The huge assumption here is that everyone who lives outside of the loop works in the loop. That's an assumption made a lot around here. And for Houston, it's just not reality. We do not have one central business district. That's what makes mass transit planning here so difficult. Also...I'd argue there's more at work here than supply and demand. I think it's pretty clear this market doesn't care much for fundamentals.
I'm not a big fan of T_J's myself, but if you look beyond the bluster, he's at least offering valid information on the topic. You keep insinuating that oil companies must be price gouging without any proof whatsoever. In the interest of full disclosure, I do work for an oil company, so that certainly colors my opinion, but it frustrates me when people refuse to look beyond the superficiality of terms like 'record profits'. 1. There would be no record profits if the bottom hadn't fallen out of the industry 10 years ago. If oil prices hadn't plummeted in the late 90's, there would be no Exxon Mobil, no ConocoPhilips, and no BPAmocoArco. The mergers of these megacompanies that resulted in such huge financial figures was a direct result of the downside potential of a market-driven commodity. During the gloomy times for the industry, there was no talk of government subsidies or bailouts, so I see no problem with reaping the benefits when the market turns. 2. There is absolutely no reason to price-gouge becuase high gasoline prices do not benefit gas stations, nor the companies that own them. In the first quarter of 2007, average US gasoline prices were about $2.35/gal. In the first quarter of 2008, average US gasoline prices were about $3.10/gal. That's a pretty large increase - but look at ExxonMobil's Q1 earnings data. XOM actually made about half as much income from their US downstream segment (refining and gas stations) in the first quarter of 2008 as they did in Q1 2007 - $398MM vs. $839MM. So despite gasoline prices rising by 30+%, the company's income from that gasoline was cut in half. Don't get me wrong, oil companies are making tons of money from $100+ oil, but they are making the bulk of their money from crude and natural gas sales. Those that do refine and sell gasoline are adversely affected by rising gas prices.
Pretty clear? Based on what? Back that statement up. I disagree completely. India and China are still subsidizing consumers' gas bills. So those two countries' demand response to the price increase has been muted. Worldwide demand has become de-linked from the United States' economy. The industrialization of highly populated countries is an incredibly energy-intensive effort. Demand is going nowhere but up. Non-OPEC producers are seeing rapid decline rates in their major fields. This leads to a growing % of worldwide oil production coming from places like Nigeria, the Middle East, and Venezuela... security of supply is plummeting. Large, economic fields are becoming scarce (economic the key word there -- tar sands and ultra deepwater finds are not low cost producers). US production of oil peaked in 1970. Many believe worldwide production peaked in 2005. The oil products supply chain (port facilities, tankers and their routes, refining capacity, etc) is INCREDIBLY weak and open to disruption. Skilled and non-skilled labor in the energy business is hard to come by. This is a FUNDAMENTALS DRIVEN move.
After reading through my post again, I would like to clarify something. When I said that there is no reason to price-gouge, that's obviously not entirely true - more money is more money no matter what. But what I am saying is that the high oil prices affect the gas stations as much as they do the consumer, and they are not making a killing by charging these high prices. What I was trying to show was that even with the extremely high gasoline prices, the oil companies are not making a lot of their revenues from the sale of gasoline.
I don't work in the market...but the market doesn't react to news about supply or demand. When news comes out indicating supply is fine, the market still goes up. I've read account after account of people who know far more about it than I do suggesting that the decline in the dollar and speculation are driving this. But to your point...do you think China and India will stop subsidizing all of this soon?
Trader without looking it up do you know who our biggest supplier of oil is? Do you know the price point where tar sands are viable?
i do work in the market and you think this because you are not getting the full story. yes the market may be pricing in too much too quickly (only time will tell) but that doesn't mean these prices are bs. listen to tj he does know what he is talking about here and he is explaining things extremely well. don't allow your prior experiences with him to interfere with what he is saying now.
The problem here is that the supply/demand equation hasn't changed dramatically in the last 6 months. China/India have been growing for a long-time. We didn't suddenly learn about these supply issues in the last few months. So supply/demand doesn't explain the increases we've seen recently. Maybe it's the process of "catching up" to what the proper supply/demand price should be, but that means supply/demand wasn't driving prices properly 6 months ago. Either way, there's more to it than simple changes in supply in demand causing the price rise in the last 3-6 months or so. If it's purely S/D-driven, then the market was either full of idiots 6 months ago or is full of idiots today.
One way to take money out of the oil companies hands is to put a big tax on gasoline. What this will do is hurt demand and force companies to lower their prices to remain competitive. Instead of a gas tax holiday, a 10 cent gas tax could do wonders for digging us out of the fiscal hole bush put us in and get us back to a balanced budget. That in turn will strengthen the dollar which will inturn bring the price of oil down.
Taxes are bad. Instead they should put a 50% tax on oil trading gains. This high oil prices have just made all commodities go up including food and stuff.
the market always tries to price things in. the market is always full of idiots. my quick opinion on the market is that people were trying to get short around 120 and got blown out of their short positions helping to drive the market up to where we are at now. fear piled on top of that and so we got some actually buying to help push things up. i get this opinion based on feel and experience. i also believe we are in the later stages of the current oil run. i believe these because i have seen bs stocks like FPP, PDO, MXC, SSN, and so on make huge runs lately. when you see bs stocks in an industry that has been hot begin to run then things are near an end. who knows if it will be a consolidation or a top...i feel it will be a pullback and consolidation. if oil ever does get back to 100 anytime soon then there will be huge amounts of buying there. the bottom line is people are very afraid about declining production that all the major oil CEOs have been talking about and this has helped fuel the rally. i hope that made some sense because i just typed that out quickly.
Explain why taxing trading gains would be bad? Obviously it is against your best interest, but if there is a less of an incentive to make money trading oil perhaps there will be less speculation. The Chinese did it with their stock market because they were afraid it was going up to fast.
I agree with all of that you said - but the part above is the type of stuff I believe MadMax is referring to when he says it's not all S/D-driven. The stuff above is purely market speculation at work, as opposed to any fundamental change in the actual supply or demand of oil.
how does the market take into account news like iraq's reserves being larger than expected and the new brazillian find. i understand it takes a lot of time to get those fields producing. i would suspect that with technology however, they do feel that they will eventually produce.
