Posted on 01/10/2007 11:47:18 AM PST by Ernest_at_the_Beach
(Excerpt) Read more at marketwatch.com ...
Buy on the rumor. Sell on the fact.
The important thing to remember is that with a small number of producers, and several of those producers combined into a cartel, it becomes not only about supply and demand but also about game theory.
In game theory, the actions of one player is a group are based on the actions of the other players in the group. If one player takes action to achieve a certain result, and the others behave in a predictably and passively, the active player has an advantage. Through trial and error, as well as study, he can learn how to manipulate the group to his advantage.
This is what is happening with OPEC. They have been working for years to dial in their models of how to maximize the price of oil and maximize their profits. The rest of the World has responded passively and predictably, allowing OPEC to pretty much do whatever they want. The result is ever increasing prices for oil and ever increasing profits for OPEC.
But if one actor starts to act unpredictably, or in such a way as to upset the game, all those historical and empirical models go out the window, and OPEC will not be able to manipulate the market so successfully. The result will be lower prices and lower profits for OPEC.
Well, that has more to do with the formulaic way in which idiot reporters write their stories. Results are always a surprise, mothers are always heartbroken, the weather is always unusual and babies are always cute.
Oh, and President Bush is always wrong...
NYMEX crude oil 53.56
Bulk gasoline 1.4235
Gasoline is about 13 cents below what it was most of last fall.
There is no such thing as being secretive about filling the National Strategic Petroleum Reserve. And the withdraw rates are limited by the infrastructure. But biggest reason this is a bad idea is the purpose of the reserve is the US security. What happens after you dump and before you fill is Venezuela, Iran and Russia see we are very vulnerable and give us reason to remember why we created a Strategic Reserve in the first place.
The other strategy that works against a cartel is busting it up by putting pressure on the weakest member.
Right now Iran is hurting. We are putting a lot of pressure on them through sanctions resulting from their nuclear program. Their production rates are falling and their costs are rising. If the price of oil were to fall much below where it is, Iran would find itself in an untenable position.
At that point, there only option is to cut their own deals where they can, get an international partner to boost their capacity, bust their quotas and tell OPEC to go stuff themselves. This would be a very, very good thing.
Similarly with Hugo Chavez in Venezuela. His policies are driving that country into the ground. Pretty soon he is going to need massive amounts of money just to keep the machine going. If the price of oil is too low, he will not be able to make enough on his OPEC defined production quota, and will have to bust his allotment and dump on the open market to meet his day-to-day expenses. This would be an even better thing.
Nigeria is a basket-case as well. Their production facilities are falling apart as they fritter away their nation's wealth on civil war and Islamic non-sense. Eventually, if the price of oil gets low enough, they are going to have to play ball with the West and let us come in to establish order and re-build their production system. This would be the best thing of all.
Once OPEC loses control of production quotas, the whole game is up and the free market returns to the driver's seat. An overt US policy to dump on the international market in order to upset OPEC's production control can only help bring this about.
Wholesale gas closed at 1.42 today and at several stations in Dallas we are paying 1.95. All those construction projects and private jets in the hands of world leaders need cash flow, that means once again we will see countries cheating on their OPEC sales - except who cares? With ethanol now a standard in gas and lower down time listed for refineries, the prices are going down. Gulf of Mexico oil will soon reduce our need for Chavez oil and the Mexicans are going to have to find a way to let in outside investments.
Now add 18.4¢ for Federal tax and 20¢ for Texas tax. This leaves the retailer ~7.5% of his gross sales to pay all the other bills and still find a profit.
So they guy who pumps 1,000 gallons a day earns $750 in gross profit each day or 22,500 per month - not bad. He needs 66 customers a day to reach that number, now add in the car wash, beer, lotto, newspapers and hot dogs - our merchant has a good retail business. If he can get to 120 or 300 customers a day his overhead his covered by the first 66 and he makes some serious money.
drive slow
starve an Islamofascist or Marxist
I love it
97 Saturn SOHC
37 mpg
Hugo & Ahmanjihad: eat my shorts
I can see your befuddlement. Let me try this. We draw on our strategic reserves and REPLACE the higher priced imported crude. There then becomes a lot of excess supply on the world market. The higher cost of importing the crude will make this exercise a negative enterprise. There will still be world market, but not enough to support the high cost of production. A near total collapse of the petroleum market and then we begin to buy at much lower cost. Oil at $10 - $12 BBL. The European countries would be better off and they would attract all of the Muzzies in the world. They can have them.
Terrorism can no longer be supported and there is chaos in Venezuela, Iran, Saudi Arabia, and a host of annoying little countries. Remove the Petro$$ from the world economy and you have a new level of upheaval.
What I like about all of this is that Israel winds up being the only economy in the region that survives. The Islamic countries all revert to where they wish to be and that is the 16th century.
If you believe that is easy money, you should give it a try. There are 450 Gas Stations for sale in Texas. Prices range from $1,000,000 to $2,500,000.
http://www.mergernetwork.com/businesses-for-sale/113322-Up-to-Gas-Stations-for-Sale.htm
Payments for a $1.75MM, 15 year, 8% work out to about $560 a day. Plus taxes, lots of taxes.
Those stores use the gasoline islands to bring customers to the store where the other merchandise is the main business. Convenience stores do well enough to stay in business, but they have to manage the whole enterprise carefully if they are to get rich. Today's decree from Washington to raise the minimum wage will be seen to affect the prices at the convenience stores, but most of their customers will not care since they are paying for convenience and will continue to pay to save the few minutes which would be much better used in front of their home entertainment centers.
Folks need to remove head-from-rectum regarding oil price drops and gasoline retail. The relation is legitimate, but not directly, and hardly immediate.
Worst of all, the obsession hides the larger story in all this: the bubble's off crude oil prices, and it's got nothing to do with OPEC production allocations. Demand has been up, but nothing to substantiate the highest price rise. The speculators are running.
If a person choses to run a convience store and it has a 1.5 million dollar value that is a good business. I think that most convience stores and gasoline businesses are a rough slog and best managed with plenty of family involved, that is why you see so many people from the same country either Korea, Kenya etc.etc. working in a store. All that considered, I still say that pumping gas today is a profitable business for most people who are in it. As I watche the majority of operators leave a store, SAM's club etc they are not driving beat up old cars or trucks.
Sorry, but consumers are told that, when the price of gas jumps immediately on rising in the price of crude, that such reflects the stations increasing the price so the station can pay for the next batch of gas that is to arrive. However, when the price of crude drops but the price of gas stays up, we're told there is no immediate relation.
You can't have it both ways.
You wrote as if the only expense in owning a business is buying inventory of the product. In your example of quantities there would only be losses, not profits. Labor, insurance, utilities, etc, are significiant expenses.
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