So Why Is Gas So Expensive?

[yesdachi]

It is BS to have the government try and regulate the amount of anything being bought or sold by raising taxes. Let the rules of capitalism apply, unless the gov is going to subsidize or take over ownership. The free market will right itself given some time and reduced governmental interference (something our gov on all levels is poor at).

I did some quick math, if there are 5 million drivers (10mm total population) in MI and each would pay an additional 20$ a month that is 1.2 billion in extra cash per year right? I would actually be ok with that tax increase if it meant that the next year we used that money on a alternate fuel source to reduce my gas bill by 20$ per month. But I am afraid it is more likely that arenas across the state would have newly repaved parking lots and I would still be paying extra taxes on gas so I can drive to work to pay more taxes.

[Hosakawa Tito]

What some people seem to not realize is that the rising costs of fuel affects every single aspect of a consumer's budget. All consumer goods, necessities & luxuries, are transported, most by truck somewhere along the chain. So it's just not that extra $20-30 to gas up the car; the cost for everything you buy also rises. Meanwhile wages for most have either stagnated or lost buying power.

[atheotes]

What some people seem to not realize is that the rising costs of fuel affects every single aspect of a consumer's budget. All consumer goods, necessities & luxuries, are transported, most by truck somewhere along the chain. So it's just not that extra $20-30 to gas up the car; the cost for everything you buy also rises. Meanwhile wages for most have either stagnated or lost buying power.

Exactly... a lot of people i come across ignore this aspect when it comes to fuel prices... and see increasing fuel prices as a separate issue limited to how much fuel they use

[Sigurd]

The oil price is sinking.
From a $147 USD high to a $123 USD low in July.

This should have an effect on the petrol prices. About 60 cent pr gallon difference when just considering the difference in oil prices. The added percentages on taxes, transport and refinement should lower the consumer price further.

[seireikhaan]

The oil price is sinking.
From a $147 USD high to a $123 USD low in July.

This should have an effect on the petrol prices. About 60 cent pr gallon difference when just considering the difference in oil prices. The added percentages on taxes, transport and refinement should lower the consumer price further.

Should, being the key word. I'm not really holding my breath.

[TevashSzat]

Should, being the key word. I'm not really holding my breath.

Actually, I think gas prices around where I live are getting a little bit cheaper lately

[drone]

I say $3.97 a gallon today, so it is dropping. Down about 10 cents from last week. Lacking any Gulf hurricanes or anti-Iranian sabre-rattling, we may see it go further.

[PBI]

BP profits increased due to high oil prices

I must say, this aspect of the high oil price has been bugging me for a while; if the price is driven by the restricted supply of oil, and thus the increase in what we pay is simply the oil company passing on to us the higher cost of obtaining the oil, why do the oil company profits go up?

This article seems to shed a little light on it, for me at least: To my admittedly rather uneducated reading, the article seems to suggest that the profits are due to the potential for the company to discover new reserves of oil increasing in value due to the restricted supply. The profits from the company actually selling petrol to people are down, which is what I would have expected if the price rise is caused by increased costs.

Perhaps someone with a bit more knowledge of economics and business could tell me whether this is anywhere close to being correct, or should I simply default to my standard pinko lefty position that it is all caused simply by the oil companies trying to screw us over and make a quick buck?

[macsen rufus]

$123 USD low in July

Whoop-di-whoop -- anyone remember 1998? $10 a barrel - we're still looking at approx 1200% nett crude oil inflation over ten years. $20 short-term fluctations are chicken-feed nowadays. I'll eat my hat if it goes under $100....

Question is why are so many major oil companies putting more cash into buying back their own stock rather than exploration / refineries / tankers?

In the 1980s world crude production capacity exceeded consumption by 15%, the margin is now closer to 2%, and despite dramatic demand destruction in the USA in recent weeks, Asian demand is still on the up. In India Tata motors have just announced their $2,500 "people's car", and are looking to produce around 1 million per year. That will ramp up the demand side again.

Previous "spikes" have seen producers open up the taps when the pain was far less than it is now. Is Saudi really refusing to increase production, or does an apparent refusal involve less loss-of-face (very important in Arab societies) than admitting to an inability?

@ PBI, well your standard pinko lefty position still holds water, even if it's not the whole story .

[Xiahou]

Question is why are so many major oil companies putting more cash into buying back their own stock rather than exploration / refineries / tankers?

Because it's a better investment than exploration. Exploration is extremely limited in the US and in other countries where drilling is permitted, they risk having invested billions only to have these countries seize their equipment/investment and screw the company out of their share.

That's not even mentioning the normal facts of the business such as most test wells cost millions and usually don't pan out.

The oil price is sinking.
From a $147 USD high to a $123 USD low in July.

This should have an effect on the petrol prices. About 60 cent pr gallon difference when just considering the difference in oil prices. The added percentages on taxes, transport and refinement should lower the consumer price further.

The reason we won't see a 60 cent drop in gasoline prices to correspond to that drop in oil prices is because gasoline prices didn't increase by the corresponding 60 cents per gallon when oil prices jumped either. Stations cut into their margins instead of raising prices by the entire 60 cents. Prices are dropping now, but it won't exactly fit oil prices.

[Spartan198]

The reason we won't see a 60 cent drop in gasoline prices to correspond to that drop in oil prices is because gasoline prices didn't increase by the corresponding 60 cents per gallon when oil prices jumped either. Stations cut into their margins instead of raising prices by the entire 60 cents. Prices are dropping now, but it won't exactly fit oil prices.

Well, all I know is that once I started reading of those drops in oil prices a week or so ago, gas in my surrounding area has dropped 71 cents.

10 days ago: Cheapest $4.80 per gallon
Yesterday at the pump: Cheapest $4.09 per gallon

[Crazed Rabbit]

I must say, this aspect of the high oil price has been bugging me for a while; if the price is driven by the restricted supply of oil, and thus the increase in what we pay is simply the oil company passing on to us the higher cost of obtaining the oil, why do the oil company profits go up?

The cost of getting oil from proven reserves hasn't increased much. The rise in prices is driven by increased demand and instability, not by vastly increased costs of getting ANS crude out of the ground (for example).

So the companies can get the oil out, and thanks to other factors it's now worth more. Of significant note is how the refining and marketing bit of BP is, in America at least, not doing so well.

Perhaps someone with a bit more knowledge of economics and business could tell me whether this is anywhere close to being correct, or should I simply default to my standard pinko lefty position that it is all caused simply by the oil companies trying to screw us over and make a quick buck?

You'd be wrong, as pinko lefties are.

Whoop-di-whoop -- anyone remember 1998? $10 a barrel

And Big Oil had some tough times, but none of the haters here pitied them, I bet.

Question is why are so many major oil companies putting more cash into buying back their own stock rather than exploration / refineries / tankers?

ConocoPhillips attempted to invest 3,500,000,000 USD into one US refinery, before the EPA pulled their permit to build because of some ************* envirowhackos. Those same ********* whackos are suing a proposed BP refinery expansion. Both refineries are trying to modernize in order to process the increasing supply of Canadian crude, which is lower quality.

There's more to it, like exploration being hard in most countries (read up on TNK-BP's troubles - the BP nominated CEO is in hiding outside of Russia as the Russian billionaires who own 50% of the company are conniving with Moscow to drive BP out), and the uncertainty of if oil will stay high, justifying refinery expansion.

More long term, we're going to see a move towards dieselification (sp?) in America, EU style, in order to reach environmental limits, in spite of idiot California legislators.

CR

[Ice]

The reason we won't see a 60 cent drop in gasoline prices to correspond to that drop in oil prices is because gasoline prices didn't increase by the corresponding 60 cents per gallon when oil prices jumped either. Stations cut into their margins instead of raising prices by the entire 60 cents. Prices are dropping now, but it won't exactly fit oil prices.

It's already dropped over 40 cents a gallon here since 2 weeks ago.

[macsen rufus]

Quote:
Question is why are so many major oil companies putting more cash into buying back their own stock rather than exploration / refineries / tankers?

ConocoPhillips attempted to invest 3,500,000,000 USD into one US refinery, before the EPA pulled their permit to build because of some ************* envirowhackos. Those same ********* whackos are suing a proposed BP refinery expansion. Both refineries are trying to modernize in order to process the increasing supply of Canadian crude, which is lower quality.

You have the telescope back to front, and are looking at the wrong end of the equation.

Consider:
a) oil execs get paid in proportion to share value
b) traditionally oil stock values are driven by reserves, ie new discoveries
c) stock buy-backs also maintain share values
d) corporate mergers are yielding more "new reserves" than discoveries
e) the decisions are made by the execs

So the upshot is that oil execs see their income stream is better preserved by financial wheeler-dealing than getting out there to grab all this supposedly "abundant" oil yet to be tapped.

Wood Mackenzie says the top-10 oil groups spent about $8bn combined on exploration last year, but this only led to commercial discoveries with a net present value of slightly less than $4bn. The previous two years show similar, though less dramatic, shortfalls.

Top oil groups fail to recoup exploration costs


AP IMPACT: Big Oil profits steered to investors

[Sigurd]

While some of the largest oil companies are "sleeping" others are working.
It is not at all true for all the big oil companies that they are more interested in buying back stocks than developing new technology.

Yes it is new technology we are talking about. Saudi Arabia and other lazy oil nations have traditionally only needed to throw a pick in the ground and up comes the black gold. It is natural for them not to invest in better technology or equipment.

I'll tell you a secret. Saudi Arabia buys our scrapped equipment and use it in their well drilling and exploration. Yes, they use the drill bits, tools joints and pipes that we no longer deem safe to use.

I can't speak for them or the companies in other parts of the world, but I know that here, we are not being lazy. Our involvement in the oil sector will benefit the world and we are soon if not already world leading on oil technology. Our innovations will make explorations and extraction cheaper for the world community.
Just take the oil sand in Canada. There is already technology that will make extraction easy based on the technology developed for extraction in the North Sea e.g. precision horizontal drilling.

USA is the largest oil consumer in the world and all though she is also one of the larger if not the largest oil producer it is not enough. USA consumes 20 million barrels a day (from memory) and produces around 8 if I am not mistaken. This means she needs to import the rest and oil nations benefit from this high demand. If you take a look at this map, you might notice that USA imports a substantial part of its oil from nations with problems. Take Nigeria as an example. They export around 1.6 million barrels a day to North America which is double of which other African oil nations do. Nigeria have problems with local terrorists or armed groups which destroys the oil pipes and makes it hard to deliver their daily load. This constant uncertainty of Nigeria being able to deliver contributes to higher oil prices for some reason.

Take a look at the map again. This is the nations that comprise OPEC, the organization that controls vast oil resources. They won't produce more oil as they do not agree that it is the demand for oil that pushes the oil prices up. They claim it is speculations, the low dollar value and USA's war in Afghanistan and Iraq (notice the use of USA exclusively). USA claims that the reason for high prices are that the demand is greater than the supply.

Notice how the slightly lesser demand in USA and Asia causes the current oil price to drop. Asian nations decided to drop its state funding of petrol and petrol consumers in USA find it too expensive to drive their car to the local store.

I don't know. I guess we would all benefit from a slightly lesser demand and a higher dollar value, but I think it is the scare mongers aka speculators that invent many crazy reasons for the oil price to go up, that is the major reason for the "crisis" we see today.

[yesdachi]

Here is an interesting site with some neat info to put oil spending in perspective.

[Craterus]

I'm not sure how wise it is to quote Jeremy Clarkson but I think he raised an interesting point on this.

What he basically said was that, considering the process and transport involved in oil, it's quite good that we can still get it for £1.10 a litre or whatever it is now.

Not sure if the point's already been made but it's only relatively expensive. And it's definitely still affordable. So stop whining.

[yesdachi]

Not sure if the point's already been made but it's only relatively expensive. And it's definitely still affordable. So stop whining.

So it would be better to wait until it is extremely expensive to start “whining”?

[Craterus]

So it would be better to wait until it is extremely expensive to start “whining”?

And when is that point? It's completely subjective.

Also, it's your choice to drive a car. That's a luxury. If you don't like the prices, find another way to get around.

[yesdachi]

And when is that point? It's completely subjective.

The point is that whining draws attention and attention causes change. The whining should have started a few years ago and maybe by now we could have reasonable alternatives. Instead of now whining and having to wait to see that alternatives when the prices are extremely expensive. I would say it is completely relative rather than subjective.

Also, it's your choice to drive a car. That's a luxury. If you don't like the prices, find another way to get around.

A ridiculous statement. Our entire society is built around the ability to move quickly and efficiently between great distances. There are around 280 million cars in the US that’s almost one per person. Cars and using them is the standard operating procedure for the way the country is set up. Could it change? Yep. Is it going to any time soon? Nope. Luxury, what type of car maybe but having and using is a necessity. Not everyone can live in a city with a good public transportation system or in Walnut Grove next to Pa Ingalls, living off the land.

If I don’t like the prices why should I find another way of getting around when I can find ways to make the prices more acceptable?

Yes, I would like some cheese with my wine.

[Redleg]

Transport everything by rail - build up the railroad infrastructure makes the moving of goods cheaper and provides me with job security.

That is my answer to the raising cost of gasoline

[Craterus]

The point is that whining draws attention and attention causes change. The whining should have started a few years ago and maybe by now we could have reasonable alternatives. Instead of now whining and having to wait to see that alternatives when the prices are extremely expensive. I would say it is completely relative rather than subjective.


A ridiculous statement. Our entire society is built around the ability to move quickly and efficiently between great distances. There are around 280 million cars in the US that’s almost one per person. Cars and using them is the standard operating procedure for the way the country is set up. Could it change? Yep. Is it going to any time soon? Nope. Luxury, what type of car maybe but having and using is a necessity. Not everyone can live in a city with a good public transportation system or in Walnut Grove next to Pa Ingalls, living off the land.

If I don’t like the prices why should I find another way of getting around when I can find ways to make the prices more acceptable?

Yes, I would like some cheese with my wine.

It's subjective in that you think prices are extremely expensive at the moment. Other people, such as myself, feel that the cost of petrol is nowhere near that point.

Your entire society is built around cars. Here you can get anywhere via a train and then a bus ride. And probably in a shorter amount of time too. No wonder the US is responsible for 25% of global CO2 emissions but has only 5% of the global population.

Or you guys could start dipping into your own supplies? Did you start doing that one yet? Or still waiting for the rest of the world to run out so you can hoard what's left?

[yesdachi]

Transport everything by rail - build up the railroad infrastructure makes the moving of goods cheaper and provides me with job security.

That is my answer to the raising cost of gasoline

Just a few weeks ago I had to do a comparison to get approximately 60 truck loads of product from West Michigan to Memphis. The price was practically the same but it took 2 weeks longer to go by rail and we still needed a local carrier to truck the product from the train station to the final destinations. The carbon footprint was better but the timing was a deal breaker.

[yesdachi]

Or you guys could start dipping into your own supplies? Did you start doing that one yet? Or still waiting for the rest of the world to run out so you can hoard what's left?

Dude, we are not hording, we are preserving nature.

But it is ok if we destroy other peoples nature.

[LittleGrizzly]

Just a few weeks ago I had to do a comparison to get approximately 60 truck loads of product from West Michigan to Memphis. The price was practically the same but it took 2 weeks longer to go by rail and we still needed a local carrier to truck the product from the train station to the final destinations. The carbon footprint was better but the timing was a deal breaker.

The reason for this is there is no investment in railways anymore it all goes into oil the roads and cars, if a fraction of what was spent buying a car mantaining the roads fixing your car and filling up with gas you would have an amazing transport system, im sure with current technology goods can be transported just as quickly or quicker by train than by lorrys.

America could have an extremely effecient cheap public transport system covering the U.S, people in very rural areas would still need thier own transport but it would be easy to setup regular bus routes within citys and to nearby citys, and with trains covering transport across larger distances, its not difficult to take a decent chunk out of oil use....

[macsen rufus]

One big problem for the US is that so much of the economic activity of the past 20 years or so has depended upon building suburbia, and living in suburbia has depended on cheap gas. Couple this with the credit crunch and a bank or two a week going belly up and the issue is suddenly a lot more than a few "whining drivers". The whole pattern of settlement and development is not just dependent on oil, it is dependent on cheap oil. Property values are crashing, negative equity abounds, something like half a million homes have been repoed in the last few months. There are people with no homes, banks with empty property they can't sell, and suburban neighbourhoods in terminal decline. It doesn't take many empty, repoed houses in a street to crash property values even further. Which means that it's no longer viable to be a property developer. Huge lay offs in construction, and a large source of national wealth creation is blown. SUVs are losing value as fast as homes, the auto industry (directly or indirectly responsible for about 1/7 of US GDP & jobs) is in a dire state, and commercial property is also set to decline rapidly. Major malls are losing anchor stores. Cheap oil and cheap credit are the two crutches that have propped up the US lifestyle whilst its industry has gone overseas, and consumers have racked up massive personal debt and the govt has pegged up a record-breaking deficit as well. China owns your collective ass, like it or not. I realise this may sound like gloating over your misfortunes, but actually the old adage still holds - "When America sneezes, the whole world catches a cold". A lot of the Western economies are badly contaminanted by the sub-prime mortgage vehicles, and Britain too depends way too much on finance instead of real economic activity (you know, quaint old-fashioned stuff like making things...)

"Whining drivers" are the least of the concerns. Oil prices run through every aspect of our society, from intensive agriculture, which uses nearly 10 calories of fuel for each calorie of food produced, through distribution of all consumer needs. Fuel is just as expensive for the trucks bringing food to the mall as it is for shoppers driving there to buy it, or driving their 3 hour commute to work from the once "affordable" suburbs. So expect spiralling prices at the shops, too, as well as your domestic fuel bills, all at a time when your house is shedding value, your 401(k) evaporates daily as stocks crash, and your job turns out to be dependent on one of those sectors that is really suffering....

Ah, I feel refreshed now I've had my morning dose of doom

[macsen rufus]

...

[macsen rufus]

I think it is the scare mongers aka speculators that invent many crazy reasons for the oil price to go up, that is the major reason for the "crisis" we see today.

It's an easy target for oilmen and legislators alike, both eager to please the pissed-off Joe Public, however, market examination doesn't seem to support this theory.

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between
January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this
same period, activity on the crude oil futures market – as measured by the number of contracts
outstanding, trading activity, and the number of traders – has increased significantly. While these
increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to
date does not support the proposition that speculative activity has systematically driven changes in oil
prices.
The world economy has expanded at its fastest pace in decades, and that strong growth has translated into
substantial increases in the demand for oil, particularly from emerging market countries. On the supply
side, the production of oil has responded sluggishly, compounded by production shortfalls associated with
geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in
the short term, very large price increases have occurred as the market balances supply and demand.
If a group of market participants has systematically driven prices, detailed daily position data should show
that that group’s position changes preceded price changes. The Task Force’s preliminary analysis, based
on the evidence available to date, suggests that changes in futures market participation by speculators
have not systematically preceded price changes. On the contrary, most speculative traders typically alter
their positions following price changes, suggesting that they are responding to new information – just as
one would expect in an efficiently operating market.

Interagency Task Force on Commodity Markets , Interim Report on Crude Oil ,
Washington D.C.

[Redleg]

Just a few weeks ago I had to do a comparison to get approximately 60 truck loads of product from West Michigan to Memphis. The price was practically the same but it took 2 weeks longer to go by rail and we still needed a local carrier to truck the product from the train station to the final destinations. The carbon footprint was better but the timing was a deal breaker.

The reason for this is there is no investment in railways anymore it all goes into oil the roads and cars, if a fraction of what was spent buying a car mantaining the roads fixing your car and filling up with gas you would have an amazing transport system, im sure with current technology goods can be transported just as quickly or quicker by train than by lorrys.

Actually this is only partly true - American Railroads are primarily private or publicily held companies - which have to invest in their own infrastructure with miminual help from the government. Many cities are beginning to actually invest in light rail for metro transportation - the twin cities in Minnesota and a link is being established in New Mexico between Alberque and Santa Fe.

America could have an extremely effecient cheap public transport system covering the U.S, people in very rural areas would still need thier own transport but it would be easy to setup regular bus routes within citys and to nearby citys, and with trains covering transport across larger distances, its not difficult to take a decent chunk out of oil use....

Agreed - and many cities and communities are beginning to see the logic in doing so. It will just take a few years for it to get established and then several years to get funded and built.

[Oleander Ardens]

Something I want to add is that while oil has risen fast, coal has had 250% rise in one year. That is right, 250% in one year. So coal mining in the Ruhr might be very profitable once again. While it is kind of a bubble it shows that a such a high price level a whole range of other sources of energy becomes very attractive. Coal to oil conversion is particulary interesting.

P.S: Very interesting info by our norwegian members about oil production. Fits neatly in my perception of current state-owned oil companies.