Oil Pricing for Dummies

[Buckterrier]

I'm not being facetious here.
Can someone explain, in layman's terms why the price of oil is what it is? I like many others have blamed the oil companies. Until Red Beard straightened me out. They really can't be to blame, (can they?), if they're only making 8% ROI. I know my Co. has to make like 55% or we don't sell basically.

1). Is it the Saudis?
2). Is it the speculators?
3). Is it the greedy capitalists?
4). Is it the war in Iraq?
5). Is it all the above?
6). Is it none of the above?

I mean when people can't work because they can't afford to GET there, there is something fundamentally wrong.

[legion]

5. and 6.

[The Gaijin]

7.) all of the above and then some.

[Rick Lee]

You left this one out:

8) American over-consumers who think they have a birthright to cheap gas and thus drive monstrous gas-guzzlers.

[Mule]

Greedy Chinese

[legion]

Russia.

[Jim Richards]

9) Still waiting on the breakthrough in processing Kryptonite into a commerically viable fuel for motorists.

[Rick Lee]

Originally Posted by Mule

Greedy Chinese

Well, there are a lot of them. But it's not greedy to want to have a car and be able to get around like we do in the developed world. It's just that their sheer numbers, even if only half of them had cars, would dwarf our entire fleet of vehicles.

[legion]

Maybe not the Russians, maybe the Swedes.

[The Gaijin]

Basically it is supply and demand. When crude was plentiful a few years ago - the price was way down. This was not such a good thing as low cost producers (like the Saudis) can pump it out of the ground for a few bucks a barrel. But that also limited exploration and we developed many wasteful habits. (How many SUVs on the roads in 1990??)

Now that the world economy is growing (with the large economies of China and India growing the fastest), oil consumption has gone up. The price has followed. And as the supplies are tight - issues #1 - #5 can be taken advantage of. The Swedes too!

Oil, tar sands, coal or even energy in the form of nuclear power can be plentiful, but take a load of time and money to develop. But who is going to invest in far off-shore drilling rigs or tar sand refineries if the price may fall again?? This is where we are at.

[Buckterrier]

Originally Posted by The Gaijin

Basically it is supply and demand. When crude was plentiful a few years ago - the price was way down. This was not such a good thing as low cost producers (like the Saudis) can pump it out of the ground for a few bucks a barrel. But that also limited exploration and we developed many wasteful habits. (How many SUVs on the roads in 1990??)

Now that the world economy is growing (with the large economies of China and India growing the fastest), oil consumption has gone up. The price has followed. And as the supplies are tight - issues #1 - #5 can be taken advantage of. The Swedes too!

Oil, tar sands, coal or even energy in the form of nuclear power can be plentiful, but take a load of time and money to develop. But who is going to invest in far off-shore drilling rigs or tar sand refineries if the price may fall again?? This is where we are at.

Great answer, (thanks the rest of you heathen dogs ). But what would make the prices fall again? The Chinese are going to continue to grow, (we'll all be speaking it in 75 years), along with India. Don't you think that demand alone will keep prices where they're at??

[Jim Richards]

Refinery capacity to make the fuels is another factor. For example, if there is a maintenance shutdown at a refinery, it seems to always hammer the prices of gas.

[Porsche-O-Phile]

Too many people.

Root cause of virtually all problems.

[Buckterrier]

Originally Posted by Jim Richards

Refinery capacity to make the fuels is another factor. For example, if there is a maintenance shutdown at a refinery, it seems to always hammer the prices of gas.

Yes I've heard that and I think it's bunk. I know when one of our reactors go down we don't raise the price of our paint, we just get in trouble with our customers for being late on shipments!!

[Rick Lee]

It's gonna be a looooong time before demand falls. China already has insane taxes on imported cars, something like 200%, and they're still selling them faster than they can unload the ships. Oh, and China subsidizes their gasoline, so the price at the pump is roughly what it costs us here, though they even have the same prices at gas stations in the middle of nowhere that are the size of sports stadiums. No way those stations are turning a profit.

[Jim Richards]

Mark, the reduction in refinery capacity leads to oil futures contracts being bid up in price, which means the market price for oil goes up, which increases the cost of oil to refiners (unless they are oil procuder owned), which raises the price of gas at the pump.

[The Gaijin]

Originally Posted by Buckterrier

But what would make the prices fall again? The Chinese are going to continue to grow, (we'll all be speaking it in 75 years), along with India. Don't you think that demand alone will keep prices where they're at??

China and India are growing at a rapid pace and that includes automobiles. I don't think demand for oil is going down anytime soon. And their growth is happening NOW - they are building economies based on high energy costs.. (An advantage for them.)

It takes a long while to develop supplies (like all the exploration and drilling off of Brazil), so I think high prices will stick around for a few years+.

But 75 years is a long time. All kinds of clean and safe nuclear technology might be developed by then. Whale oil was an important industry once.

[Seric]

You forgot Environmentalists.

[Jim Richards]

Originally Posted by Seric

You forgot Environmentalists.

How many BTU/hr are they worth?

[RoninLB]

a combination of many factors

including the imperfections of the futures market.

including oil being used instead of gold as inflation protection by enough people to affect the curve.


a hard core monetarist would comment that the Fed R corrupted our dollar value in lew of addressing short term economic growth. The Dem's turned the Fed into a short term economic growth responsibility by way of law in 1982... ie: a strong dollar would reintroduce confidence US world power. Oil $ would fall. Worldwide investor $ would increase in the US.. etc