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Domestic Drilling Doesn't Decrease Gasoline Prices
eldavojohn writes "As the political rhetoric heats up, there's something puzzling about drilling inside the United States. Essentially, it doesn't reduce what we pay at the pump. From the article, 'A statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production by The Associated Press shows no statistical correlation between how much oil comes out of U.S. wells and the price at the pump.' If the promises that politicians made when they opened U.S. drilling were true, then we should be paying about $2 a gallon now. Instead it's $4 a gallon. Minnesota Public Radio pulls some choice quotes from both parties and wonders why this decades-old empirical observation goes seemingly completely unnoticed."
Minnesota Public Radio pulls some choice quotes ...
Submitter here, my mistake on that above source. When I read this in my news feed yesterday, I didn't see the AP markings all around this story. All of it appears to be completely and solely Associated Press sourced. I apologize if that confused anyone.
Noticed that when I was looking to see if anyone had come up with a sufficient rebuttal to this empirical link but aside from a few insane pundits, I didn't find much. The remaining arguments for "drill here, drill now" probably rests on "job creation" (waiting on that fact check) and, according to Thomas McClanahan from the Kansas City Star, it "means fewer dollars going to nasty, unstable regimes and more revenue for the Treasury, especially if the drilling is on public lands." He might be right about lowering the trade deficit but I think there are other things we could stop doing to prevent unstable regimes.
My work here is dung.
Speculation. That's what it boils down to, folks. If you really want to see $2.00 gas prices again, outlaw speculation and it will happen overnight. It is absolutely mind-boggling that this practice is allowed with no checks or balances to keep it from driving our gas prices sky high. People will bring up anything else, like gas taxes or domestic drilling, just to draw attention from the real problem. It's almost like no one on either side wants to have that conversation, though.
Oil prices do not depend solely on the amount of production in the United States. Oil prices, which drive gasoline prices, depend on many factors in addition to domestic production, such as world wide production, and political tension in producing areas.
Personally, I would have thought this was obvious. Any additional oil generated by the U.S. is pretty much a rounding error compared to the major producers, with international markets, American oil well are going to want to earn just as much as international sellers, if they had to choose between selling for less domestically or getting more on the international market they're going to go for more. They're essentially required to do so by their shareholders. In the absence of an amazing discovery of vast reserves of cheap, easy to extract, untapped oil reserves, the only way to actually get lower prices would require price controls and subsidies to force the price of gas lower and, frankly, I think that would be much worse than high gas prices.
Fanatically anti-fanatical
This is the problem when journalists with political agendas pretend to be statisticians. Oil is sold on a global market and goes to many different uses. You cannot look at one part of the supply and say "well, increasing this particular part of the supply didn't affect prices in this other particular market." There are too many other factors to consider: How much oil did other countries use? How much oil was diverted to purposes other than producing gasoline, such as plastics or heating oil? What happened to production in other areas? NONE of this is accounted for in this silly "analysis." Most telling? The analysis excluded the oil shocks of the early 1970's. Why? That was the clearest time that domestic gas prices (and supply) are driven largely by the global oil market. Yet, this analysis is being put into papers all across the US. For what purpose? Could it be to deflect criticism from the Presidents' drilling policies? When an analysis concludes "therefore, the basic laws of economics don't apply," then just like one that says "therefore, the law of gravity doesn't apply," our first instinct should be to question the analysis, not the basic laws.
Could it not be just that the US government has agreed to keep prices low-ish. I believe that gas is far cheaper in the US then in most of the rest of the world, and the price might not fluctuate with the US production, but that does not mean that US production is not needed for the government to offer as big savings as they do.
Troll is not a replacement for I disagree.
I'd bet you'd get a lot more than $100 a barrel if you sold it to a Jovian moon as the transportation costs are literally astronomical.
"Wait. Something's happening. It's opening up! My God, it's full of apricots!"
I'm selling to Europa.
Io, Ganymede and Callisto will be most displeased.
You do realise that gas prices fluctuate greatly in different locations, I think there are places where you pay over double what the US pays for gas.
Troll is not a replacement for I disagree.
When did politicians ever speak anything resembling the truth? Here in Norway we have a lot of oil production and we pay closer to $9 per gallon at the pumps. Most of it is tax. Why? Because we'd rather export the oil than burn it. It's ALL about jobs and foreign trade balance.
Just like the Appalachian coal that gets shipped to China. To me, that is almost the most despicable part of the whole mess. If we produce cheap oil or cheap coal, it gets shipped out of the country.
Not all of it, of course, but enough to ensure that domestic oil drilling effectively only reduces the international price of oil, where it is comparatively far less effective.
The Appalachian coal really gets my goat. I regularly see the trains heading to the nearby port, loaded over with coal getting shipped out. We are stripping OUR OWN MOUNTAINS and shipping them to China.
cej102937
Just opinion: what might bring prices down is how consumers come together on the issue. It wouldn't be a permanent fix--unless it became a regular thing--but if we for just one stinkin' day didn't buy gas, altogether, it would show what control we have. Get enough gas in the days before then hold a national boycott. One dumb day. It'll never happen, however, as the American public is ignorant to their own importance as what they can get done as consumers, too complacent and concerned about their own daily lives to care. We'll bitch and moan but do nothing about it. Still, it'd be nice.
You want to know how to help your kids? LEAVE THEM THE F*&K ALONE. --George Carlin
Basically you either have some form of protectionism or you pay the price that world markets will pay for your fuel. A company isn't going to sell it at $2 a gallon in the USA if they can ship it to Europe for $.10 a gallon then sell it for $3
effectively/effective, welcome to the department of redundancy department, sorry
you now have glowing articles in the state-controlled Associated Press shilling for the administration
Really? Did you catch this part of the article:
Politicians - especially those in the party that's not occupying the White House - have long harped on high gas prices when expedient. Then-Sen. Barack Obama said in 2008, when he was running for president, that "here in Ohio, you're paying nearly $3.70 a gallon for gas, 2-1/2 times what it cost when George Bush took office."
But Obama, who has seen gas prices go up 73 percent since he took office, was singing a different tune last week in his weekly radio address: "The truth is: The price of gas depends on a lot of factors that are often beyond our control. Unrest in the Middle East can tighten global oil supply. Growing nations like China or India adding cars to the road increases demand. But one thing we should control is fraud and manipulation that can cause prices to spike even further."
Sort of makes him sound like a two-faced idiot to me. On the campaign trail he promised to fix all this and now he's in the same spot as Bush with the same damned effect on gas prices!
And the idiocy of calling the AP "state owned" is really funny considering you just said they ripped on Bush and Cheney about a conspiracy. Hello! For 8 years, Bush and Cheney were president and vice president. If the AP was state owned and if they ruled for 8 years, why didn't they just dissolve it after publishing all those "conspiracy theories" you stated? The AP is a Not-for-profit cooperative that has been around since May of 1846 -- 15 years before the start of the American Civil War!
My work here is dung.
Yup. A lot of that is determined by government taxes on gasoline -- US taxes, by world standards, are quite low. Local factors certainly affect gas prices.
Just the threat of increased oil production will cause the price to drop...
July 11, 2008 a barrel of oil topped out at $145.08, July 15th Bush lifts ban on offshore drilling and by December of 2008, oil was down to $37.71 a barrel... and that was nothing more than a threat.
As long as it looks like (to the traders) that there is a "shortage" of oil, then they will keep trading high, that's how they make their money.
Thanks to file sharing, I purchase more CDs
Thanks to the RIAA, I buy them used...
Not to mention that oil prices are currently at a record low relative to other commodity prices. The prices are going to have to go up some time.
Indeed: The only time you get less-than-world-prices is when you can't ship your oil to a port, and have to sell it somewhere near you produce it. That's exactly what's happening with the Alberta oil/tar sands: It sells for a moderate price in Alberta and more when refined, but will sell for much more unrefined if it can be shipped to the Gulf coast or a port in British Columbia.
The Canadian and Alberta governments seem quite happy to not refine it, but sell it to, in the current proposal, China. This is short-term-smart, long-term dumb (;-))
--dave
davecb@spamcop.net
Since when is AP 'state controlled'? They are one of the oldest, most respected, and impartial news sources around.
Ok, now implement this in China. If you do it in the US alone it will have exactly zero effect.
Frankly, the link between oil prices and speculation is another thing that should be fact checked. Unless I'm missing something the only thing that adds significantly to the price of oil (aside from US sales and oil taxes, things that matter more than a few cents, however rich you think ExxonMobil is, their cut out of your $4 is 2-3 cents) is the money taxed out of it by the insanity that is the saudi government. And even that amount is dropping rapidly according to theoildrum.com.
So pretty much the only action that would have any chance of dropping oil prices more than $0.10 or so would be to invade a few countries in the middle east. And China wouldn't let the US do that. Do you really think that the massive inefficienciency that these regulations would impose would be less than the 2-3% that speculation + refining + transport + ... is today ?
Do not take this that I support speculation as an activity in itself. It's morally reprehensible when you think about the fact that a lot people need oil to avoid freezing to death. Then again, given that, speculation is not nearly as reprehensible as driving a Ferrari, or driving where you could walk or bike.
Drilling domestically might not lower the price of gasoline, but perhaps it creates a buffer in case worldwide oil flows are disrupted. That is, if all oil is imported and there is a boycott against the U. S., we are back to 1973, waiting in gas lines. If a local industry had to begin from scratch, prices would presumably be high for quite a while.
You're right but I would like to point out two things. One is that you seemingly forgot to mention the Strategic Petroleum Reserves that were created after that boycott. Despite what pure capitalists say about its influence on the market, this reserve still exists and has come in handy for taking "loans" out of during catastrophes. This would help us transition from foreign dependence to massive drilling at home.
... they have crazy revenues.
The other thing is that we actually do a lot of our own oil refining (especially in Texas). So, it's not like we're missing that huge part of the infrastructure, we import the crude and refine it on our soil. So really what we're missing is just the crude pipeline. The "local industry" you speak of is actually mostly already here to support us, all that's missing is the source and transportation of the crude (since it would probably flip from cargo ships to trucks initially?). What it comes down to is how long would it take a company to drill and lay pipeline? Probably not very long
My work here is dung.
It has more to do with who is producing the oil. In places where oil production is nationalized (like Saudi Arabia), one can find >100 octane petrol for ~0.25$/gallon.
while(1) attack(People.Sandy);
You can have 10 trillion barrels of oil, but if you can only turn 1M / day into gas, that is your limiting factor. (I'm using made up numbers to illustrate a point). I think that has always been more of an issue. Anyways, don't liberals want higher gas prices, to discourage consumption?
Two words: fungible commodity.
If you don't know what that means, Google it.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Storing large quantities of oil is very expensive, unlike, say, gold or diamonds. You can't hoard the stuff. Ultimately, the stuff has to be sold to consumers, and if high prices drive demand down (and demand for fuel is elastic, despite a lot of nonsense to the contrary) speculators will lose their shirt.
The reason why oil are prices are at historicallly high levels, and have been for the past few years, is that global demand has not kept up with global supply, mostly because China and to a lesser extent other parts of the developing world is buying more of it. Incidentally, this is exactly the same reason why a bunch of other commodities, including other fossil fuels, metals, and agricultural products, have gone up in price.
Any sufficiently advanced technology is indistinguishable from a rigged demo
--Andy Finkel (J. Klass?)
Why on earth would oil companies sell gasoline here for $2.50 a gallon when they can sell it in France for $10 a gallon? Gas prices are higher because we're selling gasoline overseas. Welcome to the global economy.
There's at least one domestic downside to America's growing role as a fuel exporter. Experts say the trend helps explain why U.S. motorists are paying more for gasoline. The more fuel that's sent overseas, the less of a supply cushion there is at home.
I still remember crowds of complete fucking idiots chanting, "Drill, baby, drill!!" Pathetic.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
This is the problem when journalists with political agendas pretend to be statisticians.
From the report:
This chart, produced by John Grego of the University of South Carolina, shows no apparent correlation between changes in gasoline production and changes in gas price at the pump.
This analysis, performed by economist Phil Hanser at the energy consulting firm The Brattle Group, confirmed the AP's findings -- that production does not correlate with the adjusted price of unleaded gasoline.
Political agenda or not, they got a third party confirmation. Of course this doesn't account for "production in other areas" because you can't control production in other areas! This report is to examine if, historically, domestic drilling has lowered domestic prices on the assumption that domestic drilling is the only thing we control.
My work here is dung.
A barrel of oil when priced in ounces of gold hasn't increased all that much. The biggest issue is inflation, which is 100% caused by loose monetary policy. Monetary policy is set by the need to borrow by the federal government. If the government didn't borrow so much, the Fed couldn't increase the money supply so much.
Yes, supply and demand is important, but you may remember that a few other things happened in late 2008? Things that might have had a little more impact on the supply and demand balance than the piddling amount of oil that offshore drilling might produce.
Any sufficiently advanced technology is indistinguishable from a rigged demo
--Andy Finkel (J. Klass?)
The price of oil (and thus gas) is determined by the price of oil on the market.
If, for example, you had a 1000 hectare farm in Idaho and found oil there, you couldn't just put in a well and get cheap gas or even sell it locally at a cheap price. It needs to be sold on one of the oil bourses at a price dictated by the market.
The US government is pushing the price of oil (and thus gas) up by being aggressive with Iran and destabilising the Middle East (where a large amount of the world's oil comes from.)
It is easy to understand why so many powerful people are pushing for the New World Order without the consent of the people, when there are so many stupid people.
Drill here, Drill now, does nothing but put more control into the US based oil companies and US government to be able to regulate it. I will NEVER cause a reduction in prices, unless the rich and powerful want to do so, and that will only happen if it benefits them.
Gas prices leap up on the slightest whim of the future's market rising, but they only go down very, very slowly.
As we know now, the whole "shortage" of the '70s and '80s was a lie when you consider shale extraction, so prices should be dropping drastically. But they won't, because there's a oligopoly propping up the prices.
Could someone explain to me why one of the most profitable industries in the world gets tax breaks and subsidies? Clearly with their multi-billion dollar profits, they don't NEED the subsidies and breaks to "encourage" them.
I do not fail; I succeed at finding out what does not work.
Speculation of this kind has a long history. G K Chesterton, nearly a hundred years ago, referring in passing to the scandal of the time, wheat futures buyers who were not millers or grocers trying to buy up the entire wheat crop in order to raise prices to whatever they thought would not actually collapse civilisation while making them rich. Currently, I believe, over 70% of oil production is accounted for by hedge fund futures. It is a classical cornering of the market - but it could only be addressed by sending gunboats to banana republics like the Bahamas, the Channel Islands, the State of Delaware and the City of London.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
Author of article, who apparently fails to undestand that correlation != causation, proposes repeal of the law of supply and demand. Film at 11.
Nonaggression works!
Do you actually understand anything about international trade at all?
When the Chinese send things like computers, clothes and TVs to the US they occasionally like to get something (apart from IOUs) in return.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
And yet prices in the US are a far more political issue than here in the UK, where our tax is much higher. Possibly because the US has much more of a 'car culture' - people drive bigger, less efficient cars, more often and for longer distances.
The advantage of energetic independence is that the government can set all the rules.
In particular, refineries can make long-term only contracts for oil purchase (usually 5 year long contracts). And there should be many purchase contracts, so you don't have to renew all of them at the same time. That way the shock of oil price spikes is absorbed , and you get a nice steady line if prices do increase over time. Predictable prices are very, very important for business and people in debt.
Instead of relying on the global oil price, the government can even set the rules backwards: take the cost of oil production, add royalties and corporate profits, and you have the national oil price. Of course that price can't be much apart from the global oil price, but it is a way of keeping everyone happy: companies, government and the public.
That is pretty much what we do in Brazil.
As mentioned above, it's speculation that drives the markets. That is to say, people try to gamble on the price of oil going up or down. So the actual production levels at the current date are not the entire story. The number of permits for new drilling has supposedly plummeted in recent months. If permits aren't being given now then in the future production is going to go down and prices will go up. Due to speculation ... the prices will go up now for the perceived drop in future supply.
To be clear, I'm not entirely convinced this is the only factor involved or even that it has some significant impact on the price of gasoline. It does however suggest why the amount of current production isn't correlated to current gas prices. They're not, they're tied to what people think future production will be.
Perish the thought.
It's better to vote for what you want and not get it than to vote for what you don't want and get it.
- E. Debs
Go look at the average price of gas in European countries. There's also a lot of reasons why we keep the prices high, one being to get inefficient gas-guzzlers off the road.
US oil production will only ever be a small fraction of world oil production. In a free market, all oil costs about the same. So the USA can't influence world oil prices much by increasing domestic supplies. By it could if it could reduce demand because it forms such a large part of the market.
I expected US oil production to be anticorrelated to price because US is out of its cheap-to-get oil. But when world prices get high enough many marginal Wells become profitable.
only 16% of our oil comes from the middle east.
The majority comes from us, then Canada and Mexico.
The reason prices are so high is because wall street speculators gamble on the price of crude and drive up the price artificially.
Find some statistical analysis that proves otherwise.
They're using their grammar skills there.
Couldn't it easily be the other way around? That during times that oil prices are increasing the producers, along with the government/public, are more likely to increase their drilling?
We know that the oil companies are the ones that dictate the oil prices, and how they feel that morning is how they will decide what the price of oil will be. ...the only way we would see change literally... is if people had small wells in all their backyards that they could become self sufficient, and have their own very small refineries....to produce their own oil, and one by one fall off the grid, so to speak....but with the way things are now, absolutely no way that the oil industry will go down without a fight.
We know that although they make trillions in profit each year, that they invest 0$ in upgrading the infrastructure in place to make more oil....as we have seen no new refineries show up. Anytime anyone tries to break into this market, they get shut down mysteriously. Then why were we to think that this would change....if we had local oil
What the politicians don't want you to know is that the production of crude oil doesn't affect the price at the pumps as much as the production capacity of the oil refineries. In fact, the US has been enjoying an oil boom in 2011 with exports of petroleum at it highest in the past 11 years or more (reference).
The republicans are using the seasonal nature of gas pricing (summer months mean higher prices) to pressure Obama into allowing the Keystone XL pipeline to be constructed through environmentally sensitive areas by threatening his reelection over an issue they feel the populace could rally behind. Welcome to election year rhetoric folks.
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
Two reasons:
1. When barrels of crude oil get cheaper, that just boosts the profits of the oil companies. Since all you fools buy the gasoline anyway at $3.50 or $4.00, why would they lower the prices?? You don't have any other choice anyway.
2. As long as US oil consumption is larger than the domestic production, the US cannot expect lower prices for crude oil.
The world oil market has shortages, and increasing production costs. That means foreign oil is expensive.
The US may have some domestic production, but domestic oil companies aren't gonna sell their oil far below the actual world market price... not if all the oil is sold at the same marketplace.
Look at Venezuela, Iran, and a couple of other countries that have a surplus of production. As a result, they import no oil at all, and domestically, they are able to keep the prices low. Also, those same countries don't play the capitalist game that the US likes to play.
It seems that some of the extra drilling is to compensate for reduced extraction rates as US oil fields get depleted, to keep overall production in bbl/day from dropping too fast.
With the cost of renting the drilling rigs, the labor, piping, and such expenses, it would seem add to the cost of US oil extraction for those depleting fields, and might help explain why 'extra drilling != lower fuel costs'
(I like the oil news discussion website http://theoildrum.com./ In my opinion it is a good place to read about oil production, speculation, and "peak oil".)
Uh, Linux geek since 1999.
When you run a busienss, what do you do?
Produce goods.
And for a commodity like oil?
Produce cheap goods
So, what do you do extract 1st?
The stuff that is cheap to get at and cheap to refine
So, why are people drilling more in the US today?
It is cost effective given current market rates for oil
Will this drive down cost?
No. It is more expensive to extract and refine than oil 20 years ago.
Then why drill?
Because there is demand for it.
--- should end here but ...
What is the alternative to hgh priced gas?
A different commodity that is cheaper to extract/refine
What is that?
Natural gas
------ I've said enough
The more common name for this is a commondity. You are right. This will only protect against trade blocks and will only save minimal transport costs.
oil is a commodity. Ask iran if petrol (the stuff you put in your car) really is a commodity
I do understand, and I do not like it. These mountains are home to me. I am unhappy when they get blown up and shipped away. But for it to be shipped to China? That grates my heart in a peculiar way.
"Progress" is not progress when it destroys the land for your children.
cej102937
Blathering liberals think we can solve this problem through reducing demand alone. Archaic conservatives think we can solve through only increasing supply.
They are both wrong and both missing the whole point of supply and demand - 'and'. You have to increase supply /AND/ you have to decrease demand. We can't conserve our way out of European levels of gas prices any more than we can drill our way out of them. We have to work with both and get the radicals on both sides of the equation to start compromising!
Gee, who could've thought that after our boy-wonder President has taken a beating in the public for blocking the construction of the Keystone pipeline
It's pretty stupid that he's taking a beating, given that building the northern part of that pipeline (which is the only part he's blocking) would cause the gas prices in the central US to go up. It would basically allow the current glut of dirty Canadian (*not* domestic) oil to bypass Midwest refineries and be sent directly to the Gulf of Mexico, from which it would be loaded on tankers for export to higher bidders.
Next thing you know, they'll determine that Iraq had no WMDs and no relationship to 9/11 and war in Afghanistan does not decrease terrorism, and our glorious leaders lie, and the sky is blue! What is this world coming to! I'm shocked!
--Coder
People, when the oil comes out of the ground... it doesn't belong to us. It belongs to the oil companies that drilled for it who sell it anywhere it will make a profit for them. Furthermore, our lying, double-talking politicians know it. Sen Bill Nelson proposed an amendment to the Keystone pipeline bill that would have banned exporting its oil. Drill here, drill now right? I mean to hear the political class it's the universally accepted answer to lowering gas prices at the pump. Prices go down if you increase local supply right? Wrong. The Amendment was predictably rejected. Oil is priced, bought, and sold globally. Domestic vs Foreign oil is an illusion.
Add to that the fact that every state in the union tacks on its own fuel tax. Ask anyone who has tried to confront the problem with fuel alternatives such as biodiesel only to find themselves in hot water over dodging that fuel tax. (http://domesticfuel.com/2007/03/27/homebrew-biodiesel-makers-running-afoul-of-tax-laws/). Any state could immediately lower gasoline prices by declaring a tax holiday at the pump... but don't hold your breath waiting for that to happen.
I agree with everyone here about the prospect of ending or at least more tightly regulating speculation... and if we can't do that, we can at least stop invading countries in the middle east and sabre rattling. It is no coincidence that gasoline started its rise around the time we invaded Iraq. Now that we find ourselves playing the same broken record when it comes to Iran, despite the numbers of Americans who were looking forward to bringing our troops home and reallocating our resources accordingly, it should surprise no one that gas prices are experiencing upward pressures.
If you want to lower the price at the pump, how about getting our government to get behind a foreign policy aimed at bringing peace and stability to the regions of the world where our oil comes from instead of looking for excuses to blow middle eastern countries back into the stone age.
The oil controversy is a farce. Did you know that the United States EXPORTS 47 thousand barrels of crude oil, and 2.9 million barrels of petroleum products per day?
(http://205.254.135.7/dnav/pet/pet_move_exp_dc_NUS-Z00_mbblpd_a.htm)
The coal that come from the Appalachian mountains tend to have high sulfur content therefore the mining company has a better profit margin if that coal is exported to a country that has more lenient emission standards than our own. On the flip side, we import a lot of low-sulfur coal for use in our electrical power plants.
Who are we? The mining companies are taking advantage of mining rights given to them decades ago and making a profit *shocking*. You act like it's some grand conspiracy...
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
First, the inflation-adjusted price of gasoline has increased over time, from $3.12 in 1979 to $3.58 in 2012. Second, the production of gasoline has decreased over time, from 255,185 barrels in 1979 to 168,287 in 2012. There are lots of ups and downs between these two numbers, but the trend line is pretty clear even to the naked eye. So, I'm not sure what the point of the article is. Maybe the reason the price hasn't gone down is because the supply has become more scarce.
"We receive as friendly that which agrees with, we resist with dislike that which opposes us" - Faraday
The price an importer pays to buy a gallon of refined gasoline in France isn't all that much higher than in the U.S. Sure, it's more expensive in France, because you have to pay shipping and there aren't that many refineries in France, but the difference isn't even close to 2.5 : 10. The price to consumers in France is so much higher in large part due to different tax structures.
.....Annnnnd if you believe that, you need to leave now and go kill yourself. When you open domestic drilling, it's more money in the pockets of the people running the country. Simple as that. It's the only reason. Oil money runs the US, and probably a lot of other countries.
More fun reading to see what your funding when you gas up that fat-ass SUV . You may as well be dealing drugs out of mexico.
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I'm selling to Europa.
All I have to say is...bull?
=)
Chas - The one, the only.
THANK GOD!!!
Is nothing to do with the price of oil per barrel essentially.
I will give you an example from up here in Canada where I live, specifically Victoria BC. The price here varies between roughly $1.12/litre and $1.39/litre (i.e. $4.24 to $5.26 US dollars. The exchange rate is $1 Cdn = $0.9997 US so no effective difference at the moment). The price per litre varies on a daily basis, with no real apparent pattern.
Now, our gas comes from Alberta as oil, is shipped to the US to be converted into gas, then gets shipped back north to BC (why we don't make it ourselves is beyond me).
The price goes up based on anything remotely bad in the news apparently. Revolution in Libya, price goes up. Bad weather, price goes up. Election coming, price goes up. Long weekend coming, price goes up. It drops periodically when things are normal. I have only seen it go over $1.39/litre once or twice and then only for a few hours. When it goes up at one station, it follows at the rest, same thing when it drops.
It seems to me that this price war has nothing to do with the price of oil internationally. I haven't noticed a pattern for the most part.
However, one change that does happen is if the price of a barrel jumps dramatically up, the price of gas jumps immediately - no matter that the gas we bought actually cost less. However, if the price per barrel drops dramatically, the price at the pump drops slowly if at all.
Its nothing more than an industry colluding to ensure they get the highest prices possible, combined with a government that is not interested in regulating it at all because they collect massive taxes on the sale of fuel.
So it doesn't surprise me that drilling in the US doesn't affect price at the pump - because the industry that sets the prices has zero interest in lowering the price of gas, they are milking it for all they think they can get away with, and with zero repercussions. Our NA society is built on burning fossil fuels, and nothing is going to change that any time soon.
"The first time I got drunk, I got married. The second time I bought a chimpanzee, after that I stayed sober" Arian Seid
Indeed, for those claiming it is all supply and demand - not manipulation for profit - why is it as demand for gasoline has been going DOWN, have the prices paid at the pump continued to go UP?
The outrage is not in the who, but in the what. The destruction will last for as long as the human species exists, yet benefits only a couple generations. Once burned, the energy is irreplaceably lost, and whatever we are making with it will last for another couple generations at most. The majority of what we make with it won't even last a single generation. Much of it barely lasts five years.
We lose our mountains to make 5-year gadgets? There's no conspiracy; just an incomprehensible degree of greed and waste.
Selfishly, I feel a little better if it at least benefits my own country. For our mountains to be lost to benefit another country feels like a mounded insult on top of a grievous wound.
cej102937
Here's the REAL question that rarely gets asked: why should fuel prices be lower? Fuel prices in other countries are much higher than in the US (with some exceptions in the Middle East where the fuel is subsidized to extraordinary degrees), mainly due to taxes. The taxes are there to limit consumption, while bringing in tax revenue to fund other services.
Is there a good reason why fuel prices should be low at all? We know there are costs associated with high use that aren't baked into the price of petrol. Arguably, we've never paid the true price for the fuel we use.
I understand that high fuel prices disproportionately affect the poor; rich people have more than enough money to pay for petrol. But that indicates other things wrong with the infrastructure of cities and how people move around.
Virtually no matter how you look at it, prices for petrol should be higher. On the extreme capitalist side, they should be higher because the product is in demand, the supply is dwindling and public opinion is getting harder to buy (oil spills, climate change). On the more socialist side, prices should be higher through taxes, to move money into providing better infrastructure for all drivers, encouraging better city layouts, and funding already badly strapped local governments. 'Because I hate paying more for something that used to be cheap' isn't really a reason.
americans horrified to also find that a majority of the oil they consume has nothing to do with the middle east, iran, or barack hussein obama.
"i just cant resist stomping this skinny black pedal every time i see a green light!!!" proclaims citizen.
Good people go to bed earlier.
"We" in this case refers to me, my family, the people in my geographical region who share the burden of local environmental problems, and the people in the political entity of the United States who collectively share the burden of allowing this monumental destruction of our children's land.
cej102937
To add to what necro81 said, petrol (for cars) costs more or less the same in the UK as in France (about $8/USgal). Most of the price is tax -- around 80%.
However, petrol for non-vehicle uses (e.g. chemical manufacture), where there isn't any tax, actually costs less in the UK than it does in the USA. It makes sense: the UK is nearer the middle east, and has refinery capacity as production from its own oil fields is decreasing.
I'm sorry, that one is *so* wrong, I can't let it go.
OIL IS NOT FUNGIBLE!
It looks that way to a fool or an economist because they conveniently don't think about the physical details. There is no meaningful way that a "barrel" of sulfur-laden tar extracted from a deepwater well off the coast of Brazil is in any way equivalent to a barrel of light sweet crude from a Saudi well a few thousand feet deep. Refining costs are much higher and energy return are much lower for the former.
In the la-la land of economics, this is all hidden in the aggregate price defined by the world market and encourages the delusional belief that low energy return, expensive oil is as useful as high energy return, cheap oil.
Please do not read this sig. Thank you.
There are a myriad of excellent reasons to drill for oil locally which have nothing to do with gas prices.
* Ethically Sourced is better
Why should we be giving ANY money to cultures that treat women (or other groups based on sexuality or gender) unequally?
That money is far better off going to either the U.S. or Canada.
* Environmentally friendly
It may seem counter-intuitive that more local drilling is better for the environment, but the simple fact is that we cannot trust other cultures to care as ugh about the environment around drilling as we can. Drilling or pipelines here can be monitored more closely and we can do more to clean up problems when they occur. There are hosts of environmental issues with wells around the world but you'll never know about them because they are swept under the run by tightly controlled government press.
There is also a very logical component to the issue though. The longer you have to ship something, the more likely there will be accidents. Currently we have a vast quantity of oil coming in by ships, and one of which can and do leak. Moving to more local production means eliminating the shipping of a lot of oil from large distances across the ocean.
* Local Jobs
Producing oil locally means more local jobs, end of story. It takes people to build out wells/pipelines, and people to maintain them. Even if the number of jobs once built is not very high, it is non-zero and it requires skilled labor.
That's a few, there are more (such as strategic or price leveling reasons). The fact is we have the oil and gas we need, we should start making use of it ASAP until alternative energy industries can come up to speed.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Just like the Appalachian coal that gets shipped to China. To me, that is almost the most despicable part of the whole mess. If we produce cheap oil or cheap coal, it gets shipped out of the country.
Not all of it, of course, but enough to ensure that domestic oil drilling effectively only reduces the international price of oil, where it is comparatively far less effective.
The Appalachian coal really gets my goat. I regularly see the trains heading to the nearby port, loaded over with coal getting shipped out. We are stripping OUR OWN MOUNTAINS and shipping them to China.
Meanwhile, half the middle east is stripping their land of oil and shipping it to the USA.
In my opinion, you should be taxing (90%, or something like that) mineral extraction, including oil, and investing the profit in the country (infrastructure, education, everything). It's despicable that a private company gets to make so much money from selling a national resource.
Of course, Saudi should also be doing this. (I just checked: they do: income tax is 85% for oil companies).
Iran and Nigeria are good examples where the subsidy on oil prices are causing effect you do not want. Those countriesa are importing refined oil due to the subsidies on oil. If you want to spend money, do not spend it on oil, spend it on thing that give the poeple welfare on the long term. Like education, healthcare, food.
So you and your family are the ones stripping your own mountains and shipping them to China?
My point is that you misused "We". You lumped all the US in with the mining company, yet it is only the mining company that is doing the actual stripping and profiting.
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
You've hit the nail on the head (so to speak) with respect to vertical monopolies. While there isn't a giant Standard Oil anymore, the fact that the oil companies control the entire lifecycle (in one way or another) from crude to finished product at the pump shows that we can have the weird market fluctuations you described. (Going quickly up, but taking its sweet time to go down in price.) The fact that gasoline isn't something that has very elastic demand because of the way it is used in every aspect of our economy lends us to the conclusion that vertical monopolies can leverage their monopoly status to keep prices artificially high in the face of real change in the marketplace.
It is funny that our refining capacity never meets the aggregate amount of oil we are pulling out of the ground. (It's more profitable to close the refineries rather than let price go down.)
We've seen the oil companies push prices up to a point, hear the outcry, then lower prices back down slowly so the average person with a busy life doesn't notice that gasoline spiked at $4/gallon up from $2.50. But they never seem to get back to $2.50... the price just stays up where it was, slightly below the heartburn level that caused the reduction in the first place. :)
When you have an item that most people depend upon (and businesses too), you can play fast and loose with the market and not fear losing customers. (I wish the electric car would put a damper on this practice, but I'm not holding my breath.)
It's the Stay-Puft Marshmallow Man.
First, where would gas prices be without domestic drilling?
Second, why are you inflation adjusting the price of gasoline when it is one of the largest contributors to inflation?
Third, there can be no long term analysis of the price of gasoline as the regulations (state and federal) have created a disjointed market.
Fourth, refiners have tried to switch to more sour grades of oil only to see WTI sweet overflowing in Cushing with limited places to go
Fifth, this ignores all affects of USD appreciation and depreciation which play a large part in the cost of the input (oil)
Or remove their subsidy if they can't price fairly. Or just do that anyway. Fuck the subsidy.
-Clio
Karma: Bad (mostly from not giving a fuck)
Blog: http://clintjcl.wordpress.com
I'm not a fan of strip mining since it places too much emphasis on profit over environment. There are better ways to extract coal but it costs more money than the mining company can recoup from the current coal market.
I disagree on your assertion that the benefits from coal is short lived since the energy produced by coal is used on more than just gadgets. It's also used to power manufacturing plants, hospitals, schools, home, and even research centers that specialize in alternative energy sources. It is what keeps electricity cheap and our technological, service, and consumer economy viable.
This sort of brings us back to your original argument:
There are no conditions given to the mining company on how the coal will be used. As soon as we start adding conditions, the same politicians whose rhetoric argues for domestic oil equals cheaper gasoline will soon produce rhetoric that big government is stifling business. I'm sorry they are doing both with the Keystone pipeline issue, since they are arguing that cheaper gas is more important than regional environmental concerns and government should stay out of private energy companies' business.
This ranks right up there with "Drill Baby Drill". Sure people demand domestic energy production, but only if it's not in their "backyard".
These comments are my own and do not necessarily reflect the views or opinions of my employer or colleagues...
It reduces what the middle man pays, not what we pay.
What do I know, I'm just an idiot, right?
"wonders why this decades-old empirical observation goes seemingly completely unnoticed"
It's a statistical truth: You can do months, even years of carefully detailed observations, data collecting, and statistical analysis. Then when you present the results to your boss or client, if it's counter to their preconceived notions, they will respond: "Hey, fuck off." And likely hire new analysts.
See also: How the pharmaceutical industry gets new drugs approved (FDA requires two positives studies; any number of negative studies are ignored).
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes
Who cares if it's a global commodity, the politicians said that home drilling would reduce the price of oil.
It doesn't.
Story: End Of.
We KNOW they were lying, we KNEW at the time they were.
But still it was demanded to be passed because it would reduce prices and help the poor out.
Now that it has been shown to be a load of bollocks, why will you now excuse them for lying about it?
Now, our gas comes from Alberta as oil, is shipped to the US to be converted into gas, then gets shipped back north to BC (why we don't make it ourselves is beyond me).
Since you live in Victoria, you should know that many people don't like oil refineries. Between the NIMBY people and environmentalists who want to discourage oil consumption, it is very hard to build a new oil refinery.
It seems to me that this price war has nothing to do with the price of oil internationally. I haven't noticed a pattern for the most part.
Correct. Like most businesses, you charge what you can get away with. In a normal market, there would be competition to lower prices.
However, gas companies often collude to raise prices (occasionally they get caught), and government policy has allowed many mergers in the gas business, so the number of competitors has dropped greatly.
Domestic oil production is irrelevant to the pump price because the United States uses more (way more) oil than it produces domestically. The shortage is made up with imports and those are priced at the world market level. Sure...we could force the domestic oil companies to sell domestic oil at a below-market price...but all that would do is create cheaper gasoline in the part of the country where the domestic oil was refined and more expensive gasoline in the rest of the country. The benefits of doing that (cheaper prices to the favored few) are far outweighed by the cost to the national economy of an artificial pricing scheme such as that.
In principal I don't disagree with your premise that there is more to pricing then just supply and demand. However I do also agree that pricing of oil has gone way beyond the foundation of S/D with added factors.
Were it purely S/D then when we see a quick run up of pricing then somewhere we'd have to see a dramatic change in either Supply (Iran oil is cut off?) or demand, (China dumps a gazillion cars on the road). However, Iran's oil had not been a big factor for US consumption, and given Europe is going to drop them, not a big factor for the west in general. As another post said, it is more the "threat" then the actual occurrence which seems to effect pricing on the supply side.
Demand in this country has actually dropped in the past couple of years. Again, overall in the west demand is either steady or dropping, but we do hear that South America is booming, China is growing, India is expanding energy needs, but are they doing so at a double digit rate to match the flash increase in oil and/or gas? Nothing in the news suggests such so it is hard to pin demand to the problem and say, see, the model fits.
The aspect of speculation does fit the pricing model for the simple fact is that it is reactionary and able to effect commodity pricing in short term bursts. Both Up and Down. We did not go from oil at $145 to oil at $37 in a short time frame because of S/D, deflating economy, and world issues. We did so because the market realized that societies would not be able to sustain that cost and sold off earnings before the fall, which helped speed the fall. The rise has been likewise with the market speculating just how much world economies can support the cost before another fall occurs. The current record was slightly over $4(g) in the US ($145 b/o). Can the US handle more, less...I think the point is that people and governments do not need this type of wild fluctuation in planning the future.
I disagree that locking out speculation, or requiring accepting shipment will drive speculators else where. They're hands are in many pots, oil just being one. Were the US and/or EU regulators to tighten requirements, "speculators" would bail on oil and attempt to hedge in other arenas. Clearly oil will run out someday. When may be the topic of barroom arguments, but countries can mitigate the downside, but pushing aggressively to convert a driving public to mass transit when feasible, and/or "other" energy vehicles (like NG or even better, electric or hydrogen). Right now I drive a gas guzzling pickup four times a month to haul horses around. At close to $100 a fill up I would LOVE an alternative, but they are either way to expensive (new car) or impracticable. given a healthy economy, and reasonable job market I would consider conversions, but for now, I just limit my use, and pray our leaders get smart.
Life is a great ride, the vehicle doesn't matter
Gasoline is not oil. When people buy oil it is at the global market. When you buy gasoline, it is priced at your local market.
So if the U.S. oil output does not effect the price, does this mean the U.S. can stop producing oil and the prices wont go up? For some reason I dont see that happening...
Turn it loose. That was one point in twenty-one, not *the reason*.
Lest you forget, when Bush left office, the price of a gallon of gas was less than $2
Lest you forget, when Bush left office, the global economy, lead by the U.S., was heading toward a bottomeless crash of unknown proportions and everybody slowed their purchase of oil products significantly. That is why a gallon of gas was in the $2 range when Obama came in. I don't know how we can expect healthy economic growth *and* low energy prices, nomatter what the source of the energy, at the same time. Simple economics would seem inform us that we can't have both.
"It's despicable that a private company gets to make so much money from selling a national resource."
I do not think I could have put it better myself. Thank you.
I also do not think government should get to make money from selling a national resource either, because the value is in the conservation of that resource; once you exploit it, it no longer has value.
cej102937
I drive a car, I enjoy electric light and water provided by the destruction of non-replaceable energy sources. I am at fault.
The mining companies enjoys their ability to extract a profit from the earth because US political entities (state and federal) lease public land to those mining companies. The US government sponsors and profits from these destructive mining activities. The people of the US allow this to continue. We are at fault.
Historically, countries have handled this kind of situation with trade tariffs. If you make it very expensive to export, then those materials will tend to remain domestic. An additional bonus is that this method is completely constitutional in the United States, whereas adding restrictions to mining companies' use of product is quite unconstitutional.
Coal is used for more than just gadgets. However, none of the edifices you described last more than a couple generations at best before they must be replaced. I will grant you that the benefit of good schools can uplift a culture for many generations; however, we have many more efficient ways to create these institutions, right now.
This is why increasing domestic energy production does not reduce local energy costs:
http://news.yahoo.com/first-gas-other-fuels-top-us-export-200739553.html
Want to bet how much of the oil transported to the Gulf of Mexico via the Keystone XL pipeline would actually end up sold inside the United States?
cej102937
Which is why Keystone is going to the golf coast
Good god, man. My eyes! I am hoping this was just a brain fart and you really do know how to spell "Gulf of Mexico".
Despite your lengthy reply, you did not answer the question. What are the mechanics of speculation that work to drive up gas prices?
Please.....walk through it slowly and speak to us as though we are Labrador retrievers.
You can't corner the market with multiple entities COMPETING to do so. What you lay out is out a classical cornering of the market. Hedge funds (who are competing with each other) can not corner the market unless they act in collusion. Some may, in fact, collude but that is very different from what you are arguing and it certainly doesn't mean they have cornered a market. If there were (1) hedge fund trying to corner a market somewhere, I might agree with you.
Methinks you need to go back and read up some more....
Invest != Trade. Did you actually read the article you linked to? Of course they trade oil and other commodities. They trade for their clients. However, Dodd-Frank specifically forbids them from "investing" (with their own money). Remember all the hullabaloo about "proprietrary trading". That's what it is when the Big Banks "invest" in commodities such as oil. That is not what they are doing.
You are the one who is wrong here. Big Banks are not investing "big time" in oil commodities. They are certainly trading big time.....but that is at the bequest of their clients. Big difference.
If you know exactly what to produce,
....and that is the problem right there. To date, no "authority" (country, king, politburo, etc) has even come close to knowing what needs to be produced, when, and where.
This has been one major difference between capitalism and the other models. Capitalism solves this problem by leaving it up to the market. Sure, there are few mistakes made but eventually the market fixes them (Adam Smith's invisible hand). That is not true in a centrally planned economy. Those mistakes live a long time and are usually never solved (see USSR and other failed communist states).
Trying to correlate price to production cannot succeed. It should be clear that the only possible correlation is production to price. Because oil is an international commodity, its price is largely out of US control, but domestic producers will produce when the price is high enough for them to make a profit and they will shut-in a well when the prices go lower. The correlation is more likely to be production fluctuating with a delay of three to four months in response to price fluctuations. An even better correlation may come from production to oil futures prices.
Are the Republicans wrong? Yes, because if we increase production, Saudi Arabia will reduce production by almost the same amount to leave the world supply essentially unchanged. Should we do it anyway? Yes, because it reduces the US trade deficit and makes the US more independent since we could produce enough to survive and let the rest of the world fight over oil if the other producing countries try to restrict production. Imagine a war without a US presence - well, we can dream can't we?
The US government have made it clear that we have no inalienable rights; any we do not defend vigorously will be taken.
Because otherwise it's SOCIALIZM! You don't want these companies to not make profits, do you?
Exploiting it is what gives it value... The solution to the problem you see is raising the cost of extraction rights, people buying less stuff and being willing to pay more (relative to their labor) for the stuff they do buy.
Agreed 100 percent.
Thus I find myself in a strange conundrum; I am frustrated at the rising cost of gasoline and electricity, yet I look forward to its increase.
cej102937
Oil will increase in price for a few years yet and remain available, but long before the wells are dry it will become useless. This will happen quite suddenly, in a few years.
I'm not so sure it will happen "suddenly" because there is a wide variety of oilfield types out there. I am hopeful that, if the supply decrease and price increase are sufficiently slow, there will be time for the energy economy to transition to other sources (gas/solar/fusion/magic).
You might want to look at this article from the arXiv blog. The authors of the paper basically say that for some values of consumer and seller reaction times to a change in pump price, a cartel-like behavior can emerge in the system without any actual conspiracy.
I'm not saying definitely that is what you're seeing, but it is an interesting suggestion.
for i in `facebook friends "=bday" 2>/dev/null | cut -d " " -f 3-`; do facebook wallpost $i "Happy birthday!"; done
Also, the value of major currencies, including the dollar, is going down, making oil look more expensive.
Except for ending slavery, the Nazis, communism, & securing American independence, war has never solved anything.
I agree with your first statement. Gasoline *is* globally desired and valuable. But the "gloom and doom" types who keep advocating we learn to "accept less" and "modify our lifestyle" in response are almost as ridiculous as those idealistic economists you mention.
There are clearly other options besides drilling for crude oil and refining it into gasoline. For example, the USA has one of the largest natural gas deposits in the world, and right now? For a cost of somewhere in the neighborhood of $12,000-14,000, it's possible to convert a gasoline engine into one that runs on compressed natural gas instead. The cost to use it (even considering it's in relatively little demand, so you're probably paying a lot more as a "niche" item than you would if it was mass produced and sold in quantities for most motor vehicles) is the equivalent of about $1.28 per gallon.
They do it right now at Lambert airport here in St. Louis, MO for their buses that transport people between the parking lots and the airport terminals, and I know as far back as the very early 1990's, the Stanley Steemer carpet cleaning company's vans were converted to run on it.
There's also the option of creating synthetic gasoline from other resources. I don't know the exact cost figures on that, but I believe I read it reaches a "break even" point where it's the same price per gallon as regular unleaded gasoline when gas reaches about $4.50 per gallon (and would drop from there as demand and its production increase).
I have to claim ignorance on this Pickens Plan proposal ... but does it simply say that all *new* trucks being manufactured for sale in the U.S. after a certain date must only operate on natural gas? Or is it another case of govt. trying to force the OWNERS to foot the bill to make the change to an existing fleet?
Because I'd be all for the former idea, but completely against the later.
Maybe it has something to do with the fact that we haven't built a new refinery in the U.S. in over 30 years?
Uh... I think there's an assumption here that the two are the same? If you've maximized the goods and services produced, and peoples' access to them, you should effectively be maximizing their quality of life in the process.
I know, I know.. it's popular to claim this isn't so ... That we've become too attached to our possessions and we'd be happier and healthier without all of it, etc. etc.
But here's the thing; we live in a world where most of the basic essentials cost money. You want clean running water and toilets that flush? You're looking at paying a water bill and sewer bill. You want a roof over your head? You're looking at paying a good chunk of change every month to someone ... whether it's a landlord or a mortgage lender. You will quite likely not even be considered suitable as a potential hire for a wide variety of jobs you'd like to do to earn that money if you don't have reliable transportation -- again, requiring money.
So I have to ask? Do you *really* still think you'd define a person as living a "better quality of life" if they're in some cave with no electricity or running water, and have no vehicle? (Never mind the lack of any modem forms of entertainment requiring electricity.) That's the extreme, but it's still the ultimate conclusion if you go down the whole path of "money is evil and we need to quit desiring it".
No, it's tax incentives for conversion and infrastructure.
Uh because France has more tax on it gas too.
Only thing with your explanation is, if completely true? It makes the oil companies look pretty incompetent. Why would I say that?
Think about it. If you're making a killing selling U.S. produced gasoline to France or other nations, you KNOW that by doing so, you're effectively choking off the supply in your own country. That means right where your own facilities are, you've got an ever growing interest in energy alternatives to use that cost less.
So wouldn't you want to leverage that to make MORE profit, while coming off looking like the "good guy" instead of the "bad guy" at the same time? If so, you'd invest in alternate, lower-priced energy solutions at home while selling everyone else that expensive gasoline! You could become "BP hydrogen solutions" or "Shell compressed natural gas" to Americans! With all the profits you're making on selling gas overseas, you could even afford to subsidize the up-front cost of new vehicles or conversions to existing ones - to create yourself new customers.
But instead, we constantly see these companies
All of your examples could more readily be explained by market forces. Oil companies do not set price, in reality it all comes down to interrelated contracts made between suppliers and large buyers/resellers. They lead to the price at the pump, which our dollars are just not big enough to dent. But you may notice that the large buyers and resellers _do_ want a lower price, as it increases their profits, and as such really do fight for every drop of oil. Also notice that the suppliers of refined gasoline are buyers of unrefined oil, so while Exxon is trying to sell high to Holiday gas stations and Delta Airlines, they are trying to buy low from those who extract the raw material, whether it be a Pennsylvania tycoon or OPEC. So even if Exxon controls everything from oil pump to gas pump, they have a seller on one side and a buyer on the other. OPEC came about because the Exxons and BPs of the world were paying novelty prices for foreign oil. It is one of the major counters to the vertical oil company. Also, there are several vertical oil companies and many others in the chain besides. If any one of these entities goes rogue and tries to corner the market, the other parts go crazy and find a different source. Ever wonder why gas prices usually vary by location and not supplier? Because at the local level, gas pumps must play by the local markets. So if Exxon tries to up prices to maximize profit, we just drive an extra block to a non-Exxon supplied station while OPEC sells oil fields to Shell. Add to all of this the effects of futures and speculation, and the market is highly antagonistic.
So no, no one entity can control price. And the equilibrium price is effectively non-existent because the whole market is so complex. My own belief is that the competing laws of limited supply and limitless demand mean that equilibrium could only be reached given alternatives that we have yet perfected. Unfortunately, if those alternatives require a complex supply chain, the economics will be the same.
I saw another correlation in the numbers. As domestic oil production went down the global temperatures increased. Therefore we must increase domestic oil production to lower global temperature.
It's for the children.
I am armed because I am free. I am free because I am armed.
The cost of crude oil is determined not by the supply, but by the price that speculators are willing to pay for it. Hence the suppliers makes bank, the speculator makes a dime and the end market is paying an inflated rate.
Of course domestic oil won't lower the cost, because that's not where costs are coming from. The domestic oil is being sold on the market for bank, and rebought at market price which is passed on at the pump.
We're so god damned stupid we put up with it, so, we deserve nothing less.
"No good deed goes unpunished"
local wouldn't be cheaper, since it would be priced competitively. So until local is sufficient to suplant remote, remote will set the price. That said, when local does reach appropriate capacity, that's when things should change.
it likely won't happen that way. but in my opinion it definitely couldn't even have happened any earlier than that.
What you call market forces, I call collusion. Because put simply, the price rises quickly to changes in the 'market', but fall _very_ slowly. And since there are very few oil companies in general that are players in the market, all it takes is a few agreements over a game of golf and all prices are the same, no matter who you buy from. I don't know where you buy gasoline, but in my neck of the woods, the prices don't vary by more than a few cents a gallon over hundreds of miles of freeway and back roads. Big Exxon/Mobil and BP (etc.) are all in it for the cash of course, and there's nothing wrong with that, but they (and the government through its general ineptitude) have created a market where the way to success is simply offering the product for sale. All the oil companies are slashing production to prevent a drop in prices, while at the same time manipulating the various stages of the process. (Irrespective of taxes levied of course.) What we see is just 12 years ago, oil was $25/barrel. (We all know about the huge increase in price back in 06 and 08.) In 2009, it settled to $50/barrel (on average). Yet the price of gasoline hasn't reflected that drop (going downward) as quickly as it did going up in 2006 or so when oil was flirting at $70/barrel, up to 2008 where it hit an historic high of over $140/barrel. As prices of oil go up, the price of gasoline reflects a very high spike compared to the cost of the barrel of oil (which for every gallon of gasoline was $.55 of the price in 2009.) How do we explain the rise of gas prices when demand shrunk almost 5.5% in 2008-2009 (in the US alone... not counting everywhere else)? Easy... not a complex marketplace, but collusion. Demand worldwide didn't outstrip the western world's reduction of consumption during the last recession. In fact, when there was a "glut" of gasoline, companies simply turned off the spigot and let supply shrink drastically. Yes, that is one way to keep prices up, but if, as you say, there's a complex market, why weren't there some oil companies willing to broaden market share by selling volume rather than markup? (Which would force those companies still restricting supply to keep prices high into a dilemma of re-up production or suffer market share loss and contraction of their sphere of influence...) If you plot the cost of crude oil per barrel with the cost of a gallon of gas over the last 20 years, you'll see that when oil prices go up prices rise sharply for gasoline, but when oil prices drop ($140 to $50 is quite a drop), gas prices stay relatively constant. If it were simply the market, it would come down more even as inelastic as gas demand is. Because if the marketplace was working, companies would be first to drop prices to gain market share and goodwill, forcing those unwilling to drop prices into a pricing war. That never happens anymore. It is a closed system, in spite of the international oil market, or perhaps because of it.
Ever notice that in the last 30 years or so "price wars" at the pump have gone by the wayside? Most companies, disparate as they are, have prices within $.05 of each other, with one or two stations at $.10 or so. There are none who take $.50 a gallon off or $1 off their competitors anymore... because collusion and vertical monopolies have created a market where companies get rich simply by selling. Of course selling "too much" will not get you invited to the oligarchy christmas party...
It's the Stay-Puft Marshmallow Man.
I have noticed in Canada that when the price of oil increases, the price of gasoline increases. Then when the price of oil decreases, the price of gasoline increases.
For a cost of somewhere in the neighborhood of $12,000-14,000, it's possible to convert a gasoline engine into one that runs on compressed natural gas instead.
It's can be even cheaper than that. A Civic GX CNG sedan is about $5,500 more than a similarly-equipped gasoline-powered Civic (before incentives.)
Lovely story but the reality is far less sinister than you may believe. For instance you assertion that:
Now, our gas comes from Alberta as oil, is shipped to the US to be converted into gas, then gets shipped back north to BC (why we don't make it ourselves is beyond me)
just plain isn't true. Here's how it really happens:
1. You dig the stuff out of the ground.
2. You put your stuff along with all its properties on the international market. If it's good stuff it goes for a premium price.
3. Supply traders go mental over this stuff at several trading floors around the world trying to find out if your stuff is the best to get at any given time. The trading happens just like any other fungible commodity.
4. The oil company who may find your particular oil properties desirable at this given date and time depending on how the refinery is operating then buys it.
5. It's refined.
6. The refined product now works its way back on the international market. Again if it's good stuff (low sulphur, low RVP) it commands a premium.
7. The oil companies who operate retail outlets then buy the cheapest stuff they can get that suits the local market. It may be from the US, it may be local, it may come in on ships.
8. Local retail outlets then compete with each other trying to keep the price up yet undercutting each other for a commodity product. This typically results in a sawtooth style price which starts high, gradually chips down as competitions drives prices down, until the point where the retail outlet can't make anymore money (which is often the same point for everyone) and then when the first one puts their prices up the rest follow suit (often slightly lower) starting the cycle again.
The big price swings and bubbles have nothing to do with collusion and everything to do with the two trading markets in between. Just like the stock market and other commodities market, the price is determined by psychotic speculators trying to make a dime by skimming money from between a buyer and a seller.
None of those reasons trump the reason we don't drill local more.
It's cheaper not to.
And, if oil is really running out, we SHOULD sit on our local reserves as long as possible.
It's cheaper not to.
False. With newer technologies drilling local always offsets shipping costs - ironically even mores as fuel increases in price and thus increases shipping costs.
And, if oil is really running out, we SHOULD sit on our local reserves as long as possible.
Stupid. Obviously we are looking at a roughly 50 year timeframe to ramp up alternative energy to significant levels. Do we have far more than fifty years of energy/oil in the U.S.? Yes, absolutely.
And in the meantime every decade we delay drilling locally means as I said you are screwing over the environment elsewhere. I'm sorry but I cannot make that tradeoff even if anything you said were true/not stupid.
You can go rape the earth yourself, I'll not join in.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
It's a supply and demand issue. If you match international gaps in oil production with domestic production there will be no net gain. Plus you are comparing international oil markets to domestic gas markets. There are going to be some issues with that comparison because it is not apples to apples. Particularly the sluggish lagging oil markets to the more nimble domestic gas markets. Or look at it this way... domestic gas markets are much more volatile than international oil markets. The slightest domestic issue can send gas soaring for the short term. Oil... not so much.
I am in the UAE these days... the cost of gas is nothing. I fill up my land rover for ~$30.
The global market does not affect UAE gas prices. Why?? Because the UAE government has decided the global market does not affect UAE gas prices.
120 characters ought to be enough for anyone
Some wells that you drill are for producing oil from. Some are for producing gas from. Some are for injecting water (or gases ) back into the reservoirs to boost pressures downhole and improve the production rates of other wells. Some wells are for appraising potential reservoirs which turn out to be uneconomic at less than (say) a sustained $150/bbl. Many oil reserves are not actually very suitable for production of transport fuel, or are more suitable for producing diesel than for producing petroleum. And some wells are drilled purely to replace other wells that are going off production because they've got some mechanical problem.
Even if you look at just the first factor mentioned above, the drilling of gas wells, you could have huge numbers of gas wells drilled in the US and absolutely zero increase in oil production resulting from that drilling. How much reduction in oil demand by fuel displacement (replacing heating oil with heating gas, for example) ... that is something I'll leave to American-interested energy-economists. I just find the damned stuff ; I don't care who sells it or what they do with it, because I've got my pay check by that point.
Oh, incidentally - fuel prices at the roadside are not the only figure to pay attention to. There are lots of other forms of hydrocarbon-based energy that you pay for too - heating oil for home, work or school ; gas ("natural", not "gasoline") as I mentioned above ; bunker oil shipping Chinese goods to your malls ; the energy that goes into the fertilizers for your cheap foods ; the un-taxed (I don't see that lasting much longer!) aviation fuel that propels you on vacation ... and many of these are also in competition with your car's engine for the liquid hydrocarbons that come out of the ground.
But why am I wasting my fingertips typing this ? - most people want to complain, not actually understand the problem.
Birds are not dinosaur descendants;birds are dinosaurs, for all useful meanings of "birds", "are" and "dinosaurs"
Someone has to a) match competitor prices, and b) pay for the spills in the Gulf. So, one way or another, the oil companies are coming out of this Scott-Free.
In our area, one station puts up the price, and the same day, all the other stations follow suit. When one station drops the price by one penny, so do all the other stations.
It is interesting though, when Oil increased by a dollar a barrel, the price at the pump went up the next day. When the price dropped back, it took 5 weeks for the price to come down.
Greed has no limits with an oligopoly
Leslie Satenstein Montreal Quebec Canada