4/26 We keep hearing every year about how gas prices are higher because
of reduced refinery capacity caused by everything from Katrina to
fire and power outages. When it happens every year, it's not
unusual and I'm inclined to believe these are lies. Why do market
analysts continue to repeat these lies?
Also, interesting stat:
"On Apr. 13, the California government's State Board of
Equalization reported that for the first time in 14 years,
gasoline consumption declined in California for all but three
months in 2006. "
\_ What makes you think they are lies? People can complain about there
not being enough refineries, but those same people will keep you
from building one anywhere near them.
\_ Because every year we hear about these "unusual events". If
they happen every year then they are not "unusual events".
They are status quo. No one has said capacity isn't there.
They say it is offline because of these "unusual events".
\_ c.f. Enron
\_ If there is a 1% chance on an "unusual event" happening at any
1 refinery per yer, and there are 100 refineries, how many
unusual events can you expect per year?
\_ Yes, so it's predictively usual in aggregate.
\_ Do you think 1% of refineries being offline is really
affecting production?
\_ Obviously I made these numbers up. But with very
tight supply and very inelastic demand, sure.
\_ I've heard quite frequently that under optimum conditions we
have just barely enough refining capacity. Therefore any
event causes a disruption. This is the same as saying we
don't have enough capacity.
\_ Analysts are lazy. Global demand for oil is driving up petroleum.
Every summer, refineries have to reformulate their blends for gov't
mandated gasoline and demand spikes up. Also, routine maintenance
causes shortages during maintenance. It's pretty simple econ,
really. -emarkp
\_ So in that "simple econ", where does a $10B profit quarter fit
in that whole "your prices go up because ours go up" line?
\_ Oil companies are just taking advantage of high crude
prices caused by surging demand and not-surging supply.
If gold prices go up, companies that own gold mines
do better too. Note that ExxonMobil is only like the 10th
or 12th or so largest oil company in the world, if you count
nationalized oil companies like Aramco. Believe me, this
is a piece of cake compared to what things will be when
we are a few years past the oil production peak.
\_ That's not econ (your comment in quotes). The price goes up
because people bid it up. There have been countless
investigations into the competitiveness of gas retailers and
there's no price fixing. Sorry to burst your bubble. Did you
notice how Exxon was spending over $4B searching for new
reserves? That's what happens in the market--a higher price
means more effort to obtain the commodity to sell it.
Even with the "massive profits", Exxon makes only 9% profit
on their investment. Their "biggest quarter ever" has more to
do with the rising demand and the consolidation of companies
(so instead of seeing the profit broken into two companies, we
see it in one, so it looks larger). -emarkp
\_ Has anyone ever looked into collusion from refiners?
I have no doubt that retailers do not collude.
\_ You think when congress investigates oil companies,
they're looking at gas stations?
\_ You said retailers.
\_ Well, someone did. Nevertheless, his odd word
choice does not excuse your ignorance.
\_ Ignorance of what? Enlighten me.
\_ Oil companies are LOSING money searching for new reserves.
Because there isn't much left to find, oil discoveries
have been declining steadily since the 1960s. Only the
crack smoking analysts at the IEA and Cornucopian right
wing economics who believe economics will win over
geology think there are going to be this magic spike up
in oil production in the next 15 years.
\_ Show me some reputable source showing this. Exxon's
balance sheet is public, and enumerates spending on
searching for new reserves. Indeed, the finding in the
Gulf of Mexico may be the biggest reserve ever.
One group who clearly doesn't believe oil is running
out is the oil companies themselves. Otherwise the
price would be spiking much faster. -emarkp
\_ This is not necessarily true. There might be
a lot of supply right now, but no supply in
10 years. The market won't correct for that.
It's like the avocado or orange crop. Some years
it's a bumper crop and prices are low, but just
a few years later there is no supply at all.
Your statement is really closer to saying that
there is no supply problem at present, not that
oil won't run out (relatively) soon.
\_ Oil won't run out, but at some point (probably
relatively soon) new production capacity will
be coming online slower than old production
capacity goes offline. The answer to the
question, "what was the guy who cut down the
last tree on Easter Island thinking at the time?"
is basically "it doesn't matter"; by the time
Easter Island was down to one tree, the
society had already collapsed. -tom
\_ He was thinking "I've got to build me a
canoe and get the hell out of here!"
\_ Present prices reflect future value. If the
oil companies really believed that, prices
would be going up because of an expected
shortage. And they might even be spending more
looking for new reserves/testing new extraction
technologies. -emarkp
\_ Isn't that exactly what is happening now?
\_ The analysis I've read from non-lazy
analysts is that the current long-term
price increase is entirely explained by
increasing global demand. It's not
enough to sugggest a fear of long-term
shortage. -emarkp
\_ When do you think we'll hit peak oil?
\_ Every prediction I've seen has been
wrong. It's entirely possible that
we'll *never* hit peak oil--that
there are reserves beyond our need,
but as they become gradually more
expensive to tap, other energy
sources will be competitive, and
we'll naturally switch. -emarkp
\_ That's a fantasy. There is
nothing that's within an
order of magnitude of the
ROI on oil drilling; we won't
magically transition to
ethanol or hydrogen or solar
or whatever your magic bullet
of choice is, not without going
through severe pain first.
For the record, oil production
has been basically flat since
the 80s and doesn't show any
plausible signs of increasing.
-tom
\_ I think this is happening right
now. Increased consumption,
combined with an increasing
difficulty in finding new
sources of oil, is driving up
prices, causing other sources
of energy to become economical.
This is also spurring research
into alternative energy. I
expect the price of a gallon of
gasoline to just keep going up
at this steady rate. This is
how capitalist price signalling
is supposed to work. -ausman
\_ FWIW, in my visit to Norway, we paid an average of 12 NOK per litre,
which works out at current exchange rates to be about $8/gal.
US gas is cheap! -ERic
\_ US $ is cheap too.
\_ Most of the new profits are coming from oil production, i.e. pumping
it out of the ground and selling it on world markets. Retail and
refining are relatively competitive. With the high regulations and
restrictions on building new refineries, it's not in the refiners'
interests to build new, "extra" capacity. Especially since gasoline
demand is so inelastic, so it will hardly budge when prices spike
due to "disruptions." They sell the same amount at a higher price
(reaped at the wholesale/refining level, not retail), providing a
little spike in profits. But not enough to justify overcoming all
the obstacles and building a new refinery to smooth out supply the
rest of the year. |
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