[Tanada]

World oil demand has continued to grow every year.

1Q 2013 90.74 MM/bbl/d
1Q 2014 91.89 MM/bbl/d
1Q 2015 93.50 MM/bbl/d
1Q 2016 94.50 MM/bbl/d

IOW the world has consumed more oil every year for the last four year despite prices in 1Q 2013 and 1Q 2014 being in the $75/bbl-$90/bbl range.

There Is No Demand Destruction!

That leaves the other side of the supply/demand equation, to wit supply. Price barring artificial factors like taxes and price controls, is a relationship of supply available and the price at which that supply meets demand. As ROCKMAN has pointed out many times every barrel being offered for sale is finding a buyer at the current price.

If Russia tomorrow morning declared they would sell the same number of barrels of oil as they are selling today, but they require $40/bbl for every one of those barrels what would happen? Remember they are not restricting supply at all, just requiring a fixed price for their supply.

Also keep in mind De Beers Corporation keeps the price of Diamonds right where they want it by refusing to sell them for less, and they go out of their way to buy up every diamond that hits the market at a lower price to prevent themselves from being undercut.

So the purpose of this poll is to determine the economic mindset of the forum membership. Please answer honestly and if you really believe you are correct you can post your justifications in thread to back up your selection.

[Plantagenet]

$this->bbcode_second_pass_quote('Tanada', 'I')f Russia tomorrow morning declared they would sell the same number of barrels of oil as they are selling today, but they require $40/bbl for every one of those barrels what would happen?

[Outcast_Searcher]

$this->bbcode_second_pass_quote('Tanada', 'W')orld oil demand has continued to grow every year.

1Q 2013 90.74 MM/bbl/d
1Q 2014 91.89 MM/bbl/d
1Q 2015 93.50 MM/bbl/d
1Q 2016 94.50 MM/bbl/d

IOW the world has consumed more oil every year for the last four year despite prices in 1Q 2013 and 1Q 2014 being in the $75/bbl-$90/bbl range.

There Is No Demand Destruction!

[Outcast_Searcher]

$this->bbcode_second_pass_quote('pstarr', 'I') chose "Saudi Arabia and/or OPEC would set their price at the same as Russia."

Seeing as Russia has a ready market among relatively wealthy Western Europe and Asian markets, it will not lose much or any sales. Likewise Saudi Arabia and other ME producers who sell to many of the same customers also have lots of wiggle room to raise prices.

[Subjectivist]

I picked option 2. I think several OPEC members like Venezuela and Kuwait would be thrilled to announce they are maintaining production and selling for say $38/bbl. That way Saudi Arabia sells all theirs for the basement price, somewhere around $29-30/bbl. After the market buys all the Saudi oil available they move on to the next cheapest seller and so on getting to Kuwait and Venezuela at $38/bbl and buying all they have available. After everyone else has sold out their capacity for less than Russia requires there is still about 8 MM/bbl/d of current demand still in the market. Some of that will be offset with stored oil that was bought in the last three months when prices have been at their lowest level, but much of the oil in storage was bought at $50/bbl or higher. For the people holding that higher price oil it would be more economically advantageous to buy $40/bbl Russian oil than pull their expensive oil out of storage.

So Russia offers 8 MM/bbl/d into the market at $40/bbl and the first week or month they sell only 6 MM/bbl/d, but they get 25 percent more for every bbl at $40 than they did at $30 so economically it is a wash.

Then over the next quarter as the stored oil that was cheaper than $40/bbl gets used up the rest of the market won't be able to cover as much of the gap and Russia's sales will creep up to 7 MM/bbl/d and they will be earning more than they did before they set their sale price. At the same time American output and non OPEC output elsewhere will continue to slowly fall offset by Iran slowly growing. Either way late this year or early next the world will have a slight shortfall between supply and prices world wide will go over $40/bbl based on all the projections I have seen posted here. I need a Middle East war to win the PO price challenge, right now I am still in last place.

[Plantagenet]

$this->bbcode_second_pass_quote('pstarr', '')$this->bbcode_second_pass_quote('Plantagenet', '')$this->bbcode_second_pass_quote('Tanada', 'I')f Russia tomorrow morning declared they would sell the same number of barrels of oil as they are selling today, but they require $40/bbl for every one of those barrels what would happen?

[Subjectivist]

$this->bbcode_second_pass_quote('Plantagenet', '')$this->bbcode_second_pass_quote('pstarr', '')$this->bbcode_second_pass_quote('Plantagenet', '
')Except the United States has no $30.00 bbl oil.

[Outcast_Searcher]

$this->bbcode_second_pass_quote('pstarr', '')$this->bbcode_second_pass_quote('Outcast_Searcher', '')$this->bbcode_second_pass_quote('pstarr', 'I') chose "Saudi Arabia and/or OPEC would set their price at the same as Russia."

Seeing as Russia has a ready market among relatively wealthy Western Europe and Asian markets, it will not lose much or any sales. Likewise Saudi Arabia and other ME producers who sell to many of the same customers also have lots of wiggle room to raise prices.

[Plantagenet]

$this->bbcode_second_pass_quote('Subjectivist', '
')
A lot of that stored oil was bought for more than $50/bbl, not under $30/bbl. think for a minute, the price didn't break below $50 until late last year.

[Subjectivist]

$this->bbcode_second_pass_quote('Plantagenet', '')$this->bbcode_second_pass_quote('Subjectivist', '
')
A lot of that stored oil was bought for more than $50/bbl, not under $30/bbl. think for a minute, the price didn't break below $50 until late last year.

[ROCKMAN]

I'm sure there were some good comments but just didn't ha e ethe energy tonight to go thru them all.

But my story doesn't change: no refiner is going to pay $40/bbl if they can't forecast selling their products at an acceptable profit margin. And the same is just as true for $20/bbl as it is for $100/bbl. The infl. adj. price of oil in the late 90's was $17/bbl and not $18/bbl because that's what the refiners needed to pay in order to make an acceptable profit. Same reason they paid $100/bbl a while back.

Not let's jump into another universe: all oil sellers agree: every bbl sells for $40/bbl or they don't sell. Now it get rather theoretical...to a degree: some consumers can still buy refinery products that are priced to allow those refineries to make a profit. Obviously no refinery is going to intentionally lose money. But the consumers that couldn't afford those product prices still can't. After all has anyone here ever negotiated what they paid for gasoline? No: you paid the posted price but only for what you had to buy. And even then there are folks who can't even do that.

So to some degree in this mandatory $40/bbl universe less refinery products are sold. Which means less oil is purchased. But how much less? Who knows: it's a fictional construct. So one scenario:the producers are selling less oil but getting a higher price per bbl. But what of the total income: is it greater then the $30/bbl days or greater in the new mandatory $40/bbl days? Who knows? But there are just two possible answers: yes or no.

So let's look at YES: higher total income income at $40/bbl. Great for the producers and oil consumers. But what of the consumers no longer consuming as much? How does that affect the economy. Thank goodness we have ECONOMISTS to answer that question. Unfortunately half say no problem for the economies and the other half say big problems. And now we're back to the big debate over the relationship (or lack thereof) between energy consumption and economic vitality.

Well I think I've set the stage so take over. LOL.

[Tanada]

$this->bbcode_second_pass_quote('ROCKMAN', 'I')'m sure there were some good comments but just didn't ha e ethe energy tonight to go thru them all.

But my story doesn't change: no refiner is going to pay $40/bbl if they can't forecast selling their products at an acceptable profit margin. And the same is just as true for $20/bbl as it is for $100/bbl. The infl. adj. price of oil in the late 90's was $17/bbl and not $18/bbl because that's what the refiners needed to pay in order to make an acceptable profit. Same reason they paid $100/bbl a while back.

Not let's jump into another universe: all oil sellers agree: every bbl sells for $40/bbl or they don't sell. Now it gets rather theoretical...to a degree: some consumers can still buy refinery products that are priced to allow those refineries to make a profit. Obviously no refinery is going to intentionally lose money. But the consumers that couldn't afford those product prices still can't. After all has anyone here ever negotiated what they paid for gasoline? No: you paid the posted price but only for what you had to buy. And even then there are folks who can't even do that.

So to some degree in this mandatory $40/bbl universe less refinery products are sold. Which means less oil is purchased. But how much less? Who knows: it's a fictional construct. So one scenario:the producers are selling less oil but getting a higher price per bbl. But what of the total income: is it greater then the $30/bbl days or greater in the new mandatory $40/bbl days? Who knows? But there are just two possible answers: yes or no.

So let's look at YES: higher total income income at $40/bbl. Great for the producers and oil consumers. But what of the consumers no longer consuming as much? How does that affect the economy. Thank goodness we have ECONOMISTS to answer that question. Unfortunately half say no problem for the economies and the other half say big problems. And now we're back to the big debate over the relationship (or lack thereof) between energy consumption and economic vitality.

Well I think I've set the stage so take over. LOL.

[Outcast_Searcher]

$this->bbcode_second_pass_quote('Tanada', '
')No doubt some marginal use would poof away again at $2.00/gallon in Ohio, but prices have been floating as low as $1.48 and as high as $1.98 here for the last two months without many people paying much attention. People buy what they need mostly pay at the pump on a credit card and often don't shop around for the best price just go to the same routine station week after week.

[Tanada]

$this->bbcode_second_pass_quote('Outcast_Searcher', '
')Well, where I live, a small city in the midwest, the pricing seems efficient enough in the VAST majority of the local stations, that I'm not convinced it pays to shop around. Driving takes gas. The internet has been pretty random on being current enough on local pricing.

I pay attention (out of curiosity) and on any given day, the major competitors like Shell and Speedway will have virtually identical prices all over town. And when the prices change, they often change by as much as 30 cents a day, but they all seem to change nearly simultaneously. Once in a while I'll get lucky and catch a break when prices change if I need gas, but not often.

And it would be sheer MADNESS to drive 20 minutes / a gallon round trip across town to save perhaps a nickel on an independent station who tends to have lower prices. Oh, and stand in line and unless one drives a hybrid, burn more gas while you wait. Not only for my wallet, but for the planet.

Clearly many stations are using some kind of reference price -- not sure if most (franchises?) are being directed what to charge from the "mother ship".

Realistically, though, if they don't conform they are either giving away money or angering customers (when they find out they paid too much) -- so conforming seems to be in their best interest.

[tita]

When we say every barrel of oil get a buyer, that doesn't mean it instantly goes in the tank of a car. First you have to wait for it to physically appear (it's a future market), then the buyer (refineries) usually put it in storage before using it. So, what happens if a producer suddenly wants higher price than the market offer? He probably won't sell it and will have to store it somewhere, and pay a fee, and don't get any money. And if he really needs the money, he will probably sell it at the market price.

The consumers don't store gas when it's cheap and sell it when it's expensive. Producers don't do it with oil either. They are 'links' between them who have this job. And as there is actually more oil produced than gasoline consumed, these 'links' have no other choice than to put more oil in storage and set the price at a value that will eventually balance both ends.

[Tanada]

$this->bbcode_second_pass_quote('tita', 'W')hen we say every barrel of oil get a buyer, that doesn't mean it instantly goes in the tank of a car. First you have to wait for it to physically appear (it's a future market), then the buyer (refineries) usually put it in storage before using it. So, what happens if a producer suddenly wants higher price than the market offer? He probably won't sell it and will have to store it somewhere, and pay a fee, and don't get any money. And if he really needs the money, he will probably sell it at the market price.

The consumers don't store gas when it's cheap and sell it when it's expensive. Producers don't do it with oil either. They are 'links' between them who have this job. And as there is actually more oil produced than gasoline consumed, these 'links' have no other choice than to put more oil in storage and set the price at a value that will eventually balance both ends.