An article popped up in my Google Sidebar news gadget the other day: Gas pushes above $4, oil falls on profit-taking. I thought it was interesting insofar as it described fairly well why the price of oil yo-yos quite a bit: when oil jumps up, investors take advantage of the profit-making technique where they then sell high, the price falls, and they re-buy when it drops $10. When dealing with thousands of shares or whatever units are used in futures trading, this can create quite a bit of wealth.
Anyway, as I read further into the article, I came across something that completely incensed me:
Consumers are cutting back on their consumption of gas in response to the high prices, but gasoline producers have little choice but to keep raising prices when the cost of their chief raw material - crude oil - rises. Friday's jump of nearly $11 in oil prices put new life into gas prices, which had appeared to be topping out. [emphasis supplied]
Essentially, what has me so pissed off about this statement that I've highlighted is the response from oil/energy companies, proclaiming that they are forced to raise the price of gasoline/petrol because the price of crude oil (a fossil fuel) has risen. Never in my life have I been witness to such utter rubbish.
Oil companies posted yet another record profit for the first quarter of 2008: combined, somewhere in the neighborhood of US$280 billion. That's not their income but rather their profit. That's the money they have left over after they have paid out all of their expenses. If these figures remain constant, then the oil/energy companies in the United States are on track to earn a profit of one-third (1/3) of the entire budget for the United States government, which is somewhere in the neighborhood of US$3 trillion--that's a profit of one trillion US dollars.
How dare these companies, which have all but pushed the remaining two corporations in the Fortune 10, declare that they are forced to continuously raise their prices because the cost of the raw materials they use is increasing! They could very comfortably absorb such costs and still be cranking out record profits. I wouldn't be quite as incensed if the incrase in the cost of petrol/gasoline were in direct proportion to the incrase in the cost of energy companies' raw materials; however, this has not been the case. For every increase in the cost to energy companies for the raw materials they require to make consumer produts, the end net cost to the consumer has been anywhere from a 200-500% increase as compared to the end net cost of the raw materials that the companies are paying.
It's high time that the consumer take serious action against these corporations. Government intervention is not the answer. What will work is allowing capital market economic actions to effect prices: a drastic change (specifically, a major decrease) in the demand for products will result in a surplus of product with little demand. The market will respond by decreasing prices.
If we take the reverse of this situation, a decrease in the supply, then we can begin to image why prices have been rising over the past few years. I firmly believe that the shieks and ali-babbas who control the oil fields in the Middle East region know full well that the quantity of oil that they have left in their fields is dangerously low and will actually run out within the next 5-15 years (depending on levels of consumption). As such, they've been cutting back on production, in order to make the oil last as long as possible. This decrease in supply without a decrease in demand has caused an in price.
So you can see that a decrease in demand will effect a change in the economic conditions, forcing a decrease in the prices of oil, petrol, and gasoline.
However, in order for this to work, this major decrease in demand must be sustained long-term.
It's now time for everyone to permanently park their cars in their driveways and start using public transportation, mass transit, trains, busses, and/or walk, whenever and wherever possible. Car-pool or ride-share. Work from home. Have items delivered (even if it's a fossil fuel-based powered truck making the deliveries, one truck making 100 deliveries will use less fuel than 100 individuals going to the stores in their cars). Buy alternate fuel vehicles.
We must drastically reduce our consumption of oil over an extended period of time. Also, we must enact and effect a long-term plan to utilize alternate, renewable, and green energy sources.
In my opinion, this is the only way to combat the extreme greed of the energy/oil corporations, who are sending our economy into a serious crisis. I firmly believ that if things continue as they are, the US economy will soon cease to exist, and the global economy will fall into extreme chaos.
(By the way, the price of gas around where I live in Westchester County, New York -- regular gas, that is -- was something like US$4.49/gallon the other day.)
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Comments: 36
One of the issues we have in the oil business is that oil refineries are now operating at or quite near capacity due to the increased demand world wide. Though that fact is not the only reason for increases in oil based products it does play a major role in continued profits of oil companies especially in the US. Imagine if you will any market where the supplier is maxed out on its ability to produce more of something no matter the condition of the market. Even if we suddenly discovered huge oil reserves all across the country we do not have the refining capacity to produce any more gasoline, diesel or any other oil based products. Oil companies have not invested in the building of more refineries thus giving maximizing their profit potential. Our leaders have not seen fit to deal with that issue which has been a pressure point for oil products for years. to me I see no reason to be giving bonuses to oil companies unless those companies were constructing more refinery capacity.
The problem is many streets in the states do not have reliable walking conditions, such as sidewalks and lighted areas.
You would be surprised at how much better our standard of living would be if we didn't have the costs of supporting our money. (It costs about one quarter of our total production. Trillions of dollars per year from our production goes to support our form of money.)
10 to you
There is no profit for the oil companies in building new refineries, so why should they? As long as they control what is being produced, they can control the price.
I don't drive anywhere I don't have to, and have cut back in every way I can. I refuse to give them my hard-earned money without a fight.
That is sad when you can't even afford to go the park to have some family fun like we used to when we went to Kings Island once a year.
Now we're lucky if we go to KI once every five years.
The economy does need some serious work.
I hope the new president helps out how somehow.
For now, all we can do is, like you said, walk.
Or take any other transportation with family or groups.
Stock up on groceries by buying in bulk, less trips to the grocery store.
It may be time that the energy related industries get regulated by the government. Over the years we have gone away from regulating these types of industries feeling that normal competition would keep prices down. We have forced large companies in the past to break up to again keep prices down and to prevent price fixing. But we don't do anything when these companies are harming the entire nation.
I think it worth adding however that we all loved gasoline when it was cheap. It's only now that we cannot afford it that it suddenly becomes poison.
1.) Gasoline producers are REFINERS not oil companies. The major oil companies like Exxon do some refining, but mainly they are RXPLORATION companies. Conoco/Phillips and BP dp both. Marathon refines, but more refining that exploration. Tessoro and Volero are the largest publicly traded refiners in the U S.
2.) Refiners pay for crude at the barrel rates quoted, either purchased in the futures market or on the spot market. Last year when oil was $65 a barrel, gasoline was retailing for $3.15 on average. As yoy know, crude has doubled (thats a 100% increase for those keeping score). Retail gasoline prices have only gone up 25%. Guess who is eating that dfference - its the refiners!!!! Refiners are not making record profits.
2.) Americans are cutting demand for gasoline, but for every barrel less we consumer, China is consumming 2 more barrels. U S demand no longer drives global energy markets. Get used to it. As the U S slows, China and India continue to rapidly expand their economies.
geez
The group: We Comment Back
Not long ago, when gas prices shot up in Iran furious drivers descended on gas stations and lit them up, literally. I don't think it helped them much. Most likely it only meant they had to drive another five or ten miles out of their way to buy gas.
It certainly would be cool if we could pull off some kind of Boston Tea Party to teach the petro-oligarchs a lesson, but, unfortunately, we're in no position to do anything like that. We're squarely behind the proverbial 8-ball.
OPEC has, apparently, finally figured out how to operate like a real cartel--cooperating to restrict supply and drive up prices. The bottom line is--we're screwed
That old, derisive cry from days of yore, when one of those newfangled tin lizzies went chugging by--"Get a horse!"--is starting to sound like pretty good advice right now. The times, they are a changing, people. It ain't gonna be pretty, and it ain't gonna be fun.
The knowledge is already there. Are we going to be wise...?
I actually believe in the idea that the price of something is based on how many people want it, how much of it is available, and how much people are willing to pay for it. From everything I hear the supply of oil is at or near its limits, so as the rest of the world gets more modernized the demand goes up faster than the supply. If we don't increase the supply then the price goes up faster.
I am not sure what getting upset with the oil companies achieves, if they don't have it and can get it what should they do?
You seem so down on them making a profit (greed), why do you think they should be in the business?
I am not so enamored with the idea of reducing our demand for oil as I am for seeking the most efficient energy for the situation. I also feel there are more valuable uses of oil. I like the idea of electric cars, there are many sources of electrical energy. I even like the idea of methane cars. I also believe that the market place will find the better alternatives than any one person or group of people can (the US Congress makes that case).
Spencer T., Pat D., Amy B.,
Each of you makes sense and adds to my understanding.
Bent,
I have yet to find anything that man does from the first breathe "he" takes to the last as being intuitive. As best I can tell we all have to learn everything.
I am trying to understand what and why you feel the west is responsible for the less developed parts of the world. Is it that you feel these vulnerable people aren't capable of making their own decisions, or that they don't have the abilities to implement the available technology, or that they have been deprived of taking advantage of that others have because of the actions of the west? I don't.
The U.S. created this "crisis", because it allows third-party people to control prices.
The idea I like the best and gives an instan 10% redcustioin, is 9/80. My best recolection is that it was developed by a nasty old oil company, but it works.
9/80 is you work 80 hours in 9 days so evry other Friday off. The way it works is the work week ends on noon Friday, you work 9 hours Monday thru Thursday 4 hours til noon on Friday, the next week starts noon that friday you work 4 more hours and them 9 hours Monday thru Thursday. You get 40 hours in each week but only have to drive to work ever other Friday.
There are a cuple of limitations, people have to accept that they must work 40 hours each week, and the jobs will have to be staggered (not everyone gets the same Friday off) because business still has to be ther for the customers.
commodities are in demand and the rest of the world is industrializing. the dollar is weak because of decades of massive government overspending and consumer debt. Surprise, we have a problem. One that no amount of government interference will solve. And subsidizing 'alternate energy' will only make it worse.
Yeah, bring on the new profits taxation for oil, that worked well before right?