$114/bbl oil

[JoeEllison]

oil prices have had absolutely NOTHING to do with availability and demand since deregulation and the creation of the futures market.

Read http://www.citizen.org/documents/House07.pdf


It's all about greed - And NO don't give me crap about open market and competition because it simply does not exist.

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.

 

[leonAzul]

Because everything in this country moves by road and rail and canal, and all of the prime movers in those modes at present burn the stuff. And electric power is about 40% oil-fired.

Hence the price of everything is directly effected by the price of oil.

And were there not to be enough, an actual shortage, the consequences would not be pretty.

Not sure why people think that.

http://www.eia.doe.gov/cneaf/electricity/epa/epat1p1.html

Well done.

Yet the transportation costs--which have a more direct impact on food distribution--still apply.

 

[The Central Scrutinizer]

Because everything in this country moves by road and rail and canal, and all of the prime movers in those modes at present burn the stuff. And electric power is about 40% oil-fired.

Hence the price of everything is directly effected by the price of oil.

And were there not to be enough, an actual shortage, the consequences would not be pretty.

So what do you plan on doing the solve the "problem"?

 

[dudalb]

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.

Love that Marxist rhetoric.

 

[The Central Scrutinizer]

I am because my business is directly affected by gas prices. Traveling to job sites is a nice chunk of my budget. On the other side of that coin, I have to be careful not to outprice myself out of a job to make up the difference. I'm really pushing the boundaries of closing up shop if gas gets near $4. That means I'm looking for a new job and the people who rely on me for income are looking for a job.

Yes, it is a cost of doing business. So are insurance, paper, computers, toner, phone bills, etc. Yet I don't see people obsessing about those things. I find it odd.

 

[The Central Scrutinizer]

Economists--

I'm not an economist, but...

Will we ever go back to $1.50/gallon?

No

Is this a momentary "crisis" or a long-term correction?

It's neither. It's just the way it is.

 

[Tailgater]

Yes, it is a cost of doing business. So are insurance, paper, computers, toner, phone bills, etc. Yet I don't see people obsessing about those things. I find it odd.

If those things were 30% of the budget and doubled in a few years I'm guessing they would be.

 

[Dymanic]

OK, but I was referring to the underground tanks at the gas stations.

So was I.

Nowhere have I seen stations turn away anyone because they were waiting for their allocated supply.

Not for a while, anyway. Not that there aren't any number of events that could put us there again overnight. Still, there are some even now who turn themselves away by dropping out of the bidding. A person who curtails his driving enough to reduce the number of visits to the pump each month can be said to have done this, though only to a degree; and there are surely at least some who have quit driving altogether due to high gasoline prices, though not everyone is in a position to do so.

I have seen (on the news) empty shelves where once there was an abundance of certain foods.

I don't think we'll see rioting in the streets until we start seeing rationing of BigMacs.

So why the panic increase in price if supply keeps up with demand?

I don't think we've seen anything like real panic yet. In this context, just owning an SUV is about as close to the opposite of panic as anything I can think of.

Demand is defined by the amount of a good which buyers are willing and able to purchase at a given price, so an increase in demand for a good doesn't have to mean an increase in the total amount purchased; even if that remains the same, demand has increased if there is an increase in the price buyers are willing to pay. When that price increases, one effect is to stimulate an increase in production, but that can only happen as long as the base resource holds out. Once the point of peak oil is reached, then by definition, it will never again be possible to increase production beyond that level. That's one of the reasons oil companies aren't investing in new refineries. They aren't going to need them, and they know it.

 

[nzric]

Not sure if I'm a little late, but I'm still astounded that oil has surged to $30 a barrel!!

"US President Bill Clinton said the rise was "deeply troubling" and refused to rule out any US action to deal with the situation."

"The Secretary General of Opec, Rilwanu Lukman, told the BBC that oil prices were "rather high at the moment", but he expected them to moderate in the near future."

...um...

http://www.energybulletin.net/35732.html

Now where's that darned trendline function on Excel...?

 

[Magyar]

Yep. This is just another case of the parasite class of wealthy investors transferring money from the poor to the rich.

Yea, FUNNY you should mention it -

"Oil companies, investment banks and hedge funds are exploiting the lack of government
oversight to price-gouge consumers and make billions of dollars in profits. These energy
traders boast how they’re price-gouging Americans, as a recent Dow Jones article makes
clear: energy “traders who profited enormously on the supply crunch following Hurricane
Katrina cashed out of the market ahead of the long weekend. ‘There are traders who
made so much money this week, they won’t have to punch another ticket for the rest of
this year,’ said Addison Armstrong, manager of exchange-traded markets for TFS Energy
Futures."

Leah McGrath Goodman, “Oil Futures, Gasoline In NY End Sharply Lower,” September 2, 2005.

on nothing but manipulating the market (see my original link, which you obviously didn't bother to read so you can hold on to your preconceived ideas)

 

[JoeEllison]

Yea, FUNNY you should mention it -

Personally, I don't find anything "funny" about it. I was pretty sure I was agreeing with you.

 

[BenBurch]

So what do you plan on doing the solve the "problem"?

We need about 10,000 500 MW nuclear power plants and we need them as quickly as they can be built.

Then we use electricity to provide the energy input to synthesize liquid or gaseous fuels for those vehicles that must be run that way. And we electrify ALL of the railroads except perhaps low traffic branch lines, which we run with the synthesized fuel.

Sadly, I see no political will to make this happen.

 

[quixotecoyote]

Personally, I don't find anything "funny" about it. I was pretty sure I was agreeing with you.

You managed to be so over the top that the people on your side of the debate thought you were making fun of them.

 

[RecoveringYuppy]

We need about 10,000 500 MW nuclear power plants and we need them as quickly as they can be built. [snip] Sadly, I see no political will to make this happen.

You're talking worldwide, right? That's in the neighborhood of 10 trillion in capital costs. And the time frame we need them is what? Over the next 40 years? About 250 billion/year. Worldwide, I'm not even sure that counts as a big number in the energy industry. I certainly don't think it's catastrophic.

It doesn't really seem to be in the realm of requiring a "Manhattan project" mentality.

 

[Magyar]

Well, where do I start?

1) I never gave you any crap about anything ... I merely mentioned the fact that it doesn't follow the pattern of supply and demand and asked why not.

I didn't mean to emply that this was directed at you. It was at the upcoming comments I knew were sure to come (see JoeEllisons Commie comment)

2) The futures market is not limited to oil speculators, so why doesn't this happen in other markets to the extent it does in oil? One might argue with food, but some areas are showing limited supplies --- but not oil. Hence my curiosity.

Because unlike oil production food is not an oligapoly -

“In just the last few years, mergers between giant oil companies—such as Exxon and
Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies
controlling a significant amount of America’s gasoline, squelching competition. The largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent (see Appendix 1). This concentration has led to skyrocketing profit margins. As a result of all of these recent mergers, the largest five oil refiners today control as much capacity as the largest 10 did a decade ago.


“The consolidation of downstream assets—particularly refineries—plays a big role in
determining the price of a gallon of gas. Recent mergers have resulted in dangerously
concentrated levels of ownership over U.S. oil refining. A recent government study
revealed that the “source of potential market power in the wholesale gasoline market is at
the refining level because the refinery market is imperfectly competitive and refiners
essentially control gasoline sales at the wholesale level” and concluded that “mergers and
increased market concentration generally led to higher wholesale gasoline prices in the
United States.”6
The industry has plenty of incentive to intentionally keep refining markets tight.
ExxonMobil’s new CEO told The Wall Street Journal that even though American fuel
consumption will continue growing for the next decade, his company has no plans to
build new refineries:

see my original post for link

3) Greed is also not limited to oil speculators. It's everywhere ... when given half a chance it rears its ugly head for all to see. But oil gets most of (if not all) the blame. To me, there's more to it, or at least there seems to be.

TRUE - But, the livelyhood and wellfare of my, and everyone elses family is not dependent on being able to buy a jewelery or a boat. And other commodoties have more regulation AND more competition.
If wheat prices go up I CAN eat less bread and switch to rice or soybeand. If gas prices go up I still have to drive to work or my clients where ever they may be.


“In just the last few years, mergers between giant oil companies—such as Exxon and
Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies
controlling a significant amount of America’s gasoline, squelching competition. The largest five oil refiners controlled one-third of the American market, while the largest 10 had 55.6 percent. By 2005, as a result of all the mergers, the largest five now control 55 percent of the market, and the largest 10 dominate 81.4 percent (see Appendix 1). This concentration has led to skyrocketing profit margins. As a result of all of these recent mergers, the largest five oil refiners today control as much capacity as the largest 10 did a decade ago."

 

[dudalb]

You managed to be so over the top that the people on your side of the debate thought you were making fun of them.

Joe does not seem to understand that his over the top rhetoric backfires on him most of the time.

 

[JoeEllison]

You managed to be so over the top that the people on your side of the debate thought you were making fun of them.

Oops... I was in a hurry, and had just got done reading about how wonderful John McCain thinks the economy is doing.

 

[BenBurch]

You're talking worldwide, right? That's in the neighborhood of 10 trillion in capital costs. And the time frame we need them is what? Over the next 40 years? About 250 billion/year. Worldwide, I'm not even sure that counts as a big number in the energy industry. I certainly don't think it's catastrophic.

It doesn't really seem to be in the realm of requiring a "Manhattan project" mentality.

No, that number is just for the contiguous 48 US States.

And we need to have at least half online in 15 years, and the rest in 30.

Worldwide we would need about 10X that number.

 

[Magyar]

Since "deregulation"? What deregulation?

You know it always amazes me on a skeptical forum when people can't even take a second to look at a link and then act all smug about their response to something they didn't bother to read!?


"Energy trading markets were deregulated in two steps. First, in response to a petition by
nine energy and financial companies, led by Enron36, on November 16, 1992, then-CFTC
Chairwoman Wendy Gramm supported a rule change—later known as Rule 35—
exempting certain energy trading contracts from the requirement that they be traded on a
regulated exchange like NYMEX, thereby allowing companies like Enron and Goldman
Sachs to begin trading energy futures between themselves outside regulated exchanges.
Importantly, the new rule also exempted energy contracts from the anti-fraud provisions
of the Commodity Exchange Act.37 At the same time, Gramm initiated a proposed order
granting a similar exemption to large commercial participants in various energy contracts
that was later approved in April 2003.38
Enron had close ties to Wendy Gramm’s husband, then-Texas Senator Phil Gramm. Of
the nine companies writing letters of support for the rule change, Enron made by far the
largest contributions to Phil Gramm’s campaign fund at that time, giving $34,100.39
Wendy Gramm’s decision was controversial. Then- chairman of a House Agriculture
subcommittee with jurisdiction over the CFTC, Rep. Glen English, protested that Wendy
Gramm’s action prevented the CFTC from intervening in basic energy futures contracts
disputes, even in cases of fraud, noting that that “in my 18 years in Congress [Gramm’s
motion to deregulate] is the most irresponsible decision I have come across.” Sheila Bair,
the CFTC commissioner casting the lone dissenting vote, argued that deregulation of
35 7 USC §§ 9, 13b and 13(a)(2).
36 The other eight companies were: BP, Coastal Corp (now El Paso Corp.) Conoco and Phillips (now ConocoPhillips),
Goldman Sachs’ J. Aron & Co, Koch Industries, Mobil (now ExxonMobil) and Phibro Energy (now a subsidiary of
CitiGroup).
37 17 CFR Ch. 1, available at www.access.gpo.gov/nara/cfr/waisidx_06/17cfr35_06.html
38 “Exemption for Certain Contracts Involving Energy Products,” 58 Fed. Reg. 6250 (1993).
39 Charles Lewis, “The Buying of the President 1996,” pg 153. The Center for Public Integrity.
Public Citizen Testimony Before the House Energy and Commerce Committee, Subcommittee on Oversight and Investigations energy futures contracts “sets a dangerous precedent.”40 A U.S. General Accounting Office report issued a year later urged Congress to increase regulatory oversight over derivative contracts,41 and a congressional inquiry found that CFTC staff analysts and economists believed Gramm’s hasty move prevented adequate policy review.42 Five weeks after pushing through the “Enron loophole,” Wendy Gramm was asked by Kenneth Lay to serve on Enron’s Board of Directors. When asked to comment about Gramm’s nearly immediate retention by Enron, Lay called it “convoluted” to question the propriety of naming her to the board.43
Congress followed Wendy Gramm’s lead in deregulating energy trading contracts and
moved to deregulate energy trading exchanges by exempting electronic exchanges, like
those quickly set up by Enron, from regulatory oversight (as opposed to a traditional
trading floor like NYMEX that remained regulated). Congress took this action during
last-minute legislative maneuvering on behalf of Enron by former Texas GOP Senator
Phil Gramm in the lame-duck Congress two days after the Supreme Court ruled in Bush v
Gore, buried in 712 pages of unrelated legislation.44 As Public Citizen pointed out back
in 2001,45 this law deregulated OTC derivatives energy trading by “exempting” them
from the Commodity Exchange Act, removing anti-fraud and anti-manipulation
regulation over these derivatives markets and exempting “electronic” exchanges from
CFTC regulatory oversight.
This deregulation law was passed against the explicit recommendations of a multi-agency
review of derivatives markets. The November 1999 release of a report by the President’s
Working Group on Financial Markets—a multi-agency policy group with permanent
standing composed at the time of Lawrence Summers, Secretary of the Treasury; Alan
Greenspan, Chairman of the Federal Reserve; Arthur Levitt, Chairman of the Securities
and Exchange Commission; and William Rainer, Chairman of the CFTC—concluded that
energy trading must not be deregulated. The Group reasoned that “due to the
characteristics of markets for nonfinancial commodities with finite supplies … the
Working Group is unanimously recommending that the [regulatory] exclusion not be
extended to agreements involving such commodities.”46 In its 1999 lobbying disclosure
form, Enron indicated that the “President’s Working Group” was among its lobbying
targets.47

And yet you just said deregulation. Which is it?

This is incoherent! The industry wanted the deregulations so they can make deals based on insider trading, and by-passing anti-trust laws so they can make MORE profits without getting in trouble or having oversite.

And regulation simply alters supply or demand or price.

And waht is that have to do with the fact that oil prices are going up because of questionable trading practices and insider deals so people can make more money (greed) as opposed to ACTUAL cost of production, demand or availability or actual real economics and markets?

 

[BenBurch]

My mental math was 3X the right number;

In 2006, the total electric power generated by all fixed plant power stations was 4,064,702,227 MW/hours. Synthesizing most of our liquid fuel and running all the trains with electricity would about double that, so, 8 billion MW/hours, times demand increase of 30% in 30 years and you get about 2500 500 MW plants plants running 24/7/365. Now, all of the nuclear plants I ever worked on were down on average three months out of the year, so about 3125 is the right number for the USA.

Sorry! I do things in my head when I should grab the slide rule...



Source for that total; http://www.eia.doe.gov/cneaf/electricity/epa/generation_state.xls