Many different players and causes.
Oil is sought in places where it costs more to extract.
There are threats to oil supplies from many sources. For example, Iran threatens to blockade the Straits of Hormuz.
Threats of war increase the prices of oil futures as many buyers try to lock in prices. It is ironic that many on the right attack Obama about oil prices but are willing to attack Iran, a major producer of oil.
Although U. S. demand for gasoline is the lowest in some time, world-wide demand is increasing. Oil and gasoline are traded on world markets, not local markets.
And finally, many U.S. refineries are closing down because they can't be cost effective because of the types of oil they use are in short supply. See "Angry About High Gas Prices? Blame Shuttered Oil Refineries", Matthew Philips, Business Week, 2012-02-24.
Showing posts with label oil prices. Show all posts
Showing posts with label oil prices. Show all posts
Monday, February 27, 2012
Sunday, January 01, 2012
Two dollars a gallon gasoline? No way!
Michele Bachmann claimed sometime ago that if the oil companies were allowed access to Gulf oil that gasoline would be two dollars a gallon. Wish does not give in to facts.
Gulf oil costs about $60 a barrel to produce: "Deep Gulf drilling thrives 18 mos. after BP spill", Jonathan Fahey, Associated Press, via Yahoo Finance.
Oil is now about $100 a barrel. The drillers will expect at least $66 a barrel ($60 plus 10% profit), but then the resellers will expect over $72 a barrel. I don't know how many buyers and sellers there are before the oil gets to the refinery, each expecting to make some profit, but let's stop with the $72 a barrel price.
If gasoline is current selling for $3.299 a gallon in Duluth MN, then $72 a barrel oil might, just might lower the price of gasoline to $2.38 a gallon ($3.299 x $72/$100). But oil is a fungible product and will go to the highest bidder, no matter where it gets refined. Considering that the above article states that world-wide deep-well drilling, not just Gulf drilling, will at sometime account for nine percent of world production, I would find it surprising that gasoline would sell for less than $2.75 a gallon in Duluth when that level of production is reached.
Maybe Congress could mandate that all Gulf oil be refined and sold only in the U.S. But isn't that government regulation hampering the free market?
What will get gasoline prices lower is decreased world-wide consumption, and that ain't going to happen soon.
Gulf oil costs about $60 a barrel to produce: "Deep Gulf drilling thrives 18 mos. after BP spill", Jonathan Fahey, Associated Press, via Yahoo Finance.
Oil is now about $100 a barrel. The drillers will expect at least $66 a barrel ($60 plus 10% profit), but then the resellers will expect over $72 a barrel. I don't know how many buyers and sellers there are before the oil gets to the refinery, each expecting to make some profit, but let's stop with the $72 a barrel price.
If gasoline is current selling for $3.299 a gallon in Duluth MN, then $72 a barrel oil might, just might lower the price of gasoline to $2.38 a gallon ($3.299 x $72/$100). But oil is a fungible product and will go to the highest bidder, no matter where it gets refined. Considering that the above article states that world-wide deep-well drilling, not just Gulf drilling, will at sometime account for nine percent of world production, I would find it surprising that gasoline would sell for less than $2.75 a gallon in Duluth when that level of production is reached.
Maybe Congress could mandate that all Gulf oil be refined and sold only in the U.S. But isn't that government regulation hampering the free market?
What will get gasoline prices lower is decreased world-wide consumption, and that ain't going to happen soon.
Wednesday, October 05, 2011
Reagan, Gorbachev, and the Berlin Wall
Many credit Ronald Reagan with the collapse of the Soviet Union and the fall of the Berlin Wall, citing Reagan's "Mr. Gorbachev, tear down the wall!" and other actions.
First, Gorbachev was no absolute dictator like Stalin. He had many constituencies to please, both hard-line and open-minded. Gorbachev knew the Soviet Union was not working, but he could not like Stalin or Mao simply declare a change of course. He had to move politically rather than autocratically.
Second, Gorbachev's predecessors had put the Soviet Union in a precarious financial position with an overabundance of subsidies. The only thing that propped up the finances of the Soviet Union was the export of oil at $70/barrel.
Then the price of oil collapsed to $10/barrel, and with it the Soviet Union.
The severe drop in the price of oil was caused by millions of consumers saving energy, something Reagan was not enthusiastic about.
Unfortunately, things have turned around and consumption has gone up, the price of oil has gone up, and petro-dictators have been propped up. But blame Americans only indirectly. Many people in the world want to live like us and now they are - in China, India, South America, and many other places. And to live like Americans, they drive cars, air-condition their houses, and power their proliferating gadgets.
See "Hot, Flat, and Crowded" by Thomas Friedman
First, Gorbachev was no absolute dictator like Stalin. He had many constituencies to please, both hard-line and open-minded. Gorbachev knew the Soviet Union was not working, but he could not like Stalin or Mao simply declare a change of course. He had to move politically rather than autocratically.
Second, Gorbachev's predecessors had put the Soviet Union in a precarious financial position with an overabundance of subsidies. The only thing that propped up the finances of the Soviet Union was the export of oil at $70/barrel.
Then the price of oil collapsed to $10/barrel, and with it the Soviet Union.
The severe drop in the price of oil was caused by millions of consumers saving energy, something Reagan was not enthusiastic about.
Unfortunately, things have turned around and consumption has gone up, the price of oil has gone up, and petro-dictators have been propped up. But blame Americans only indirectly. Many people in the world want to live like us and now they are - in China, India, South America, and many other places. And to live like Americans, they drive cars, air-condition their houses, and power their proliferating gadgets.
See "Hot, Flat, and Crowded" by Thomas Friedman
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