oil prices market drive. baloney

Submitted: Tuesday, Mar 28, 2006 at 02:31
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The price of oil we are told is supposed to be driven by market forces. I think not. i was reading an article tonight on the economist magazine internet site about a billionaire trying to get alternative fuels into the marketplace.
anyway what disgusted me was that it costs less than a dollar a barrel to get oil out of the ground in saudi arabia. so how the hell are we paying $70 a barrel for oil? on top of this he was basically threatened that any attempt to get alternative fuels into the marketplace would be sabotaged.
i quote "What is more, the OPEC cartel is suspected by some of engineering occasional price collapses to bankrupt investment in alternative energy. Mr Khosla concedes that after he made his ethanol pitch at this year's Davos meeting, a senior Saudi oil official sweetly reminded him that it costs less than a dollar to lift a barrel of Saudi oil out of the ground, adding: “If biofuels start to take off we will drop the price of oil.”
here is hoping alternative fuels succeed. better for the environment. cheaper fuels for everyone and less profit for the money hungry parasites that sell us oil.
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Reply By: Member - Bware (Tweed Valley) - Tuesday, Mar 28, 2006 at 02:54

Tuesday, Mar 28, 2006 at 02:54
It's all cr@p, eh? What about when it gets to the bowsers? That's never been explained properly; the daily rise and fall of fuel prices at your local servo. Even if the refinery paid more per tanker that they send out, the prices shouldn't change until that tanker delivers that more expensive batch of fuel. Can't they atleast have some semblance of ethics by only changing prices after a delivery of fuel that may cost more(or less)? Why do they do this and other industries don't? Restaurants pay varying prices for produce every week but they have different prices for their meals every day.
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Reply By: Eric from Cape York Connections - Tuesday, Mar 28, 2006 at 05:14

Tuesday, Mar 28, 2006 at 05:14
We are plain and simply being ripped off but the oil companies come up with some of the best excuses one has ever heard.
The one i like the best is the northern hemisphere is expecting to have a cold winter what on earth has that got to do with us. Thats why the price of fuel is up beats me.

All the best
Eric
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Follow Up By: Member - Davoe (Widgiemooltha) - Tuesday, Mar 28, 2006 at 05:30

Tuesday, Mar 28, 2006 at 05:30
Maybe I havnt been to the Northern Hemispher for a while but here in oz those Vulcan oil heaters were popular (I have one in my house).................................In the 70sssss !! When I bought my house I asked mum how much oil the one in our old house used. She replied she didnt remember coz they didnt use it long before the price of fuel meant we bought a reverse cycle air con.................. That was in the 70s Surely they arnt so backwards up there they can afford to burn oil for heat?
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Follow Up By: Member - DOZER- Tuesday, Mar 28, 2006 at 11:16

Tuesday, Mar 28, 2006 at 11:16
Nah...Eric was talking about the excuse behind the LPG price hike i believe....demand for it up north crap.....even though we make it here!!!!!
I once asked for a crab off a trawler in Onslow WA...the guy said they were heading to Asia, and i didnt have enough money..... (their middle bit was the size of a dinner plate) so in a way, the market does drive price...another good example is the late turbo diesel 80 series landcruiser...still asking 42k .....over priced because they are hard to get, and people get greedy/desperate.
Andrew
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Follow Up By: Ray Bates - Tuesday, Mar 28, 2006 at 19:07

Tuesday, Mar 28, 2006 at 19:07
Hi I have been to the Northern hemi in fact I am a pom but came here 45yrs ago. I still have family. When I lived there we burned coal for heat but now that is illegal to do so for obvious reasons. I did find that most of my relies used LNG from the North Sea, not LPG to heat their boilers for central heating. The North Sea basin is a vast area and I can see no reason why lpg or lng should have to be imported
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Reply By: Member - Oldplodder (QLD) - Tuesday, Mar 28, 2006 at 08:01

Tuesday, Mar 28, 2006 at 08:01
Yes, crude oil is a lot cheaper out of the ground, and prices have been inflated by profits in the system.
But then we do need a reasonably high price for energy, whether it is crude oil, bio fuel, solar, hydro, animal (horse or bullock etc) or nuclear. Our society is already so dependant on cheap energy, we have strangled the planet.

Fuel costs have dropped in the last 20 years against the average wage, I have car log books to prove it. 1985 price with inflation would be over $1.30 per litre.

Most goods are now cheaper relatively compared to 20 years ago, and definitely 50 years ago, partly because transport is so cheap. Why in the 70s and 80s did a lot of factories in Brisbane close down and goods were imported from Sydney and Melbourne? Now goods are imported from China and the other side of the world. Transport is too cheap, because energy is cheap.

And cartels will continue to manipulate the price of energy no matter what it is. If any one, including you and I, get a little bit of a monoploy going, of course we are going to 'get a good price'. And it is up to some one else to find an alternative and market it. It is up to the average purchaser to make the decision and support the energy source that is best for price and environment.

Sorry, got carried away there!
Of course, same applies to water in Australia too. Water is too cheap as well!
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Follow Up By: Patrol22 - Tuesday, Mar 28, 2006 at 12:04

Tuesday, Mar 28, 2006 at 12:04
Shhhhhhhhhhhhhhhhhhhhhhhhsh Oldplodder...some bugger might hear you!
Way I look at things like this is that I can't do anything personally about it so I'm not gonna let it give me ulcers.....grin and bear it. Probably just have to pick a few more tomatoes to build up the kitty while on tour.
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Reply By: Barnesy - Tuesday, Mar 28, 2006 at 13:58

Tuesday, Mar 28, 2006 at 13:58
The oil producing countries are making as much profit out of oil as they possibly can. They know that in 100 years, hopefully 30 years crude oil will be obsolete.

The current demand for oil is so high that influential countries are willing to sacrifice thousands of their own citizens, spend billions of dollars, blatantly lie to the international community and to their own people so they can begin a war in order to gain a bigger share of the crude oil stakes.

It makes the extra 50 cents a litre I'm paying at the pump seem irrelevant.

Brazil is leading a force to get ethanol powered cars around the world. About 85% of their cars can run on pure ethanol or a mixture with ULP. They obtain ethanol by fermenting sugar cane. If they can convince other countries to produce ethanol cars then they have a ready-made international market.

Barnesy
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Reply By: GaryInOz (Vic) - Tuesday, Mar 28, 2006 at 15:02

Tuesday, Mar 28, 2006 at 15:02
Oil companies do it because they can.

Government won't do anything about it because it is the one "must have" commodity that they can tax at ~40%, and get away with it.
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Reply By: Member - Landie - Tuesday, Mar 28, 2006 at 15:31

Tuesday, Mar 28, 2006 at 15:31
There are a number of factors that determine the price of petrol.......One of the problems that the world faces at present is that there is a shortage of refining capacity - turning oil into petrol. This has been a problem for sometime and won't change anytime soon as there are not enough refineries and this has pushed up the margin that refiners (oil companies) make refining oil into petrol.

The weekly/daily price variance is annoying, but let's face it, you could walk in and make a purchase (of anything) anywhere today, and tomorrow it might be 10% higher or lower. Such is discounting whether it be at the local butcher, service station or supermarket.

Petrol in Australia is a lot less than in many other parts of the world.

Not defending oil companies, just offering another perspective.........
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Reply By: Member - ROTORD - Tuesday, Mar 28, 2006 at 18:16

Tuesday, Mar 28, 2006 at 18:16
Hello All

Oh great , another conspiracy theory based on a "throw away line ".

Lets start with Saudi Arabia . Yes they have lots of oil and its cheap . They don't have exploritory [wildcat] wells . Their fields are so well defined that drilling even on a new field is probably going to result in a strike and a flow of 10,000 barrels a day . But Saudi Arabia produces only 40% of the worlds supply , and that does not make a monopoly . OPEC countries are not a monopoly and their past attempts to control prices have failed because their only real control relies on restricting supply and this has been sabotaged by OPEC MEMBERS .

Next problem , the rest of the worlds oil is expensive to produce . Exploration can be as risky as 40 wildcat failures to produce one success which flows at 800 barrels a day . This is for about 50% ofthe world , both for internal consumption and export .

So how easy is it for an oil company to produce cheap oil and then rip of the long suffering motorist . Lets look at Royal Dutch Shell . Not hard to find , their annual report is listed on the London Stock Market web page .They are valued at about 90 billion pounds . Last year they spent 17 billion on production and exploration and paid out 15 billion in dividends .That is , in a boom year they had a profit of a bit over 15% . Big deal , the Australian share aggregate in that year was 21% .

So where does all this leave the Saudi 'threat' ? Firstly , the quote of a dollar a barrel overly simplistic . The quoted dollar to pump may include drilling cost but drilling doesn't occur in a vacuum . Lets add on infastructure like roads , refineries , ports , foreign workers and a Defence Force . And then the big one , Saudi financial commitments to a lifestyle based on expensive oil . So the cheap Saudi oil may not be nearly as cheap as it seems . Then we need to ask why would Saudi Arabia cause chaos and hardship to Saudis just to provide the world with cheap oil ?

Finally , if any of you can find an oil company who consistantly returns better than 15% income per year , please tell me so I can retire early .
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Reply By: Exploder - Tuesday, Mar 28, 2006 at 18:54

Tuesday, Mar 28, 2006 at 18:54
Answer> Oil Company’s making record profits, now they don’t do that by selling the stuff at cost do they.

Same as banks making huge profit’s but the Bank fees go up, Explain that?
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Follow Up By: Member - ROTORD - Tuesday, Mar 28, 2006 at 21:10

Tuesday, Mar 28, 2006 at 21:10
Banks huge profits ? Our most profitable bank in terms of dividends has been the NAB . Dividends are normally about 5.5% , tax comutation increases this to about 8.4% . The only way bank profits look huge is that journalists report profit as an ammount ,not as a percentage of capital invested .Thus NAB's 2.5 billion looks obscene , until you consider it as a percentage of the 40 billion capital value .The real value of NAB's profit is in its low risk .

The fee rises sure are a pain , and the branch closures are worse ,but the NAB's profit of about 5.5% hasn't changed much in the last 10 years .

So , again , if anyone knows of an oil company or bank that is making a huge [percentage] profit please tell me , Istill want to retire early .
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Follow Up By: Member - Landie - Wednesday, Mar 29, 2006 at 08:48

Wednesday, Mar 29, 2006 at 08:48
Hard not to agree Rotard........Most people overlook the investment made to get that sort of return, rather they simply look at the headline number. When looking at oil, what is often overlooked is the shortage of global refining capacity, this has pushed up the margin made by refiners.

On bank fees, It is worth noting that many years ago bank fees were subsidised by inflated margins on home loans. These days there is very little margin on home lending. No what needs to be asked is would you prefer to pay a larger margin on your home loan and get fee free services, or pay a reduced margin on your home loan at the cost of having to pay bank fees. I know what I would sooner be doing.

On daily petrol fluctuations, prices change on a whole wide range of goods daily due to discounting, why would fuel be any different.
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Reply By: andoland - Wednesday, Mar 29, 2006 at 10:45

Wednesday, Mar 29, 2006 at 10:45
Oil companies do not set oil prices. Oil is a commodity and the price is determined by what customers (i.e. you and I) are prepared to pay. While the price has continued to increase over the last 18 months or so demand has not dropped off which means that we are all still prepared to pay the current price for oil. You can bet that when people really are not prepared (or can't afford) to pay for fuel (oil) at its current price then the price will drop.

A producers profit is determined by volume and price - if the price gets too high volume will drop off so the price will reduce and volume will increase again. This is the mechanism that OPEC use to try to influence pricing - by increasing and decreasing supply of oil.

Not only is oil a commodity but it is a world commodity which means that it has the same value in Sydney as in Johannesburg or LA or wherever. So why would a producer sell oil into their local market for much less than they can sell it elsewhere? This is why Asutralian fuel prices are affected by cold winters in the northern hemisphere. How many of you small business owners out there deliberately sell your product into a market at a price that is much less than what you could get elsewhere?
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Follow Up By: Member - Landie - Wednesday, Mar 29, 2006 at 11:37

Wednesday, Mar 29, 2006 at 11:37
Hi Andoland

A correction to what you have written. Whilst oil is a world commodity the price is determined by what type of crude it is, and where it will be delivered. Therefore, for instance, West Texas will not have the same value in Sydney as it does in Texas because of the cost of getting it to Sydney.

When you talk about a producer, do you mean oil producer or oil refiner (often could be the same). The point is that an oil refiner is indifferent to the cost of a barrel of oil as they make a refiners margin to refine from oil to petrol. That is they take the price of the oil and add to it the cost of refining including their profit margin.

What the price of oil has shown to everyone is that we are so dependent upon it that people will pay the price regardless of what that price is. Sure we can look at alternative energy forms, but the cost of getting these up and running is prohibitive.
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Follow Up By: andoland - Wednesday, Mar 29, 2006 at 11:47

Wednesday, Mar 29, 2006 at 11:47
Landie,

Yes there are different markers for different crudes, e.g. WTI, Tapis, Brent, etc, and they are based on the type of oil that typically occurs in that region - heavy,light, sour, sweet. My comments are true for any given type of crude.

But the difference in price between them is small in the scheme of things, except perhaps at the extremes where light sweet crudes are becoming more valuable compared to the heavy sour crudes which are expensive to refine and there is not enough refinery capacity to handle all the heavy sour crude available now.

By producer I mean someone who gets oil out of the ground.
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