What Has Changed In Oil?

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kite

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can anyone explain to me how the price of gasoline/petrol went from $4.15+ down to nearly $3.70 in a month or why the price went from $1.43 in july of 2002 to where it is now?
 
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Apparently, we've pass our "Peak Oil" point.

It was so cheap before because our supply could easily meet our demand. We had enough reserves to last. Now we've past this point, our demand is increasing but our supply is decreasing. We can't produce gas at such a rate that it meets the demand, hence it drives the price up.

Then again, I'm no expert on economics. It's just something I've heard in passing.
 

kite

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that would make since if production hadn't changed or if they couldn't produce more. they can, but then that would make prices drop. china has come into play, but america is still the largest user of oil in the world so it doesn't make sense to me.
 

Darkfinn

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Long story short... it's all about speculation and the value of the US dollar.

You see... oil is traded on the international market as a commodity... and the only currency that oil is traded in is US dollars. When the idiots on capitol hill started spending billions and billions on this stupid war they started racking up a defecit... spending in the red in other words. To gain the necessary capital to continue operations and try to stimulate the economy (b/c of the home mortgage market failure) the US govt borrowed money from many other nations around the world. This defecit spending has massively devalued the dollar on the international market.

When investors see the dollar falling they start putting their money somewhere else... typically in commodities like oil and metals like gold, silver, & copper (which is going for a shitload right now). This mad rush to put money into oil... coupled with a slight decrease in production... is what lead to the price spiraling out of control.

After some period in time... the investors are finally beginning to see that by jacking up the price of oil they are actually crippling the economy's ability to recover and are making things worse for themselves in the long run... because the high price of oil has now made it harder for other countries (in europe) to buy oil for themselves... and it is hurting their economy too.

I could go on and on about it... but that's pretty much it in a nutshell.

What we (the US Govt) should learn from this is that a stricter stance needs to be taken on the ability of companies to speculate on the prices of items that are key to the survival of the American nation. For far too long the feds have taken a hands-off approach to governing what businesses can and cannot do... which has let things get out of control.
 

DLGrif

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Very thorough analysis, and it's consistent with what I learned in macro.
 

kite

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well that explains it. i wonder who's making the money in congress off of this. whoever did this played it well because they must have known, in turn, that the biggest user and purchaser of oil (no, not hummers) is the department of defense. makes you think...
 

Darkfinn

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I can name you the 3 top dogs.

GWB, Dick Cheney, & Condolezza Rice (Rice actually has an oil tanker named after her). They are all lining their pockets with profits from these oil contracts. Bush Sr & McCain are also in on this as well... and have been for some time.

If you really read into it... the whole "war on terror" is nothing but an oil grab that has been planned and plotted since the Reagan administration back in the 1980's. We gave weapons to the Iranians, Iraqis, and Afghans long long ago... in a deliberate move to destabalize the region and give us a legitimate excuse to go over there and "settle things down".

The only thing I'm not sure about is whether or not Bush was in on the attacks of 9/11. It wouldn't suprise me to hear that he was.
 

Peachy

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Speculation! Everyone believed the oil prices would go up, so it turned into what economists call a "self fulfilling prophecy". Many people trade on the stock market like that, and more and more people took an interest in speculating on rising oil prices.
ANd there's the danger: The price for oil on the market had no relation to the actual supply and demand - it was overinflated. The market was waiting for a signal that the price ralley would stop, and I can think of three signals in the past weeks:
- China raised gas prices by like 25 percent (they're government controlled), thus lowering demand
- the growth of the Euro-zone economies is slowing down#
- American car manufacturers are on the verge of bankruptcy because more and more people are interested in small and fuel efficient cars - something they don't offer.

Combine all those news and it's not hard to figure out that aggregate demand for oil is about to fall, or at least won't go up soon. That was the final blow to the bubble, and once you poke a small hole into it, all the air rushes out. Why? Because people put stop-loss limits on their speculation - i.e. they'll pull out of the market once the price has fallen to a certain point. So when the price fell below $140 a barrel, people kept selling, creating an excess supply in oil markets, which made the prices fall even more.
In essence, the price for crude oil fell from $149 (I think) to $112 (yesterday) within weeks. That's going to show at the fuel pump eventually!

Peachy
 

Darkfinn

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Let me further clarify the speculation game in terms of something we can all understand... diapers.

You have $10 today... and right now that $10 will buy you 10 diapers on the international market. That's fine and dandy... you've got enough diapers for now, so you keep your cash. But suddenly you hear news that tomorrow your $10 will only buy you 8 diapers... you'd better buy now if you want a good deal. You go ahead and buy those 10 diapers now.

So now you've got diapers... and there are other AB/DLs out there who are willing to trade you goods such as pacis and bottles for your diapers. Let's say they trade you one paci for those 10 diapers that you just bought. So now you've got a paci... which you turn around and sell for $15. Bam... you just made $5 by trading commodities.

Your buddy Joe over there didn't buy the diapers before the price went up... so now he can only get 8 diapers. From what he's heard his $10 will only buy him 5 diapers next week instead of 8 now... so he decided to buy the 8 diapers for $10. But you've heard the same news... and also want those 8 diapers. But since you have $15 instead of 10... you tell the diaper supplier that you can pay him more for the diapers than Joe can. So naturally your supplier takes the higher offer.

Since diapers are still worth the same amount on the open market... you can trade your new diapers for other things you need just like you could when you got 10 for $10. So it's a safe investment.

Now imagine this same situation happening millions of times a day on a global scale. It starts a bidding war b/c everyone is afraid that at some point down the line they won't be able to buy the things they need with the money they currently have.

That is how commodity speculation jacks prices up.

The way to reverse the trend is simple... stop buying diapers. Eventually your supplier will have a surplus and will lower his price back to what it originally was. The problem with that is... some people are incontinent... and need diapers to get by on a daily basis... so they have to keep shelling out more and more money to get what they need to survive. Now people are giving up their lunch money and falling behind on their bills because they have to buy diapers (unrealistic I know, but you get the idea). Thus is the danger of speculation on the price of an item that people need to survive and function properly.
 

ballucanb

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I can some that up in a few words, Big Oil put GW in office to do just what he did, make billions for them, and to sum that up in one word GREED.
 

Darkfinn

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I can some that up in a few words, Big Oil put GW in office to do just what he did, make billions for them, and to sum that up in one word GREED.
AMEN! :thumbsup:

My only hope is that the current consumer trend towards fuel efficient vehicles and alternative fuels lasts long enough to bring the oil companies to their knees. The power to spend (or not to) is really the only hold-out that the American public has left. I find it sad that gas prices had to top $4/gal to get all these sherman-tank suburban gas-hog SUV driving clowns to wake up and realise that they don't need something that big to putt around town in. If the trend causes the "Big 3" in Detroit to go under... so be it... they knew a gas crunch was coming, yet they continued to only build monsterous vechiles with V8s. It is no fault but their own if the consumer suddenly finds their products distasteful.
 

dogboy

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I heard on the news today that Americans drove 12.5 billion miles less this June than last June. That kind of reduction has really helped to drop the price of oil, though I do agree that it's all one big racket being controlled by the oil speculators. I can't wait until Chevy comes out with the Volt, a plug in car that recharges its battery with a tiny motor that gets over 100 mph. Take that oil cartel!
 

kite

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chevy did have another one called the EV1 that they recalled or reclaimed. also, upon these electric cars, why do they cost an equivalent of (and i'm assuming here) $1.20 per gas/petrol gallon while gasoline is soo high? wouldn't this whole price speculation be stopped at some point or be called by it's real name, price gouging? i know i may not be well informed in all areas, but i thought price gouging is illegal.
 

Nam Repaid

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Big oil did not cause this speculators, poker playing investors, did. Big oil's excess profits were a side effect. Many are complaining that they are buying back their own stock with the windfall but that’s how they have to protect themselves from the speculators.

To the question, the government is threatening to limit speculation in commodities like oil to those who can take delivery so the investors trying to make a fortune off our misery are falling over themselves to sell before its too late.

The cheapest oil costs $4 a barrel to produce and the most expensive $50. Oil shouldn't be trading much over $50!

Nam
 

kite

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how can investors make opec, or even oil producing companies, come out, make a statement that makes the price of oil jump? so where does the price gouging begin: producers or investors?
 

ballucanb

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The price gougeing starts at the top, and that gives a licence, to the people down the bottom, to add on there cut.

Why can gas be 3.49 a hundred miles away, and here in my area 3.70 on the same day, the only transportation on gas is from the pipe line end, to your local station, and around here it's about 20 miles by truck, and I'll bet it's about the same where you live.

Every drop of gas, and heating oil, comes thru the same pipe line it just routed to your area, and trucked to the stations.
 

kite

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prices also change due to the rent that local gas station owners pay.
 

MysteriousVisitor

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The long term increases are from massive new demand in India and China. Supply has remained pretty much steady, but demand has just skyrocketed in those areas.

Those short term spikes are speculators. Every little ripple is focused by speculators into 20 cent overnight jumps. It is very irritating. One of the reasons I bought (and use!) a bike :cool:
 

Nam Repaid

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how can investors make opec, or even oil producing companies, come out, make a statement that makes the price of oil jump? so where does the price gouging begin: producers or investors?

??? I don't quite get the statement question. Gouging is usually a local thing when one or several local stations rase their prices over a reasonable mark-up. The price of oil shares like any stock goes up a little whenever someone buys some. When lots of speculators buy all a once on news like "possable hurricane in the gulf" or "oil prices expected to rise more" it goes nuts. Most of the money goes to the guys who sell before the others realise the price is dropping not the people who actually handle the oil.
Internet trading and the media have screwed up Wall Street and its gonna be a long time before it settels out.

Nam
 
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