Ben said:
I was speaking with someone from Exxon Mobil and apparently it costs them something like $12 to get a barrel of oil out of the ground. Not sure how much transportation and all that stuff is, but I bet it comes in a long way short of the $125+ a barrel they're flogging it for at them moment.
People just don't get it. Every time I see a hillbilly in an SUV complaining about the cost of gas and oil companies, I want to smack them in the back of the head because HE is the problem, not the oil companies. It makes as much sense to
complain about prices on ebay as it does prices for oil.
Prices for both are determined by bidders at an open auction, I can't think of better way to determine "fair market value"
It seems many people unfamiliar with the word "FUNGIBLE" think an oil company pumps it out of the ground, ships it to their own refineries, and sell it from their own gas stations, and set the price for what they think the market will bear. This is not the case, the gasoline at Chevron might be made from oil pumped by Shell. There are actually two completely separate functions:
one that explores and pulls oil out of the ground and auctions it to ANY buyer.
and another that buys it from ANY oil producer, refines it, and sells it retail.
Oil companies make deals with landowners and governments; the companies search for the oil, drill it, pump it, and ship it, and in return they get a percentage of the profit. The landowner puts up the resource, and the oil company takes all the financial risks. This oil is put up for "auction" on the global market, and prices are set by COMPETITIVE DEMAND.
Whatever that price turns out to be, the oil company gets its percentage - and this is where the oil companies are making their "windfall" profit today. They aren't putting a gun to anyones head and saying "buy a barrel at this price" - buyers, desparate for a limited supply of oil, are driving the price up to that point. The refineries in the US are some of those buyers, bidding competitevely - by the time they get the oil the price is already jacked up.
Our demand for cheap products has allowed walmart to export most of our manufacturing infrastructure to China, and the blue-collar jobs that go with it. Corporate demand for a cheap labor has allowed us to export a whole bunch of middle-class jobs to third world countries. As jobs flows into these countries, they need to build infrastructure - China has the concrete market just as tied up as the oil market. Also, the new jobs make new consumers, increasing demand for products. Even worse, as we have seen in China, cars are seen as a status symbol, and are already replacing bicycles on the road.
I saw a great stat the other day - even though the US is flooded with cars, only 10% of the people in the world own a car. What do you think will happen to demand/cost of gasoline when that number jumps to 20%? 30%? 40%? Are we still gonna be bitching about the oil companies, or are we going to recognize that we are doing it to ourselves, worldwide demand has changed, and find alternatives?
I'd have to say the rising prices are working. I have been hearing people at work comment that they are seeing less cars on the freeways. My wife said she thinks people are driving slower. Demand in the US is allegedly decreasing as we are driven to conserve. Europe was smart; with taxes making gasoline more expensive, folks have already recognized that oil is a precious commodity. I wish gasoline was taxed up to $10/gallon here, so that it will be less of shock when it gets to that price in a year or so.
-JD
Then good times will lead to lower fuel prices (conservation?).
