Oil and "Free-Market"
The recent investigation by the Now team has shown the problem with the free market economy with a commodity that is a necessity. The spike in the cost of gas (to which in principle I'm not opposed) seems to have been caused by anticompetitive behavior by the industry. This is nothing new, but this is something people care about. It is a powerful political issue and could cause a real reform of the corporate laws. Or Washington will continue to look the other way and give them subsidies, but hopefully the public profit statements will not allow for that.
posted by Eddie | 11:27 AM
7 Comments:
The price of oil could very well decline without there being a corresponding decrease in the price of gasoline because North America suffers from a lack of refining capacity. There is plenty of oil in this world, what we're starting to feel is the beginning of the end of cheap oil. If people want cheaper gas, they should decrease their demand or increase the supply. Decreased demand = conservation. Increased supply = produce more gasoline. The problem is that between Canada and the United States there is NO excess production capacity. Refineries have been running at full tilt for the last three years. And furthermore, no new refiners have been built in 25 years because of the extreme costs, red tape and NIMBY syndrome. Oil has being kept artificially low for too long and something has finaaly giving.
As an additional point, if you're a heavy consumer of oil or gas, and think that the market is going to push the price higher, why not invest in the market? Buy some call options and share in the profit, it sure beats whinning about it.
And also.....
http://www.fff.org/comment/com0510i.asp
Nonsense. The page you linked shows no evidence of "anti-competitive" behaviour. It just talks about a congressional inquiry looking for such behaviour. If they found something then why aren't they mentioning it?
Even their own sources show that the price of oil in the US has varied in the same way as prices in other countries. Make a graph of the following data:
http://www.eia.doe.gov/emeu/international/Gas0.xls
For example, the price in the US is usually between the prices in the UK and Holland. It only increased slightly past the levels in Holland starting in September of this year, when the hurricanes damaged American refineries.
This is a perfect example of how you'll find a conspiracy anywhere, no matter how obvious the true explanation is.
Unfortunatly the video for this one won't be up for two weeks. The whole arguement you made (Kurt) was correct and backed up in the piece. The twist was that it was the oil industry that stopped the refining. They have bought refineries so they can shut them down and more (see piece). They also found the oil companies exporting/dumping oil to Canada, Mexico and some central American countires to keep the supply low. See for instance Sen. Wyden's page, especially this. If it was the guy at the gas station who was making the profit I wouldn't complain (I did tech work for an accounting firm and they really don't make much), but you can't deny the record profits of the oil giants. In itself I don't mind (although I am kicking myself that I should have invested last year as I thought, but now I'm nervious), but a free market can't tolerate these practices, even if it helps our air quality.
From a personal view, I still think crude oil is still cheap. But that's besides the point. There is no supply issue problem on the oil side, its on the refining side represents the bottleneck. And it is true that refineries have been closed. But do you know how old some of these plants are? They have a certain lifespan. I remember talking to one of the engineers on the last job I was at and he told me that he has seen drawings for a vessel from the 1920's that is still in use at one of the refineries in Montreal. And that's why it's a problem that no new refineries have been built in 25 years. I understand that Alberta and Michigan (and probably others) are currently looking into cutting some red tape to entice a major or independent into building a refinery. It represents a golden business opportunity, money in the bank (even though margins are thin). But at the same time it represents a huge headache with all the governement regulations and hoop jumping. A new refinery would easily cost three billion dollars and years of plaining to build, so we wouldn't see the benefits for a long time. Unleash the power of the free market by getting rid of government intervention in the economy and the problem will take care of it itself. Natural Gas prices are at an all time high, but has that made it any easier to get the Mackenzie Valley Pipeline built? 30 years on and still no pipe has been laid; the odds are against major oil and gas infrastructure developement in North America.
Concerning Wyden's points, I can only speculate as to the closings. Like I've said, there is tons of oil on this planet, but what kinds? For refining purposes you want light oil (ie: West Texas Intermediate), as it is easy to refine and a less intensive process. But this oil is more expensive and harder to come by and hence is harder to turn a profit on. Where the money is to be made is in the refining of heavier crudes (ie: Imperial Bow River) which are about twenty dollars cheaper per barrel. This represents a better profit margin but at the same time is harder to do as the oil has higher viscosity and higher sulfur. A lot of refineries can't refine this kind of oil without violating current environmental emissions standards. When Saudi Arabia talks of increasing supply, it's only heavy oil. So the choices facing a company would be to cuntinue refining the expensive stuff at little profit or invest in costly upgrades to the plant or shut it down. Say you wanted to invest in a refiner, not all are created equal. You'd want to pick one who has the ability to process heavy oil as they will be more profitable.
One reason that oil companies are making fistfuls of money today is because they lived through a mean twenty years of falling prices. The companies that are left are efficient and lean operations. They face a huge problem with this new bull market in commodities because one of the ways they survived was to cut exploration and developement during the last cyclical bear. They have a hard time replacing what they are taking out of the ground these days. It's one of the reasons why Barrick is buying Placer Dome and it's the new reality. There are two billion people in India and China that are increasing their standard of living at a phenomenal rate, and we must now compete with them for an ever shrinking pool of resources or suffer a reduction in our living standards. This is one of the benefits of globalization in that it raises the world's living standards but at the same time it has the negative consequence of us having to compete with them for scarce resources. Most natural resources are at or are near all time highs, but you don't hear of any senators complaining about how uranium prices have tripled in the last two years. The party is over boys and girls!
Again, I'm happy about the oil prices! It's still cheaper than milk or orange juice! But when you can see the piece you'll see a high profile case of Pat Robertson (I shudder at that name) giving a press conference in 2001 when he tried to build a new refinery and the financing bank pulled out after a threat from one of the oil companies. Being a man with his own TV network it was aired and so there is public record.
Seems spammers are getting more imaginative every day.
Oh man! You are getting hammered!!!
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