A dumb question about oil.

The price of gas is more about production than it is about OPEC, countries hating us etc, although those factors do play a part. From my understanding there are different grades of crude. The US has been recieving what is called sweet crude and has the facilities to produce gas from them at a very steady rate that can keep up with the consumers. What we have been receiving lately has been a different grade of crude that we are not fully prepared to be able to refine into gas. Until we are allowed to build more refineries the price will be high because we are not able to keep up with production.

At least this is my understanding.

I believe they are trying to balance out the price of oil/gas with what the EU is paying. Plus the oil companies in the US just lost their government subsidies. It's all greed.

reply to post by Lou2You


The lack of excess refining capacity is a factor in the end-product prices, but should not be affecting crude oil prices themselves. If anything, a lack of refining capacity should push oil prices lower by creating a buildup in stockpiles of oil waiting to be refined.

The ultimate causes are rapidly increasing foreign demand and speculators who have found the equivalent of the 90s tech sector.

I am going to assume you are from the US...

The reason that oil price keeps going up is the same reason that gold hit $1000/oz today.

Real GDP growth rate in US:
www.indexmundi.com...

2003 2.45 %
2004 3.10 %
2005 4.40 %
2006 3.20 %
2007 3.20 %

Five year average: 3.3%

-----------------------

GDP per capita growth rate:

2003 1%
2004 0.5%
2005 6%
2006 3.7%
2007 5.7%

five year averge = 3.4%

-----------------------------



NOW.... lets compare the rate at which our gross domestic product is expanding to the rate at which the number of dollars in circulation is expanding....


----------------------------

Rate of increase in total money supply (M3) in US:
www.nowandfutures.com...

2003 3%
2004 4%
2005 6%
2006 8%
2007 12%

expected rate this year... 18%

five year averge through 2007: 6.6%
if the 18% figure holds through 2008: 8.5%

so we see...

the rate at which our gross domestic product increases is about 3-4% annually for the past 5 years.

yet the RATE at which our dollars are printed increases exponentially during that same period.

in short... the reason the price of anything is going through the roof...

The fed is printing money we haven't made an cannot back... and because there are more dollars backed by nothing in the economy...

Everything costs more of the devalued currency.



But that is ok...

the war is paid for.
haliburton is doing just fine.
and my uncle the rich oil baron is still making well over a million a year.


tea party,

Sri Oracle

Interesting that this thread showed up today. I was just going over a couple of articles in the LA Times stating that Refineries don't have an incentive to keep producing because of the cost/profit ratio. But what I find interesting is that the Refineries quoted in this article were Exxon, Chevron and BP. Now, in another article it was stated that these companies reported record profits for the quarter! So, the way I'm viewing this whole thing, the Refineries say they are haulting production because of the above statement which is causing a higher demand and the price to rise. THen these companies can then sell their product for much higher at the pumps. This to me is a contradition. I know OPEC is part of the equation but I find the claims by the Oil companies a complete farse. All these companies own (seperate entities) both Refineries and Gas production facilities, so they win at both ends.

If this is wrong, I'd apprecitate it if someone could correct me or validate this theory.

We have a lack of refineries to produce gas, diesel, heating oil, etc from the crude.

China is growing industrially at an exponential rate, creating a higher demand for oil.

Speculators are driving the prices for crude up in their new-found bubble.

Inflation.

All of the above.

But the one factor that is not being mentioned is: we (the US) are being punished. When we began importing massive amounts of oil from the Middle East, we helped them build up the infrastructure to pump the oil. In return, they agreed to accept dollars as the primary currency with which to purchase oil. Oil has always, thusly, been priced in dollars per barrel. Any other currency was simply used at the exchange rate.

Now the dollar is declining in value, and the sheiks are simply trying to make up for that drop in real value by raising prices. Add in the oil speculators betting on exactly who is going to attack who and stop how much oil production, and the prices sprint upwards. Russia seems to be happy with this; they are sorta ticked that we went into Iraq (and Afghanistan) and are enjoying watching our economy go bust over the oil prices. Bush recently went to Saudi Arabia in an attempt to convince them to lower their prices. I saw clips on TV where his body language reminded me of a small child's, following his mother in a store and sulking because he didn't get that candy bar he wanted.

But even more sinister than simply the cost, is when you realize that we now have to cowtow to different countries to gain enough favor to purchase oil. Thank God Venuzuela is in an economic mess themselves, because I don't think anything could curry their favor for us right now. Canada, bless them, is doing their best to help out, but with a price. And yes, shale oil is more expensive to pump. And Mexico is milking this heifer for all she's worth. No closed border, help with their southern border, amnesty for illegals coming here, or at least entitlements so they can keep sending $$$ back home... think about it; nothing else makes sense.And as far as Saudi Arabia, apparently they have exactly what they want, and it ain't our appreciation.

It's all about greed. The greed of early industrialists who started this mess decades ago. The greed of oil speculators. The greed of politicians who took us off the gold standard, so they could print worthless paper and call it money, The greed of oil companies, who can make as much or more with less investment in refineries. The greed of the 'tree-huggers', who through their own shortsightedness and agenda, allowed those oil companies a perfect excuse to keep things as they are. The greed of the American people who did (and do) nothing to stop this abomination of an economy from spiraling down into some deep abyss.

Greed is not green. It's black as oil.

TheRedneck

The main cause of high oil prices is the speculators. Everyone was complaining about Exxons $40 billion profit in the last quarter in '07. Yet people fail to research and state that Exxon sold $400 billion in gas........that's only $0.10 earning on a gallon of gas.

Other issues which lead to high prices and tghe inability to get 'cheaper' fuels is the fact that no one in the states wants a new oil refinery near them, nor do they want the US to drill in Alaska, Texas, Gulf of Mexico or within our territorial water boundries. So the 'green' people are actually helping prices to stay high.

If this country was ever serious about eliminating our dependance on overseas oil they would build new refineries and allow limited drilling for new domestic sources.

Originally posted by ferretman2
Other issues which lead to high prices and tghe inability to get 'cheaper' fuels is the fact that no one in the states wants a new oil refinery near them, nor do they want the US to drill in Alaska, Texas, Gulf of Mexico or within our territorial water boundries.

There is plenty of drilling and production in the Gulf of Mexico, off Texas and Louisiana. That's why hurricanes can shut in about 20% of the US production.

I think it's various things combined:

Speculation
+ energy boom in China and India
+ inflation in the U.S.
+ company greed
+ lacking of adequate oil infrastructure

What you haven't mentioned is Peak Oil, which is now getting close to home. Saudi Arabia doesn't tell anyone how much oil they have or even, how big their largest oil field, Ghawar, really is... but experts like Matt Simmons have stated that Ghawar is losing output. And recently it was announced that Cantarell, Mexico's largest oil field (and the second largest in the world) is going to run dry in only seven years.

The prices go up because people are willing to pay the price.

Its as simple as that.

The price of oil worldwide has partially to do with the fact that the United States refining capabilities have not grown with the nation. In addition, a gluttonous lifestyle grew in the shadow of the years of cheap oil, obesity of humans and automobiles are at an all time high as a reminder. Especially this man, who received a $400 million retirement package instead of Exxon building new refineries:
abcnews.go.com...


This is from almost a year ago:

WASHINGTON – A sweeping energy law that took effect almost two years ago to make it easier for oil companies to get permits for building refineries has so far failed to bear fruit despite soaring demand for gasoline.

The law was supposed get the United States its first new refinery built from the ground up since 1976. The timing appears to be good for starting a project, with gasoline supplies tight and pump prices at record highs.

www.signonsandiego.com...

We have not built a new refinery in 31+ years! In 1976, there were far fewer cars on the roads than there are today.

"You probably have known that the world's human population is increasing dangerously. So is the world's car population. In 1970, there were 200 million cars in the world. In 1990, there were almost 500 million."

hypertextbook.com...

These are just quick examples from some Google searches to prove my point. There are mountains of evidence to prove that the American public is being defrauded by the Oil Companies, by not reinvesting their profits in their infrastructure. That fat cat Exxon honcho, Lee Raymond, got more than a Million dollars, EACH, for every citizen of the United States. He was CEO of Exxon for 12 years.

Peak Oil, as we know it from our personal experience has more to do with refining capabilities that lack of resources. 30 years with the same limits on production, combined with America's love of the SUV in the late 1990s/early millennium, with a quagmire military conflict in 'oil country' volatilizing the markets, all coming together in a perfect storm.

They have done nothing since Congress mandated they build refineries. I wonder when they might be able to finish if they started right now.
DocMoreau

Each time the price of gas goes up they give us a new story. China, hurricanes in the Gulf of Mexico, speculators, need more refineries, refinery explosions, Iraq war, natural gas production, corn, consumers and their vehicles, Holiday season. They do what they want and they call it supply and demand.

Very astute observations Oracle.

It has reached a point now where the declining US dollar is unnecessarily driving up the price for other nations.

Quite soon I would not be surprised if Europe demands that their oil be paid for in Euros. Once that happens the only thing left underpinning the US economy will be pulled out from under USA and the American economy will go into free fall.

A declining Dollar makes oil more expensive for Americans...less expensive for countries with a stronger currency. Opec oil is still traded in Dollars. Stronger currencies get more bang for the buck when they convert to Dollars for oil purchases. This dynamic takes a toll on producer profits...so we get reduced production/higher prices to compensate.

The weaker Dollar does have a negative affect on foreign exporters, but the benefit is cheaper oil.

Chart of the Day: Oil Cheaper in Euros

Doc - Where have they looked to build new refineries. I guarantee (almost:puz that most locations are being fought over in the courtrooms of America.

Everyone complains yet no one wants a new refinery around them.

reply to post by ferretman2


More refineries would help in the instances where a major refinery accident results in immediate, localized, but short term spikes in gasoline prices, but you can double the amount of refining capacity and it will have no effect on the average price of gasoline as long as crude oil is selling at $108/bbl.

Side bar comment: Everyone has heard, it and it gets mentioned quite a bit, but no one seems to be outraged at the level of taxation on motor fuels

$ 0.44 per gallon in New York.

Originally posted by RGReventlov
More refineries would help in the instances where a major refinery accident results in immediate, localized, but short term spikes in gasoline prices, but you can double the amount of refining capacity and it will have no effect on the average price of gasoline as long as crude oil is selling at $108/bbl.

Where was the return to lower prices after Hurricane Katrina and the others? Much of that 'bubble' was caused by over speculation about damage that never occurred.

I don't disagree with what you are saying, but I think that so many more vehicles in the world (double?), no new refineries in 30 years is ridiculous policy for anything besides long term price gouging. 400 million dollar retirement packages, and no reinvestment in infrastructure.

I am no economist, but I would love to see a cost analysis of the price of a barrel of gas if OPEC lifted their caps and/or we had unlimited refining capabilities. If refining is not a bottleneck, why do other currently pay far less, and others pay far more for a gallon of Gasoline?

With crude at 108 and heading north, we start to entire into a paradox where we have to spend fuel to move fuel, the price of fuel goes up so fast that the cost to move it becomes more and more intertwined into its own price escalation.

Honestly, it makes me so sick
DocMoreau

A declining Dollar makes oil more expensive for Americans...less expensive for countries with a stronger currency. Opec oil is still traded in Dollars. Stronger currencies get more bang for the buck when they convert to Dollars for oil purchases.

Not quite true. All oil (except Iran's) is traded in US dollars.

The whole world has to keep paying more for oil because the true value of oil is distorted.

Just because other nations have more stable currencies does not mean they get to buy oil for less.

Oil is going up relative to the US dollar, but the price is still rising even for holders of Euros. If oil were traded in Euros it would still be around $70-$80 per barrel.

do you actually think there are people who care how much you pay for gas? jimmy carter was stopped dead in his tracks when he tried to start a program to wean us off of oil, back in the late 70's. that was the last person who had the power to change the situation, and he was shut down. if a president of the U.S. can't change the direction of energy policy through political means, your going to have to wait until a gallon of gas is 10 to 15 dollars, and people simply can't afford to drive anymore. nobody can stop the oil producers and refining companies except there own greed. there are no white knights, heros, to save us. and if you think the air is bad now, wait till the 2 billion people of india and china all start driving cars and trucks like we do here in america. if you have ever seen the brown air hanging over the city beijing, imagine a slightly less brown tinge in the skies around the globe. actually the best business to get in for the future could be producing bottled oxygen.

well it appears there is many answers to this question i've asked here. Thanks for all the replies so far, so much to think about...