What's up with oil prices?

[marrymeflyfree]

It seems every day brings a new record price for oil....it's just going up and up. Any theories as to when/if it will plateau or (yeah right) go back down? Is $111/bbl oil sustainable in our economy?

Gas was $3.13/gal the last time I filled up, I think. There was something in yesterday's memo from CO that it now costs nearly $500 per passenger in fuel alone to fly from Delhi to Newark. That's a lot of scratch! Ticket prices are going up as a result...United announced fare increases of up to $50/round trip yesterday, and the other carriers are following suit.

And yet, the oil companies are still making obscene and record-setting profits.

[kayrharris]

All the "analysts" say it's the speculators that are causing the price to go up, whatever that means. Since I don't understand the jump the shark thread or the 1957 vs 2007 thread, I'm probably not the one that should even be
answering you.

How are you BTW? I've got a small wedding coming up next weekend. My son will be getting married with a small reception at my house. We're under a tornado watch right now, so I'm hoping all the bad weather moves on out and it will be a glorious day NEXT Saturday.


(that's his 2 month old in my avatar)

[Jeemie]

It seems every day brings a new record price for oil....it's just going up and up. Any theories as to when/if it will plateau or (yeah right) go back down? Is $111/bbl oil sustainable in our economy?

Gas was $3.13/gal the last time I filled up, I think. There was something in yesterday's memo from CO that it now costs nearly $500 per passenger in fuel alone to fly from Delhi to Newark. That's a lot of scratch! Ticket prices are going up as a result...United announced fare increases of up to $50/round trip yesterday, and the other carriers are following suit.

And yet, the oil companies are still making obscene and record-setting profits.

1) Oil must be purchased in dollars. The dollar has been sliding to new lows, therefore the price of oil in dollars must go up.

2) Demand and supply are still very tight. There is some evidence demand in the US has started to go down (inventories in both crude and gasoline have been building, for example- although other organizations have measured inventory decreases, so who knows?) but demand from China and India remains high, while production has plateaued at ~85-86 million barrels a day since 2005 (leading some people to believe we are at or near Peak Oil production, so someday we may look fondly back at $100/barrel oil as cheap)

3) There is some evidence oil is being invested in as a hedge against inflation. Most notably, the price of oil relative to the price of gold (another "safe haven" in inlfationary times) has been relatively flat.

Given the time I spent on #2 relative to #'s 1 and 3, I think you can tell my personal opinion on what is the biggest driver.

[TheCalvinator24]

What makes oil company profits obscene?

You are aware that the taxes you are paying on a gallon of gasoline FAR outstrip the portion that is going into those "obscene" profits, don't you?

[tanstaafl2]

My understanding is that at least some of it is speculation done as a hedge against the weakening dollar. Supply and demand have not changed enough in the short term to warrant the continuing rise. Hopefully it will eventually resolve itself as the dollar (hopefully) stabilizes and with any luck the speculators will get caught and lose lots of money.

But what usually happens is the savvy ones who started the trend move on in plenty of time and the people who haven't done their homework and are just trying to ride the trend are the ones who end up getting burned.

[Jeemie]

My understanding is that at least some of it is speculation done as a hedge against the weakening dollar. Supply and demand have not changed enough in the short term to warrant the continuing rise. Hopefully it will eventually resolve itself as the dollar (hopefully) stabilizes and with any luck the speculators will get caught and lose lots of money.

But what usually happens is the savvy ones who started the trend move on in plenty of time and the people who haven't done their homework and are just trying to ride the trend are the ones who end up getting burned.

There's still time.

The dollar ain't rising in value any time soon. As a matter of fact, I have read the EU is going to raise interest rates while the Fed's next move will be to cut them further.

The dollar will continue to take a beating.

I personally predict $200/barrel by mid-summer.

[marrymeflyfree]

All the "analysts" say it's the speculators that are causing the price to go up, whatever that means.

I don't really understand it, either. I think it is all a big chess game, and I don't play chess.

How are you BTW? I've got a small wedding coming up next weekend. My son will be getting married with a small reception at my house. We're under a tornado watch right now, so I'm hoping all the bad weather moves on out and it will be a glorious day NEXT Saturday.
(that's his 2 month old in my avatar)

He has an adorable kiddo, there! Great smile! I'm doing well here, just getting a little bored. But only about 7-8 more weeks of boredom left to enjoy (yikes!), so I can't complain. Good luck with the wedding and the weather! Are they doing anything in particular to incorporate the little one in their ceremony? We have tentatively decided on a venue for our's (the Norwegian church in San Francisco), but have no other details set.

[marrymeflyfree]

1) Oil must be purchased in dollars. The dollar has been sliding to new lows, therefore the price of oil in dollars must go up.

Yup...did you see that the dollar fell below 100 yen for the first time in a looong time?

[marrymeflyfree]

What makes oil company profits obscene?

I think there is something obscene about companies making multi-billion dollar profits per quarter on a commodity that is so closely intertwined to our quite shaky economy. I think consumers share much of that burden, though. But it's just an armchair opinion, as I've no real mind for business and am not an economist.

You are aware that the taxes you are paying on a gallon of gasoline FAR outstrip the portion that is going into those "obscene" profits, don't you?

Yep, gas taxes are high. I heard something about gas prices going up in part because of some new tax increase the gov't just laid on the oil companies, too. Prices are up to cover the cost of the increased tax, to preserve those obscene profits.

Dunno much about that though. Anyone?

[TheCalvinator24]

I read that the per gallon profit for oil companies has increased in the past couple of years to 18¢. If that is true, then around here, where the average price of regular unleaded is $3.17, the oil companies are getting a profit margin of 5.8%.

I know the raw number sound high, but their margins are not out of line.

If you don't like the way the oil companies are operating, fine. Stop buying their products. If you do that and can convince enough other people to go along with you, you can change their ways. Otherwise, in a free-market system, they are entitled to receive the price we are willing to pay, regardless of how much profit that creates.

[marrymeflyfree]

I know the raw number sound high, but their margins are not out of line.

Well when you put it like that....it doesn't seem so bad. Maybe I'm just a sucker for a good headline, but it just feels so wrong when you hear the big numbers.

But like I said, we consumers play a big part...and it's more than just driving cars and leaving the lights on. Everything we buy has to be shipped from somewhere, and more often than not it's coming from half way around the world. Talk about inefficient! I read something the other day about Alaskan fish being shipped to China for processing, and then shipped back to the states to be sold. WTF?! There's really something wrong with the way we operate if it is really cheaper to do that than to process it here.

[wbtravis007]

I read that the per gallon profit for oil companies has increased in the past couple of years to 18¢. If that is true, then around here, where the average price of regular unleaded is $3.17, the oil companies are getting a profit margin of 5.8%.

I know the raw number sound high, but their margins are not out of line.

If you don't like the way the oil companies are operating, fine. Stop buying their products. If you do that and can convince enough other people to go along with you, you can change their ways. Otherwise, in a free-market system, they are entitled to receive the price we are willing to pay, regardless of how much profit that creates.

I'm no expert, but if you're going to calculate a percentage, you should use the price paid to the oil company, not the retail price (which in most cases is different).

I think jeemie's analysis is right on.

[TheCalvinator24]

I know the raw number sound high, but their margins are not out of line.

Well when you put it like that....it doesn't seem so bad. Maybe I'm just a sucker for a good headline, but it just feels so wrong when you hear the big numbers.

But like I said, we consumers play a big part...and it's more than just driving cars and leaving the lights on. Everything we buy has to be shipped from somewhere, and more often than not it's coming from half way around the world. Talk about inefficient! I read something the other day about Alaskan fish being shipped to China for processing, and then shipped back to the states to be sold. WTF?! There's really something wrong with the way we operate if it is really cheaper to do that than to process it here.

A few of the reasons it may be cheaper to do that are over-regulation and over-litigation.

[marrymeflyfree]

A few of the reasons it may be cheaper to do that are over-regulation and over-litigation.

Or perhaps the lack of regulation and oversight of the Chinese industry?

[TheCalvinator24]

I read that the per gallon profit for oil companies has increased in the past couple of years to 18¢. If that is true, then around here, where the average price of regular unleaded is $3.17, the oil companies are getting a profit margin of 5.8%.

I know the raw number sound high, but their margins are not out of line.

If you don't like the way the oil companies are operating, fine. Stop buying their products. If you do that and can convince enough other people to go along with you, you can change their ways. Otherwise, in a free-market system, they are entitled to receive the price we are willing to pay, regardless of how much profit that creates.

I'm no expert, but if you're going to calculate a percentage, you should use the price paid to the oil company, not the retail price (which in most cases is different).

I think jeemie's analysis is right on.

According to a friend of mine who used to own an Exxon station, he made less than 1¢ per gallon, so almost everything you pay at the pump goes to the oil company.

That makes the margin move up about 1/100th of a percent.

[ne1410s]

The oil companies are recording billions in profits. Imagine what the terrorist funders are salting away in royalties.

[wbtravis007]

I read that the per gallon profit for oil companies has increased in the past couple of years to 18¢. If that is true, then around here, where the average price of regular unleaded is $3.17, the oil companies are getting a profit margin of 5.8%.

I know the raw number sound high, but their margins are not out of line.

If you don't like the way the oil companies are operating, fine. Stop buying their products. If you do that and can convince enough other people to go along with you, you can change their ways. Otherwise, in a free-market system, they are entitled to receive the price we are willing to pay, regardless of how much profit that creates.

I'm no expert, but if you're going to calculate a percentage, you should use the price paid to the oil company, not the retail price (which in most cases is different).

I think jeemie's analysis is right on.

According to a friend of mine who used to own an Exxon station, he made less than 1¢ per gallon, so almost everything you pay at the pump goes to the oil company.

That makes the margin move up about 1/100th of a percent.

Most retailers are not buying from oil companies.