China. The gas price scapegoats!

[Tmy]

I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!!

 

[aerocontrols]

I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

I've never even heard it. Where did you hear it?

 

[Ziggurat]

I dont buy this whole "Chinas economy driving the gas prices up" bull flop.

You mean to tell me that in a mere 3 years, China has managed to drive up gas costs by like 80%!?!? CONSPIRICY I SAY!!!

I can't say what exactly is causing the increase, but are you aware of the idea of elastic versus inelastic demand? It's entirely possible for a small rise in demand to translate into a huge price increase.

But if you think it's bad for us, it's worse for them:
http://gatewaypundit.blogspot.com/2005/08/china-facing-gas-crisis.html

 

[WildCat]

China's oil consumption:

Oil demand is now expected to increase by about 4.9 percent this year, down from a rapid 15 percent last year.

Expectations that China will draw in much more of the world's fuel to feed its expanding industries has contributed to a relentless rise in oil prices in the past two years.

"Demand is still strong within China but growth was exceptionally strong last year. That year-on-year growth is narrower is not a surprise," said Lawrence Eagles, head of the IEA's markets division. At the start of this year, the IEA was forecasting China's oil demand would grow 5.7 percent.

If output stays the same (and OPEC isn't increasing it) and demand increases, prices must rise as stockpiles dwindle.

Basic economics, Tmy.

 

[Manny]

They're not "scapegoats" and it's not a "conspiracy." It's just math and Econ 101.

China had been growing their oil consumption at about 7.5% per year (as opposed to ~1% in the US). Then BAM! China's growth in oil demand increased by 11 percent in 2003 and over 15 percent in 2004 (the US, recovering from recession, went to the +2 - +2.5% range). Basically, China is moving from a bicycle economy to a car economy. Nothing conspiratorial about it or wrong with it. It just is. That kind of growth is outstripping growth in worldwide production, as China is a net importer of oil (so all of their demand growth hits the world markets, not just some of it). When demand increases faster than supply, prices go up.

There might be some good news, at least in the short term, for oil prices. China's demand actually decreased in the second quarter. Some of that is doubtless slower growth (again, nothing wrong with that -- economies just can't grow at 9% year after year after year). But there might be other reasons.

For one, China might also have been stockpiling. They're pretty savvy at doing that in other commodities, so there's no reason to think they might not have done it with oil except that we haven't found the tank farms yet (or at least the gummit hasn't told us about it). If they're drawing down stocks, that could help oil prices in the short term; more importantly, if they were stockpiling previously that means that their end-demand never got as high as the totally unsubstainable levels of '03 and '04. It should be noted that this is a minority view.

Another possibility is that China is completing more coal-fired electricity plants. Oil is not a material source of energy for electricty here, but it is in China. Making more coal plants would reduce oil demand (and be smart, as China actually has coal, whereas it doesn't have enough oil). They're definitely doing some of this, there are debates as to how much and how it might affect global oil demand going forward.

There's a lot of other stuff going on, but I'll just let you chew on that for a little while.

 

[Manny]

Hey, you bastids! Stop with the pithy posts capturing all my big points while I write my thesis!

 

[CapelDodger]

I've never even heard it. Where did you hear it?

Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand. Along with other such things as turmoil in the Middle East and - for some unfathomable reason - lack of refinery capacity.

It's all about elasticity.

I used to "pump gas" as a holiday job. During the first oil-crisis, 73-74, queues could form on a rumour, and we'd have to limit sales or run out before we could get re-supplied. The policy was account-customers and regulars only, two gallons each. Administered by Mike and me. The money people would pay for an extra gallon or two ... those were happy days. Fist-fights on the forecourt weren't unknown, but we didn't have a police presence to keep order, just a couple of big spanner-wielding guys from the workshop.

Anecdote ends.

 

[Tmy]

China's oil consumption:

If output stays the same (and OPEC isn't increasing it) and demand increases, prices must rise as stockpiles dwindle.

Basic economics, Tmy.

Econ 101.

Raise prices and profits drop. But that aint happening. The oil companies are racking it in.

And since when does a 6-9 % increase in demand cause an 80% price increase??? Seems a little quick and exterme.

As for OPEC. Isnt Iraq shippingout more oil than since the war started.-

 

[Tmy]

Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand..

Yeah. Even I knew that. And I dont even read the news. I get all my info from political cartoons!

 

[CapelDodger]

There's a lot of other stuff going on, but I'll just let you chew on that for a little while.

I've noticed a few comments from China about their inefficient use of oil, about twice the per-unit of GDP of the US. If they start addressing that seriously, and they wouldn't be talking about it otherwise IMO, that could put a brake on the oil-price over the next five years.

 

[CapelDodger]

Econ 101.

Raise prices and profits drop.

Only if prices are raised above the optimum. Or lowered below the optimum. The optimum value is subject to change.

 

[aerocontrols]

Have you been living in a cave? Every "context" piece of journalese has brought up the increased Chinese demand. Along with other such things as turmoil in the Middle East and - for some unfathomable reason - lack of refinery capacity.

Not a cave, but I guess I've not paid any attention to the story. I guess my instincts were correct, since your (3 or more) reasons that every context piece mentions would tend to answer Tmy's objection - no, China's growing economy isn't the scapegoat for an 80% increase in prices, it's one of a multitude of reasons for an 80% increase in prices.

It's not hard for me to fathom why a lack of refinery capacity would drive gasoline prices up.

 

[WildCat]

Econ 101.

Raise prices and profits drop. But that aint happening. The oil companies are racking it in.

And since when does a 6-9 % increase in demand cause an 80% price increase??? Seems a little quick and exterme.

As for OPEC. Isnt Iraq shippingout more oil than since the war started.-

You never actually took ECON 101, did you?

Prices rise to find an equilibrium between supply and demand, profits are not even in the equation.

Of course profits are going to rise big time, with prices so high oil fields that were marginal before now are profitable. They're probably turning on pumps that have sat still for years because their output wasn't enough to offset costs before, but are now.

 

[Tmy]

I tool Econ 101 and 150!!!!!!


Heres a factor for ya!!. PRICE FIXING!!! Everytime theres a little rain in the gulf they instantly raise prices cause "tankers are delayed...ect."

What a crock. The same tank of gas can change price 3x a week. Just by sitting there.

 

[Manny]

Econ 101.

Raise prices and profits drop.

Um, what's the word I'm looking for. Begins with an "n," just two letters.

Profits drop if realized prices decrease or if they increase more slowly than input costs. The largest portions of an oil company's costs are in exploration or acquisition of oil in the ground -- finding costs. Once they've paid that, it's fixed (subject to financing, but interest rates are low, yada yada yada). So as realized prices increase oil companies can abosorb increased costs for the inputs necessary to get the oil out of the ground and still see profits increase.

What about refiners? Well, that's a demand thing. Demand in the US has been going up faster than refining capacity has increased. It's true that China isn't much of that (though it's some, as both we and they import some finished product). Refining margins have been increasing as prices rise whereas they normally decline because of a separate supply/demand dynamic. And that increase is magnified in some local markets because of local (as opposed to nationwide) refining capacity shortages and/or gas formulation regulations which create shortages which might not otherwise exist. But that's a relatively low portion of the increase in gasoline prices. The big story is crude, and China is a big part of that.

 

[WildCat]

It's not hard for me to fathom why a lack of refinery capacity would drive gasoline prices up.

What is hard to fathom is that politicians keep talking about ANWR, gas taxes, more exploration, etc but nobody seems to be talking about adding a few refineries, or mandating a national fuel standard so there's only a few grades of gasoline produced instead of the many (I think it's at least 50) designer blends we have now.

 

[Tmy]

Well golly. I am so wrong. After all oil has NEVER been the subject of market manipulation. Or did you all skip that chapter in Econ 101.

I have a questions. After oil is refined into gas, does it get exported? Or does that gas stay in the states.

 

[WildCat]

I tool Econ 101 and 150!!!!!!


Heres a factor for ya!!. PRICE FIXING!!! Everytime theres a little rain in the gulf they instantly raise prices cause "tankers are delayed...ect."

What a crock. The same tank of gas can change price 3x a week. Just by sitting there.

No wonder there's so much teacher burnout.

Just how does one go about fixing prices in a publicly traded, fungible commodity?

 

[WildCat]

Well golly. I am so wrong. After all oil has NEVER been the subject of market manipulation. Or did you all skip that chapter in Econ 101.

OPEC tries to control supply, that's not the same as price fixing.

I have a questions. After oil is refined into gas, does it get exported? Or does that gas stay in the states.

I don't know, I wouldn't doubt if some US refineries sell to Canada and vice-versa. It's not really relevant to oil prices though.

 

[Tmy]

No wonder there's so much teacher burnout.

Just how does one go about fixing prices in a publicly traded, fungible commodity?

Com on guys. How about a little critical thinking. There are conpiracies everywhere. Limiting the Iraqi output, freaking out the futures market, distracting public outrage, the return of Lee Iococa, THE FREEMASONS!!!! The answers are there.

.......oh no, I think Ive said too much.