OIL QUESTION

[Bill Greenwood]

I am not an oil expert, othe than knowing how to pour it into a Merlin, and wipe it off the belly. But oil/gas is up 44% JUST IN 2008!!!! I don't think demand went up 44% or supply down 44%. Some other factor must be dictating.

[T2 Ernie]

I am not an oil expert, othe than knowing how to pour it into a Merlin, and wipe it off the belly. But oil/gas is up 44% JUST IN 2008!!!! I don't think demand went up 44% or supply down 44%. Some other factor must be dictating.

Did you read my post?

Oil is NOT/NOT bought/sold in a free market. Period. So supply/demand, while heavy on influence, are not the sole factors that drive the oil market....

[T2 Ernie]

We buy ALL of our oil on the common market. We also sell ALL our oil (minus the strategic reserve) on the common market.

Not sure what you mean by the term "common market", but it's a one-sided market. Demand is largely market driven, but supply is artificially controlled. It is not a free market, if that's what you meant, where only supply & demand dictate prices.

our adding more national oil will not drop prices on bit, as they are being driven up by market players.

If, by "market players" you mean OPEC, then you're right. If we dump all of our production onto the market, OPEC just throttles back keeping total supply in relative stasis. If you think investment speculators are driving prices, I don't think they've got enough purchasing power to influence the market enough. We as a country consume more than 3 times the oil China does, our next closest consumer in terms of volume. It's a staggering number, something like 65M bbls/day - hard to affect the market with day-trading, or even futures investments.

I do not mean to discount this totally, some companies (SOuthwest Airlines comes to mind) who consume large volumes of refined fuel are buying futures at today's prices which does affect prices somewhat, but it is minimal in the grand scheme of things.

The wonders of market deregulation.

Umm...what market deregulation?

[muddyboots]

danit, two of you called me on that. I was thinking of thee UNregulated market, actually. It isn't lack of oil driving the prices, its the prices driving the prices. The human sheep effect if you will. I'd stand by my original idea that the price changes aren't so much supply and demand right now as simply wild assed buying selling, and panic, if you could call it that. There is enough oil, imho. not enough production ability for growing demand. that is the core of all this, and the rest just snowballs. I wasn't particularly blaming any govt, company or sneaky cabal, just saying that the prices are more due to human naure and fear caused by the perception that we're in trouble. Turth is, I see this as a good thing--it'll hopefully drive us to alternatives as the price continues to rise.

[bdk]

Turth is, I see this as a good thing--it'll hopefully drive us to alternatives as the price continues to rise.

This is the most honest thing I've heard in a long time! Why can't Algore and friends come out and say this directly?

[Eric Friedebach]

Heh, I saw the title of this thread and thought it would be about Aeroshell multivis or MMO.

[T2 Ernie]

It isn't lack of oil driving the prices, its the prices driving the prices. The human sheep effect if you will. I'd stand by my original idea that the price changes aren't so much supply and demand right now as simply wild assed buying selling, and panic, if you could call it that.

There is some of that, no doubt, however, I don't believe there's enough of that to move the price of a barrel anywhere near as much as it has.

There is enough oil, imho. not enough production ability for growing demand. that is the core of all this, and the rest just snowballs.

There is a production gap, but that's not driving the prices as much either. That would affect gas prices w/o affecting crude prices more...which there is some of, but largely the $4/gal is driven by $140/bbl.

I wasn't particularly blaming any govt, company or sneaky cabal, just saying that the prices are more due to human naure and fear caused by the perception that we're in trouble.

Well, I think OPEC is largely to blame, but there's more to it than just that. That's a huge part of the supply-side problem, but it's not the only factor.

Turth is, I see this as a good thing--it'll hopefully drive us to alternatives as the price continues to rise.

Well, I see your point, but I'd rather we just went to alternatives without all the pain myself!

[CAPFlyer]

One thing as well is that supply side isn't just supply of oil, it's supply of refined products. With all of the domestic refineries operating near or at capacity, we're having to import quite a bit of refined product and that is driving up the cost of fuel as well. It's great to drill for more domestic supply, but if we don't have the domestic refining capacity as well, that work goes for naught as we end up shipping that oil overseas just like we're doing out of Alaska because we can't use it here and have to ship it somewhere else to be refined and then shipped back here to be used.

[T2 Ernie]

One thing as well is that supply side isn't just supply of oil, it's supply of refined products. With all of the domestic refineries operating near or at capacity, we're having to import quite a bit of refined product and that is driving up the cost of fuel as well. It's great to drill for more domestic supply, but if we don't have the domestic refining capacity as well, that work goes for naught as we end up shipping that oil overseas just like we're doing out of Alaska because we can't use it here and have to ship it somewhere else to be refined and then shipped back here to be used.

While you're correct that our refining capacity is limited, it is not a deciding factor in current prices at the pump. We're not using anymore gasoline than we were three years ago - we had all the refining capacity we needed then. Granted, running at max capacity, but sufficient. While domestic consumption may be up slightly based purely on growth, it is not a significant percentage.

Current prices at the pump are primarily due to crude prices.

Import of refined product is as much part of the political carrot I mentioned earlier.

Selling the AK oil has always been done because it's a heavier grade of crude than many other oils with a higher sulfer content & consequently costs more to refine. In the past, it was always cheaper to sell that off & import the same quantity of higher quality from elsewhere because the difference was cost of refining it plus the premium the "good" stuf was selling for (which used to be a small margin, but has widened significantly). It still costs more to refine it than the stuff from the middle east, but the premium difference between light sweet & heavy sour is approaching a point where it's probably time for a shift. But that's an outsider's opinion only.

Often in the past, it was actually cheaper to import refined products than to refine domestic once you factored in sales of domestic. I'm not sure that's the case any longer, but do not have current numbers to back up that assessment - just the stupid cost of light sweet crude spouted on the nightly news.

[bdk]

Saudi Arabia, the world's largest oil producer, is concerned that sustained high oil prices will eventually slacken the world's appetite for oil, affecting the kingdom in the long run.

http://biz.yahoo.com/ap/080615/saudi_oil.html

[muddyboots]

There is enough oil, imho. not enough production ability for growing demand. that is the core of all this, and the rest just snowballs.

There is a production gap, but that's not driving the prices as much either. That would affect gas prices w/o affecting crude prices more...which there is some of, but largely the $4/gal is driven by $140/bbl.

I wasn't particularly blaming any govt, company or sneaky cabal, just saying that the prices are more due to human naure and fear caused by the perception that we're in trouble.

Well, I think OPEC is largely to blame, but there's more to it than just that. That's a huge part of the supply-side problem, but it's not the only factor.

Turth is, I see this as a good thing--it'll hopefully drive us to alternatives as the price continues to rise.

Well, I see your point, but I'd rather we just went to alternatives without all the pain myself!

Ernie, production means oil roduction usually. When we speak of making gas its usually called refining. Both are a problem--we can't pull enough oil out of the ground any more because demand is outgrowing tools crews and platforms to some extent (you could work 365 days a year I'm told, these days) and in a case like katrina, refineries are too limited to refine gas for local areas. Seldom does national refining ability drop below what it ought to be, although there is dfinitely some gas gaming going on as well.

As for the pin of switchig over, well, you find a better way and we'll do it. However, until then human beings aren't very intelligent. We cheap and herdlike and pretty myopic, and I suspect when it hits 15$ we'll finally be over using gas to move our cars around. Not before.

[T2 Ernie]

and I suspect when it hits 15$ we'll finally be over using gas to move our cars around. Not before.

Doubtful. Europeans have been paying $6-9/gal for quite some time - they're inching upwards now & I believe they're not far from $10/gal gasoline.

Several years ago when I was a young LT, we had a Brit exchange officer in my unit & he said that when posted back in the UK, his family had a self-imposed gas ration - effectively a gas budget. If they exceeded it for the month, they did without. Now, village life in the UK is more conducive to something like that than most of our suburbs, but it will happen if it keeps going up.

Back to production - there is no production shortage, there is an artificially controlled supply. Controlled by OPEC - see where Saudi just said they were going to up production because they fear if gas gets too high, people WILL find alternatives!! So this works both ways so long as supply is artificially controlled...

[CAPFlyer]

Ernie, the thing is the European $6-$9 is their own doing. If they weren't paying 75% in effective taxes, they'd be paying LESS than we do.

[muddyboots]

but missing a far better road network, rail system, bus lines, tram lines, power lines, phone system etc...they have better infrastructure but not so good personal wealth. trade off I guess.

[T2 Ernie]

Ernie, the thing is the European $6-$9 is their own doing. If they weren't paying 75% in effective taxes, they'd be paying LESS than we do.

Doubtful they'd be paying less - they buy crude on the market just like we do. Regardless, my point is, the cost has not prevented them from driving. It is irrelevant how the cost comes about - either price of crude or self-imposed taxes, it still costs big bux to fill up the petrol tank & they keep driving.

When I first got to the UK (2000), I figured I'd pick up a four or five year old car assuming it'd have low mileage - no way. Even gas guzzlers like Jag XJS had 100-150K miles on them at only a few years old - all of them. There are no low-mileage cars in the UK. That shocked me - at the time, petrol was about £.82/L and exchange rate was only $1.45 or so, so a US gallon of gas cost about $4.50 - currently petrol is about £1.20/L & the Dollar sits at $1.95 or so making a US gallon of gas about $10.70/gal. Folks are still driving.

The UK does the same thing with North Sea crude that we do with AK crude - sell it & import lighter stuff. I don't know if that's changed, but that's what they were doing two years ago before I left (2006)...

but missing a far better road network, rail system, bus lines, tram lines, power lines, phone system etc...they have better infrastructure but not so good personal wealth. trade off I guess.

Have you ever lived in the UK? While I love it immensely, their public transport system is crap. For all us Yanks prattling on about how much better their infrastructure is, once you get outside London, there's not much available. The rail system is in shambles, is expensive, and rarely takes you where you want to go when you need to get there. And the busses aren't any better...

German rail is much more efficient, as you might imagine, but outside the major metropolitan areas, you're simply not going to use it.

Never used French public transport - I hear it's better than UK, but inferior to Germany.

Regardless, unless you're in a major metropolitan city, the infrastructure cost for useable public transportation is prohibitive.

Folks like to scream & shout about how we should have more public transport, but for my money, I'd rather you invested the R&D, operating costs, & life-cycle maintenance dollars into making our cars more efficient so that everyone can benefit, not just those in big cities.