2007-2008 Crude Oil Cost

[RedScare]

Oh, did I mention that, not only do I limit my gasoline usage, but I also own Exxon Stock? It hit $86 a share yeaterday. Great way for a "Lib Greenpeacer" like myself to offset high gas prices.

[TJones]

Oh, did I mention that, not only do I limit my gasoline usage, but I also own Exxon Stock? It hit $86 a share yeaterday. Great way for a "Lib Greenpeacer" like myself to offset high gas prices.

More like being Hypocritical, I bet you weren't waving around your dividends check at the last Democratic Convention were you ?

I guess I'm worse, because I also own oil stocks, remember I grew up in Baytown, yet I don't want to see my dividends check on them pay for my retirement, I'm just not THAT greedy. It would be nice, but not at the expense of pilphering my fellow Americans pocketbooks. Is it so wrong that I don't want them to make ridiculous amounts of money, what I see as gouging, you see as business as usual in a free trade market. Imagine that, you and I not agreeing on something, who'd of thunk it ?

[Pumapayam]

I am not gonna buy a piece of junk and sacrifice safety just so I can save on gas Red. $3 a gallon, doesn't bother me either because I can afford it just like you, I am talking about a way to lower the price, if you truly want to lower the price.

Since when is a Prius a piece of junk. Looks like the future to me.

[brerrabbit]

I'll go pound some more sand for awhile,and keep on NOT buying form those companies you mentioned, and you go trade some more oil and drive the market up for the rest us with the knowledge that we don't appreciate what you are doing for us brerabbit.

Just so you get it straight, one I no longer "trade". Second when I did the absolute price of the underlying commodity really didn't mean that much to me whether it was going up, or going down. I made my money on the spread. Third in my current position I am a price taker, ie I get no say in the price it is pretty well dictated to me by the market. Fourth I buy all my product as feedstock for Chemical plants and very little of our product winds up in somebodys gas tank. My business makes a whole lot more money when the price of oil goes down.

As far as owning Oil Company stock, yep own a lot of it been a good investment lately. I even collect royalties on a couple of oil and gas wells. I get more money each month every time the prices go up. In traders terms you could consider it a hedge. I pay more at the pump for gas but in turn I get bigger royalty checks. I spend more but I make more.

One question though. In my earlier post I mentioned that not to many years ago oil companies were losing money. Heck I know I lived through the layoffs and blood bathes of the late eighties and had lots of friends who lost their jobs and were out of work for some time. My wife, a pipeline drafter even got caught up in it and was out of work for over a year. Those were very lean times and I can assure you no one was out there saying lets help the oil companies out. As late as 2002 and 2003 the refining division of my company was sucking wind and posting over a $100 million loss a year and I can assure you that no one shed a tear for us. You never addresed what you think the average returns for oil companys have been over a longer term.

Finally, I can tell you don't trade because if you think a 7% return comprible to the auto industry is acceptable in the energy business given the level of investment and risk involved then you don't fully understand the whole risk reward theroy.

I feel your frustration about gas prices, its just that the story is not as simple as a lot of people think. I usually save my rage for the property tax debate because personally that on bothers me a whole lot more than gas prices do. Its easy to not drive as much, but I can't do anything about property taxes except move to another state.

Edited to add.

I forgot also that when you referenced my Wal Mart story you felt that if everybody was forced to rack rates then it would be a good thing. Well no it wouldn't because the only money the independents make (and they are the vast majority of the people who own the gas stations) would be $0. They would be buying from the refiners and selling to the consumers for no profit. You still don't get the fact that the majors don't own most of the gas stations in this country. The small guys do!

[musicman]

Since when is a Prius a piece of junk. Looks like the future to me.

As an engineer, I'd hope you'd have MORE hope.

[TheNiche]

I don't believe that OIL is as "scarce" as a Lib. might have you to believe, in fact Red, you already know, from your reading, that I don't believe it to be "scarce" AT ALL.

All goods with any positive monetary equivalent value are scarce. The underlying concept from which all economic systems arise is in fact scarcity. This is what is taught in the first couple days of an introductory economics course.

Oh, and brerrabbit, isn't it possible to demand the physical delivery of commodities at hubs for futures contracts that have reached maturity? I recall that it is possible for natural gas at Henry Hub for instance, but aren't there others for crude or gasoline as well?

[brerrabbit]

Yes you can demand the physical delivery of product for any commodity traded and they all have standards as far a grade, quantitiy, and delivery point. However the goal of most commodity traders is to reach settlement for the month with a balanced position such that you have bought and sold the same amount and net out to zero. Comming out of the end of the trading month long or short means you are making or taking delivery of something.

[MarthaG]

I say we switch to Bio-Fuel... as soon as I find a place that pumps it... I'm buying... no matter the cost.

[webdude]

As an engineer, I'd hope you'd have MORE hope.

As a consumer, I hope we let the market decide a little.

We saw what happened when engineers design cars based on engineers view.

[west20th]

All goods with any positive monetary equivalent value are scarce.

The above statement means absolutley nothing to most of us here. Please, enough with the econo-babble. We are all sufficiently impressed but economics, for most of us, was something we were forced to endure in college. In simple English please.

[musicman]

As a consumer, I hope we let the market decide a little.

We saw what happened when engineers design cars based on engineers view.

i'm talking technology, not what car looks like. hopefully a combustion engine will be a thing of the past.

[TheNiche]

The above statement means absolutley nothing to most of us here.

That is why the word "scarcity" was linked to the Wikipedia explanation, which btw I have screened for reasonableness just to be sure.

[sevfiv]

I say we switch to Bio-Fuel... as soon as I find a place that pumps it... I'm buying... no matter the cost.

for bio-diesel:

http://www.houstonbiodiesel.com/

they advertise 2.75/gallon right now, and also offer classes on home brewing

if only i had a diesel vehicle...

[Pumapayam]

for bio-diesel:

http://www.houstonbiodiesel.com/

they advertise 2.75/gallon right now, and also offer classes on home brewing

if only i had a diesel vehicle...

Is that a capped price, or is it volatile as well. At $2.75, it is not much of a savings.

[brerrabbit]

Is that a capped price, or is it volatile as well. At $2.75, it is not much of a savings.

The whole bio fuel movement is not about price, its a green issue, it burns cleaner with less emmisions. Alternatives like ethanol won't be about price because as the Feds changed the rules to require 10% of all motor fuels to be ethanol the price (because of the demand) jumped up considerably.

[TheNiche]

Is that a capped price, or is it volatile as well. At $2.75, it is not much of a savings.

In commodities markets, there is no such thing as a permanently capped price. When it's been tried in the past, we overconsume the commodity, resulting in shortages and lines.

[TJones]

Saying oil is "scarce" is like saying diamonds are "scarce". They are only scarce because someone is literally just letting them drip out into the economy. If DeBeers were to flood the market like Opec did in the 80's, what would happen to the value of diamonds ? I am not saying for OPEC to flood the mareket again and destroy the price structure, they could easily dump another 2 million a day though to help easy things.

Mr.Rabbit, I too lived through the oil bust of the 80's. My father ran a company in Deer Park, that sells the gaskets for the various pipelines and plants of ALL the petrochemical companies in Baytown, Deer Park, Pasadena, Galena Park. When OPEC, dictated what the oil price would be without consulting the oil companies, they all apparently got caught with their pants down. So, are you saying that because the oil companies lost money in those years, that they are making up for it now, and they are justified for it ? I would like to see you pull some data, as to how much money the oil companies lost per year, in those years, as I can't find any that tells me how much they actually lost. Do you recall just how much in the red they went ?

btw, You're right, I should have typed a penny above the rack price, not at the "absolute" rack price. I also NEVER said I was a trader, I just own some stock, don't have a huge portfolio, I was using the purchase of a car as an example of what our consumers views as a fair and reasonable profit. If you own a car, you are forced to buy gas and oil for that car, perhaps the raising of oil prices is a way to start getting more people to use public transportation. I choose not to use public though, so I choose to pay for the astronomically high gas price. I understand that the oil companies are in it to make a profit, but not try to recover what losses they may have incurred 20 years ago Mr.Rabbit, and i am highly suspect that oil companies have not made a profit since 1990. The only anamoly in the equation is Indian-oil, because it is state run, and have kept their prices the same for the consumer whilest the cost of per barrell has gone up. I am NOT for that either, don't need Govt. sticking it's nose in oil, we just need to find a way to get these greedy oil slobs to stop being so greedy.

We are on opposite sides of this thing because I am of the belief that oil is not a scarce commodity, only the oil companies make it so, because they control the valves. I am sure I would think differently if I actually OWNED the oil company, or 20,000 shares, but that is not the case.

[Subdude]

The whole bio fuel movement is not about price, its a green issue, it burns cleaner with less emmisions. Alternatives like ethanol won't be about price because as the Feds changed the rules to require 10% of all motor fuels to be ethanol the price (because of the demand) jumped up considerably.

Ethanol isn't particularly green. Considering the whole production chain it is less carbon-efficient than regular gasoline. Think of it as yet another way of subsidizing corn farmers.

[TheNiche]

Saying oil is "scarce" is like saying diamonds are "scarce". They are only scarce because someone is literally just letting them drip out into the economy. If DeBeers were to flood the market like Opec did in the 80's, what would happen to the value of diamonds ? I am not saying for OPEC to flood the mareket again and destroy the price structure, they could easily dump another 2 million a day though to help easy things.

Mr.Rabbit, I too lived through the oil bust of the 80's. My father ran a company in Deer Park, that sells the gaskets for the various pipelines and plants of ALL the petrochemical companies in Baytown, Deer Park, Pasadena, Galena Park. When OPEC, dictated what the oil price would be without consulting the oil companies, they all apparently got caught with their pants down. So, are you saying that because the oil companies lost money in those years, that they are making up for it now, and they are justified for it ? I would like to see you pull some data, as to how much money the oil companies lost per year, in those years, as I can't find any that tells me how much they actually lost. Do you recall just how much in the red they went ?

Actually, OPEC isn't holding very much back. They have to play tough to convince folks that aren't in the know that they seem to have power, so they do hold some nominal amount of supply back no matter what happens, but they are fully aware that every day that oil is above $45/bbl. is a day on which more people will shift to more energy-efficient lifestyles. Prices at these levels are not in their long-term best interests.

By the way, pulling data indicating how far in the red oil companies that you know of today went wouldn't reflect the true severity of the crash because many of them didn't survive it to be around for present-day comparison.

btw, You're right, I should have typed a penny above the rack price, not at the "absolute" rack price. I also NEVER said I was a trader, I just own some stock, don't have a huge portfolio, I was using the purchase of a car as an example of what our consumers views as a fair and reasonable profit. If you own a car, you are forced to buy gas and oil for that car, perhaps the raising of oil prices is a way to start getting more people to use public transportation. I choose not to use public though, so I choose to pay for the astronomically high gas price. I understand that the oil companies are in it to make a profit, but not try to recover what losses they may have incurred 20 years ago Mr.Rabbit, and i am highly suspect that oil companies have not made a profit since 1990. The only anamoly in the equation is Indian-oil, because it is state run, and have kept their prices the same for the consumer whilest the cost of per barrell has gone up. I am NOT for that either, don't need Govt. sticking it's nose in oil, we just need to find a way to get these greedy oil slobs to stop being so greedy.

Strange how easily you flip-flop between words like "forced" and "choose". As for your concerns over what is a "fair profit," what is fair is only what provides the incentive for existing companies to ramp up production as soon as possible and for other firms to enter the market so as to bring more supply on stream. Eliminate the possibility of profit, and supply will be constrained. Then prices go up. ...come on, man. This is easy to understand!

We are on opposite sides of this thing because I am of the belief that oil is not a scarce commodity, only the oil companies make it so, because they control the valves. I am sure I would think differently if I actually OWNED the oil company, or 20,000 shares, but that is not the case.

Do you realize how many firms produce valves? It isn't one company. There is no monopoly. There is no cartel. If there were a domestic cartel, the Chinese manufacturers would undercut it and the whole thing would collapse in on itself within months (or sooner).

Do you realize how expensive a rig is these days? Do you realize how expensive they are and how much time they take to produce? This is why Houston's manufacturing sector is going gangbusters. What, you think all those welders sit around all day taking a paycheck for shooting the breeze, and firms are hiring more and more of them out of the Rustbelt just so they can continue to sit around and sap the oil companies dry? You already know better than that! Oil companies are greedy, after all!

Ethanol isn't particularly green. Considering the whole production chain it is less carbon-efficient than regular gasoline. Think of it as yet another way of subsidizing corn farmers.

Ding ding ding!

If you want to talk about conspiracies, start here.

[houstonmacbro]

Saying oil is "scarce" is like saying diamonds are "scarce". They are only scarce because someone is literally just letting them drip out into the economy. If DeBeers were to flood the market like Opec did in the 80's, what would happen to the value of diamonds ?

I saw a story (some web video podcasts or something) where they actually do have manufactured diamonds that --from all reasonably evaluations (I'm told)-- are virtually indistinguishable from 'real' or 'natural' diamonds. They are also a whole lot cheaper.

Supposedly, the diamond industry is not happy and feels 'threatened' by this.

[brerrabbit]

We are on opposite sides of this thing because I am of the belief that oil is not a scarce commodity, only the oil companies make it so, because they control the valves. I am sure I would think differently if I actually OWNED the oil company, or 20,000 shares, but that is not the case.

I will agree we are on oppisite sides and I will conceed I don't like paying higher prices for gas but I can see what goes on and understand realities of the marketplace. Never said I agree, just that I understand. As far as controlling the valves you have to understand certain realities of the marketplace. With the billions and billions of dollars tied up in this business, you will find that oil producers will virtually never shut down production in order to increase prices. Yes I know, what about OPEC? Well when you look at the numbers from those guys what you find is they have very little room over the top. While they talk about producing more the reality is they don't really have enough to increase production much more. Additionally their economics don't mirror the big oil companies. They have a natural resource in their countries with little if any investment on their part, in other words no sunk costs while the major oil companies do. As a major energy producer told me one time, the engineers job in production is to produce as much as they possibly can every day and the marketers job is to sell it. Based on the level of investment shutting down production for any period could turn the economics of a field from a profit to a loss based on costs and time value of money.

While I concur the ethanol is not totally green you have to understand that the feds made the decision to require ethanol in fuel to replace the previous oxiginator that they had required called MTBE. After the colorless, odorless liquid that is MTBE was found to be a known carcinogine the feds decided to outlaw its use and replace it with ethanol. We were immidiately short ethanol to meet the requirements so we started and continue to import ethanol from South America. It seems that sugar cane is a much more efficient source than corn. So the starting shipping ethanol from Brazil to the US. Not wanting to let the tankers return empty the nice guys that we are we decided to start shipping MTBE ( the US banned additive) to Brazil, so we effectively exported our problem. Ethanol in the US uses over a gallon of fossil fuel to make a gallon of ethanol, ie no cost savings there or much help with pollution. On the other hand sugar cane only uses a gallon of fossil fuel to produce about 6 gallons of ethanol. The reason is because then burn the sugar cane stalks to generate the heat for the ethanol making process. The relaity is right now we have no good alternatives currently and can only hope technology comes up with some realativly soon.

[Pumapayam]

Ethanol isn't particularly green. Considering the whole production chain it is less carbon-efficient than regular gasoline. Think of it as yet another way of subsidizing corn farmers.

It's renewable. That's what the focus should be on.

[Subdude]

It's renewable. That's what the focus should be on.

But if renewing it produces more carbon emissions than does producing gasoline, aren't we worse off? Renewables would be fine if we would import sugar cane from Brazil and process that, because it produces less carbon overall, but the government restricts imports to protect US sugar producers.

[Pumapayam]

But if renewing it produces more carbon emissions than does producing gasoline, aren't we worse off? Renewables would be fine if we would import sugar cane from Brazil and process that, because it produces less carbon overall, but the government restricts imports to protect US sugar producers.

Well, if we are encouraging the US corn farmers to produce corn for ethanol, it would make sense to have the sugar cane growers in the US to do the same.

[Mark F. Barnes]

I always love to read discussions like these on forums. I worked as an energy trader for nearly 15 years before it took a downturn and then kicked around until I wound up back in the energy business working for a major producer in theri retail division so I got to see the retail fuel side of the business as well. I currently price and buy about $200 to $250 million worth of oil a month for a major energy players Chemical division. I spent a seven year hitch with Enron and have stories to burn about that place. I was not there for the fall but still lost a lot of money as a result (goodbye early retirement). There are so many false beliefs, inaccurate data, and just plain lies put out there every day that no one knows the truth.

I will tell you this, markets set prices period. It's not the big bad oil companies, its not the government unless like Venezuela where they heavily subsidize the market to achieve $.40 a gallon gas costs. Leaded and a heavy polluter by the way. The reason so many other countries are not as shocked by rising prices is because they have been paying $4 and $5 a gallon for their gas for years. Why? Taxes! We pay a little over $.19 a gallon federal any anywhere from $.15 to $.40 a gallon for state taxes while the rest of the world has paid upwards of $3 to $4 a gallon in taxes for years. Why? Their governments have been trying and successfully I might say to wean their populations away from individual autos to mass transit for a long time and apparently in a lot of places it has worked. We have been spoiled for a long time and now as the supply stays relatively flat and newly industrialized countries like China, and India enter into the bidding for international oil the prices have risen for crude. Gas prices are up partially because of crude prices and mostly because of demand. Demand continues to grow while the supply of refined products does not. We have not built a new refinery in the US in well over 20 years. To costly, to many regulations and to many people crying, not in my backyard.

Boycottes, get real would you? Go buy a tank of gas, and then tell me whose gas you just bought. Exxon? Really? Even though Exxon doesn't have a refinery within 1,000 miles of where you bought your last tankful? No you just bought Citgo gas refined down the road that was taken to an Exxon terminal where Exxon's additives were added and then it was loaded into a non descript tank truck and delivered to the local Exxon station. Wow! I thought you were boycotting Citgo! Didn't see that one coming did you. Gas is Gas is Gas! Its made to Federal standards and then it is sold as a commodity period. Can you trace the cotton fibers in your jeans to know what state or country the cotton was grow in? Didn't think so. It's a commodity, look that word up. A homogeneous product that is made to a standard and traded on a regulated exchange in what many economist call the last true open market left in the world, a commodity trading floor. Buyers and sellers freely transacting in an open call market place. Now if you are a responsible CEO and you can sell your product out of Africa to a market in China for $65 a unit because the free market dictates that's what they are willing to pay, would you as an American say on hell no! I'm taking it to the US Gulf Coast for $55 a barrel plus a bigger transport cost to help out my fellow citizens. No, because you wouldn't be a CEO for long would you.

I know, I know, lets all hate big oil because they are making so much money, its not fair. Windfall profits, price regulation, price caps, lets nail them to the wall. Well as little as five to six years ago where were you when those same companies were loosing money or barely making any money? Were you calling for subsidies to keep them afloat? No you were not. Look at a period of ten to twenty years and see what the average return was for the major oil companies. Also don't include the last two years in your calculation. The returns are not that great. Oh by the way their market capitalization is enormous, billions and billions of dollars and they are returning in some years as little as 2 to 3 percent. At that rate why not just put it in a money market account with no risk and make 4 or 5 percent? As major oil is making money in large chunks today they are putting it back into exploration and development. The problem is people all the easy oil has been found. Elephant hunting for the big reserves is not cheap. We have to go deeper, farther offshore, and into countries and place we have never gone before and it costs a lot more to do it.

I hate paying more for gas as much as the next guy but the reality of the situation is it along with all other carbon based energy sources is a scarce commodity. While technology has made DVD players fall from $700 to $880 when the were first introduced to something like $29.95 at Wal Mart today the same cannot be said for carbon based energy. We find better ways to extract it but we have to look more and more places to find it. Oh and by the way what is about 90% of that $29.95 DVD player made out of? You guessed it carbon based energy products. We use oil, gas, gas liquids and petroleum based products to make, plastics, polyester, latex, rubber, nylon, and about a thousand other everyday products that we all take for granted. We use it to generate power for homes and businesses and to even fuel the processes needed to turn the energy itself into the afore mentioned products.

The relality is we pay more and will continue to pay more for oil and gas. There will be price fluctuations down but the overall trend is up. In the interum energy producers i.e. Big Oil will show big profits but a some point in the not so distant future they will run out of the cheaper produced product and be forced to find more expensive stuff. Once they sell through the inventory their costs will increase significantly and their profits will crash. When it does I just hope all the people bashing them today will have a little sympathy for them then.

Now this is the first post I have read here that actually gets it. Mr. Rabbit you hit the nail on the head here. I've been in the Oil and Gas Industry since 1968 and this post is telling you like it is. Rack prices for gas are played like penny stocks. And as he said gasoline is gasoline. Bulk fuel is brokered and the additives are added to make it brand specific. Rabbit made a perfect explanation of how it is. You don't know who's refined fuel you are buying, only who is selling the fuel retail. And just a hint, the real money is not made when the fuel prices are rising, it's when they drop that the margins increase, and on top of that the consumer rushes out and tanks up. If you only knew the few pennies that are the profit margin between the rack price and the retailer, you'd ask why do they bother. The fuel pumps are the lure to get the consumer in the store to buy the junk that they make the real money on. (i.e. cigarettes, sodas, bottled water, etc.) Speaking of bottled water, you pay on the average of .99 cents for 16 Oz's of bottled water and you delicate flower and raise hell over $2.50/gal for fuel. I don't get it. How much profit do you think the bottled water people are getting? You don't spend on the average of 3 million dollars to drill a water well, and another million to complete and produce that well. Then millions more to refine the byproduct of that water well. It's just water. Think about that for a moment.

[Mark F. Barnes]

Oh, did I mention that, not only do I limit my gasoline usage, but I also own Exxon Stock? It hit $86 a share yeaterday. Great way for a "Lib Greenpeacer" like myself to offset high gas prices.

Now that's funny.....

[CDeb]

Oh, did I mention that, not only do I limit my gasoline usage, but I also own Exxon Stock?

I've always told people, if you think Exxon makes too much damn money, BUY SOME OF THEIR STOCK!!

[Pumapayam]

I've always told people, if you think Exxon makes too much damn money, BUY SOME OF THEIR STOCK!!

Well the stock is too high for it to mean anything anymore.

[CDeb]

Well the stock is too high for it to mean anything anymore.

Come again? You're fading in and out there, Ghostrider....

[TheNiche]

Well the stock is too high for it to mean anything anymore.

Please explain.