Off Topic but interesting read

[TimMoulder]

I saw a report lately that said as much as $20 per barrel of the price of oil is driven by - the commodity market. I'm not clear on the mechanism, but speculators wild-catting oil are causing the prices to rise ina sort of bidding war.

TM

 

[darrenj]

LOL every once and a while the govenment will look into "Price fixing" and they never find anything..(Not that they could find there own *** with a flash light and two hands!!)

price fixing does occur...but boycotting a station wont do anything..as the link above said..the only thing that will work is to stop buying fuel..and that aint going to happen..so we may as well suck it up and get used to it..or make a major change in our lifestyle..

D

 

[harryting]

LOL every once and a while the govenment will look into "Price fixing" and they never find anything..(Not that they could find there own *** with a flash light and two hands!!)

Uh, not quite true:

My ex-employer:

http://www.antitrustinstitute.org/recent/92.cfm

Read the book "The Informant". From the book I learned I was in the hotel about the same day as when the FBI agent was meeting the informant out back in the parking lot...

 

[Terry Woods]

I accuse the oil companies of acting in collusion. That is, the oil companies are acting effectively as a single-entity, a monopoly, including "price-fixing", where the various members have agreed to operate "within-a-range". The purpose of the "range", of course, is to give the impression that there is indeed at least some degree of competition (the same game that OPEC plays). In which case, if competition exists at all, even if it is within an "agreed range", then how can anyone claim that there is collusion?

If the oil companies are not acting in collusion then it should indeed be a very simple thing to employ the only tool available to consumers. That tool, as described by Adam Smith, and named by the Irish during the Great Famine, is the "boycott".

<Begin History Tangent>

It's very interesting to study the Classical Capitalist System, as described by Adam Smith, and then look at how the English DID NOT employ that system, at least not fairly so, with respect to the Irish. Instead, they simply looked at the lowly Irish as nothing but labor, not participants in the game, but rather, nothing more than slave-labor. Does anybody see anything wrong with this picture?

During the 19th Century, under English rule, the Irish were subjected to outrageous levels of rent for their own lands. Going along with the English, as a fact of life, the Irish were willing to pay the undeserved rents to the "landowner". However, like all people everywhere, they expected to pay no more than was reasonable in terms of the conditions as they existed at the time. They expected, and had every reason to believe (until they learned better), that they should at least be able to survive under the conditions as they existed at that time. The landlords, however, made no, or at least not enough, concessions in light of the conditions as they existed at the time.

In this particular case, the landlord was the Earl of Erne in County Mayo. He was an "absentee" landowner. From the Earl's point of view, he might have said, profits come first - conditions be damned! The Earl might have, or might not have, been concerned with the conditions of the Irish workers. But, in any case, the "agent", the "agent", one Charlie Boycott, did NOT pass any considerations that might have occurred down to the Irish.

Such being the case, in 1880, an Irish politician named Parnell, and the Irish Land League, decided to enlist the locals in an effort to over-turn the state of affairs, at least in the local area.

There was an announcement of intent to deprive that estate of resources if it didn't reduce rents to reasonable levels. Boycott did not reduce the rent levels. Whether it was because it would affect his "cut" or the landlord didn't care, the reduction to reasonable levels didn't occur. The Irish then agreed to remove ALL local support from that estate. No servants, no services, no Irish-consumer activity, not even Mail service. The Earl's estate was isolated, totally isolated. There was no longer any profit from that estate. The estate failed. Since then, that action has been known as a "Boycott".

That was the beginning of the long, long, path to Irish Independence (however, only to the extent that it occurred - without the Northern Counties - we do, however, keep working on that last part).

<End History Tangent>

So... If, indeed, the oil companies are truely competing, then each could feel the effects of isolation. If not, then... does that not give cause, for the public on the whole, to pursue "trust-busting" and employing "regulation"?

No, lancie...
I can't start an oil company. However, that doesn't mean that existing oil companies should be allowed to hold the country hostage. Teddy was right!

"We, the People..." can exert an awful lot of control over the current state of affairs... if only we consider carefully and do what has to be done... at the voting booth!

So, if we all, the country on the whole, decide NOT to buy from Shell... what could, or would, be the effect? After all, what are they offering that is better than any other station?

I think it would be unwise to not buy from Citgo (Venuzeuela).

 

[Peter Nachtwey]

Get over it Terry.

Buy some oil stocks. Buy some oil futures.

Is it too hard to understand that you are bidding against the Chinese and the Indians let alone the rest of the industrialized world. Our oil is still cheap compared to other places.

 

[Lancie1]

Terry,

I happen to be working night and day on designing a new Shell subsidiary plant near Baton Rouge to provide (what else?) more and cheaper oil. I know that Shell is spending much of their "excessive profits" on buying new drilling rights in the States, and building new catalyst producing plants. This is the first time in decades that the oil companies have enough money and government encouragement to actually expand refining capacity. inadequate refinery capacity is one reason why gasoline is scarce and prices are going up. Unfortunately the new capacity will not come online for years.

 

[Terry Woods]

Meanwhile...

The head of Exxon gets a $400,000,000.00 retirement package...
(that's Four-Hundred Million!).

Since bonuses, and such, are based on performance... Exxon must have done very, very well indeed! Did they do "very, very well" because they improved their processes so that they could increase their profit margin without increasing prices?

No. No they didn't. You said it yourself... "This is the first time in decades that the oil companies have enough money and government encouragement to actually expand refining capacity". They are using the same process that they used decades ago, and the price of their raw material has been going up, up, up... and yet, somehow, they are experiencing record profits! These profits are record profits in terms of all capitalist companies in all of capitalist history!

It's a simple matter of grade school math... for every 1% increase that the oil company has to pay, the oil company passes an increase of 1.5%, 2%, or more, on to the consumer!

The "woe is me" excuse is that the oil company has to pass on the increased cost just to stay in business. I don't have a problem with that. However, I do have a problem when they artificially inflate that increase and pass it on to the consumer... that is called, GOUGING!

And like Teddy Roosevelt said, if any company, or group of companies acting in collusion (a Trust, or Cartel), can bring the country to its knees, then that company, or group of companies, can not be allowed to hold the country hostage!

The fact is, as things stand, the oil companies have us by the short-hairs... and they are taking full advantage of it.

An interesting concept to keep in mind is... they can't afford to go out of business! Simply on the volume that they are dealing with, if they can maintain a 10% margin, they are doing GREAT! (Without the 400-Million Dollar bonus for the CEO.)

There are some people that would love to "corner the market" on Clean Water. Others would love to "corner the market" on Clean Air. In other words, there are those that would love to make every living person pay a price (to "those") simply for being alive!

Holy Cow! Shades of George Orwell and Max Headroom!

Just as the Communist System was ba$tardized into a greed system for the elite... which was absolutely contrary to the basic tenets of Communism, and likewise with many Socialist Systems, the same ba$tardization is occurring in the Capitalist System as WE practice it. We don't even have free markets in our own country - how can we expect to develop free, and fair, markets with the rest of the world?

In the movie "Wall Street", the character played by Michael Douglas said... "Greed is Good". And then, of course, through the course of the movie, his character learned that greed is not so good. It's a "goes around - comes around" kinda movie. The lesson, of course, is... like Spike says, "Do the Right Thing!"

From my point of view, the American Capitalist System, as regulated as it is, or not regulated, by the Political System existing at the time, is simply NOT doing the right thing! It appears that there are too many kids from the 80's, where "GREED" became "the" byword and thus the "mantra", in positions that affect the way that business is currently being conducted. This attitude, this perception of how things should be, is not good.

The Capitalist System has done a radical turn-around. Adam Smith would choke! There was a time when later-investors looked for a company that was producing a worthwhile product AND one that had a stable work-force. The product speaks for itself... it's good, or it's not. The next most important factor was the stability of the work-force. The key to having a good and stable work-force was having good employer-employee relations.

Savvy potential investors would look very carefully at how the actual producers of the products, the employees, were treated by the employers. If employees existed in a slave-condition, the outlook was not very good.

Since then, the condition under which employees worked became a lesser issue. And later still, with the introduction of the BANE of any business trying to be consistent and stable (i.e. DAY-TRADERS), now, instead of doing what is good for the company and the employees, which only helps to stabilize the company, companies are forced to respond to the influences of the investors, as dictated by the Board.

The investors control the membership of the Board. The Board answers to the investors. In general, it would not be too ridiculous to say that they, the Board and the Investors, don't know the product, nor the process, nor the actual business behind making and delivering that product. And yet, in today's world they, the Investors, have control of everything! And all they want is to make much profit, and make it fast! They aren't interested in simply being invested in a company that produces a solid and decent product that makes a decent profit over time. They aren't interested in keeping American Workers in the equation. They, the Day-Traders, simply want more, and they want it now! That is the very definition of GREED!

With respect to humanity, there is a basic, fundamental, flaw in the concept of Day-Trading. That flaw is called "GREED"!

 

[elevmike]

Since then, the condition under which employees worked became a lesser issue. And later still, with the introduction of the BANE of any business trying to be consistent and stable (i.e. DAY-TRADERS), now, instead of doing what is good for the company and the employees, which only helps to stabilize the company, companies are forced to respond to the influences of the investors, as dictated by the Board.

This hurts some, but I've gotta say I cant totally dissagree with that. Way too often Boards & Day trading investors are way too focused on the day to day stock ticks, rather then the long term health of the company. Cut costs & increase short term profits in a race to drive the stock up. Nevermind about what happens to the stock when the product turns out poorly, that will be somebodys elses future problem....

 

[MarkTTU]

An interesting concept to keep in mind is... they can't afford to go out of business! Simply on the volume that they are dealing with, if they can maintain a 10% margin, they are doing GREAT! (Without the 400-Million Dollar bonus for the CEO.)

I hate to point this out Terry, but 10% margin isn't very good. No, really, it isn't.

If I make more total dollars than anyone else has ever made while selling widgets did I have a good year? Well probably, BUT there is another question. What if the return on investment (ROI) worked out that I could have invested the same total of dollars I put into widgets into CDs and come out with even more total dollars or even the same total dollars? Then did I have a good year? Well, no, not really. So here is my question; what is the return on investment for the oil companies? Are they making 5% per year on the money they have invested? 10%? 20%? The total dollar return is irrelevant.

It was suggested earlier that if you think that the oil companies margins are too high then why don't you start your own oil company? Your response was that you couldn't start your own oil company; why? You never explained why you do not think you can start your own oil company. Is it that you don't think you could build a refinery, buy some oil rights, drill a few wells (several before you found any oil), refine the oil, distribute the gas, and charge less than the current companies and still break even? Or is it that you don't think you could find anyone willing to invest money in your oil company given the type of ROI you could give them on their money while charging less than the existing oil companies?

Lets face it; the bottom line is the bottom line. I know that I am fortunate enough to work for a small family owned company where money isn't the end-all be-all of life, but even in our little company if we don't have a good year and the return on investment isn't very good then bonuses aren't very good; if it happens for very long then the company will cease to exist. The money my boss and his siblings have invested in the company should pay some sort decent of return and if it doesn't then they should take their money out of the company and put it to work somewhere where it will.

 

[Peter Nachtwey]

I agree with some and disagree with some.

I agree that too many of the corporate officers get paid way too much. I don't see where or how they are adding that much value to the value or profitabilty of the company. I don't think companies give a hoot about the day traders.
They do care about stock price though.

Nevermind about what happens to the stock when the product turns out poorly, that will be somebodys elses future problem....

That is the whole idea behind options. If the stock values doesn't increase because of their good managment then the options are worthless. The problem is that many stock options are issued 'deep in the money' so they are worth lots even if the price of the stock doesn't go up.

 

[SD_Scott]

Why haven't the big oil companies built new refineries? They knew decades ago that the world would produce approximately 85 million barrels per day maximum. Today the world produces 85 million barrels per day. We may have a refinery bottleneck right now, but not for long. Soon we will have a real crude oil shortage.

What kind of crude? The good stuff. Light sweet crude. The stuff that comes out of the ground looking like beer and goes through an American refinery like cream corn through a goose. It's history.

Saudi Arabia is [THE] swing producer, Right? If it was as simple as turning the tap, then why is Saudi Arabia purchasing so many drilling rigs and water injection systems? Saudi Arabia chose to employ EOR(Enhanced Oil Recovery) very early in their oil fields life cycle. This will result in a very steep decline in their production in the near future (maybe now). Don't bet on Saudi Arabia.

1965 was the world peak year of discovery. From statistics, it's known that production mirrors discovery and peak production usually happens 30 to 40 years after peak discovery. The fields in the middle east were discovered in the 30's, 40' s, and 50's. The last great discoveries were made in the late 60's. (Alaska and the North sea) Both have long since peaked and are in irreversible decline. The super giant land based fields were discovered with the naked eye.

The united states crude oil production peaked in 1971, and has been in decline ever since. It was predicted to do just that as early as 1955 by legendary Shell geologist M. King Hubbert. The bell shaped curve that every pressurized oil reservoir exhibits during it's production life cycle has been named the Hubbert curve.

Every decision that the oil majors have been making is because of peak oil. How does an oil major find oil today? Mergers, not drilling . Bush and Cheney know of this issue all too well. They were consulted during their 2000 election bid by Matthew Simmons. Matt is the world expert on Saudi Arabian oil. Check out Matt's book "Twilight in the desert".

 

[kamenges]

One of Terry's positions seems to be that the capitolist system is very askew today relative to energy prices, for a number of reasons. I would submit that the opposite is true. I would submit that for the past 20 years or so, discounting some short-term blips, that energy prices have NOT been arrived at in the normal 'what the market will bear' fashion.

I submit as evidence the recent activity of the average consumer, of which I consider myself one. Over the past couple of years energy prices have doubled. However, the general consumer hasn't even batted an eye. Sure, people are whining about prices. But SUV sales are still going stong. I, for one, live 25 miles from my place of work for no other reason that convenience. When I fly for business I still see hoards of leasure travelers.

I have not seen any cases over the past 20 years or so where the actual cost of energy has caused the American consumer to modify their actions. Sure, general economic downturn has made people change what they do. But simply looking at the cost of energy, with the possible exception of California, people just whine about the price and move on with business as ususal.

What this tells me is that the oil companies have NOT explored the outer reaches of what the market will bear. If they had we would have been at $3/gallon in 1992. There are two general methods of setting prices. Set the price at cost of production plus some desired profit margin or set the price at what people will pay for the product, assuming you meet some minimum profit margin. It seems the oil companies have been operating for a long time on the former method and have recently switched to the later.

While on an intellectual level I appreciate Terry's love of the Communist ideal, at some point we all need to leave the halls of academia and view the world as it really is. Communism didn't (generally) fail because it is an inherently bad concept. It failed because it completely disregards the human condition. The human condition dictates that to a greater or lesser degree people will act in their immediate best interest without consideration of the greater good or how the greater good may serve their personal good in the future. If you count on people to act for the greater good you will be disappointed more times than not.

Also, while this cannot explain all the increased profits, you need to accept that 1% of $40 billion is 10 times greater than 1% of $4 billion. The worlds hunger for energy has been increasing at a horrendous rate. Even if the energy companies completely held the status quo their profits would increase simply due to the increase in the volume of energy use.

Keith

 

[LadderLogic]

Here is one particular yet closely related question: has anyone looked into the viability of swithcng the railroads in U.S. to electric power - as one possible means of decreasing oil consumption? It is no secret that electric locomotion in U.S. is not widely used; most of the engines are those gas-guzzling gas-turbine types. Which was fine while oil was cheap and abundant.

A policy pushing the railroads to switch to electric power (by means of taxes, grants etc.) might shift the energy production from oil to electric power which, in US, means mostly coal (if I am correct). Not to mention some improvement in air quality around the railroads (well, a coal plant is still a coal plant, electrified railroads or not).

Opinions, if any?

 

[elevmike]

Ladder Logic,

Actually they are electric power. The engine drives a generator, which drives an electric motor. The problem is engineering economics. Supporting a grid infrastructure to bring the power to the long distance rails would be way too costly to build and maintain. Most all electric rail traffic anywhere is short to med. distance commuter rail.

 

[Tom Jenkins]

If you drive through the west and see the long runs of the Union Pacific trough the Dakotas and Wyoming you will see that the economics don't look good for electric trains in a large segment of the country. It might work in the Northeast, and certainly light rail in urban transit makes sense for electric locomotives.