Oil

[kokings]

KO king the fact that it is costing the government money to fight the war doesnt mean its hurting the economy.  All that money is just going back into the ceonomy.  Increasing the G component is the easiest way to boost your old GDP in the short run, problem is its tough to sustain without adequate growth.

If you are speaking in a strict financial sense going to war does not help the economy in any great way.  However, war may help people feel safe.  In our case everyone remembers what life was like and the economy was like following 9/11.  Airlines took a huge hit, people were apprehensive about leaving their homes, etc.  A climate such as this has a lethal effect to an economy.  By starting this conflict in the middle east I think the government has simply moved the fighting to their territory and away from us.  Has there been any other terrorist attack inside the U.S. since 9/11?  I think this is huge and we do not realize what life and the economy would be like here if we were facing random attacks inside U.S. soil every few months.  The Bush administration gets almost no credit for this because people seem to only focus on what has gone wrong in Iraq.  And I admit a lot has gone wrong, mainly due to bad strategic planning and overall long term goals.  

Basically my point is that the government attempted to "save" the economy not by going to Iraq and getting oil or whatever, but by simply moving the conflict from America to the middle east.  These terrorist groups are now fully occupied in the middle east in trying to stop the U.S. army from completely devouring them.  

This strategic move of moving the conflict to Iraq has obviously had many negative financial consequences and costs to Americans, so any reconstruction opportunities should also be given out to American companies.

This article kind of goes over the impact of war on an economy.. read it and see if you agree with it.. I'm not saying what this article is saying is total fact.  I hate when people simply post a link to prove a point as if whatever is in that link is automatically true because it was from the NY times or the WSJ, etc.. I just add this as extra information to see if you agree/disagree with it.
http://www.cals.ncsu.edu/agcomm/writing/newsrls/10-25-02d.htm

[kokings]

How do higher average profit margins in real estate development justify the burden of rising gas prices on low income Americans?

Rising gas prices are largely a product of supply and demand.  Yet, some like to point to greedy oil companies as being the culprit and not market forces.  Comparing profit margins is useful as a way to point out that oil companies are not earning profits that are out of line with other industries and sectors of the economy.  Prices are going up because the cost of business is rising, mostly due to increased demand by developing nations particualrly India and China.

While the burden of rising gas prices on low income Americans is unfortunate, there is not much the oil companies can truely do to lower prices without forcing themselves out of business.  If you want to blame someone for the burden placed on low income Americans, blame those who do not want the U.S. to explore and exploit its own oil reserves or blame India and China for attempting to develop their economies.  Or blame the goverment that tacks an average of 46 cents tax on each gallon of gasoline.

http://www.wtrg.com/oil_graphs/oilprice1947.gif

Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically.  Oil prices in the 90s were cheap because the governments in the middle east that controlled most of the oil were orignally put in power in the Carter era (ie Iranian Revolution).  Look at the historic prices.  Save for major shocks that caused a spike in oil, prices in the 90s were comparable to prices in the 1950s!  Going to the movies cost 25 cents back then.  A coke cost a dime back then.  But oil prices are relatively the same??  Does inflation not affect oil prices?

It was the U.S. fault for putting these regimes in power in the first place.  We got cheap oil for a while, but now these regimes are causing problems around the world that we are only now starting to deal with.  The Clinton administration mostly ignored the developing problems in the middle east for nearly a decade.

The countries that control oil are increasing prices because that is what fair market value for these goods are.  It is simply catching up to everything else.  As for oil going to $100 or above or even the prices it sits at now... this is largely a psychological effect that the market is pricing into oil.  Pices are going up over concerns of what may happen in the future with these unstable oil controlling regions, not because supply is decreasing or because demand is increasing.

[allthatjazz]

Again you bring up the non-sequiter that average ENERGY company margins (this is lumping oil with solar power, wind, coal, natural gas, geo thermic, nuclear, etc) are comparable to other average industries.  That is statistic does nothing to explain the  rapid recent rises in the margins. Competition in the OIL market is nothing like competition in the domestic service, real estate, or banking industries.

I have dealt explicitly with OIL company margins, and I am not trying to explain a rapid rise in the margins for oil companies.  In fact, I would argue that the rise has not been that drastic.  Last year, Exxon-mobile reported profits that equaled a 9.8% profit margin, which is roughly where the company has traditionally been in terms of profit margin.  I am attempting to refute the claim that oil companies are greedy by pointing out that their profit margins are not obscenly greater than most other industries and are even less than some industries.  Where is the outcry over the banking industry having profit margins at twice the rate of oil companies?

I blame the US government for buying so much oil in the first place.

The problem is private consumer demand is not very elastic. The government is powering the demand shift and it still doesnt explain the higher margins which you would expect to stay even as the market adjusts.  Disturbingly, these margins seem to be growing at an alarming rate (that Denver Post article I linked says they doubled in the past year ). The obvious culprits seem to be a consumer base who do not have good information, who exhibit a largely inelastic demand, and a government who is investing in oil to fuel a war with no forseeable end.

In the grand scheme of things, do the actions of  U.S. government really have much of an impact on the world-wide price of oil?  Does the increase in fuel use by the U.S. military really have a greater impact on the world oil market than the increased demand in India and China?  I am doubtful that it does but I would be interested is seeing data to prove otherwise.

[allthatjazz]

[

Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically.  Oil prices in the 90s were cheap because the governments in the middle east that controlled most of the oil were orignally put in power in the Carter era (ie Iranian Revolution).  Look at the historic prices.  Save for major shocks that caused a spike in oil, prices in the 90s were comparable to prices in the 1950s!  Going to the movies cost 25 cents back then.  A coke cost a dime back then.  But oil prices are relatively the same??  Does inflation not affect oil prices?

It was the U.S. fault for putting these regimes in power in the first place.  We got cheap oil for a while, but now these regimes are causing problems around the world that we are only now starting to deal with.  The Clinton administration mostly ignored the developing problems in the middle east for nearly a decade.

The countries that control oil are increasing prices because that is what fair market value for these goods are.  It is simply catching up to everything else.  As for oil going to $100 or above or even the prices it sits at now... this is largely a psychological effect that the market is pricing into oil.  Pices are going up over concerns of what may happen in the future with these unstable oil controlling regions, not because supply is decreasing or because demand is increasing.

Actually that same website has an article dealing with an analysis of the history of oil prices (http://www.wtrg.com/prices.htm) that actually refutes your claim that "Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically."

If you read the article you will see how bad predictions often lead to a surplus of oil (such as with the slowdown of the exploding Asian economies during the late 90s).  Even more interesting is the following:

On March 19, 2003, just as some Venezuelan production was beginning to return, military action commenced in Iraq. Meanwhile, inventories remained low in the U.S. and other OECD countries. With an improving economy U.S. demand was increasing and Asian demand for crude oil was growing at a rapid pace. The loss of production capacity in Iraq and Venezuela combined with increased production to meet growing international demand led to the erosion of excess oil production capacity. In mid 2002, there was over 6 million barrels per day of excess production capacity, but by mid 2003 the excess was below 2 million. During much of 2004 and 2005 the spare capacity to produce oil has been under one million barrels per day. A million barrels per day is not enough spare capacity to cover an interruption of supply from almost any OPEC producer. In a world that consumes over 80 million barrels per day of petroleum products that adds a significant risk premium to crude oil price and is largely responsible for prices in excess of $40 per barrel

[kokings]

[

Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically.  Oil prices in the 90s were cheap because the governments in the middle east that controlled most of the oil were orignally put in power in the Carter era (ie Iranian Revolution).  Look at the historic prices.  Save for major shocks that caused a spike in oil, prices in the 90s were comparable to prices in the 1950s!  Going to the movies cost 25 cents back then.  A coke cost a dime back then.  But oil prices are relatively the same??  Does inflation not affect oil prices?

It was the U.S. fault for putting these regimes in power in the first place.  We got cheap oil for a while, but now these regimes are causing problems around the world that we are only now starting to deal with.  The Clinton administration mostly ignored the developing problems in the middle east for nearly a decade.

The countries that control oil are increasing prices because that is what fair market value for these goods are.  It is simply catching up to everything else.  As for oil going to $100 or above or even the prices it sits at now... this is largely a psychological effect that the market is pricing into oil.  Pices are going up over concerns of what may happen in the future with these unstable oil controlling regions, not because supply is decreasing or because demand is increasing.

Actually that same website has an article dealing with an analysis of the history of oil prices (http://www.wtrg.com/prices.htm) that actually refutes your claim that "Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically."

If you read the article you will see how bad predictions often lead to a surplus of oil (such as with the slowdown of the exploding Asian economies during the late 90s).  Even more interesting is the following:

On March 19, 2003, just as some Venezuelan production was beginning to return, military action commenced in Iraq. Meanwhile, inventories remained low in the U.S. and other OECD countries. With an improving economy U.S. demand was increasing and Asian demand for crude oil was growing at a rapid pace. The loss of production capacity in Iraq and Venezuela combined with increased production to meet growing international demand led to the erosion of excess oil production capacity. In mid 2002, there was over 6 million barrels per day of excess production capacity, but by mid 2003 the excess was below 2 million. During much of 2004 and 2005 the spare capacity to produce oil has been under one million barrels per day. A million barrels per day is not enough spare capacity to cover an interruption of supply from almost any OPEC producer. In a world that consumes over 80 million barrels per day of petroleum products that adds a significant risk premium to crude oil price and is largely responsible for prices in excess of $40 per barrel

Bad predictions leading to a surplus of oil... This means there is more oil than there was thought necessary... i.e. supply has gone up.  This brings prices down.

As far as a risk premium being responsible for high oil prices this supports my claim that high oil prices are largely psychological effects from the market.  Not a concrete decrease in supply or increase in demand.  Increasing demand in certain regions of the world does not necessarily mean there is more demand today than there was 10 years ago or 20 years ago.  These booming areas seem to rotate (today China, India are requiring more oil... in the past it was the Asian economies and Russia)

The same problems of supply/demand that are present today were present 20 years ago.  This dynamic is always changing in the short term reflecting global political issues.  In the long term oil prices should increase just like everything else.  This is why oil is $50, $60, and $70 a barrel.  Not because supply has been cut in half or because demand has doubled justifying a jump from $40 a barrel to $80 a barrel.

[allthatjazz]

Bad predictions leading to a surplus of oil... This means there is more oil than there was thought necessary... i.e. supply has gone up.  This brings prices down.

This is very true and something that the article makes very clear.

As far as a risk premium being responsible for high oil prices this supports my claim that high oil prices are largely psychological effects from the market.  Not a concrete decrease in supply or increase in demand.  Increasing demand in certain regions of the world does not necessarily mean there is more demand today than there was 10 years ago or 20 years ago.  These booming areas seem to rotate (today China, India are requiring more oil... in the past it was the Asian economies and Russia)

I agree with you to a point.  There is a psychological effect, but that comes about because the world production of oil (ie the supply) is barely ahead of the demand (by about 1 million barrels a day according to the article).  So supply and demand play a role in this psychological effect.

I still think it is not quite correct to claim that "Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically," when in fact that very thing has occurred.  Have oil prices historically been low when compared to what one would expect the true cost to be?  Most likely yes, but that does not change the fact that world production of oil is barely keeping ahead of world demand for oil, which plays a large part in the price of oil. 

[kokings]

Bad predictions leading to a surplus of oil... This means there is more oil than there was thought necessary... i.e. supply has gone up.  This brings prices down.

This is very true and something that the article makes very clear.

As far as a risk premium being responsible for high oil prices this supports my claim that high oil prices are largely psychological effects from the market.  Not a concrete decrease in supply or increase in demand.  Increasing demand in certain regions of the world does not necessarily mean there is more demand today than there was 10 years ago or 20 years ago.  These booming areas seem to rotate (today China, India are requiring more oil... in the past it was the Asian economies and Russia)

I agree with you to a point.  There is a psychological effect, but that comes about because the world production of oil (ie the supply) is barely ahead of the demand (by about 1 million barrels a day according to the article).  So supply and demand play a role in this psychological effect.

I still think it is not quite correct to claim that "Oil prices are not at $75 a barrell because supply has decreased dramatically or because demand has increased dramatically," when in fact that very thing has occurred.  Have oil prices historically been low when compared to what one would expect the true cost to be?  Most likely yes, but that does not change the fact that world production of oil is barely keeping ahead of world demand for oil, which plays a large part in the price of oil. 

http://www.azgs.state.az.us/Winter2001.htm

Global reserves are actually going up rather than decreasing.  We are discovering more and more reserves each one of which balances out our increasing use of oil over time.  Then you factor in the very high chance that our dependence on oil will decrease in the long term with the use of alternative energy sources.  The reserves that you were citing from that article reflect the reserves available to us because of government policies.  These policies change in the short term and so does the level of reserves.  The important number is the actual amount of oil reserves globally, not what is made available by government who change their production capacity for political reasons.  The market speculates on these moves ahead of time and thus pushes up the price of oil in times of crisis.  When you say supply is barely ahead of demand this is because countries like Venezuela may change their oil production in the short term, not because there is barely more oil in the world to keep up with demand.  In the end I think current high oil prices are mostly due to foreign countries adjusting oil to reflect what it is actually worth just like everything else and also the recent spike is also been aided by the market pushing prices up due to speculative trading.

[kokings]

In the early 70s the shah of iran tried to increase oil prices because he felt his country's commodity should be able to treated just like everything else.  The price of automobiles, factory production, etc. had all increased dramatically in the decades leading up to the 70s.  When he tried to make oil more expensive, U.S. government removed him from power and placed the Islamic mullah's in power.  The other middle eastern powers also went along with low oil prices because they saw that their fate would be the same as the shah's if they tried to charge more for oil.  In exchange for power the new Islamic government agreed to keep oil prices low... at least for a while... until today where we see all the problems that have been brewing for the last 2 decades are now being dealt with all at once 20 years later. 

Today's Middle Eastern government's are now returning to their policies of returning oil prices to "true value" now that their power is being threatened.

[allthatjazz]

Global reserves are actually going up rather than decreasing.  We are discovering more and more reserves each one of which balances out our increasing use of oil over time.  Then you factor in the very high chance that our dependence on oil will decrease in the long term with the use of alternative energy sources.  The reserves that you were citing from that article reflect the reserves available to us because of government policies.  These policies change in the short term and so does the level of reserves.  The important number is the actual amount of oil reserves globally, not what is made available by government who change their production capacity for political reasons.  The market speculates on these moves ahead of time and thus pushes up the price of oil in times of crisis.  When you say supply is barely ahead of demand this is because countries like Venezuela may change their oil production in the short term, not because there is barely more oil in the world to keep up with demand.  In the end I think current high oil prices are mostly due to foreign countries adjusting oil to reflect what it is actually worth just like everything else and also the recent spike is also been aided by the market pushing prices up due to speculative trading.

I think you might be confused over my use of supply.  I have never meant supply to mean proven oil reserves, and I would actually agree that the world's proven oil reserves have been increasing.  However, I do not think that proven oil resevres and their increase have very much to do with the actual price of oil, especially since the world does not appear to be in danger of running out of oil in the near future.

I used supply as meaning the current production of oil or the available supply.  This I believe is near capacity and until more production is brought online, either domestically or abroad, the production of oil will remain at or near the actual demand.  This fact, when combined with the current instability and political/social circumstances in many oil exporting countries, will keep the price of oil high.

[->Soon]

congress needs to get its act together and start mandating alternative energy souces TODAY...  we are way too vulnerable.

 Closed Alaska oil field could hike prices
Corrosion, small spill leads to loss of 400,000 barrels a day

Monday, August 7, 2006; Posted: 5:19 a.m. EDT (09:19 GMT)
ANCHORAGE, Alaska (AP) -- In a sudden blow to the United States' oil supply, half the production on Alaska's North Slope was being shut down after BP Exploration Alaska, Inc. discovered severe corrosion in a Prudhoe Bay oil transit line.

BP officials said Sunday they did not know how long the Prudhoe Bay field would be off line. "I don't even know how long it's going to take to shut it down," said Tom Williams, BP's senior tax and royalty counsel.

Once the field is shut down, in a process expected to take days, BP said oil production will be reduced by 400,000 barrels a day. That is close to 8 percent of U.S. oil production as of May 2006 or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.

The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming both from the hurricane season and instability in the Middle East.

"We regret that it is necessary to take this action and we apologize to the nation and the State of Alaska for the adverse impacts it will cause," BP America Chairman and President Bob Malone said in a statement.

A 400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

"Oil prices could increase by as much as $10 per barrel given the current environment," Emori said. "But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced."

Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal.

"The U.S. market is actually well-supplied; crude inventories are very high," he said. "So while this won't have any immediate impact on U.S. supplies, the market is in very high anxiety. So any significant disruption, traders will take that into account, even though there is no threat of a supply shortage."

Light, sweet crude for September delivery was up 36 cents to $74.95 a barrel in midmorning Asian electronic trading on the New York Mercantile Exchange.

Malone said the field will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

Officials at BP, a unit of the London-based company BP PLC, learned Friday that data from an internal sensing device found 16 anomalies in 12 locations in an oil transit line on the eastern side of the field. Follow-up inspections found "corrosion-related wall thinning appeared to exceed BP criteria for continued operation," the company said in a release.

Steve Marshall, president of BP Exploration Alaska, Inc., said at an Anchorage news conference that testing in the 16 areas found losses in wall thickness of between 70 and 81 percent. Repair or replacement is required if there is over an 80 percent loss.

"The results were absolutely unexpected," he said.

Marshall said Sunday night that the eastern side of Prudhoe Bay would be shut down first, an operation anticipated to take 24 to 36 hours. The company will then move to shut down the west side, a move that could close more than 1,000 Prudhoe Bay wells.

Marshall said BP is looking at repairing, bypassing or totally replacing the line.

Only one of BP's three transit lines is operating. The third was shut down in March after up to 267,000 gallons, or more than 1 million liters, of oil spilled. BP installed a bypass on that line in April with plans to replace the pipe.

While they suspect corrosion in both damaged lines, they can't say for sure until further tests are complete. Corrosion is primarily caused by carbon dioxide that comes up with water, oil and gas during drilling.

BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images.

"Up until Friday of this weekend we were of the opinion the techniques we were using were ultimately reliable," Marshall said.

Workers also found a small spill, estimated to be about four to five barrels. The spill has been contained and clean up efforts are under way, BP said.

"Our production while all this is in place is going to be marginal," said Will Vandergriff, spokesman for Gov. Frank Murkowski. "That presents some technical problems because it's a high capacity line and it's meant to be filled."

Vandergriff said he did not know exactly what potential problems a sudden drop in oil flow might cause the pipeline. Alyeska Pipeline Co. officials could not immediately be reached for comment.

BP said it was sending additional resources from across the state and North America to hasten the inspection of the remaining transit lines. About 40 percent of the lines have been inspected.

BP previously said it would replace a three-mile (five-kilometer) segment of pipeline following inspections conducted after up to 267,000 gallons (more than 1 million liters) of oil spilled onto the frozen ground about 250 miles (400 kilometers) above the Arctic Circle in March.

House Speaker John Harris said it was admirable that BP took immediate action, although it's sure to hurt state coffers.

"This state cannot afford to have another Exxon Valdez," said Harris.

The Exxon Valdez tanker emptied 11 million gallons (42 million liters) of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1,200 miles (1,900 kilometers) of rocky beach in nation's largest oil spill.