NationStates Jolt Archive

So a simple question that I'd like some opinions on:

Why are gas prices so low in the US? What happened to never seeing oil go under $100 a barrel ever again? Is it proof that the oil companies were just boning us or have they suddenly found more oil?? Or maybe ethanol saved the prices!:rolleyes:

Opinions please.

Also what are gas prices like around the rest of the world/country? It's 1.67 for regular here.

Why? Because everybody is broke. Nobody could afford to drive at $4+ per gallon so the demand for gas dropped in the US by nearly 20%. That made gas prices tumble.

I'm not sure if that's a good thing.

So a simple question that I'd like some opinions on:

Why are gas prices so low in the US? What happened to never seeing oil go under $100 a barrel ever again? Is it proof that the oil companies were just boning us or have they suddenly found more oil?? Or maybe ethanol saved the prices!:rolleyes:

Opinions please.

Also what are gas prices like around the rest of the world/country? It's 1.67 for regular here.

I'm going to go with reduced demand plus the aforementioned boning. However, if I know my average countrymen, the low prices will jack up demand once again, because we never learn.

I'm going to go with reduced demand plus the aforementioned boning. However, if I know my average countrymen, the low prices will jack up demand once again, because we never learn.

/\ This /\

In Colorado Springs it's 1.439/gal. I'll enjoy it while it lasts, because these things never last long. I predict that this time next year it'll be at it's highest - largely because the low prices will cause an increase in demand. I hope I'm wrong. I hope the prices stay low for a good bit longer.

Yes I agree I think it has alot to do with the oil companies putting it to the average consumer, but ,then it has a lot to do with the weakened economy as well....btw....here in Jersey,I've seen $1.40/gallon.

Ok. Conspiracy theory time.

Prices fell because it was have further damaged the Christmas shopping.

If Christmas was a bust then the probably of a windfall profits tax would significantly increase.

Ok. Conspiracy theory time.

Prices fell because it was have further damanged the christmas shopping.

If Christmas was a bust then the probably of a windfall profits tax would significantly increase.

+1

How about help the automakers sell SUV's and trucks?:)

Why are gas prices so low in the US? What happened to never seeing oil go under $100 a barrel ever again? Is it proof that the oil companies were just boning us or have they suddenly found more oil?? Or maybe ethanol saved the prices!:rolleyes:

Because gas prices are controlled by a bunch of people who want to school to make up numbers and value.

The price of oil has gone down as the stock markets crashed. Not entirely surprising.

I'm less interested in the drop in gas prices to the fact that the price of everything else is dropping, too. Milk around here's back down to 2 for $5 again.

Ok. Conspiracy theory time.

Prices fell because it was have further damaged the Christmas shopping.

If Christmas was a bust then the probably of a windfall profits tax would significantly increase.

+1

How about help the automakers sell SUV's and trucks?:)

Or to undermine budding alternative energy competitors?

Oil is less expensive now due to a global recession which is dropping demand dramatically. Also, oil prices when they were high seem to have been that way due to massive speculation on oil futures from huge hedge funds and not so much on traditional consumption rates and supply and demand.

Or to undermine budding alternative energy competitors?

That's a very good one, I would think it's a bit early to be undermining them though. Technology is getting there, but nothing to be really afraid of.

It's because it's an endless cycle. Gas goes up when people can afford it. People complain and look into other sources. Oil companies panic and lower their prices. People forget about alternatives. Repeat.

The price of oil has gone down as the stock markets crashed. Not entirely surprising.

You're going to have to show a link between those things. I don't think they're all that related.

That's a very good one, I would think it's a bit early to be undermining them though. Technology is getting there, but nothing to be really afraid of.

Oh trust me, they're afraid. They're afraid that someone will figure out how to make energy plentiful before they figure out how to make it profitable. Like I've said before; If you had to slather a proprietary goo onto solar panels once a month to make them work, we'd all have solar panels on our houses by now.

Oil companies were boning us. This isn't news... declaring windfall profits while the prices were climbing at the pump 'because of shortages' was transparent bullshit.

Oil prices per barrel climbed because oil is a monopoly. Oil prices at the pump climbed because the whole industry is complicit.

Oil companies were boning us. This isn't news... declaring windfall profits while the prices were climbing at the pump 'because of shortages' was transparent bullshit.

Oil prices per barrel climbed because oil is a monopoly. Oil prices at the pump climbed because the whole industry is complicit.

It's an oligopoly, not a monopoly, and nobody is shafting anybody, any more than usually. The companies price as much as they can to maximize revenues, as they are supposed to. Welcome to capitalism. But the reasons why the prices spiked, were indeed speculation, as mentioned above. When people trade futures a year or two in advance, how can anyone be so incredulous to believe that it is all due to supply and demand at the pump?

And the reason the prices have now collapsed is because there is no money - it's not that people don't want to buy stuff, but rather because of "the credit crunch" (=contraction of money supply), and the volumes of demand we had previously cannot physically be maintained. All those speculators can no longer get credit, and/or leverage their transactions, so the overall volume of transactions has collapsed. The supply to satisfy previous levels of demand is still there, but the supply cannot possibly be what it was, even before we factor in the fact that people have lost jobs, can't afford to go shopping as often, carpool etc.

I love it when right wingers bitch about companies doing the exact, legitimate, and predictable thing, as demanded by capitalism, and then everybody but the economic system is to blame.

Oil companies were boning us. This isn't news... declaring windfall profits while the prices were climbing at the pump 'because of shortages' was transparent bullshit.

Oil prices per barrel climbed because oil is a monopoly. Oil prices at the pump climbed because the whole industry is complicit.

Wow its not easy to not have a single part of your post be correct. Windfall profits were a myth. Yes the oil companies had high profits, but if you want to calculate profit vs investment to establish a rate of return, as a company its profits were very average. If memory serves Exxon made 8% return on their investment. A fairly typical rate for multinational corporations. Hardly windfall profit margins.

#2, Oil is not a monopoly, it is drawn from a majority of the Continents and owned by dozens of different countries all with vast ideological differences from each other.

Oil prices didnt rise because of a monopoly any more then they dropped because of a monopoly.

Very simply, we get raped every summer for the "driving season" and it drops back to normal when it gets cold and people don't want to drive any more. The price of oil was driven sky high with speculation and when people said, "Fuck it, I'll take the bus/train/plane/stay home", it fell again.

What happened? The bubble burst and the combination of conservation, increased efficiency and economic recession has caused demand to cave in, creating a huge supply overhang that has in turn pushed prices down; commodities have had one of their worst years ever and it is due to this combination of factors.

There was absolutely no justification whatsoever for $140/bbl...you even had the classic, telltale signs of a bubble like the joke calls for $250/bbl or $350/bbl that were a throwback to the days of $1,000/share Amazon.com or $300 CacheFlow. Don't forget the other ridiculously overvalued commodities like nickel and copper that had already seen some brief but serious declines while the economy was still strong or the collapse of Amaranth when the natural gas bubble burst in early 2006. During this year, not only were the global economy and global demand slowing considerably but oil production had increased to boot. Supply was rising and demand was falling, but prices were rising at their fastest pace of the bubble...if that's not a sign that the party is coming to an end, then you would've been fooled and bankrupted by Nasdaq 5,000 or Nikkei 40,000 back in the day.

Technically speaking, the commodities market had gone in to its terminal bubble phase at the start of 2008, and as that combined with the recession it produced the same conditions that caused oil prices to collapse in 1982 and 1998. Commodities booms typically last around 9-10 years, and the current one started in early 1999, leaving the end for this cycle to fall between January 2008-January 2009. It happened right in the middle of that.

I am pleased that I was calling for the bubble to burst at around that time, although I'm not pleased that a deep recession and stock market crash accompanied it.

At current conversion rates the price of a gallon of unleaded petrol here in my part of England is $5.83 though prices vary up and down around the country. A few months ago the price did peak here at $7.02 a gallon.

Fuel is taxed to the hilt here on the pretence that discouraging people from driving will save the world. Public transport is diabolical in many areas which leaves no alternative to driving yourself about.

Of course our government is quite upset about this situation as instead of saving the planet as intended they are instead forced to collect tax revenue from citizens who will insist on driving themselves hither and yon instead of hanging around waiting for some miserable bastard driving a bus to drop you half a mile from your home with your weekly shop.

Very simply, we get raped every summer for the "driving season" and it drops back to normal when it gets cold and people don't want to drive any more. The price of oil was driven sky high with speculation and when people said, "Fuck it, I'll take the bus/train/plane/stay home", it fell again.

Ugh I remember that, gas shortages were across the country as everyone rushed to the gas station to fill up before the new prices came into effect.

I see $1.75 around here.

Around 1.60 here.

Filled up today for $1.39/gal.

Whoo sucktastick economy!

About $1.66 here.

Went up to $1.69 just yesterday from $1.59 at the corner station. It was certainly interesting watching the prices steadily drop day by day while it was happening. I wasn't expecting them to drop this far after $4+ over the summer.

It's an oligopoly, not a monopoly,


It's a cartel, which is a virtual monopoly. I wasn't finnessing semantics, I was talking about the effect.


...and nobody is shafting anybody, any more than usually.


Not true. The traditional model is to reach the balance point at which supply and demand are best leveraged against one another - and that didn't happen in the last year plus. What happened, instead, was that the margin was pushed past the break point.


The companies price as much as they can to maximize revenues, as they are supposed to.


'Supposed'? There's no rulebook out there that says bottomline is god and consumer be damned.


Welcome to capitalism. But the reasons why the prices spiked, were indeed speculation, as mentioned above. When people trade futures a year or two in advance, how can anyone be so incredulous to believe that it is all due to supply and demand at the pump?

And the reason the prices have now collapsed is because there is no money - it's not that people don't want to buy stuff, but rather because of "the credit crunch" (=contraction of money supply), and the volumes of demand we had previously cannot physically be maintained.


I wonder if you even realise these two paragraphs actually contradict?


I love it when right wingers bitch about companies doing the exact, legitimate, and predictable thing, as demanded by capitalism, and then everybody but the economic system is to blame.

Right wingers say huh?

Wow its not easy to not have a single part of your post be correct. Windfall profits were a myth. Yes the oil companies had high profits, but if you want to calculate profit vs investment to establish a rate of return, as a company its profits were very average. If memory serves Exxon made 8% return on their investment. A fairly typical rate for multinational corporations. Hardly windfall profit margins.

#2, Oil is not a monopoly, it is drawn from a majority of the Continents and owned by dozens of different countries all with vast ideological differences from each other.

Oil prices didnt rise because of a monopoly any more then they dropped because of a monopoly.

Oil prices did rise because of a monopoly to much the same extent as they dropped because of a monopoly. So - you were right about the connection, even if you were wrong about the reality.

I'm not going to argue the windfall thing... if you don't see that 80 billion dollars profit, made while allied industries are literally folding, could be interpreted that way... well, there's no point fighting about it, eh?

Again - as I pointed out to the other poster - oil is a monopoly. It's a controlled market for the pursuit of profit... an effective monopoly... so, youre wrong about the divisions of ideology - it's all about the benjamins, baby.

It's a cartel, which is a virtual monopoly. I wasn't finnessing semantics, I was talking about the effect.

I'm not talking OPEC. If you include Britain, USA, Canada, Russia, etc. it is an oligopoly.

Not true. The traditional model is to reach the balance point at which supply and demand are best leveraged against one another - and that didn't happen in the last year plus. What happened, instead, was that the margin was pushed past the break point.

A common misconception. If a monopoly, or even a cartel (assuming it is one, which, as per above, it isn't) charges more than that balance point, it loses profit. Now, if, by that, you are suggesting that speculation is distorting real demand, then you would be perfectly correct - however, as far as substantive demand goes, that was very much there. And no company, monopoly or otherwise, can push prices beyond that equilibrium point without damaging profits, because revenue = price * volume, and volume decreases as price increases, as per the demand curve.

'Supposed'? There's no rulebook out there that says bottomline is god and consumer be damned.

Market discipline, my friend. If you don't maximise profits, by cutting costs, then other companies will compete you out of the market. And since the only moral responsibility you have is towards your shareholders, the bottomline is god, whether you like it or not. I'm not saying this is how it should be - quite the opposite. But this is how it is.

I wonder if you even realise these two paragraphs actually contradict?

Oh do enlighten us.

Right wingers say huh?

Not necessarily you, since I wouldn't bother checking your history, but it is often the case that those who will defend the system will also, only too happily, blame specific companies for doing exactly what market discipline requires of them.

It's been sticking close to $1.25 here.

Anyone see it go below a dollar yet?

A common misconception. If a monopoly, or even a cartel (assuming it is one, which, as per above, it isn't) charges more than that balance point, it loses profit. Now, if, by that, you are suggesting that speculation is distorting real demand, then you would be perfectly correct - however, as far as substantive demand goes, that was very much there. And no company, monopoly or otherwise, can push prices beyond that equilibrium point without damaging profits, because revenue = price * volume, and volume decreases as price increases, as per the demand curve.


Which shows that you don't understand why monopolies are frowned upon in 'competetive' markets. It's exactly because you CAN push prices beyond that equilibrium point, because your options are play or go home. The medical industry is another example of the same thing - an effective monopoly, meaning you can push prices way beyond the margin.


Market discipline, my friend. If you don't maximise profits, by cutting costs, then other companies will compete you out of the market.


Sounds like a a first year economics manual. Cool. Irrelevent, but cool. Cutting costs has nothing to do with the topic we're discussing, and price fixing means that other companies WON'T compete you out of the market.

That's the problem with trying to apply textbook 'ideal world' material, to transactions in the real world.


And since the only moral responsibility you have is towards your shareholders,


An interesting perspective, which most companies would (claim they) disagree with.


...the bottomline is god, whether you like it or not. I'm not saying this is how it should be - quite the opposite. But this is how it is.


Actually, by saying they were doing what they are 'supposed to' do... you basically ARE saying it's how it should be.

You know, not wanting to quibble, but I kind of feel I have to point out each time you contradict yourself.


Oh do enlighten us.


For real? You assert that prices move because of reasons away from supply and demand (what was your wording? "...how can anyone be so incredulous to believe that it is all due to supply and demand...") And then you immediately follow it by saying that prices move because of demand?

It's bullshit both ways, of course. One only has to look at the fact that refineries were at capacity, and oil companies were blaming supplies of crude... and the fact that well into the plummeting prices, gas stations were experiencing catastrophic shortages... to see that the 'supply' and 'demand' factors are next to irrelevent in this particular price profile.

In reality, while supply, demand, and speculation may have been tiny factors, setting the price was the ultimate reason prices claimbed so high, and have dropped close to previous levels.


Not necessarily you, since I wouldn't bother checking your history...

Ah. So, what you're saying is, you addressed a comment towards me (one assumes, since you did it within a response to me) that you're now claiming wasn't actually aimed at me?

I'm going to go with reduced demand plus the aforementioned boning. However, if I know my average countrymen, the low prices will jack up demand once again, because we never learn.

Ehh, not sure about the "because we never learn part."

If anything, this is the epitome of rational behavior (as the term is used in economics): responding to incentives and disincentives.

If anything, this is the epitome of rational behavior (as the term is used in economics): responding to incentives and disincentives.

In the short term, yes. In the grand scheme of things (when you know it's quite possible gas will be $4 a gallon again), it's less rational to splurge now.

Oil is less expensive now due to a global recession which is dropping demand dramatically. Also, oil prices when they were high seem to have been that way due to massive speculation on oil futures from huge hedge funds and not so much on traditional consumption rates and supply and demand.

This is a pretty good response.

Oil was used as a hedge against a weakening dollar.

However, the recent troubles appear to have diminished production in the Euro zone moreso than in the US (which is the primary determining factor in exchange rates), helping to strengthen the US dollar.

Wow its not easy to not have a single part of your post be correct. Windfall profits were a myth. Yes the oil companies had high profits, but if you want to calculate profit vs investment to establish a rate of return, as a company its profits were very average. If memory serves Exxon made 8% return on their investment. A fairly typical rate for multinational corporations. Hardly windfall profit margins.

#2, Oil is not a monopoly, it is drawn from a majority of the Continents and owned by dozens of different countries all with vast ideological differences from each other.

Oil prices didnt rise because of a monopoly any more then they dropped because of a monopoly.

$40B at one company alone. I really don't give a shit what percentage that is, or how it compares to industry averages. It's astronomical. My point stands -- if they can't figure out how to remain solvent FOREVER with that kind of profit, they deserve to fold.

Ehh, not sure about the "because we never learn part."

If anything, this is the epitome of rational behavior (as the term is used in economics): responding to incentives and disincentives.

Is it? It's a proper response to use a finite resource (whose finiteness was underscored last summer with prices as high as $4.50+/gal. -- WHEN I WAS MOVING IN A U-HAUL FOR 1000 MILES, DAMMIT! Sorry.) like it isn't finite merely because the price comes down? We have a different view on rationality, then.

I'm going to go with reduced demand plus the aforementioned boning. However, if I know my average countrymen, the low prices will jack up demand once again, because we never learn.

Your first sentence is correct there has been a large decrease in the demand for oil all over the world most notable the US and especially China not to mention other economies that were booming. As for the second sentence well, it isn't going to increase by a lot because Americans are suddenly going to start driving again, but when the economy really starts booming again and China picks up again then we will see the price move up.\

As for the OP; currently in Australia it is about AUD1.00 per litre. Last time the TAPIS oil price (what Australia goes off not Western Crude) was at this price the average price of petrol was about AUD.95 a litre, however, currently the Australian dollar is weaker against the greenback than it was last time oil was at these prices so the price is about 5 cents a litre higher on average in Australian capital cities.

It's been sticking close to $1.25 here.
Per gallon?

Which shows that you don't understand why monopolies are frowned upon in 'competetive' markets. It's exactly because you CAN push prices beyond that equilibrium point, because your options are play or go home. The medical industry is another example of the same thing - an effective monopoly, meaning you can push prices way beyond the margin.

Oh, but I do understand. Only thing is, it still isn't a monopoly, and it will never be a market of pure competition, because of the costs of entry and exit involved, economies of scale, et al. And no, they still cannot push beyond the equilibrium point, without hurting their profits. The equilibrium point in an oligopoly is different to that of a perfectly competitive market, yes, and firms can still make super-profits, but that doesn't make them anything more/less than what the system requires them to be.

Sounds like a a first year economics manual. Cool. Irrelevent, but cool. Cutting costs has nothing to do with the topic we're discussing, and price fixing means that other companies WON'T compete you out of the market.

Except there is no price fixing per see, because OPEC is not the only provider. The only way they can, and do, influence prices is through manipulating supply.

That's the problem with trying to apply textbook 'ideal world' material, to transactions in the real world.

Well if you know of any evidence of all the CEOs of Petroleum companies in the world having weekly meetings, let us know.

An interesting perspective, which most companies would (claim they) disagree with.

I'm sorry, but that's not an "interesting perspective". It is an axiom of capitalism.

Actually, by saying they were doing what they are 'supposed to' do... you basically ARE saying it's how it should be.

I'm saying that they were doing what they were supposed to do under the system. But I disagree with the system. So no, I don't think this is how it should be.

You know, not wanting to quibble, but I kind of feel I have to point out each time you contradict yourself.

Would you be so kind as to point out exactly where the contradiction is, instead of throwing around baseless comments?

For real? You assert that prices move because of reasons away from supply and demand (what was your wording? "...how can anyone be so incredulous to believe that it is all due to supply and demand...") And then you immediately follow it by saying that prices move because of demand?

Well if you had an attention span capable of taking in more than one sentence at at time, and any desire to not take things out of context, you might have noticed that I said "how can anyone be so incredulous to believe that it is all due to supply and demand at the pump?", whereas, in the context I was arguing, demand in the second instance refers to total demand, including demand on commodity speculation markets. Do pay attention.

It's bullshit both ways, of course. One only has to look at the fact that refineries were at capacity, and oil companies were blaming supplies of crude... and the fact that well into the plummeting prices, gas stations were experiencing catastrophic shortages... to see that the 'supply' and 'demand' factors are next to irrelevent in this particular price profile.

At the pump, as I said, yes. On commodities markets, however...

In reality, while supply, demand, and speculation may have been tiny factors, setting the price was the ultimate reason prices claimbed so high, and have dropped close to previous levels.

http://hsgac.senate.gov/public/_files/SenatePrint10965MarketSpecReportFINAL.pdf

The US Senate begs to disagree.

Ah. So, what you're saying is, you addressed a comment towards me (one assumes, since you did it within a response to me) that you're now claiming wasn't actually aimed at me?

Just because my post referenced yours, doesn't mean that all I say is about you. I wouldn't presume to know your political orientation, and to be honest, I don't really care what it is. It is simply the case that your post seems to indicate you are the type of person who goes around with a "markets good, companies bad, viva capitalism" placard - not saying that you actually are one.

Per gallon?

Yes.

$40B at one company alone. I really don't give a shit what percentage that is, or how it compares to industry averages. It's astronomical. My point stands -- if they can't figure out how to remain solvent FOREVER with that kind of profit, they deserve to fold.


This is a business just like any other and it runs by the same rules of economics as any other just with more 0s at the end of the balance sheet. If you make $40B in profits but next month spend $39B of it opening a brand new oil field, do you really have such outragous profits in the end? This is why you cant get dazzled by big numbers and have to look at a percentage.

If i put $500 in a bank and make 3% interest is that ok with you? If i put $5000 in the bank and get 3% interest is that ok with you? If i put $5,000,000 in the bank and get 3% interest is that ok with you? If i put $50,000,000 in the bank and get 3% interest is that ok with you? If i put $50,000,000,000 in the bank do i suddenly not have the same right to that 3% just because i have too much money in your opinion?

Yes.
It's more than that per litre here :(

It's more than that per litre here :(

Aye, but that's why Britain is less vulnerable to fluctuations in the price of oil.

Aye, but that's why Britain is less vulnerable to fluctuations in the price of oil.
Aye, because most of the cost is in duties. Good times. Sort of.

Is it? It's a proper response to use a finite resource (whose finiteness was underscored last summer with prices as high as $4.50+/gal. -- WHEN I WAS MOVING IN A U-HAUL FOR 1000 MILES, DAMMIT! Sorry.) like it isn't finite merely because the price comes down? We have a different view on rationality, then.

Because you don't know what "rational" means when it's used in economics.

To an economist, "rational behavior" is just responding to incentives.

A lower price is an incentive to use a good more than before, therefore, when one does so he is behaving rationally.

Unleaded petrol ~£0.87 per litre

Diesel ~£1.06 (may be outdated)

Autogas (not common but does exist) ~£0.55 per litre.

6 months ago, Unleaded was touching £1.30 in some areas I think.

So a simple question that I'd like some opinions on:

Why are gas prices so low in the US? What happened to never seeing oil go under $100 a barrel ever again? Is it proof that the oil companies were just boning us or have they suddenly found more oil?? Or maybe ethanol saved the prices!:rolleyes:

Opinions please.

Also what are gas prices like around the rest of the world/country? It's 1.67 for regular here.
IIRC from high school economics, prices tend to be lower during a recession. Also, I think it's absurd to blame oil companies for high gas prices; consumers are just as much at fault for failing to reduce their use of fossil fuels.

This is a business just like any other and it runs by the same rules of economics as any other just with more 0s at the end of the balance sheet. If you make $40B in profits but next month spend $39B of it opening a brand new oil field, do you really have such outragous profits in the end? This is why you cant get dazzled by big numbers and have to look at a percentage.

If i put $500 in a bank and make 3% interest is that ok with you? If i put $5000 in the bank and get 3% interest is that ok with you? If i put $5,000,000 in the bank and get 3% interest is that ok with you? If i put $50,000,000 in the bank and get 3% interest is that ok with you? If i put $50,000,000,000 in the bank do i suddenly not have the same right to that 3% just because i have too much money in your opinion?

Be snide all you like, it is okay with me. However, you have to realize that the word "profit" has a pretty standard definition. If you made $40B in profits, then you've met your expenditures for the time you've specified those profits represent, and next month is irrelevant. Next month, therefore, doesn't matter. I applaud your attempt to make this about class, but you've failed.

Because you don't know what "rational" means when it's used in economics.

To an economist, "rational behavior" is just responding to incentives.

A lower price is an incentive to use a good more than before, therefore, when one does so he is behaving rationally.

Then you, too, have a problem with relative vocabulary. It is not rational to subject a finite resource to infinite demand, regardless of the incentive. Sometimes it isn't rational to react like a dog to a bell just because it rings.

If you made $40B in profits, then you've met your expenditures for the time you've specified those profits represent, and next month is irrelevant. Next month, therefore, doesn't matter. I applaud your attempt to make this about class, but you've failed.


Should i just assume you are unfamiliar with the process and necessity of reinvesting profits back into a business so you can also make a profit next month too? Thats why the proper way to measure profit is not in absolute dollars it is by % of return on investment.

Then you, too, have a problem with relative vocabulary. It is not rational to subject a finite resource to infinite demand, regardless of the incentive. Sometimes it isn't rational to react like a dog to a bell just because it rings.

If only (un)satisfying infinite demand with finite supply wasn't what economics is all about.

Then you, too, have a problem with relative vocabulary. It is not rational to subject a finite resource to infinite demand, regardless of the incentive. Sometimes it isn't rational to react like a dog to a bell just because it rings.

Denying the fundamentals of economics does not make them wrong.

Oh, but I do understand. Only thing is, it still isn't a monopoly, and it will never be a market of pure competition, because of the costs of entry and exit involved, economies of scale, et al. And no, they still cannot push beyond the equilibrium point, without hurting their profits. The equilibrium point in an oligopoly is different to that of a perfectly competitive market, yes, and firms can still make super-profits, but that doesn't make them anything more/less than what the system requires them to be.


It's not a monopoly, it's just an effectively closed market, with no competition.

Uh.... right.


Except there is no price fixing per see, because OPEC is not the only provider. The only way they can, and do, influence prices is through manipulating supply.


OPEC is not the only provider, but that's irrelevent. Oil is a necessity, which means usual rules of supply and demand do not apply - you can't 'opt out' of oil on a grand scale - especially with special interests.

It is also, as you mentioned - an effectively closed system - which means there are no real potentials for an intruder in the market.

Perhaps most importantly, competition doesn't apply in oil markets because undercutting prices does nothing more than run your OWN supply down, it doesn't force anyone out of the market, because you can't ISOLATE them from the market. If the UK, for example, undercuts EVERY other supplier nation, it will sell out it's reserves and make no real difference to the market, because everyone NOT supplied by the UK is going to have to buy elsewhere.

So - you have an effective equilibrium, where every oil provider has a certain amount of freedom within a finite range, but the entire market is going to move as a bloc. An effective monopoly.

Which is why - even though OPEC isn't the ONLY provider - it's irrelevent. Prices are fixed by consensus and by practise.


Well if you know of any evidence of all the CEOs of Petroleum companies in the world having weekly meetings, let us know.


Weekly meetings wouldn't be required.


I'm sorry, but that's not an "interesting perspective". It is an axiom of capitalism.


No, it isn't.


Would you be so kind as to point out exactly where the contradiction is, instead of throwing around baseless comments?


You don't think that connecting that comment to the one immediately preceding it (where I showed you were contradicting yourself, remember?) might have explained how it wasn't baseless?


http://hsgac.senate.gov/public/_files/SenatePrint10965MarketSpecReportFINAL.pdf

The US Senate begs to disagree.


The report being two years old, and thus before the real spike in the market makes it an interesting artifact, but not necessarily relevent.

The US Senate are wrong. Or rather... they're half-right. But they make flawed assumptions, and thus their CONCLUSIONS are wrong. For example, they assume that the price at the well is experiencing real-terms increase. As the report points out, supply has actually increased FASTER than demand - so the idea of 'speculating' on future production/reserves as an increasing value is not only counter intuitive, but also directly counter to the supply-and-demand model.

The only shortage is artificial, manmade. The price is anthropogenic, the futures price is anthropogenic.

If there IS a speculation factor, it is that artificial prices have been TREATED as though they were real prices - which means the market has been constantly running at an effective deficit, because the 'value' wasn't there - just like the US housing market. In each case, the whole industry is complicit - whether by activity, or by ignorance - and in each case the bulk of the responsibility belongs in the laps of those engineering the artificial values.


Just because my post referenced yours, doesn't mean that all I say is about you. I wouldn't presume to know your political orientation, and to be honest, I don't really care what it is. It is simply the case that your post seems to indicate you are the type of person who goes around with a "markets good, companies bad, viva capitalism" placard - not saying that you actually are one.

Amusing - in the wake of your 'baseless comments' complaint earlier in the same post.

Denying the fundamentals of economics does not make them wrong.

Nassim Taleb mocks you. And with good reason, because his "Black Swan" was right, wasn't it - and the "fundamentals of economics" that you seem to equate with gospel... are not the straight lines you think they are, but an infinitely complex iterative set.

It's currently 70.9 for a litre of gas here. The last time it was that low was back when I was wearing jeans, high tops and a Metallica t-shirt. Yeah yeah I know, the look is back, but I'm talking about the original version.

Should i just assume you are unfamiliar with the process and necessity of reinvesting profits back into a business so you can also make a profit next month too? Thats why the proper way to measure profit is not in absolute dollars it is by % of return on investment.

Tell you what, Bernanke, it seems familiarity with what to do with profits doesn't mean shit, looking at all those who were clobbered last year (never mind those who were Ponzi-clobbered). Reinvesting is part of expenditures. If they're lying about their profits and not counting some expenditures in order to look good to investors (Enron, anyone?), that's not my problem. The word "profit" means after all expenditures, unless "reinvesting" is suddenly no longer an expenditure. If it isn't, then they need to come clean with their use of the word profit.

If only (un)satisfying infinite demand with finite supply wasn't what economics is all about.

It is when the resource is finite. Wanting to trade oil forever won't make it happen. Nothing will.

Denying the fundamentals of economics does not make them wrong.

I think you've got it backwards. I'm denying your interpretation of the fundamentals of economics. And a 38% loss over less than a year makes them quite wrong, as Greenspan himself admitted.

See, you can all present all of the economic bullshit you like. None of it makes a difference because what doesn't contradict simply proves false. Economics is a pseudoscience like astrology, only the latter is superior because most people don't invest on the advice of astrologers anymore...yet despite overwhelming evidence of not knowing their ass from a hole in the ground, people still ask the advice of economists.

The word "profit" means after all expenditures, unless "reinvesting" is suddenly no longer an expenditure. If it isn't, then they need to come clean with their use of the word profit.


One quarters profits are the next quarters expenditures. Cant have the second without the first.(well you can technically but in this case they are using profits to reinvest)

The word "profit" means after all expenditures, unless "reinvesting" is suddenly no longer an expenditure. If it isn't, then they need to come clean with their use of the word profit.

Reinvesting by itself isn't an expenditure. Without getting too far in to the accounting behind it, some of that reinvestment will ultimately be expensed and some of it won't. This is why companies disclose investment activities separately, both on the statement of cash flows and in disclosure notes relating to specific activities.

In fact, net income itself doesn't mean anything without cash flows; you could have a positive net income like Bear Stearns, and still go bankrupt at the same time due to a lack of cash. They are related, but they are not the same.

In fact, net income itself doesn't mean anything without cash flows; you could have a positive net income like Bear Stearns, and still go bankrupt at the same time due to a lack of cash. They are related, but they are not the same.

Didnt Bear Stearns report massive losses and write downs before going BK?

Didnt Bear Stearns report massive losses and write downs before going BK?

Yes, but the losses they reported were nowhere near severe enough to push them to bankruptcy. What happened was that they had to suddenly come up with a lot of cash to cover collapsing derivatives and other instruments, and that demand far exceeded their available resources resulting in a sudden bankruptcy.

It took so many people by surprise because their earnings and cash flows for prior quarters, even though they had deteriorated, were nowhere near that bad.

All those storage tanks and pipelines are filled with oil. When the demand drops, the oil inventory goes up. In order to move the oil, the price comes down to stimulate sales. Oil future markets know this so the current situation is projected on oil yet to be purchased and affects the barrel price which the oil companies, in turn, use as a barometer to set their prices at the pump. The biggest weapon against high gasoline prices is to keep your vehicle at home.

It's not a monopoly, it's just an effectively closed market, with no competition.

Uh.... right.

A closed market does not equal lack of competition.

OPEC is not the only provider, but that's irrelevent. Oil is a necessity, which means usual rules of supply and demand do not apply - you can't 'opt out' of oil on a grand scale - especially with special interests.

Oh, you mean elasticity of supply and demand? I think you'll find elasticity of demand is quite flexible, as per the recent collapse in total demand, and supply isn't more inelastic than that of other sources of energy.

It is also, as you mentioned - an effectively closed system - which means there are no real potentials for an intruder in the market.

And that's because of how the system works - the fact that it is essentially a closed market follows necessarily from the mechanisms of market capitalism. And it still doesn't follow from it that there is no competition - there still are a fair few, if oligoplistic, competitors.

Perhaps most importantly, competition doesn't apply in oil markets because undercutting prices does nothing more than run your OWN supply down, it doesn't force anyone out of the market, because you can't ISOLATE them from the market. If the UK, for example, undercuts EVERY other supplier nation, it will sell out it's reserves and make no real difference to the market, because everyone NOT supplied by the UK is going to have to buy elsewhere.

Introducing: market share.

So - you have an effective equilibrium, where every oil provider has a certain amount of freedom within a finite range, but the entire market is going to move as a bloc. An effective monopoly.

You are obviously abusing the terminology now. All markets move as a bloc, and in any market the same limited freedom within a finite range applies. By your definition, the grain market is a monopoly.

Which is why - even though OPEC isn't the ONLY provider - it's irrelevent. Prices are fixed by consensus and by practise.

Oh... consensus and practice? You mean like all other markets?

Weekly meetings wouldn't be required.

Well if you are going to "fix prices", yes they very much are.

No, it isn't.

Right... so the profit motive and investment capitalism doesn't exist. Cool.

You don't think that connecting that comment to the one immediately preceding it (where I showed you were contradicting yourself, remember?) might have explained how it wasn't baseless?

You mean where you deliberately obfuscated the context, and ignored bits of sentences, as it would best fit your willful misunderstanding of what I had said?

The report being two years old, and thus before the real spike in the market makes it an interesting artifact, but not necessarily relevent.

It shows the amount of speculation there was in the market for oil, even before the spike - thus contradicting your "speculation is irrelevant" drivel.

The US Senate are wrong. Or rather... they're half-right. But they make flawed assumptions, and thus their CONCLUSIONS are wrong. For example, they assume that the price at the well is experiencing real-terms increase. As the report points out, supply has actually increased FASTER than demand - so the idea of 'speculating' on future production/reserves as an increasing value is not only counter intuitive, but also directly counter to the supply-and-demand model.

Speculation works on what is expected to happen, as opposed to what has/is happening. Demand was expected to continue to increase, due to China and India, mainly.

The only shortage is artificial, manmade. The price is anthropogenic, the futures price is anthropogenic.

If there IS a speculation factor, it is that artificial prices have been TREATED as though they were real prices - which means the market has been constantly running at an effective deficit, because the 'value' wasn't there - just like the US housing market. In each case, the whole industry is complicit - whether by activity, or by ignorance - and in each case the bulk of the responsibility belongs in the laps of those engineering the artificial values.

"Value" in market capitalism is what people will pay for stuff. Now people can pay for stuff to use, or to sell it on. The problem with oil was that people bought ridiculous amounts in the hope of selling it on, rather than using it, and then found that people don't need to use that much. Is it that complicated?

Amusing - in the wake of your 'baseless comments' complaint earlier in the same post.

:rolleyes:

Nassim Taleb mocks you. And with good reason, because his "Black Swan" was right, wasn't it - and the "fundamentals of economics" that you seem to equate with gospel... are not the straight lines you think they are, but an infinitely complex iterative set.

Taleb is a hypocritical schmuck with extreme unwarranted self importance.

Its not a monopoly, it's more of an oligopoly/cartel.

Should i just assume you are unfamiliar with the process and necessity of reinvesting profits back into a business so you can also make a profit next month too?

I dunno about Intangelon but I'm unfamiliar with that principle. Perhaps you could it explain it to me?

That seems to be a claim that any company can only remain profitable by growing.

Thats why the proper way to measure profit is not in absolute dollars it is by % of return on investment.

True enough, but doesn't seem to follow from the previous point.

Certainly I would agree that a company which is making a profit doing x, can make more profit by doing more x. There is an incentive (of greater future profits) for a company to reinvest their profits and grow their operations.

Not clear why it is necessary for continued profitability, though. I suppose you could argue that in a growing market, a company which doesn't grow to keep its market share becomes less profitable as its competitors grow and benefit from the economies of scale.

I dunno about Intangelon but I'm unfamiliar with that principle. Perhaps you could it explain it to me?

That seems to be a claim that any company can only remain profitable by growing.

One example, any given oil field has X amount of oil then its put a cork in it. Without investing in a new field and a new pump and a new pipeline,and regulatory and environmental restrictions and right of way acquisitions and a new distribution system what will next months profits be?

One example, any given oil field has X amount of oil then its put a cork in it. Without investing in a new field and a new pump and a new pipeline,and regulatory and environmental restrictions and right of way acquisitions and a new distribution system what will next months profits be?

Why would any oil extraction business declare as a "profit" this ongoing cost? Their profits are taxed, not their ongoing costs.

Not clear why it is necessary for continued profitability, though. I suppose you could argue that in a growing market, a company which doesn't grow to keep its market share becomes less profitable as its competitors grow and benefit from the economies of scale.

Reinvestment is also needed to maintain constant productivity; equipment and facilities depreciate, fall apart, need to be replaced and all that regardless of whether or not your business is actually increasing its physical stock. Without that minimum level of reinvestment, your company's assets will deteriorate and impair your ability to keep it running, let alone maintain its competitiveness.

And, of course, you hit the nail on the head. Everyone is trying to increase their own slice of the market pie for obvious reasons; the result is that you constantly need to grow your business in order to stay competitive, and you need to invest in new technologies because your competitors aren't standing still. If they get the technical edge over you, your company may be doomed. Competition truly drives progress.

Why would any oil extraction business declare as a "profit" this ongoing cost? Their profits are taxed, not their ongoing costs.

I seem to not quite follow what your saying so let me try another approach. If you buy a field and do everything and when its dry empty and done you have a profit of 40Billion. We agree that this is a given. Now you can walk away with a 40B profit and its close the company, game over, or you can take that 40B(thats profit) and invest it in a new venture in a new field. So your investing your profits in order to get more profit later. Its not a cost of business really because you already paid your cost of business and got your 40 billion profit after that. The 40B profit is what goes into the new project. Hence you have to reinvest your profits.

Taleb is a hypocritical schmuck with extreme unwarranted self importance.

Maybe.

But he was right, wasn't he...

Maybe.

But he was right, wasn't he...

IMO, right about a few things, but a lot of what he says is bullshit.

I seem to not quite follow what your saying so let me try another approach. If you buy a field and do everything and when its dry empty and done you have a profit of 40Billion. We agree that this is a given. Now you can walk away with a 40B profit and its close the company, game over, or you can take that 40B(thats profit) and invest it in a new venture in a new field. So your investing your profits in order to get more profit later. Its not a cost of business really because you already paid your cost of business and got your 40 billion profit after that. The 40B profit is what goes into the new project. Hence you have to reinvest your profits.

Heh, the $40B isn't actually profit at all. It's money which should have been paid to the owner of the oil you extracted. So it's essentially stolen from the citizens of the country under which the oil laid.

See, the thing is you put it as a general principle of business that profits have to be reinvested to ensure future profitability. Now you are concentrating on the (on-topic) example of oil extraction.

But oil extraction is not a classical "business." The oil does not come from some other business, who sells it at the best price they can get -- it is taken from a limited supply in the ground.

Now, my argument is that in this case, the need to open new fields as the existing ones run dry makes such investment an ongoing cost. And again, I ask: why would any company declare an ongoing cost as profit, which is subject to tax?

A closed market does not equal lack of competition.


A closed market, with no competition does, though. Which is weird, because on my browser, that's what it looks like I typed.


Oh, you mean elasticity of supply and demand? I think you'll find elasticity of demand is quite flexible, as per the recent collapse in total demand, and supply isn't more inelastic than that of other sources of energy.


Actually, not true. Compare: electricity.


And that's because of how the system works - the fact that it is essentially a closed market follows necessarily from the mechanisms of market capitalism. And it still doesn't follow from it that there is no competition - there still are a fair few, if oligoplistic, competitors.


No, the fact that it is essentially a closed market follows necessarily from the fact that there are finite sources, controlled by a closed market.

There is no real competition until some technology like biogenic oil takes off. Which means there is currently no competition. You can't pull oil out of air.


Introducing: market share.


Look back at the example. Market share wouldn't make a difference there. You can't gain more market share than you can share in the market.


You are obviously abusing the terminology now. All markets move as a bloc, and in any market the same limited freedom within a finite range applies. By your definition, the grain market is a monopoly.


No, I'm not abusing the terminology. It's an effective monopoly. Other markets work in the same way - medical care, for example - but not all markets have the same reduced ability to react to market forces.


Oh... consensus and practice? You mean like all other markets?


I thought you were arguing supply and demand?


Well if you are going to "fix prices", yes they very much are.


No, no they're not. If you have a tacit agreement to keep prices about level, you NEVER have to meet. Come on, this really isn't that complicated.


Right... so the profit motive and investment capitalism doesn't exist. Cool.


That's not what you said, though, is it.

If I point out that what you said wasn't true... that doesn't mean you can then extend that refutation to any other random crap you make up.


You mean where you deliberately obfuscated the context, and ignored bits of sentences, as it would best fit your willful misunderstanding of what I had said?


I didn't ignore or obfuscate anything - I merely showed that your statements pretty much make liars of one another. You arguments are pretty contradictory, unless you invoke special exception.


It shows the amount of speculation there was in the market for oil, even before the spike - thus contradicting your "speculation is irrelevant" drivel.


No one is denying there was speculation. It just wasn't the big force acting on prices.


Speculation works on what is expected to happen, as opposed to what has/is happening. Demand was expected to continue to increase, due to China and India, mainly.


Demand was expected to continue to increase - you got that much right, at least. But apparently you ignored the trend towards expansion in production, which was in excess of the increase in supply.

That's why the 'speculation' argument is a smokescreen. And that's how it's being used. And the sad thing is - you're buying it.


:rolleyes:

Good response for being hoist by your own petard.

One quarters profits are the next quarters expenditures. Cant have the second without the first.(well you can technically but in this case they are using profits to reinvest)

Reinvesting by itself isn't an expenditure. Without getting too far in to the accounting behind it, some of that reinvestment will ultimately be expensed and some of it won't. This is why companies disclose investment activities separately, both on the statement of cash flows and in disclosure notes relating to specific activities.

In fact, net income itself doesn't mean anything without cash flows; you could have a positive net income like Bear Stearns, and still go bankrupt at the same time due to a lack of cash. They are related, but they are not the same.

What both of these perfectly rational posts show me is that business play just as fast and loose with English and reality as politicians do. It's no wonder then that those two do the most damage to the world when they work together.

Also, IF? How can this quarter's profits be next quarter's expenditures? That means the initial investment will never be paid off -- unless they somehow had profits before opening for business.

IMO, right about a few things, but a lot of what he says is bullshit.

Which doesn't matter - because the specific relevence here is - he said that markets don't work in the way you say they do. And he was right.

Ah, I see. It's about share-price. The value of a companies shares is determined as much by their future profitability as the current rate of making profit.

A simple system of share ownership, where the shares were bought not to be resold later at a higher price but to keep indefinitely for dividends (a share of the company's profit) wouldn't have this problem so much. Simply put a tax on the sale of shares, and legislate that a proportion of any profit must be returned as dividend to share-holders.

No more need to grow, to keep the share price up. Less benefit to being a market behemoth that can bully governments to protect future profits. Good thing I say.

Which doesn't matter - because the specific relevence here is - he said that markets don't work in the way you say they do. And he was right.

No, I don't think even he quite says that. What's right is that markets don't always work the way 'I say they do'. But no shit Sherlock, everyone knows this, impart from a few dumbass politicians and a few right wingers. But no economist even applies normal 'market rules' to OPEC, because they are a cartel, so that's irrelevant.

Also, IF? How can this quarter's profits be next quarter's expenditures? That means the initial investment will never be paid off -- unless they somehow had profits before opening for business.

Profits are what are left after all expenses are paid. The initial investment is repaid and whats left after all bills are settled are profits. You then take those profits and reinvest them in the next field and for the next quarter (rhetorically).

I would say oil companies boning us. Demand has fallen a little but not that much. Exxon did not make 8% check out the numbers below this was from October.



HOUSTON - Exxon Mobil Corp., the world’s largest publicly traded oil company, reported income Thursday that shattered its own record for the biggest profit from operations by a U.S. corporation, earning $14.83 billion in the third quarter.

Yet numbers contained within the company’s most recent financial report revealed production numbers that continue to sag, and shares slipped 3 percent in midday trading.

The Irving, Texas-based company has reported unprecedented back-to-back quarters, the end of the most recent coinciding with a rapid plunge in crude prices. Benchmark oil prices fell another $2.91 to $64.59 Thursday on the New York Mercantile Exchange, about 56 percent off record highs in July.

Profits are what are left after all expenses are paid. The initial investment is repaid and whats left after all bills are settled are profits. You then take those profits and reinvest them in the next field and for the next quarter (rhetorically).

Or you don't. Which was something that the rest of the economy was facing. Arguing that 80 billion dollars wasn't windfall profit, because it enabled the industry to make choices other industries were incapable of financing... seems somewhat illogical, to be honest.

Or you don't. Which was something that the rest of the economy was facing. Arguing that 80 billion dollars wasn't windfall profit, because it enabled the industry to make choices other industries were incapable of financing... seems somewhat illogical, to be honest.

No it wasnt windfall profits because their stockholders demand and vote to reinvest because they are a hungry bunch that always want a higher return for longer. Not to mention the requirements to reinvest purely for national security reasons.

No it wasnt windfall profits because their stockholders demand and vote to reinvest because they are a hungry bunch that always want a higher return for longer. Not to mention the requirements to reinvest purely for national security reasons.

Think ya missed the point...

This is why pretty much OPEC is to blame.

The trading came a day before the OPEC cartel planned to cut production by another 2.2 million barrels a day, its latest attempt to shore up the plummeting price. The price of light, sweet crude in New York was up 5 cents a barrel to $39.04 a barrel.

"Oil prices, which peaked above $145 a barrel in July, have tumbled more than 70 percent as the spreading economic slowdown slashed the global demand for oil, and analysts said that prices are likely to remain near their current levels if the recession lingers through 2009. " - NY Times


The OPEC countries manipulate the price mostly because they are greedy. The analysts say that demand has fallen. Really, everyone out there who feels they a driving less now than in the summer please chime in. What are they basing there forecasts on? Anyone see less trucks on the road?

Me I am driving about the same if not more during the holidays.

The OPEC countries manipulate the price mostly because they are greedy. The analysts say that demand has fallen. Really, everyone out there who feels they a driving less now than in the summer please chime in. What are they basing there forecasts on? Anyone see less trucks on the road?

Me I am driving about the same if not more during the holidays.

A lot of it is due to either people buying more efficient cars, ethanol use, or simply better driving habits. It's downright stupid to leave your air filters clogged or failing to properly inflate tires, and I think a lot of people are finding it makes a lot more sense to combine their trips when possible than making multiple ones. Leisure driving and things like that are pretty much unaffected because people have found saving money and cutting back on waste allows them to do more fun things with their cars.

I don't know about you, but sitting in traffic five times a day to get to the store is something me and pretty much everyone else will gladly give up if they can get things done with only two waits in traffic...

It's been interesting for me the past few weeks. I work in credit risk management at the moment, particularly regarding the mining and energy capital sector.

So I haven't been seeing evil oil companies, but all these small and medium-sized firms not being able to pay back their debt because of the collapse in oil prices. For us now, every time oil prices go down, people just groan.

I supposed it's easy to be annoyed at Exxon, but people forget the big sector of smaller start-ups and mid-tier firms that are struggling to survive.

Since the crude oil price varies so widely in a space of months, how is it that something like the Strategic Petroleum Reserve isn't operating as a business? That is, buying physical oil and storing it to sell at price peaks?

I'm no capitalist (pauper, more like) but it looks to me like speculation in oil does the opposite of what it should do. It accentuates price changes according to demand, instead of smoothing them out. :confused:

Since the crude oil price varies so widely in a space of months, how is it that something like the Strategic Petroleum Reserve isn't operating as a business? That is, buying physical oil and storing it to sell at price peaks?

I'm no capitalist (pauper, more like) but it looks to me like speculation in oil does the opposite of what it should do. It accentuates price changes according to demand, instead of smoothing them out. :confused:

It's scapegoating. Oil Futures are this year's Scooter Libby.

So a simple question that I'd like some opinions on:

Why are gas prices so low in the US? What happened to never seeing oil go under $100 a barrel ever again? Is it proof that the oil companies were just boning us or have they suddenly found more oil?? Or maybe ethanol saved the prices!:rolleyes:

Opinions please.

Also what are gas prices like around the rest of the world/country? It's 1.67 for regular here.

This is basically what happened.

Since 2001, the value of the US Dollar has gone down due to easy money, inflationary policies that were pursued by the Federal Reserve in the wake of the Dot-Com Crash and 9/11. People and nations sought to get out of the US Dollar, and into other currencies and/or commodities. Naturally, the value of the US Dollar went down, and thus the nominal price of oil in US Dollars went up.

At the beginning of this year, you had the crisis, and this caused factor number two. Speculators, who needed to get a source of funds very quickly, bidded up the price of oil to an excessive amount. They were helped along by Greenies, who pushed the message that the world was going to run out of oil, and this pushed the price to an unsustainable level. When the credit crunch hit in September, the speculative bubble was very quickly burst, and oil prices plunged. Furthermore, the US Dollar started strengthening again as people/nations fled their other currencies and started moving into US Dollars again. This has meant that the nominal price of oil has decreased.

The price of oil was $60 above its 200 day average at the height of the Northern Summer. Now, it is about $30 below its 200 day average. I would say that the fair price of oil is about $80 a barrel given current conditions, and around $110 a barrel once the economy gets going again.

BTW, in NZ, the price of a litre of 91 is NZ$1.339.

It's been interesting for me the past few weeks. I work in credit risk management at the moment, particularly regarding the mining and energy capital sector.

So I haven't been seeing evil oil companies, but all these small and medium-sized firms not being able to pay back their debt because of the collapse in oil prices. For us now, every time oil prices go down, people just groan.

I supposed it's easy to be annoyed at Exxon, but people forget the big sector of smaller start-ups and mid-tier firms that are struggling to survive.

Why is this Leon?

This is basically what happened.

Since 2001, the value of the US Dollar has gone down due to easy money, inflationary policies that were pursued by the Federal Reserve in the wake of the Dot-Com Crash and 9/11. People and nations sought to get out of the US Dollar, and into other currencies and/or commodities. Naturally, the value of the US Dollar went down, and thus the nominal price of oil in US Dollars went up.

At the beginning of this year, you had the crisis, and this caused factor number two. Speculators, who needed to get a source of funds very quickly, bidded up the price of oil to an excessive amount. They were helped along by Greenies, who pushed the message that the world was going to run out of oil, and this pushed the price to an unsustainable level. When the credit crunch hit in September, the speculative bubble was very quickly burst, and oil prices plunged. Furthermore, the US Dollar started strengthening again as people/nations fled their other currencies and started moving into US Dollars again. This has meant that the nominal price of oil has decreased.

The price of oil was $60 above its 200 day average at the height of the Northern Summer. Now, it is about $30 below its 200 day average. I would say that the fair price of oil is about $80 a barrel given current conditions, and around $110 a barrel once the economy gets going again.

BTW, in NZ, the price of a litre of 91 is NZ$1.339.
Eventually, it will. It's not going to last forever. This is the problem with economics-centric reasoning... it's based not on physics and chemistry but on money, a construct of human society. Even geography takes things into account that money alone does not.

Why is this Leon?
Why is what? Not every mineral or oil or gas deposit can be mined for the same amount of money, and as prices fall and hedges run out, companies end up paying more to get the stuff out of the ground than they can earn by selling it. They have no choice but to keep going and hope though, because they need some sort of cash flow to meet their bankers' covenants and to pay back debt. Eventually they run out and die.

People don't think enough about the production side, even for petrochemicals. And it's even worse for miners - most of the global zinc mining capacity currently has cash costs higher than the market price of the metal. They found new deposits and started mining them when prices were great, now they're finding that they're in the shit. Same for oil and gas.

Eventually, it will. It's not going to last forever. This is the problem with economics-centric reasoning... it's based not on physics and chemistry but on money, a construct of human society. Even geography takes things into account that money alone does not.
Geography, physics or chemistry don't tell us much about the demand side of it. The reason we need oil at all is economics-centric - the fact that oil matters comes to bear only because there exists a market for it, which is only because of supply and demand. Geologists can tell us useful things we can introduce into our economics-based analysis of supply, but nothing more.

Eventually, it will. It's not going to last forever. This is the problem with economics-centric reasoning... it's based not on physics and chemistry but on money, a construct of human society. Even geography takes things into account that money alone does not.

Ah, but the key is the demand side. We have no innate need for oil, like we (presumably) do for water or oxygen, and there is no objective technological barrier that prevents us from finding and using alternatives that may ultimately be far superior to oil, just like how oil was superior to coal, or gas superior to oil, and so on.