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I also don't know how that chart proves anything. Since oil is a global commodity you would have to look at the price increase based on some average currency. Why? because the value of the $ over that period relative to other currencies is important to know. It affects whether the line is flatter or sharper. So when you consider the beating that the U.S. $ has taken compared to other currencies that will contribute some of the rise. And the cost will go up due to inflation also.
If you're buying oil and gas in Euros you haven't seen this type of increase; the chart would be much flatter.
Who is Earf and why is he the greatest mammal to ever walk?
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
Every day we as a nation use 20.5 mm bpd ( 25% of the world's output )
365 days per yr
300 million of us ( men, women, children )
( 20.5 x 365 ) / 300 = 24.9 bbl / citizen per year ( 44 gal / bbl ) = ~ 1100 gal / yr
Two thirds of this is for transportation.
Obviously adult drivers use more and children and non drivers use less.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
That would be an interesting statistic. How much of that 25% or the world's oil production is used to heat and air condition the 5000+ square foot homes and fuel the limos and private
It's almost nothing in comparison to transportation. Every day the world uses about 85 mm bbl of oil products for all uses. In the US we use 20.5 mm bpd for all uses.
Transportation here uses about 14 mm bpd ( which is more than any other nation on earth uses in toto )
heating, plastics, tires, etc use about 6.5 mm bpd
We have a HUGE need for lots of oil every single day just to fill our vehicles. No vehicles - no work - no food - no essential services - no money - no peace in the streets.
From a bbl we get about 30 gal of 'fuel' for transportation including gas, diesel and jet fuel. We use all three daily even if we don't own a dually or private jet. The other 14 gal from the theoretical barrel go into plastics, tires, rubber 'whatevers', power generation, heating fuel if applicable, etc.
Your prior post about the 'normal' growth of our demand linked with the knowledge that the big supplies are close to fully engaged and may be in decline normally would be enough to generate an increase in pricing. But ... then add a 20% premium just for the fact that the commodity is denominated in US$ which has fallen 20% this past year alone and one can see why speculators are buying more than selling.
Oh add a 300% jump in demand from China and India over the intermediate term.
Well, if there are more buyers than sellers..........we've all seen the result in the prices of our houses.
All good large businesses do this. It's often an internal process or arbitrage - sort of a self insurance function. The huge international steel company where I worked previously did it's own currency management. I'm sure Exxon/Mobil and all the others do it as well.
Oil is priced at $90 / bbl but it's also priced at about 65 Euro's / bbl. Well the Euro is more stable than the US$ now so it's much more beneficial to buy oil in Euro's as much as possible in order to avoid the inflation of having to use US$. Last year on Jan 2 oil was at $60 / bbl or 48 E/bbl. In US$ the price has increased 50%. In Euro's the price has increased only 35%.
Now where these large companies can may huge profits is in selling to us, the US consumer, in US$ while buying the raw material in the stronger currency, the Euro, and pocketing the 15% differential. I used to do this all the time in buying steel from one country in one currency and selling to another in a different currency. Buy in Italian Lira ( the Italian supplier is happy ) and sell in Mexican pesos ( the Mexican customer is happy ).
Another simple example. Huge international company ABC does business all over the world. It sells to customers in a variety of markets and collects all kinds of different currencies from Yen to US$ to CA$ to Euros to whatever. But they also have bills coming in from suppliers all over the world. It's German operation may have to buy some machinery in Japan. Rather than pay an exchange fee it just advises its Japanese operation to pay the bill from its Japanese banks where it collects its local revenue in Yen. Or the reverse.
The reporting for financial purposes back to the 'home' currency is just a mathematical conversion on paper. Little or no money actually is repatriated. It normally stays in the country where it's generated until needed.
CAN YOU DO THE SAME THING WITH TACOS?
On a percentage basis the US is using less and less of the world's output. In the last 10 years the US oil consumption increased by around 12%. During this same period global consumption, excluding the US, increased by over 20%. During this period China's consumption increased by 100% and India's by 50%. It's little wonder that oil prices would be rising when the dynamics that shape these prices has changed so dramatically. If people want to see a conspiracy or a boogeyman that's their choice.
This is specifically what the President's Commission on Energy ( heavily comprised of oil people ) reported to him last July. It is also what the Chairman of Royal Dutch Shell announced this past Sept. I see a lot of self-serving interest in these statements....but also an awful lot of truth as well.
I agree that all the 'easy oil' is identified and under production. No longer will we be able to punch a hole in the same and put buckets underneath to capture all of it. The new discovers will be hundreds of miles out to see in depths of 25000-50000 feet with huge billion dollar processing platforms and pipelines just to get it to shore. Or it will be in the tar sands and shale of NA's Rockies where it may cost as much as one gal of energy input to get 2-4 gal of output ... plus environmental recovery issues. It won't be easy oil by any means. It might mean that oil has to go to $150 / bbl before the developers deem it profitable.
Even with our relatively low taxation on fuel $150/barrel oil would result in gas prices of close to $5/gallon. I believe that our current $3/gallon fuel prices has already had an affect on our long term decisions, maybe not our day to day behavior. I believe that right now people that are buying a new car have increased the priority that they place on fuel economy. I believe that people who are moving or relocating are giving greater consideration to how long their commute will be.
$5/gallon gas will only amplify and accelerate this shift in the American mindset. The companies that are currently developing EVs are struggling with whether or not the American driver will pony up the premium for these vehicles. If gas is $5/gallon it's a no-brainer.
BTW, Israel recently committed to spending $200 million for tax subsidies and an infrastructure that will bring EVs into existence en masse starting in 2010. Renault/Nissan will be providing the vehicles. Another company, which I can't remember, will be installing the recharging stations.
"So what we were paying for oil in 1998 was artificially low and shouldn't be used as a benchmark for identifying trends ..... a 10 year chart greatly distorts the overall trend."
Yes, the 800% increase in oil prices since 1998 doesn't look so bad when you put in on a 60 year chart. And that 1929 stock market crash doesn't look bad, either, on a 60 year chart. All those people who complained back then were just distorting the overall trend.
Anyway, when gas was $1, it was artificially low. Then when it hit $2, it was still artificially low. But today at $3, it's the right price ..... unless it goes to $4. Then $3 was artificially low.
Whatever ..... the price I'm paying today is fair, because "the market" says so. And if I dare to question how a 20% increase in world demand equals an 800% increase in price, then I'm just not smart enough to understand "the market."
Oil prices rise for lots of reasons, like if there's violence in the middle east ($50/bbl). Oh wait, the violence is subsiding? Well, there's a possible oil workers strike in Nigeria ($60 bbl). Oh wait, that didnt' happen. Well, a hurricane hit the Gulf of Mexico a few years ago ($70/bbl). Oh wait, no hurricanes since then? Well, there's China and India, plus currency fluctuations ($80/bbl). Hey, look, nothing bad has happened in the world for a while ($100/bbl).
See, it's just too complicated for "little people" like me to understand. So why worry about it?
I feel much better now.
.
You hit the nail on the head. The price is fair simply because you ( and I and all of us ) are willing to pay the price offered.
The failsafe in all of these machinations is greed. Markets are in the long run always efficient. In the shortterm bulbs from Holland or beanie babies or houses or tech stocks or oil can appear to be irresistable 'Buys'. However there is a price today, tomorrow and the next day where there's a seller but no buyer. In the long run greed or better yet the need for self preservation wins out and the market settles to it's most efficient level where supply and demand is in balance.
Where I don't buy into your fear is it's not the traders themselves that are to blame. The ones to blame are looking back at us every morning in the mirror. As long as we continue to buy oil/fuel/gas at whatever price is offered at the pump then there is no 'next price which is too high'. The traders know this better than you and I do. It's OK for them to pay $.50 more than the last trader paid because they know that they can pass along this increase with a small profit because the US consumer will never give up it's personal transportation. They also know that the US Govt will never park it's military. They also know that the economy on the NA continent is so huge that it demands a constant flow of oil just to keep it chugging along and keep all of us collecting our paychecks every month.
This is the epitome of an efficient market. There is a seller and there is a buyer and we agree on a price.
The only way to keep prices from continuing to ratchet upward is to take away the demand. Increasing supply is an option but if the data is accurate this is not a longterm option. If there are no buyers ( us ) then the sellers ( traders ) have to reassess their purchases and not pay that last offered price, demand a lower one.
However for a lot of people this is a minor annoyance at best. Visit GMI or other enthusiast sites where trucks or performance vehicles are discussed. The very thought of GM reducing their options to buy high performance V8s and SUVs and full-sized trucks has a whole group of members up in arms ready to revolt and storm Washington. 'No one is telling me what to drive and where and how much I can spend on fuel!! If fuel goes from $3 to $6 it's only going to cost me an extra $40 every 7-10 days and I want to pay that to keep my [ fill in vehicle name ] on the road. It's my money I'll spend it the way I want.' As long as there's a buyer at a price then the seller is absolutely correct to charge what the market will bear.
Luckily this is not representative of the bulk of the population. But it's still significant.
How do you feel about Microsoft? Would you be OK with Microsoft driving all other software producers out of buisness and then have all of your computing options dictated by them? My guess is you would be howling in protest if that ever happened.
OPEC and Saudi Arabia in particular do not operate in market conditions as much as you would like to believe. Because they have near monopoly power over the market, they use that power to fix prices as they see fit. If we ever got serious about alternative fuels, they would "magically" find more oil or capacity to stifle prices so it is not economically sensable to switch. Don't kid yourself. They are a cartel with monopoly power and behave as such.
I don't doubt that as a cartel they do set volumes and prices and swap outputs but without us they don't exist. There is a price where we will stop buying though. We just haven't found it yet. That's the characteristic of a market.
OPEC doesn't even pretend to be operating according to the free market. That's the whole basis of their existence. The C stands for cartel. Unfortunately for us they aren't bound by our anti-trust laws. Now if all the oil traders have gotten together with all the oil producers and all the oil users and agreed to set an artificial price that would be collusion and illegal. It's a pretty far fetched scenario as far as I'm concerned but if true then I'm against it. But at that point it's not oil speculation that's inflating the price because there is no speculation involved.
Yes they would be distorting the overall trend. I could claim that oil prices are trending lower because in 1980 oil cost about $104/barrel in today's dollars. Right now I think the price is about $90. Clearly oil is getting cheaper or am I distorting the trend?.
Whatever ..... the price I'm paying today is fair, because "the market" says so. And if I dare to question how a 20% increase in world demand equals an 800% increase in price, then I'm just not smart enough to understand "the market."
I don't think you do understand the market. If I have a factory that operates at 50% capacity and all of a sudden my orders increase by 20% that's not a problem. But if my factory was already operating at 90% then I've got a problem and have to adjust the price accordingly. How much I need to adjust the price all depends on how elastic the demand for my product is. If my product is oil then the demand is not very elastic so the price will go up significantly. If my product is plasma TV's then I wouldn't have to increase the price that much to bring demand in line with supply. I think you can look at the world's oil producers as a factory that is collectively operating at over 90% capacity. That being the case seemingly small increases in demand will have a tremendous impact on price.
Your comment seems to imply that a 20% increase in demand should produce something around a 20% increase in price. So if oil was selling for $10 a barrel in 1998 it should be around $12/barrel now.
But fortunately for the non-OPEC nations now, OPEC has so much wealth accumulated over the last 35 years invested in our stock markets and economies, OPEC does not want 1) to interrupt our supply, or 2) raise the price so high that it triggers severe economic problems. They can control their output such that they get a "good" price, but not so high that it does severe damage.
OPEC probably makes more money on their previously obtained wealth, dividends, growth, and stock-price increases, then they made many years in selling that year's oil. It's just like many of us, who have investments in mutual funds (or real estate). After putting money in them for 25 or 30 years, investment returns on wealth is as important as what our paycheck is.
OPEC wants to get a fairly high price for oil, but does not want to hurt the Western economies.
That depends entirely on who is in charge. There are many over there who would gladly sacrifice wealth to see us crash and burn.
We need to stop funding NASA so well for a few years and pour the money into alternatives to gas. Full electric, Hydrogen, whatever. I view this as a national security issue.
We weren't weren't talking about the future - as the possibilities are endless. We were talking about the present and recent past. The people in control of many of the OPEC countries are the ones with the wealth, and are the ones who want to maintain the staus quo of the world, moderately high oil prices and moderately good economic growth. We were discussing this in relationship to whether OPEC would want the price of oil to increase drastically.
We need to stop funding NASA so well for a few years and pour the money into alternatives to gas. Full electric, Hydrogen, whatever.
NASA is a small amount of the budget, and is even small compared to the amount of money we have just been designated to get as a "rebate". So the government could have spent $ on alternative energy, without touching NASA or any other program. Secondly, electric and hydrogen are not energy sources; any more than steam or batteries are. You need to have energy (solar, wind, nuclear, geothermal, hydro, coal, natural gas, wood, or oil) to make steam, charge batteries, or make hydrogen. We get most of our electricity from burning fossil fuels like coal and natural gas. And because we didn't like to handle coal and its sooty, many houses instead burn oil for heat.
Someone suggested that we should do away with the commodities market and just let the oil producers sell directly to the users of this oil. Brilliant idea. So I'm Saudi Arabia. This is what I do. First I break off from OPEC. Then I create a website where people submit orders for my oil. I think I'll set the price at $120/barrel. Someone visiting my website might think this is a total rip-off, I'm not going to buy oil from them. Guess what, not buying Saudi oil isn't an option. That being the case all the lesser producers know that they just need to price their oil a little under the Saudi price and they will sell out. So you no longer have OPEC or a commodities market and have replaced it with one country that sets the market price.
In the history of the world Saudi Arabia is in a very unique position and if I was running things I'd exploit it to the maximum benefit. The idea that the Saudis are too invested in US equities to risk harming our economy is a little suspect. I'm sure there are some sheiks that are personally very heavily invested in the US that would not like to see these investments tank. However if you were actually running this country to benefit Saudis in general that would be irrelevant. The Saudi economy is roughly $400 billion GDP. This is mostly derived from the sale of oil. If you had a government that actually worked for the people you would set a price for oil that would maximize the benefit to your economy. What it might do to individuals portfolios would be irrelevant. That's obviously not the case in Saudi Arabia. We [non-permissible content removed] that they don't adhere to free market principles but are glad they have a monarchy that put's their interest above the country's interests.
I don't pretend to have a clue as to the extent the Saudis are invested in US concerns, I do know it is enough that they do not want US to go belly up. Same with Canada and Mexico. One thing that FDR did when he made the agreement with the Saudi Monarchs was to keep the oil prices based on the US Dollar. That of course fluctuates as we are all aware. The other side of FDR's promise to the Saudi Monarchy was protection, FOREVER. That is a commitment that must be kept and is in our best interest. Saddam was headed for total domination of the region including Saudi Arabia in 1990. We should have finished the job then and did not, why we did not, I don't know. We have finished the job now and what ever the outcome we have to face it. For the foreseeable future we need Middle East oil. We cannot think about pulling out until it is all gone. Of course by then they may own US lock, stock and barrel. It is like sleeping with the enemy. So far NO ONE has come up with a decent alternative.
I promise not to drive for a month to offset my $4 a gallon carbon usage.
Saudi sounds a bit like Alaska - 75% of their budget revenues is from oil, there's not much arable land and the place is full of destination workers from elsewhere. (link)
I think that most Saudis do not work. They have Egytians doing the work. And US citizens working for Aramco. I turned down a good job over there. I found out you cannot look at the women. That would be hell on earth.
2014 Malibu 2LT, 2015 Cruze 2LT,
link from GCC article
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If it can be registered in England, why not here?
Yeah, just like the same excuses from the Big 3 for NOT producing fuel efficient cars.
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http://www.marketwatch.com/news/story/oil-may-hit-70-weaker/story.aspx?guid=%7BF- - 2C0E9BB%2D0F06%2D4056%2D9567%2DF32923CD81D5%7D
Of particular note and what I worry about most "A weaker dollar makes dollar-denominated commodities, such as oil and gold, cheaper for buyers holding other currencies." I believe our economic policies of the last 20 years - whether Dem. or Rep. controlled - have weakened this country. I'm not going to get into all the reasons; but the fact is the $ no longer is worth what it was. And when that happens the oil/gasoline can flow elsewhere to others who have the money (all they have to do is offer more than we're willing to pay).
Additive shortage
2014 Malibu 2LT, 2015 Cruze 2LT,
"What is known, however, is that refiners are hiring companies such as UOP LLC of Des Plaines, Ill., to determine whether they can increase the capacity of their existing alkylation units. "In the last year or so, there has been a significant uptick (in business)," said Ashis Banerji, director for refining at UOP, which licenses alkylation technology to refiners.
And the 36 percent of domestic refineries that don't have alkylation units are looking at adding them.
"Our impression is that refineries are moving as fast as they possibly can to add alkylation capacity," said Jim Pawloski, business director at UOP competitor DuPont Clean Technologies, a unit of DuPont Co. He said his unit's business has jumped five-fold over the past five years and will likely double again this year."
Also: "That also highlights the conundrum that is alkylate: If too many refiners decide to spend big bucks to crank up production, the premium prices now enjoyed by alkylate makers could disappear.
Refiners have to weigh the cost of such an investment against the incremental cost of simply buying the extra alkylate they need. "I'm not sure that it would be economical," said Jeff Hazle, technical director at the National Petrochemical and Refiners Association."
Many businesses make the decision to buy raw materials rather than make them themselves, because of the economics. I would guess that one of the major problems with adding these process units at a refinery is getting the building site permits and environmental permits to build such a process. That could take years and many millions of dollars before the first shovel-full of dirt is thrown!
I hope they put that money to good use, something I’m not going to hold my breath over.
I paid $2.95.9 for RUG in Gig Harbor, WA this week at a Shell station.
Hey, they give 5% back, so about 15 cents/gallon with $3 gas.