I'm confused(?)

[elfin_odalisque]

I come back from a long hard summer and find the AH in good form – arguing heatedly about something it doesn’t understand.

Firstly, neither OPEC nor the oil majors have any control over crude oil prices (other than rationing supply). Like NYSE or NASDAQ or pork belly futures, oil traders and hedge funds set the crude price. With increasing demand from China and India, amongst others, these slippery souls have been the ones talking the market up and lining their pockets and now, I hope, taking a bit of a hit.

You also have to understand that the oil industry is split between ‘upstream’ and ‘downstream’ – the concept of ‘market share’ at the retail (gas station) level only applies to volume – not profit. The companies make a pittance from both owned and franchised sites. The main beneficiaries from retail gasoline, especially in Europe, are governments through levies and sales tax. The only reason European gas prices are three times higher than in the US is tax – maybe that is a good ecological reason.

The four majors (ExxonMobil – US, BP – UK, Total – France, Shell – UK/Netherlands) have a choice – they can sell their crude production at market prices to anyone they choose.

The US deficit is, and has been, funded by OPEC petrodollars buying Government bonds for years. In fact, the US economy is underpinned by foreign oil money. The current strength of Iran, Venezuela, Nigeria et al, is directly attributable to oil prices. There is no monopoly for the oil companies.

I am no apologist. At present, major oil companies are making a lot of money from Exploration & Production. This actually benefits the countries they are based in. Make no mistake – if they weren’t there, other less scrupulous parties would be mopping up.

A couple of economic corrections – the amortized cost of production, as at receipt at a refinery, fluctuates widely depending on the field, the quality of crude, and the location of the refinery. Lower 48 crude is cheaper than Alaskan – which is sometimes cheaper than Mexican gulf. Saudi sweet is the cheapest of all. When oil arrives at a refinery it does so at market price – just like you buy a gallon of gas or a carton of milk.

When crude was trading at $15 a barrel in the 1980s, did anyone complain?

I hate the price I pay for my gas – I hate the airline fuel surcharges that increase the cost of my ticket. Also, I have a lot I can blame oil companies for – but the price at the gas station is not one of them, sorry.

Welcome back. Elfie!

 

[Zeb_Carter]

I come back from a long hard summer and find the AH in good form – arguing heatedly about something it doesn’t understand.

Firstly, neither OPEC nor the oil majors have any control over crude oil prices (other than rationing supply). Like NYSE or NASDAQ or pork belly futures, oil traders and hedge funds set the crude price. With increasing demand from China and India, amongst others, these slippery souls have been the ones talking the market up and lining their pockets and now, I hope, taking a bit of a hit.

You also have to understand that the oil industry is split between ‘upstream’ and ‘downstream’ – the concept of ‘market share’ at the retail (gas station) level only applies to volume – not profit. The companies make a pittance from both owned and franchised sites. The main beneficiaries from retail gasoline, especially in Europe, are governments through levies and sales tax. The only reason European gas prices are three times higher than in the US is tax – maybe that is a good ecological reason.

The four majors (ExxonMobil – US, BP – UK, Total – France, Shell – UK/Netherlands) have a choice – they can sell their crude production at market prices to anyone they choose.

The US deficit is, and has been, funded by OPEC petrodollars buying Government bonds for years. In fact, the US economy is underpinned by foreign oil money. The current strength of Iran, Venezuela, Nigeria et al, is directly attributable to oil prices. There is no monopoly for the oil companies.

I am no apologist. At present, major oil companies are making a lot of money from Exploration & Production. This actually benefits the countries they are based in. Make no mistake – if they weren’t there, other less scrupulous parties would be mopping up.

A couple of economic corrections – the amortized cost of production, as at receipt at a refinery, fluctuates widely depending on the field, the quality of crude, and the location of the refinery. Lower 48 crude is cheaper than Alaskan – which is sometimes cheaper than Mexican gulf. Saudi sweet is the cheapest of all. When oil arrives at a refinery it does so at market price – just like you buy a gallon of gas or a carton of milk.

When crude was trading at $15 a barrel in the 1980s, did anyone complain?

I hate the price I pay for my gas – I hate the airline fuel surcharges that increase the cost of my ticket. Also, I have a lot I can blame oil companies for – but the price at the gas station is not one of them, sorry.

Welcome back. Elfie!

Good post and welcome back. I kinda knew that way back in my head somewhere, which is all loaded up with those pieces of information we all accumulate but can't quite access when we need them.

Thanks for your clarity on the situtuation.

 

[elfin_odalisque]

Good post and welcome back. I kinda knew that way back in my head somewhere, which is all loaded up with those pieces of information we all accumulate but can't quite access when we need them.

Thanks for your clarity on the situtuation.

Good to hear from ya again Zeb.

 

[R. Richard]

I hadn't really intended to get into a detail discussion of the petroleum market. However . . .

Crude oil is not a fungible product. If you operate a modern refinery, you are set up to process crude oil from your normal crude oil source. If you are set up to process light, sweet crude, your refinery will choke on sour (high-sulfer) crude.

The "price of oil" is a fairly complex thing. The price of crude oil depends upon the specific characteristics of the crude oil. Light, sweet crude is expensive, thick, sour crude is RELATIVELY cheap. The price of crude oil depends upon how much money you can sell the refined products you can get from that crude.

Another factor is the transportation cost. Oil companies are willing to pay more for crude oil if it is pumped out of the ground next door. If the same/equivalent crude oil come from half way around the world, the oil company is willing to pay less for the distant crude.

Another factor is the reliability of supply. If your crude comes from a politically unstable area, it is worth less than it would otherwise be worth. [You can't stop and start a refinery without ENORMOUS costs.]

The final factor that has been touched upon is the taxes levied on particularly gasoline. IIRC the low state tax is eight cents per gallon. The high state tax (NY) is $.50 per gallon. If you want to talk about price gouging, talk to the government of New York! [I'll save you the trouble, answer: Fugheddaboutit!]

 

[elfin_odalisque]

I hadn't really intended to get into a detail discussion of the petroleum market. However . . .

Crude oil is not a fungible product. If you operate a modern refinery, you are set up to process crude oil from your normal crude oil source. If you are set up to process light, sweet crude, your refinery will choke on sour (high-sulfer) crude.

The "price of oil" is a fairly complex thing. The price of crude oil depends upon the specific characteristics of the crude oil. Light, sweet crude is expensive, thick, sour crude is RELATIVELY cheap. The price of crude oil depends upon how much money you can sell the refined products you can get from that crude.

Another factor is the transportation cost. Oil companies are willing to pay more for crude oil if it is pumped out of the ground next door. If the same/equivalent crude oil come from half way around the world, the oil company is willing to pay less for the distant crude.

Another factor is the reliability of supply. If your crude comes from a politically unstable area, it is worth less than it would otherwise be worth. [You can't stop and start a refinery without ENORMOUS costs.]

The final factor that has been touched upon is the taxes levied on particularly gasoline. IIRC the low state tax is eight cents per gallon. The high state tax (NY) is $.50 per gallon. If you want to talk about price gouging, talk to the government of New York! [I'll save you the trouble, answer: Fugheddaboutit!]

Again, no. Most refineries can accept most types of crude oil. The increased science of the cracking process ensures that more light products - gas, jet fuel and diesel - are produced.

 

[TxRad]

The cost of drilling a well.

In the late 80's early 90's a 10,000 ft well cost around 130,000 dollars to drill with a 1.5 millon dollar rig... that's 13 dollars a ft.

today i'm sitting on a 3.5 million dollar rig drilling a 13,000 ft hole for 1.3 million dollars or 100 dollars per ft...

About 2 miles from here is a 3 million dollar rig laying on the ground as a scrap heap... no one was hurt when they lost control and had a blow out but the cost of that well will now be over 5.5 million dollars not counting the cost of the rig which was insured....

There's a very old saying in the oil field... to make a small fortune, start with a big one...

By the way, 70% of domestic drilling today is for natural gas, not oil.... other than areas protected by the national parks services and others, all known domestic oil deposits have been drilled.... most new oil drilling is exploration for deeper and deeper tests... 80% of which are dry...

 

[Zeb_Carter]

And the refineries need to shutdown to switch over from one type of gasoline to another. Aren't there at least 4 different types depending on the region of the country. Gasoline going to Minn. is completely different from Gasoline that goes to California. All of which is mandated by the government.

 

[cantdog]

I don't believe our Jenny is confused. Not one little bit.

Thanks, Jen.

 

[Jenny_Jackson]

I don't believe our Jenny is confused. Not one little bit.

Thanks, Jen.

Thanks, Cant... Senior level pricing for a Petrolium Company is what I did for 8 years. It seems a lot of people are either confused or mislead by the maniuplative BS spread by the Oil Companies. I cannot give you figures because I've been away from it too long. But based on Exxon-Mobil's annual domestic production figures for 2005, I would guess their profits have grown from 13% to 22% for the year with most of the profit dollars in the last quarter of the year (following Katrina).

Did their oil cost them more after Katrina? No. Remember they own the oil at the well head at a contract fixed price. The Spot Price on the International Market doesn't really mean anything and certainly doesn't reflect their cost in any way because they don't buy their oil there. That's where they dump their excess oil for sale to other countries.

As far as the current price decrease, this is a two pronged effort on their part. First, it supports their friend in the White House (Bush's approval rating jumped 3% today mainly because of the price rollback and their firends in Congress up for difficult reelections). Second, there is a quiet movement in the House to bring back the excess profits tax. That's the last thing the Oil Companies want. By rolling back prices, they lower their total dollar profit for the year. But they don't lose anything. A week ago the price of gasoline at the pump was based on the $72.00/bbs price even though the Spot Price was only $66.00. It was becoming an embarrassment to hold the line on their prices when obviously the oil "crisis" (which the Oil Companies allowed to happen by dragging their feet on rebuilding the refineries along the gulf coast then took huge profits by dumping their oil on the Spot Market) was over.

There is nothing really very complex about how the Oil Companies price their oil products. It's a set formula with derived numbers for the various elements (transportation, actual oil cost, refining costs, etc) then Top Management adds an arbutrary figure for profit based on what their "competition" is pricing at the time. Do you suppose that if Exxon lowers or raises their price the "competition" doesn't make exactly the same adjustment on the Distributor level within a day? Wonder how that happens? I know that it does, because I've seen in many times.

 

[ltnsfr007]

I don't believe our Jenny is confused. Not one little bit.

Thanks, Jen.

I second that

Butt congrats JJ

 

[Jenny_Jackson]

Again, no. Most refineries can accept most types of crude oil. The increased science of the cracking process ensures that more light products - gas, jet fuel and diesel - are produced.

That is correct for a modernized refinery. Not all refineries have been moderized, however, since that requires the refinery to be basically leveled and rebuilt from scratch.

I saw that done once down in Texas. The refinery was leveled in two days, the debris was hauled and the plant rebuilt and operating in three weeks.

The one problem is there are certain specialty products that have to be made from light, sweet crude that require some shutdown and set up to produce. But these are very expensive and only produced rarely.