Where Have All the Oil ‘Speculators’ Gone?

Wall Street Journal ^ | Jan. 26, 2016 | BRAD SCHAEFFER

[thackney]

Funny how the market worked fine without government intervention to stop price 'gouging.'

With crude-oil prices scraping along at about $30 a barrel--down from about $100 in January 2014--the impact of this free fall on the global economy is still to be determined, but there is no doubt about the short-term winners: consumers. The national average for a gallon of regular gasoline has fallen to $1.85 from $3.94 in April 2012. For the typical American who drives an average 15,000 miles a year, that means an annual windfall of roughly $1,200.

One interesting aspect of this major correction is that the politicians and media commentators who a few years ago were outraged over rising gas prices, denouncing "gouging" and "speculators," are now curiously quiet. Don't expect a follow-up for the May 2011 Senate Finance Committee hearing when oil-company executives were called in and excoriated for the sin of returning a profit to shareholders. Democratic members of the committee, including Chuck Schumer of New York and Bob Menendez of New Jersey, set the tone by issuing a letter to the five CEOs who were going to testify: "We urge you to take this opportunity to publicly admit that, given your companies' prodigious profits, you no longer need taxpayer subsidies" ("subsidies," meaning incentives).

A few months later, Sen. Bernie Sanders took to the Washington Post, saying: "When working families need an end to excessive oil speculation and real relief at the gas pump, the government has failed to act."

But the usual free-market bashers aren't the only ones with egg on their faces. Fox News host Bill O'Reilly pounces on "speculators" whenever the price of gas strikes him as unreasonable--as in 2008, when he said: "Speculators gamble on credit...

[Recon Dad]

Elect Bernie Sanders and control price controls...1 year later you have a toilet paper shortage...

[Obadiah]

Proving - yet again - that Liberals are wrong nearly 100% of the time, and that the mantra of Conservatives to “drill, baby, drill” has proven dead on. Perhaps some will even recall the derision by the left of the call to drill.

[econjack]

What really pisses me off about politicians is comments you read about the “obscene profits” made by the oil companies. They give no quarter to the work and risk involved in bringing oil to market, but their average return of 9% on gross distillate fuel sales is “obscene”.

Really?

If that’s the case, then why is the average average federal and state taxes of 47.99 cents/gallon less obscene? (http://www.api.org/oil-and-natural-gas-overview/industry-economics/fuel-taxes/gasoline-tax) At an average price of $2/gallon, that works out to almost a 24% return to the gov’t, but I don’t hear anyone bitching about their “obscene” taxes.

[Nailbiter]

“What really pisses me off about politicians is comments you read about the “obscene profits” made by the oil companies.”

Yeah but those same obscene profits are taxed all to hell- never hear the politicians complaining about tax revenue flowing in off those “obscene profits”— just proves that politicians speak with forked tongues.

[redgolum]

The same place many of the farm land speculators went.

Bankruptcy court.

[thackney]

And that is just the tax collect at the gas pump.

Far more taxes are paid in the production, refining, distribution and marketing side of getting the gasoline to the pump.

[Mr Ramsbotham]

Proving - yet again - that Liberals are wrong nearly 100% of the time ....

It's the same thing with tariffs and protectionism. Just as it takes self-discipline and a reliance on factors other than intuition for a pilot to learn by fly by instruments, a reliance on free markets doesn't appear to be instinctual, even for people who style themselves conservatives.

[Obadiah]

What I always find staggering is that these same types who scream “obscene profits” made by the oil companies, absolutely revere companies like Apple. Have you seen the profit margins on Apple products?

IMO, Liberals are people who are driven by emotion and are generally incapable of rational thought and not really the brightest. (Ever noticed that most artists are also leftists?)

[econjack]

Try engaging one in a meaningful debate. It’s like watching someone show up to a hatchet fight with a squirt gun.

[central_va]

It's the same thing with tariffs and protectionism. Just as it takes self-discipline and a reliance on factors other than intuition for a pilot to learn by fly by instruments, a reliance on free markets doesn't appear to be instinctual, even for people who style themselves conservatives.

Mining and manufacturing are totally different beasts. You can't shut down an oil field in Texas and move it to China like a manufacturing facilty.

[norwaypinesavage]

It costs a million bucks, or so, to sink a vertical well. When the fuel producing layer is only a few feet thick such as in the Bakken and Eagle Ford, the odds of finding a producing well are quite low. Add a couple of million do drive a horizontal well in the layer, and the odds go up quite considerably. Add another couple million to 'frack' it, and you've likely got a winner - That is if you can sell the fuel for a decent price.

Thirty bucks a barrel is not a decent price. Nevertheless, if you have the well, you can either sell the fuel, or wait for a better price.

More importantly, though, this also puts an upper ceiling on price. When the price gets high enough, there can be a whole lot of people out there willing to drill the wells. It won't stay at $30 for long.