Of rising gas prices and such

[misfortune]

I was reading my favorite forum and came upon this post. I think it does a great job at explaining the rising price of gasoline


For all you people that think that oil companies control gas prices, why didn't they raise them when gas was really cheap about 5 years ago? Remember when it was $.89 a gallon (~$8 a barrell)? Oil and Gas companies were really hurting, yet they couldn't raise it. Do you think people would have howled if they had raised it to $1.29? $1.49?

Secondly, note that oil is around $65 a barrell at the moment, but what do you pay? $2.50? So the price has gone up eight fold while the price at the pump has only gone up three fold. I consider that pretty good efficiency.

If you live in CA or somewhere and are like OMFG I PAY $9 a gallon, well, call your congressman. The fact of it is you can have cleaner burning gas or you can have cheaper gas. Over time it will get better as technology improves, but it takes longer and thus costs more to refine cleaner burning gas.

Secondly to this, if everywhere used the same blend, competition would be higher, but the market is so fragmented with different blends that it stifles competition. Northern Cal takes a different blend of gas than So. Cal!

Then there is the refinery issue, and people haven't been willing to build refineries because the environmental regulations are so costly it's obscene. So when the gas price is low, people can't afford to build a refinery, and when it's high people worry that it'll go down, or their new refinery will be crippled by EPA regulations.

Finally, I grew up in an oil family in Midland, Tx. There aren't many big companies left there, it's all now independent operators drilling wells. It's local people exploring and drilling wells that are an average of 2 miles deep. We are working hard to find all the oil we can because it pays well, but regulation always drives costs up. Some of the environmental stuff is good that has been enacted in the last 30 years, pump jacks and tank areas are much cleaner, but you always feel like you are under assault. It's
"you drill oil wells, you are destroying the environment! We are going to regulate the hell out of you!" and then "The gas price is too high, you guys suck, you are gouging us all!"

Sorry for the rant, I just get so tired of the ******** conspiracy theories :( Nobody ever seems to think of the people behind the wells, drilling 24 hours a day, it's hard, back breaking work. Then there are all the dry holes you drill, which cost you $2 million and make you $0. Yeah if you hit a great well you'll get rich, but it ain't that easy folks.

I think we should dial down the regulations. Thats probably an overly simplistic view of things. I've heard enviromentalists say that rising oil prices isn't necessary a bad thing, given the effect it has on the environment. It should costs as much as the toll it takes on the environment. That said, I don't really agree.

[Evan]

This essay has nothing to do with the price of gas. It's about "the people behind the wells."

Whoever wrote this has a very limited view of the world, oil production, economies of scale, and corporate America.

[Traian]

That may all be true, but even so oil companies made record profits last year, which is the bottom line imo. Also, I doubt anyone looks down on or complains at the people behind the wells, just like most ppl know that the gas station attendants also have nothing to do with gas price.

Oil companies, banks and governments are my top 3 role models for opportunistic, price gouging, competition stifling entities.

[Evan]

insurance and media! don't let them be lonely

[misfortune]

Regardless

Refineries are nearly impossible to build in the U.S., even in periods of high gas prices. Nearly all the expansion in refinery capacity in the U.S. has come from expanding and improving existing refineries.

He's right that conspiracy theories about current high oil prices beg the question "why were oil prices ever lower?"

He's right that pump prices generally fluctuate less than barrel prices (in part because they have so much built into them that doesn't depend on barrel prices-regulatory costs, taxes, distribution costs, etc.). They can still fluctuate quite a bit, however.

He's right that cleaner gas costs more.


Sure collusion and cartels are definitely an issue in oil pricing, although it doesn't explain changes in oil pricing (unless you have some good data on changes in the effectiveness of cartels, which I don't think you, or anyone else, does). Market demand surely matters, as increases in global oil demand drives prices up. Consumer Surplus? Anyone who has taken Principles of Micro knows that Consumer Surplus is the difference between the consumers' willingness to pay and what they actually pay, as described by the area above the price and below the demand curve. But how does this explain oil pricing? I see no relationship.

[trumpetr]

It is the oli traders, on the commodity market,,that set the prices for oil to be traded globally. If the price for a barrell of sweet crude is trading at $65 a barrell,,,its traded at the same price here,,as it is in other parts of the world.

Oil prices,,,are based on the nervousness of traders-- if supply is tightened,,,by either china buying more,,or venezuala oil workers going on strike, or by reduced capacity of production from a hurricane that wipes out more than a few oil producing rigs,,,,then the price shoots up,,based on the nervousness of traders when they fear a shortage of supply. Demnand,,,has a much lesser effect on price, than does anticipated supply.
Remember,,,oil trading, is a global market.

[ra_pro]

The macro picture is really simple. The demand is rising much faster than the supply. Moreover supply cannot grow faster and will probably decline in the not too distant future becaue the worlds oil reserves are being exhausted. This adds to the anxiety and speculation on the world markets which raises the prices of oil.

The only realistic long term solution is to be found in alternative energy sources.

[Evan]

OPEC. No one mentioned the quiet white elephant.

The world's oil reserves are nowhere near being exhausted. There is enough fossil fuel for 200 years of Escalade driving.

The price you pay for a barrel of crude today is not directly tied to the close of an option or future on any board of trade in any city.

It's all smoke and mirrors... ignore it and start voting people out of office. Dems.. Repubs.. Whigs.... vote them out. out. out. out.

I've been giving so much thought to publishing my thesis on the state of post-1970s America in a website/blog form with no advertising or subscription charges... the only thing stopping me is the FBI.

I wonder if it was this scary being a social liberal/anti-establishment subversive in 1790s Paris.

[genphreak]

This was a great post. It clearly describes the life and forces affecting small oil companies in the US and describes their frustrations with many commonly held misconceptions.

I am surprised however about the stabs it takes at regulation and control, though I expect that apart from being costly, these things may seldom be implemented with what seems like much wisdom when considered 'on the ground' by those who are working there. In many places there are those who make poorly implemented or beaurocratic decisions.

Those runing multinational oil companies are interested in prospecting for oil where you have carefully considered doing so. They are still looking for big pockets of oil and gas and are leaving most of the land-based prospecting (of which relatively little is now left, except under the Amazon- so are still working on that... ) to the smaller fish: I guess these operations are happier to take the risk of drilling dry wells for more limited returns.

As has been the case for decades, the big companies have increasingly looked under the seas and in more and more remote locations (even Antarctica and the North Pole fo example).

As we have see recently, some of the biggest oil companies do better out of having their top execs working with their mates to avoid tax, influence regulations and initiate or at least help facilitate wars with taxpayers millions, as finding new reserves of oil has become increasingly hard to do.

They do a rolling trade in profitting from the 'rebuilding work' after wars. For example, as each of the US taxpayers' thousands of $575k (http://science.howstuffworks.com/cruise-missile1.htm) tomahawks alone (cruise missiles) (which can actually be made for perhaps 1/100th of that price (http://www.interestingprojects.com/cruisemissile/diary.shtml)) does a hell of a lot of damage. The rebuilding work after the conflicts we have recently seen in Iraq, Afghanistan, Bosnia, Timor, Africa, etc. essentially involves 'managing' (ie taking over) other people's oil fields and infrastructure, and selling it. For example atm Haliburton wants to sell gas to the Chinese (http://www.gasandoil.com/goc/company/cns32025.htm) so they can continue to do more damage than the developed countries have done (and are continuing to do) by burning more fossil fuel into more and more greenhouse gases...

Ultimately there are a lot of consipracy theories around yes. But the plain facts are that there are very rich businessmen controlling all these things, from the prices we pay at the pump to the politicians paving the pathway, even the cost of weapons our taxes are paying for. Anyone that spends a few moments to research the costs we pay waging wars is quickly stunned, however when this is done for concocted reasons the rest of the world sees the reasons quickly: Here the damage done to reputations, let alone many decades of good work that America adn others have done in Asia is being fast undermined. Indeed many I have spoken to feel that the hard work and sacrifice they and their fathers made during WWII (and others) is now being laid to waste by recent greed-driven foriegn policy- for what they preceive as a quick buck in a few big boy's pockets.

And Asia's rising global influence is an enigma many in the West fail to understand and often underestimate.

The whole world knows that we need to be finding clean ways (not new ways which war in the middle east so clearly demonstrates) to burn fuel the we don't really have in an environment we can't really burn it in.

We in the free world need to see that supply and demand (and money) is not so much a cause of all the problems, it is just one of the means we can use to acheive our own ends, that is; a tool to build or destroy. We can use it or abuse it, but unless we take the necessary care to and appropriate control of the oil industry (amongst others) through what is left of the democracies we will never find that our use of oil actively supports a future, it will simply continue to destroy it.

Perhaps along the way, other older and wiser civilisations will continue to see through the enormous consumption and advertising we so conspicuously blind ourselves with, and use it to take the ascendancy amidst the smoke of whatever is left.

Regardless, what will be have let to leave for our children in 20 let alone 50 years?

[ThoreauHD]

When OPEC was formed in the 1970's, gas prices went up at a 45 degree angle annually. It was a flatline before that time. You could blame it on polyester and jelly shoes, but that would be stretching the imagination. The truth is production was dropped and the price was raised. They like doing it in 1.25 Million barrel increments, just to raise the price a bit.

Easily accessible is what makes oil worth anything. If it's hard to get to, it isn't worth it. The middle east has the most easily accessible oil on this planet. That is the only value that toilet bowl has. And since they have removed competition or the law of supply and demand, they can make up whichever price they wish.

It's an arbitrary number as the risk and labor is minimal for them. In the Gulf Coast below Louisiana, this isn't the case. The work is deadly. People get dead and maimed regularly- they are called roughnecks. It's a step above alaskan king crab fishing, but just a step. Hence the dependence on that backwater sand dune, that desert planet, arrakis.. err.. the middle east.

[winfred]

yea and fighting off those worms is a bitch, wheres the cuisinart hatrack when you need him


Hence the dependence on that backwater sand dune, that desert planet, arrakis.. err.. the middle east.