One more reason I would change my vote

[lendaddy]

Insults aside, what part of the increase is due to increased demand in China and throughout the world? What part of the increase is due to the Venezualan problems? What part of the increase is due to OPEC lowering output? What part of the increase is due to the reported refinery problems in the states and abroad? And finally, what portion is due to the war. I do not claim to know the answers personally. I got my information from an oil futures trader, guess I should have just come to you

[Superman]

I don't have time to read all through these posts right now. Later, yes. Now, no. But I also played a little Kerryopoly just now, and noticed that one of the smears was Kerry's suggestion of a $0.50 gas tax, that would cost the ordinary family something like $500 in a year's time. What I notice is that the GWB policy is CONSIDERABLY more expensive than that, and the money goes to OPEC. Under Kerry's less expensive plan, we'd be putting that money in a pool for things like road maintenance and improvement, and maybe even schools. So, it's not even money we'd get rid of. We'd keep and use it.

I'm sure there are interesting comments here, and I'll read them when I get a moment.

[wludavid]

I think we should all note that the $0.50/gal proposed gas tax was in a bill that was put forth a decade ago, "back when regular was selling for a national average of $1.01 per gallon."

http://factcheck.org/article.aspx?docid=165

[singpilot]

Can you imagine what the inflation adjusted Kerry tax would be now a decade later?

That sends shudders thru any consumer.

[wludavid]

Originally posted by singpilot
Can you imagine what the inflation adjusted Kerry tax would be now a decade later?

That sends shudders thru any consumer.

singpilot, according to Gregroy Mankiw, who is now the chairman of Bush's Council of Economic Advisers:

Let's cut income taxes by 10% and finance it with a 50-cent-per-gallon hike in the gasoline tax. Cutting income taxes while increasing gasoline taxes would lead to more rapid economic growth, less traffic congestion, safer roads, and reduced risk of global warming--all without jeopardizing long-term fiscal solvency. This may be the closest thing to a free lunch that economics has to offer.

[Superman]

Well okay, I've read though these posts now and there is quite some difference between my expectations and the reality. The interpersonal and egotistical elements are fairly overwhelming, but there are some rational comments here. I'm not going to jump into either one, but I do have a question. It looks to me like demand is only a tiny bit elastic in the short run, such that gas price fluctuations from month to month, and even year to year, are largely driven by supply. And when it comes to supply, ummmmm, I recall an organization that is a collection of middle-eastern oil producing countries that gets together from time to time to simply decide what production volume is going to be (supply), in millions of barrels per day. Another word I recall from that time was "cartel." It was called O*****, or OHECK or something like that. They are currently being asked to increase production. Did they not decrease production since Dubya's Iraq decision? Be honest, now.

[azasadny]

"One more reason I would change my vote
I have never, ever taken the dem side during an election in my entire voting life. But I am now compelled to stand against the GOP for a number of reasons - primarily linked to the human/ethical philosophy of the Iraq situation, in all honesty.

But beyond the ethics/morality; whatever you want to call it of the Iraq situation; the financial implications of Iraq put this issue completely over the top for me in standing against GWB. The unbelievable amount of money being wasted in that venture is beyond our ability to sustain. GWB's financial stewardship pales even compared to the antics of some of our friends at Enron, Tyco and others. Dubya is recklessly managing the financial affairs of the US at the very risk of the lifestyle of generations to come. That kind of sin is usually within the scope of the Democratic party, but GWB is tossing out the rule book.

But to put the implications of GWB's actions in contemporary context - has it occured to the hawkish elements here that the Iraq invasion is directly linked to what's happening to the price of energy? Does everyone understand that a big part of the reason why we're paying what we are at the pumps today is thanks to GWB and company and their dabbling in Iraq? Do you also understand the kind of impact sky high energy prices can (and will) have on the US economy?

Remember your buddy GWB the next time you're dropping $50 or more to fill up your 911."



I'm with joeclarke on this, although I don't want Kerry to win either. Who am I going to vote for???? Very frustrating!

[joeclarke]

... Did they not decrease production since Dubya's Iraq decision? Be honest, now.

Yes Superman, they have increased quotas since the Iraqattack. But regardless of official quotas (the Saudi's are really the only members that follow these closely), participants in that loose association have been pretty much pumping every drop they could over the last number of months to take advantage of the peaking price levels.

That's the whole point of OPEC - to buffer the supply side of the supply/demand equation to keep realized prices at target (whatever that means from time-to-time).

With energy commodities the marketplace is inefficient as to pricing on the basis of supply/demand because the quasi-emotional need for certainty of supply and expectation of future price eclipses the amount of physical supply vs. actual demand.

That's what's happening now. There is turmoil regardling certainty of supply to the extent that people are willing to pay an increasingly greater price to lock in supply in the future. This is because they fear supply may be disrupted and they want that disruption to effect other buyers ("spot buyers") rather than them.

So in this situation - OPEC is completely impotent as a factor in influencing pricing. The market is being driven by factors outside of the simple supply/demand mathematics.

What circumstance has created this uncertainty? The US invasion of Iraq is obviously the catalyst here.

[lendaddy]

Even with your data ($0.024 per $1 per barrel change), and assuming the $9-$10 pb "fear factor" is correct, that means the war has affected fuel prices by a whopping $0.216-$0.240 per gallon. Like I said not even the majority much less all of the increase is due to the war/uncertainty.

[joeclarke]

I don't know what you are trying to say Lynn... But there's nothing in any of your quotes or references that speaks to why crude is at the value that it is.

In case you missed it, I'll reiterate for you. It costs about $2 to $3 for the Saudis (and ball park for most OPEC members) to pump oil out of the ground. So after adding in a variable for willingness to take profit - anything above about $5/bbl is gravy.

Energy demand is almost completely inelastic as to price. That means that demand remains constant regardless of price. Because demand looks identical regardless of price, price is only impacted by supply side economics (production/replacement costs, willingness to take profit and dynamics related to certainty of supply).

With me so far?

Because supply side economics dictate price regardless of demand side economics - OPEC was formed to manage the supply side in an artificially consistent manner. This happens in lots of areas and can serve to benefit both the seller and consumer. But because crude is so cheap to produce in the middle east (probably half or a third the cost of most crude pumped in the US) - everyone wins with a stabilized crude price at a level that makes production and reinvestment possible everywhere in the world.

Having said that...

There are two pricing mechanisms in energy commodities - today's price (spot) and tomorrow's price (futures). In the spot market, consumers (eg. industrials and refiners) take crude at today's available volume and price. Future and spot pricing factors are linked - but not lock-step. In the future market, consumers forward buy crude at a fixed price at a point in the future (obviously). But also in the future market, speculators buy and hedge (either buy or sale positions).

When consumers become uncertain about the reliablility or cost of future supply and because demand is inelastic as to price, they begin to lock in future volume to get comfortable. As more and more consumers attempt to lock in future deliveries this causes future prices to be "bid up". Throw speculators and hedgers into the equation, and you have an upward spiral of crude prices. Just like when people see mortage rates going up - they have a greater tendency to lock in a rate for a longer term - everyone wants certainty of cost and supply.

So, as futures prices get bid up because of concerns about catastrophic failure in supply (this can mean even a 1% loss in world production or can mean a further spike in price) - OPEC becomes powerless to impact pricing with promises about supply volumes. OPEC can be effective in pushing prices upward but has little influence in pushing prices downward in a market fraught with concern. OPEC is happy at $20 crude - they don't like $40 crude much more than we do. Crude demand is elastic to price in the very long run and OPEC is smart enough to understand that driving your customers out of business is bad business.

So back to the point of all this... What is causing the world to be concerned about certainty of supply?

One word... Iraqnam.

So, like the man said, thank GWB the next time you spend $50 to fill your 911 or your neighbor gets canned because his factory went bust due to gas and oil prices. Oh yeah, oil and natural gas prices are also linked to each other - but that's another story.

[turbocarrera]

Originally posted by joeclarke


So back to the point of all this... What is causing the world to be concerned about certainty of supply?

One word... Iraqnam.

I don't think he missed the point at all.

[911pcars]

To my simple mind, the price of crude is a non-issue in terms of what an oil producing country profits. Either they make their profit on the price per barrel (currently $40/barrel) or they make it up on volume @ $32/barrel. Either way, they make bundles. If I had an almost unending supply of a commodity, what does it matter about this thing called supply and demand? Okay, I don't want to work as much so I'll be less productive and the price goes up. Or, okay, I'll produce more at a lower price - same difference as long as there is some demand. Currently, the US is at a level of "some demand" and beyond, so not to worry.

The byproduct is that SA, Kuwait, Nigeria, Algeria, Indonesia, Venezuela, et al and the oil companies, the middle men and politicians who work in concert with them, reap the benefits of this strategy. The control of oil prices by a cartel (i.e. monopoly) has a powerful effect on so many aspects of our and many other country's economies - employment, commerce, purchasing power and yes, political favor. Every country so strongly dependent on this natural resource is in the same boat. Beyond the fact that when there's an attempted ramp up on an alternative source of energy and the price of crude drops accordingly - these guys have more to lose than a few trilion dollars of oil profit.

I have a notion the availability of cheaper crude in the months leading up to November will have a powerful effect on who wins the election. Didn't OPEC recently agree to up production by 2 million barrels/month? (BTW, is that number correct? That sounds like chicken feed to me..... for now). If GW and his pals (or whoever) can influence oil production and the economic power that comes with it, then that's a big advantage for them. So when they yank on those big energy strings in the sky, we'll feel obliged to jump and say, "yes sir, how high?"

To some that will be fine; as long as gas is cheap do with me what you must. But for the rest of us, that should be some cause for alarm.

JMHO,
Sherwood