Posted on 06/01/2007 8:05:41 AM PDT by george76
Few politicians can resist the urge to exploit consumer angst over gasoline prices, and thereby deflect where the blame certainly lies — with them.
Here are 10 things the politicians won’t tell you:
1. At over $3.00 a gallon, the U.S. inflation-adjusted price for gasoline in May 2007 is now less than it was in 1981, a remarkable decrease in price over a 25 year period during which real prices in other sectors, such as health and education have tripled and quadrupled.
2. This decline in the price of gasoline since 1981 is enjoyed almost exclusively in the U.S. In most other developed counties in the world, the price of gas is at least double what Americans pay. Consumers in the Netherlands now pay an average of $7.77 gallon, while those in Great Britain pay over $7 and consider it a bargain.
3. The gross profit margins of the major oil companies is far less than that for many other sectors, such as beverages, electrical equipment, chemicals, and computers.
4. At present gas prices, the major oil companies make a profit of between 10 cents and 12 cents a gallon...
5. At present prices, combined federal and state government profit (i.e. taxes) on each gallon of gas is 28-68 cents a gallon, depending on which state you live in. Pelosi’s San Francisco enjoys tacking on an extra 26 cents bite.
9. Crude oil prices, which make up 90% of the total cost of running gas refineries, are set by the international market of supply and demand, which fluctuates hourly, and not by private companies; while the major oil producing countries can form cartels (such as OPEC) which can set prices at higher than a free market, these countries are not subject to U.S. antitrust laws.
(Excerpt) Read more at blogs.rockymountainnews.com ...
One: of course there's a ton of hedge fund money in the mkts. You get a nice 'duh' for that. Hedge funds, though, can easily trade the short side of a mkt ust as they do the long side, and they most certainly will do when their analysis favours getting short. The OJ mkt is a very recent example of this. Sugar #11 was an example last year.
The fact that hedge funds are generally long energies is temporarily bullish. However, you've only to look at what happened to Amaranth **and** none other than the Bank of Montreal to understand that those who make one-way bets can and do get utterly slaughtered when the mkt turns on them...which it always does, sooner or later.
Two, wet supply simply is not keeping up with real live wet demand, hasn't been doing so since roughly July-August 2002. The CEO of Shell knows this; he may or may not have said as much in the interview you quote. Every (reasonable) trader on NYMEX and ICE, and SIMEX, and DUX, and probably Bombay knows it, too. This is the ex-cap figure at work, down from 6.5MM bbl/day in mid-2002 to something like 2.8MM bbl/day now -- and which hit its low in Jan a year ago, roughly 0.6 MM bbl/day, which, if you look, is when prices started going wild. Not just after Katrina and Wilma, but fully 90 days later.
Yammer on as you will; you haven't a clue about what drives energy prices and don't appear to be likely to acquire one in the near future.
If you'd care to try to learn, you can find VERY accurate figures and some really quite excellent analysis by subscribing to WTRG Economics. The Russian Central Bank, to name just one large player, finds Jim Williams' analysis invaluable.
Meantime, I'm diagonally ratio-spreading the NG mkt, and short the V gas crack -- that's SHORT, boyo -- and working on making a nice packet this year. Bolder traders are doing other trades, and, y'know what...we all simply laugh at guys like you.
Ta-ta. Have fun nursing your hatred for ''speculators''.
The one with the least leeches, I’ve been saying that all along.
Market 1, no speculators 104.50-108.50 20x20
Market 2, many speculators 106.45-106.55 300x300
Excellent. You'll pay $1.95 a share more or receive $1.95 a share less when you sell. Worse if you buy or sell more than 2000 shares. But at least those leaches won't get to trade with you. Clown.
Impossible.
Yes.
People buying physical oil? So much for speculators never intending to take delivery.
Connecticut’s governor is calling on the Legislature to suspend the state’s 25-cents-a-gallon tax from Memorial Day to Labor Day. Texas legislators are considering a 90-day tax holiday from that state’s 20-cents-a-gallon surcharge. And an Illinois state senator has proposed permanently lowering the state’s 6.25 percent sales tax on gasoline to 1.25 percent, while keeping a 19-cents-a-gallon fuel tax.
In your example, the “insurance” guarantees the price of the commodity at a future date, which is supposed to translate to lower prices for the consumer. Now relate that to the oil business. What do we see? Real or imaginary supply disruptions result in almost immediate increases at the pump. The consumer, who must ultimately pay the cost of the “insurance”, finds that he is not the beneficiary.
When companies that use oil can better plan what their costs will be, then their businesses are more efficient, and that ultimately trickles down to the price paid for their goods or services by the end users.
General foods might know they'll need 10,000 tons of wheat to make Wheaties next September, and they might see the current price of $5 a bushel as acceptable. They can't predict what the price will in September, so they buy September wheat futures contracts now. They're protected against a spike in prices. The exact same scenario is true for large businesses that consume oil, such as electric utilities or manufacturers. I don't know about the practices of gasoline companies such as Chevron. Perhaps someone here can enlighten us.
Market forces of all kinds including supply and demand changes and rumors of the same will surely buffet gasoline prices, but that doesn't negate the value of hedging. And hedging is not possible unless someone, namely the speculator, is willing to take the other side of the trade.
Speculators also help by making the markets liquid. When oil prices are high, which means demand is high, who is selling to all the hungry buyers? In many cases it will be a speculator who bought at a lower price. He may be driven by evil greed, but he's being rewarded in the marketplace by serving his fellow man by supplying him the goods he desires.
Markets like oil are too big to be manipulated easily. If Shell sends a guy into the crude oil pit in New York to buy futures to boost the price, it might well have an effect for a few moments or even a few minutes, or, very rarely, hours. But other market participants will recognize in due time that the price is too high. They will sell, driving the price back down.
That's what is so great about the futures markets. What used to be back room deals are now public events with thousands of observers all over the world keeping things honest.
Good day to you too.
I had in mind bigger players than one oil co. For instance, what would prevent a cartel of oil pumpers from using the futures market to bump up prices. By doing so they could avoid the appearance of collusion, since, as you say, the market is so transparent?
Thus, they may be able to stave off a public outcry since it appears that the prices are being set in the good old American competitive way.
I'm sure that kind of thing goes on, but again, the effects would be temporary. As thousands of market participants around the world react to news and rumors, the true price level will emerge. The moment it is clear that the news is false, traders will be shorting the futures and punishing those who bought erroneously.
The antidote to shady dealing is more transparent and liquid markets, more and better financial instruments, more speculators, and better, cheaper, and more widely disseminated financial information.
As an aside, I think T.Bond traders, sometimes called the bond vigilantes, are a major factor in keeping inflation low. These days, if the US government or the Fed hints at adopting inflationary policies, within moments traders around the world start dumping treasury securities and driving up interest rates, ruining the game for the politicians.
In case you haven't noticed, not only do I not worry about speculators, I am an enthusiatic fan of them. May they all get rich!
The way that consumers pay for gas has also changed. Credit cards fees are huge for retailers....3% off the top.
# 4 on this guys list disqualifies him as a subject matter expert............do the math between reported quantities produced and sold and profits reported to see this isn’t true.........sorry I don’t have time to provide the numbers for ya but they are out there.
Interesting posts, but from the shared animosity towards one another, I still don’t observe any realistic solution to reducing the risk to American economy when the consumer price for fuel increases roughly 50% in a 2 year period and is now suggested to be at risk of rising another 50% in the next 2 years.
All the time, the same justifications are being promoted by globalists who also buy into the argument that the planet is now warming 2-20 degrees more than eternity past so the common man must simply sit back and await being burdened moreso by globalism.
IMHO, 20 years ago I wouldn’t buy into a ‘conspiracy theory’ regarding fuel pricing. Today, those who foment conspiracy in globalism have read the skepticism of upper middle class educated leaders to conspiracy theories and use it as a cover to actually practice some of the most heinous conspiracies imaginable. I haven’t observed anything justifying the jump in oil prices to explain the recent financial swings other than a orchestrated pricing to promote globalism.
“I’m sure that kind of thing goes on, but again, the effects would be temporary. As thousands of market participants around the world react to news and rumors, the true price level will emerge. The moment it is clear that the news is false, traders will be shorting the futures and punishing those who bought erroneously.”
How do you punish an oil cartel? If they get away with pushing the price up, they gain alot. If they don’t, then they don’t gain quite as much. They can’t lose.
The refining squeeze has its roots in the 1980s. Refining was a terrible business back then -- there was simply WAY too much capacity. Not surprisingly, the industry began mothballing old plant, a perfectly sound decision. Who wants to operate a plant that returns 2-3-4% on capital? Right, nobody.
However, two other trends intervened. First, the refiners in most cases have simply refused to sell mothballed plant to those who would intend to operate it, thus keeping capacity somewhat lower than it would otherwise be. Second, however (and I do believe the industry was not ready for this development) the demand curve, particularly from India and China, has increased notably faster than anticipated. This in turn implies that restricting throughput capacity was a sizeable error.
If you say that this is evidence of a conspiracy, well, it might be, although it would be a very difficult one to bring to light. OTOH, the whole situation today, Asian demand or not, wouldn't have occurred in the first place had the Feds and state gooberments not become praeternaturally restrictive in permitting for exploration and adding refining capacity.
Anthopogenically driven ''global warming'' is a crock, pure and simple. It doesn't matter who is behind this scam (and, btw, I should put 'globalists' well down the list, but that's neither here nor there); what matters is how many gooberments can be suborned into believing this nonsense. Unfortunately, the answer here is : lots of 'em. Gooberments crave power, and what could be a tastier type of power than the statutory ability to control absolutely everything, eh? It's a politico's wet dream, and the typical politico will cheerfully ignore hard science in favour of druidism if it leads to his accrual of more power.
I believe you've underestimated one thing in your view of the global price shift in energy, to wit, the power of human fear. Over 35 years, I've seen this phenomenon occur again and again, in grains, energy, sugar, metals, even lumber, and it's always spookily similar. People get scared, for whatever reason, that X goods will become unavailable or not conveniently available. They 'reason' that they'd better buy the goods now, because who knows what will happen in future?
If enough do this, prices go berserk. Worse, the shortage stories **always** get bigger and badder over time. Now, combine this phenomenon with A) sharp worldwide demand increases and B) refining capacity increases being unable to keep up with actual demand increases, and bang! you've got a whole new pricing range for energy.
There are of course any number of practical solutions to this situation. There's no shortage of energy on this planet; indeed, we've untold reserves of carbon BTUs...just not necessarily available from 'traditional' sources. The question is: which if any will be implemented, or be allowed to be implemented by the mkt, by gooberment?
The answer, or at least my answer, is: none, until such time as gooberment can increase its power by implementing (allowing, more likely) production of one or another of these sources.
Same thing happened with oil terminal tank farms. in 1990, we tore down 200,000 bbls of light product storage to firm up and control marketshare.
Yes, but it should be noted that although such a run-up may shift more money from the pockets of consumers into those of a few speculators, that amount of money will generally be smaller than the amount lost by speculators who mistimed the market. Indeed, once the bubble starts to appear, it's inevitable that a fair chunk of money will be lost by speculators who mistime the market. The only thing market timing will affect is which speculators lose money.
“Excellent. You’ll pay $1.95 a share more or receive $1.95 a share less when you sell. Worse if you buy or sell more than 2000 shares. But at least those leaches won’t get to trade with you. Clown.”
I don’t churn and burn, I buy and hold for a while, example;
BDRBF bought between 09/09/2004 and 03/23/2006
ORB bought 07/08/02
Not too bad for a dumb clown eh?
Recto-Cranial inversion is a wonder to behold.
Kind of like watching someone beat themselves in the head with a hammer while quoting Shakespeare.
Follow what he is saying! The “pressure from the futures market” (ie nondelivery speculators) encourages people to buy physical oil (those who are taking actual delivery) thus “pressure from the futures market is transmitted to the actual spot market for oil.”
BTW what’s with all the name calling, trying to sooth your guilty conscience?
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