So Why Is Gas So Expensive?

[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.