Quote:

Originally Posted by Warren Platts

Since you like NPR, you should love what Paul Krugman has to say:

So, the price is driven by speculation, demand or supply, or none of these, depending on whom you ask.

I want to change jobs and become an economist. They apparently never have to be right!

BTW: I sometimes like NPR. Other times, it forces me to turn off the radio. Overall, it is better than the alternatives that I can receive on my car radio.

Neverfly · #15 (**permalink**) 15-May-2008, 04:27 PM

Quote:

Originally Posted by Warren Platts

I guess you're right. It's a free country, so feel free to whine all you want. . . .

I'm not whining, myself...

I AM ANGRY!

Neverfly · #16 (**permalink**) 15-May-2008, 04:30 PM

Quote:

Originally Posted by Warren Platts

Americans have got it good and ought to stop whining.

We Don't Have it Good At All!!!
The price of Oil has skyrocketed over the past few years. Not risen, not inflated- SKYROCKETED.

It is NOT Whining to get upset over getting gouged, highway robbed, stiffed, overcharged, etc.

And, frankly, I don't care if you don't appreciate my "whining."

I don't appreciate your complacency.

Now, the American spirit includes standing up and speaking out. But around the world people need to. And people that are complacent and accuse others of "whining" are a part of the problem that allows gouging, oppression and nothing to change...

So stop whining about consumers advocating themselves.

korjik · #17 (**permalink**) 15-May-2008, 07:24 PM

One problem is that the production of oil in the US has been declining for about 30 years. Add on top of that the current regulatory situation, it is unlikely that the US production will rise much no matter what the price is.

geonuc · #18 (**permalink**) 15-May-2008, 08:46 PM

Quote:

Originally Posted by Neverfly

I'm not whining, myself...

I AM ANGRY!

So ... you're a bit upset?