Posted on 05/28/2008 5:52:17 AM PDT by MichaelP
As long as people are doing things like going on vacation, or going out to eat, or buying presents, or other activities that are optional spending, gas isn’t high enough to fuel and fuel-related companies. They will keep raising prices until people really squeal and sacrifice things because they have a product that people need, not just want, and capitalism allows them to charge the moon and stars for needs. These series of events are pretty reasonable.
Don't you just love this kind of "reporting".
“In recent months, refiners have cut back their production to match drops in consumer demand and prevent retail prices from dropping.”
Actually, producers of goods often reduce their production when demand falls.
The fact is that the cost of gasoline didn’t rise as fast as the cost of oil. Refiners’ margins have been squeezed, and reducing production is the logical step in such an environment.
Can someone help me out here regarding speculation. I am assuming that they are talking about commodities trading which I thought actually had the effect of stabilizing the market. Plus commodities is a zero net sum game, so for every 60% winner there is a 60% loser. I do not see how this actually drives the price of the market it just smoothes it. Right?
Bringing down prices is not their goal at all. They simply want to control the oil industry.
Here’s another way of thinking about it.
Let’s say you are making wood furniture and the wood for a table costs you $400 per table and you charge $600 for a complete table.
Now wood increases in cost to $1200 a table (because of other outside demands for the wood) and you charge $1400 for a completed table. The demand for tables then goes down.
Are you going to keep making just as many tables and cut your price per table, carrying an ever increasing inventory cost on the wood and labor? OR are you going to cut production and keep asking for a reasonable profit on the tables that you do make?
That is the relationship of U.S. gasoline prices and production to world oil supply and demand.
Steps up to do what? Beyond opening up drilling and allowing nuke plants there is nothing they can do to make things better. See my #5 if you don't understand the industry.
Yep...the minute I read that one sentence, I knew we were dealing with a very ‘partisan’ group of the Marxist kind....LOL
Another “nonpartisan” opinion. Sure, and if you believe that, you may also think that oil companies don’t have to compete for customers. Look, demand is still relatively high, and high-priced inventory has yet to be cleared from the refineries. The price has not dropped all that much yet, but will come down this summer, in spite of the alarmists’ claims. The spot market price for crude as of two minutes ago was $127.09/bbl.
Assuming this article is correct (and I have serious doubts about this “Consumer Watchdog” group) what other industry would be expected to respond to reduced demand by increasing supply?
Gas price normally lags oil price....refiners margins are tight now...when oil goes down...gas won’t come down as fast as oil..as least for a while....
No seller in a competitive environment (even in oligopolies) will REFUSE TO SELL when prices are low, let alone when prices are high. If you are a refiner of gasoline, how much money do you make on those gallons you don't sell? If your competition decides to sell to this particular customer that you refuse to sell to, don't you lose market share, if not the customer altogether? Something is just plain wrong with the statement from the article I excerpted. Is there only one refining company selling gasoline to retailers? I don't think so. You could sell ALL of your production with just a slight drop in your selling price, this is the way markets work.
Maybe someone who understands the oil market better than I do could enlighten me as to how the statement could be true.
One salesman sales 10,000,00. His take home is $1,000.00 (before taxes)
The other sales 100,000.00. His take him is $10,000.00.
There is a big difference in profits there. I know the profit margin is the same. Volume determines how much they make. Why everyone is so upset is because Energy effects not only the demand of Energy, but ALL other markets if the price holds. Therefore, people lose their purchasing power. Thus, you lower your standard of living.
I agree we need to drill in AMWAR, off both coast, and in the States. Furthermore, we need to build more Refineries, Nuclear plants and coal plants. I am OK with alternative sources. Let the market dictate if they come in or nor. However, this will take some in time. In the mean time since demand is so high. We risk the destruction of our economy. For instance, the Airline industries and the Car industries. I do not see these companies folding, but leaving for a better place to do business. So what we end up with is loss of jobs, inflation, and a shrinking economy. Of course OPEC is threatening to switch to the EURO from the dollar since it keeps falling over time. If this happens, and China begins to see our T-Bonds, then we are in big trouble since China owns almost half all the outstanding T-Bonds.
Opinion:
and prevent retail prices from dropping.
The latter is just nonsense, as pointed out. You don't produce what you can't sell (unless you're stupid), and you don't sell a nonparishable commodity for less than you have in it, unless you fear getting stuck with it in a falling market.
Again, the lower limit on the price of gasoline is determined by set costs, which are currently above $3.50 gallon. Additional pricing pressure can push the price higher if supply of gasoline is short, but even an excess of gasoline will not drop the price per gallon below the lower limit determined by oil.
ExxonMobil made 10%. Last year ConocoPhillips made 6.1%. The recent average for the industry is 8.3%.
The Truth About Oil and Gasoline: An API Primer
http://www.energytomorrow.org/energy_issues/truth_about_oil_gasoline_primer.pdf
2007 Earnings by Industry, page 11.
We still will use the same amount of oil regardless of how many different companies sell it. Would it make you feel better if a huge company like ExxonMobil was broken up into 5 companies, dividing the number of stock holders 5 ways? The numbers wouldn't change, we would still pay the same prices but it wouldn't make as big headlines.
Of course those headlines are selective. They don't report that ExxonMobil paid over $100 billion in taxes last year or the record amount of money spent on exploration and capital investment in new infrastructure. Those large expenditures investing for the future are the reason the profit margin stays below 10% when prices have tripled or more. But that doesn't make the headlines in the lamestream media.
Oh and of course they spend money on exploration and capital investment in new infrastructure. Just about every business does that. However, that does not automatically translate to lower prices at the pump.
Your right about the lame stream media.
Energy independence is a bad idea. We will never be energy independent unless we want to pay much higher prices for energy than the rest of the world. We need diversified and reliable energy sources. We obviously should utilize energy sources that we have.
I do not expect any magical substitutes for oil in the short or longer term. We will probably see substitutes emerge to replace oil in selected situations. We will need oil for a long time.
The rats want to nationalize the energy industry. The windfall profits tax is just nationalization of the industry. The rats do not want investments in the oil industry. The rats do not care about the profit level. They just want to direct the investments.
The market will find substitutes in due time. A national crusade against oil is counter productive. Government control of the energy industry will lead to boondoggles like corn-based ethanol. We need less government intrusion, not more intrusion. The rats want massive government intervention in the energy industry. The results will likely be disasterous.
Not investing in future production will definitely raise prices in the future. We are living with the results of the low prices of the late 1990s.
Which is why taxes are a bigger reason for our current high prices than profits. When you count all the taxes applied from well to the retail gasoline pump, government is more than double the cost of company profits.
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