It's a crazy mixed-up oil world out there. The big-oil executives are testifying today in front of the Senate, and they're getting heat for what the Senators say is OPEC price collusion. Yes, you heard that right. There's a contingency of the U.S. Congress that believes illegal activity may be at the heart of one of the biggest suckers from citizen's wallets. Indeed, gas in areas like Iran is at a mere 45 cents per gallon, compared to nearly $10 in Europe and nearly $4 in the U.S. [Here's a chart of major market gas-price breakouts from CNN/Money.]
Meanwhile, related market conditions are in a "tale spin." The stock market is sinking in oil, with the Jones industrial index losing 427 points in the past two days. Perhaps not surprisingly, most oil-related stocks, other than Halliburton Co. [HAL], are still climbing. Oil by the barrel hit another record of $133, with gasoline and natural gas prices continuing to set new records each day. And, to add insult to injury, word has it that the purchase prices of economy cars are soaring due to increased demand.
Americans are fighters, but can our economy survive the fall outs from yet another case of market leaders doing the wrong, wrong things? Pensions, sub-prime mortgages, now oil price collusion...
Ah, the freedoms of democracy.
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Comments: 23
Amy, you bring up a good factual point here. It was indeed the Senators, not the big-oil executives, who discussed OPEC collusion. House Speaker Nancy Pelosi (D-Calif.) was quoted today in the Washington Post saying that a bill circulating in Congress on the matter would "hold OPEC accountable for price fixing." But you're right, the evidence of that I can't find either at this point. I will amend my post to indicate this. Thank you for your eagle eye!
What I got from the meeting was the top executives of each oil company, have some hefty salary/bonus incomes...one claimed he didn't really know...and they seem to have no compassion for what the gas pricing is doing to the small business's, that include our shipping and trucking business....our educational system - school buses - our airline business....the fire trucks, the emergency vehicles....floral business, food delivery business, that includes "meals on wheels"......to name just a few being pushed to the limit...and those do not even include the family car.
Then we have the uncontrolled speculative investors making billions....
We have a President who can not get anyone to listen and help us out.....
If Congress can't get something done...it will only get worse...and it was the Senators who discussed OPEC collusion...the oil companies do NOT want us to even consider that.....duh....I wonder if you have to be a rocket scientist to figure that one out....
Russia today is the largest producer of oil in the world.
Canada and Mexico are the largest importers of oil into the US.
OPEC is of almost no value to these countries or what's going on in the world of oil.
Saudi Arabia has none of that available at all, only heavy crude
I feel strongly about this on both a local and global level. Locally, I worry about the economy when our children are not educated properly or there is economic waste. I am going to write an article about that and, if you'll permit, link to that (it will an article on Gather about how school funds were wasted, not to mention parent time). We need an educated, literate and FINANCIALLY SAVVY group of citizens.
I feel strongly that we need to know how we are connected to the global economy and what America can do to stay competitive and flourishing. Thank you for this article, too, another step in keeping the discussion going and enlightening us all.
Richard B., thank you so much for the intriguing background information. Do you have any more information on the advantages of light sweet crude versus heavy crude when it comes to America's common oil uses? If you do, I'd love to include it here.
The price of crude is not being driven by collusion, its being driven by a world wide shortage of DEISEL. Gas has gone up, but deisel has gone up TWICE as fast.
(look at the graph here: http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html
Since most americans, including congressmen, do not buy deisel, they don't see what is driving the market and assume its some great conspiracy.
'OPEC producers insist there is no shortage of oil despite record prices and although plenty of heavy crude is available, refineries are thirsty for light sweet crude which is in shorter supply, analysts say.
"To answer the question, is there a shortage of oil at the moment? We have to ask, a shortage of what oil?" said Bruce Evers, an oil industry analyst at Investec Securities.
Many heavyweight producers such as Saudi Arabia, Venezuela, Kuwait and Iran produce large quantities of heavy, sour crude with a high sulphur content.
Others such as Nigeria, the United Arab Emirates, Angola and Libya pump a higher quality, light sweet crude, with a lower sulphur content.
"We still have a deficit of refinery capacity that's capable of processing heavy sour crude and we still have an absolute shortage in light sweet crude which is easy to refine," said Societe Generale analyst Deborah White.
Light, sweet, low-sulphur crude is most suitable for refining into petrol, gasoil and heating oil.
Meanwhile supply of heavy, sulphur-rich crude is currently in surplus, according to analysts.
But many refineries are not set up to process such crude because it is more difficult and expensive to refine into products.
Both the London and New York oil prices -- the two international benchmarks -- are for light crudes.
Prices on both markets have reached record high levels this week, smashing through the 50-dollar '
That's from - http://www.energybulletin.net/2341.html
More stuff -
Only a few refineries in the US can use Heavy crude which is $85 or so a barrel all the others need the light sweet crude oil. Holly Corp Navajo Refinery, CONOCO is building a new refinery in Canada that will handle Heavy Crude. Lucloil (Russia) is looking to use that facility Valero uses Heavy Crude I think but they don't make gasoline or diesel.
The plain vanilla fact-of-the-matter is that Venezuela has no other market for the greater part of its oil. Heavy crude is special stuff and is not for the average refinery. The majority of Venezuela's oil can only be processed in the specialist refineries run by Hovensa (a joint venture between US refiners Hess Corp and PdVSA) located in the US Virgin islands, amongst other places.
They should blame the US refineries who cannot refine the crude available, because they're not set up for it. In fact, the crude reserves in the US are higher than they have been in the past, while reserves of gasoline are somewhat lean, hence the higher-than-normal gas prices of late.
Refineries that normally run intermediate sour crude oil could run a small quantity of heavy sour crude if they could blend it with light sweet crude oil, but if light sweet crude oil is in short supply, then that option is not available.
Ultimately, OPEC was the only supplier capable of increasing production adequately to cover for the losses from Venezuelan Heavy Crude, and OPEC members like Saudi Arabia, Kuwait, and Iraq have crude oils similar in quality to the Venezuelan crude oils. But OPEC's Middle Eastern crude oils are 30-40 days away, leaving a regional short-term supply gap in the United States. All that oil must be mixed with Light sweet crude to ne refined in the US and as light sweet crude is in short supply, forget it.
They cannot make more oil. They cannot make more deisel or gasoline. The cannot instantly build mass transit systems. The cannot stop the rest of the world from outbidding the U S for the most desirable resourses. Slapping on taxes or confiscating profits will only drive up prices further and probaby cause shortages.
All congress can do is point fingers and look indignant.
The price of oil is set at world markets in New York and London. The oil companies do not control these markets, nor does any government in the world.
The oil markets are just like Ebay. If you want the oil today, you pay the spot price. Think of it as the 'buy it now' price. If you need oil in the future, you pay the contract price, which is sert by auction.
It gets interesting if you contracted for oil to be delivered in 30 or 60 or 90 days. If the price moves significantly, you may trade that contract for one with a more favorable price, and pocket the profit. This is the speculation everyone is whining about.
The thing that the complainers do not take in to account is the time and risk elements of the trade. Once a contract expires, you must take delivery of the oil. Speculators do not have anyplace to store barrels of oil, so they must hedge so they don't get stuck. The hedges keep the market stable and the profits smaller.
Its interesting to note that actual oil buyers (not traders, but people that take delivery) do not blame speculators for the current prices.