I've been hearing a lot of talk about "price gouging." Even liberal-minded people think that oil companies set the price of oil and are using the Katrina disaster to capitalize and reap huge profits. I know this is not correct--for once, this is not a case of simple corporate greed... but I don't really have an articulate rebuttal, as I don't really know exactly how the price is determined... Can anyone briefly explain how the price / value of crude is determined on the world market?
i've also noticed that the price of gasoline has risen much faster than the price of crude in the wake of katrina. what factors are at play in this? are the big oil companies actually price gouging? it probably has something to do with shortages due to shut-down refineries... but i'm just guessing...
Thanks.
PeakOil is You
THE Price Gouging Thread
Re: Basic question about price / value setting
by jaws » Wed 31 Aug 2005, 20:50:53
There's no point blaming companies for reaping huge profits. Anyone would do the same in their situation in any industry. You would do the same if you had a huge stockpile of fuel in your backyard and your neighbors came looking for fuel. Everyone involved in the economy is always looking to make the maximum amount of profits, they can only do that by responding to demand. You might as well blame a hurricane for being wet.
What's happening right now is that supply is disappearing. The gas stations have no idea when the next fuel truck is going to come in to fill their reserves, and everyone is hearing the news about gas shortages which makes them want to go out and fill up. The gas stations have no choice but to raise prices to turn people away. If they don't the tanks will be empty and some people will go without gas who could have paid for it. There is a natural rationing taking place. Those who own the extremely scarce resource are rationing it to those who need it the most.
When the supply situation becomes more stable the prices will come back down, because then the gas stations will want to sell more gas to make more profits. The idea is that selling 1,000 gallons at 2,50$ is more profitable than selling 500 gallons 3,00$, however if you can't get your 500 gallons resupply then you have to sell at 3,00$.
Read this article: price gouging saves lives for more detailed explanation of the phenomenon of price gouging (aka prices going up with demand).
What's happening right now is that supply is disappearing. The gas stations have no idea when the next fuel truck is going to come in to fill their reserves, and everyone is hearing the news about gas shortages which makes them want to go out and fill up. The gas stations have no choice but to raise prices to turn people away. If they don't the tanks will be empty and some people will go without gas who could have paid for it. There is a natural rationing taking place. Those who own the extremely scarce resource are rationing it to those who need it the most.
When the supply situation becomes more stable the prices will come back down, because then the gas stations will want to sell more gas to make more profits. The idea is that selling 1,000 gallons at 2,50$ is more profitable than selling 500 gallons 3,00$, however if you can't get your 500 gallons resupply then you have to sell at 3,00$.
Read this article: price gouging saves lives for more detailed explanation of the phenomenon of price gouging (aka prices going up with demand).
-
jaws - Heavy Crude
- Posts: 1228
- Joined: Sun 24 Apr 2005, 03:00:00
Re: Basic question about price / value setting
by Ancien_Opus » Wed 31 Aug 2005, 23:11:38
Several (9) refineries are now off line. The exodus from New Orleans consumed a lot of fuel. The fuel inventory for last week declined. This means that gas prices will rise in response to demand and shortages. There's about 20 days of fuel inventory at any moment in the system so watch the NYMEX gasoline rates to see when the refineries start to come back. One fired today and is about 25% capacity.
Crude oil demand has been deystroyed by the refineries off line. Crude supply to those refineries running has been assured by the President releasing oil from the Strategic Petroleum Reserve SPR. This means that crude oil price will stabilize for awhile. There's plenty of crude for the refineries that are running just no easy way to get it there for now.
Unfortunately a number of pump platforms in the Gulf have been damaged and lost including Shell's Mars platform. With rig use at an all time high and repair facilities damaged it will be a very long time (years) until full production can be resumed. Hurricane Ivan left production off line by about 30% for a long time last year, Katrina looks to be worse from first blush. This will keep crude prices well into the high range average for a long time. Saudia Arabia has a lot of the rigs busy in the Persian Gulf trying to keep their supply growth promises, so none are available at this time for GOM.
Gasoline price will spike until the refineries are back on line and some of them (Cheveron's Pasquagula) may be a total lost as damage estimates are still pending.
Although Fouchan opened the harbour the inland waterway is blocked and the road infrastructure is a mess. Since a lot of the GOM oil crews leave from this port it'sgoing to be awhile before things are back to normal. Most of these crews had friends and family that are totally disrupted by this mess.
You might just say welcome to peak preview. Judging by the bungling and anarchy in New Orleans you have to give Monte a nod. Looks to me like he's right about human nature.
Regards,
Crude oil demand has been deystroyed by the refineries off line. Crude supply to those refineries running has been assured by the President releasing oil from the Strategic Petroleum Reserve SPR. This means that crude oil price will stabilize for awhile. There's plenty of crude for the refineries that are running just no easy way to get it there for now.
Unfortunately a number of pump platforms in the Gulf have been damaged and lost including Shell's Mars platform. With rig use at an all time high and repair facilities damaged it will be a very long time (years) until full production can be resumed. Hurricane Ivan left production off line by about 30% for a long time last year, Katrina looks to be worse from first blush. This will keep crude prices well into the high range average for a long time. Saudia Arabia has a lot of the rigs busy in the Persian Gulf trying to keep their supply growth promises, so none are available at this time for GOM.
Gasoline price will spike until the refineries are back on line and some of them (Cheveron's Pasquagula) may be a total lost as damage estimates are still pending.
Although Fouchan opened the harbour the inland waterway is blocked and the road infrastructure is a mess. Since a lot of the GOM oil crews leave from this port it'sgoing to be awhile before things are back to normal. Most of these crews had friends and family that are totally disrupted by this mess.
You might just say welcome to peak preview. Judging by the bungling and anarchy in New Orleans you have to give Monte a nod. Looks to me like he's right about human nature.
Regards,
-
Ancien_Opus - Peat
- Posts: 142
- Joined: Thu 21 Jul 2005, 03:00:00
Re: Basic question about price / value setting
by Ancien_Opus » Thu 01 Sep 2005, 10:39:33
Sorry for a reply as to why gas prices have risen suddenly and I totally boned your original question. Dooooh!
Short & easy answer. Like any raw material commodity the buy/sell price is available daily on the New York Merchantile Exchange or NYMEX. Just remember to add in your state taxes to get an idea what the pump price should be.
Unfortunately it is never just that easy. Many countries have political subsidies or taxes built into fuel structure. There are other exchanges where fuel can be traded and Iran is in the process of openining a oil borsche to trade in Euro currency. You will find links to this issue under economics and dollar hegemony. Therein, prices in Canada are more expensive than here in the US but Canada is a net oil exporter in fact the #1 US supplier, while Venezuela, another oil exporter, charges its citizens much less. So oilbis mixed with government and politics. C'est la vie.
Last month in Yemen there where fuel riots with cars burning in the streets because the government raise the price of fuel oil to an equivalent of US $0.86 gallon. People died over what we here in the U.S. would consider a bargain. Such are the effects of peak oil, simply that those that can afford to buy it and many countries are too poor to buy it. Indonesian that was once a net "OPEC" fuel exporter is now suffering dire consequences of peak oil and can't politically eliminate its fuel subsidies. When the decline starts in force this situation only gets worse year after year, relentlessly. As a young man in Africa said: "When the petrol stops we can do nothing. Everything stops. Our government is useless."
The linkage between production cost and sales price dissappeared a very long time ago, just because Saudi Arabia can pump oil at $9/barrel don't expect them to sell it anywhere close to that. If Matt Simmons is right
their days are numbered anyway.
Regards,
Short & easy answer. Like any raw material commodity the buy/sell price is available daily on the New York Merchantile Exchange or NYMEX. Just remember to add in your state taxes to get an idea what the pump price should be.
Unfortunately it is never just that easy. Many countries have political subsidies or taxes built into fuel structure. There are other exchanges where fuel can be traded and Iran is in the process of openining a oil borsche to trade in Euro currency. You will find links to this issue under economics and dollar hegemony. Therein, prices in Canada are more expensive than here in the US but Canada is a net oil exporter in fact the #1 US supplier, while Venezuela, another oil exporter, charges its citizens much less. So oilbis mixed with government and politics. C'est la vie.
Last month in Yemen there where fuel riots with cars burning in the streets because the government raise the price of fuel oil to an equivalent of US $0.86 gallon. People died over what we here in the U.S. would consider a bargain. Such are the effects of peak oil, simply that those that can afford to buy it and many countries are too poor to buy it. Indonesian that was once a net "OPEC" fuel exporter is now suffering dire consequences of peak oil and can't politically eliminate its fuel subsidies. When the decline starts in force this situation only gets worse year after year, relentlessly. As a young man in Africa said: "When the petrol stops we can do nothing. Everything stops. Our government is useless."
The linkage between production cost and sales price dissappeared a very long time ago, just because Saudi Arabia can pump oil at $9/barrel don't expect them to sell it anywhere close to that. If Matt Simmons is right
their days are numbered anyway.
Regards,
-
Ancien_Opus - Peat
- Posts: 142
- Joined: Thu 21 Jul 2005, 03:00:00
Re: Basic question about price / value setting
by SpasticDancer » Fri 02 Sep 2005, 01:31:21
$this->bbcode_second_pass_quote('jaws', 'R')ead this article: price gouging saves lives for more detailed explanation of the phenomenon of price gouging (aka prices going up with demand).
Thank you very much for that. Very cogent. Very succinct. I feel smarter now, for having read that.
-
SpasticDancer - Wood
- Posts: 20
- Joined: Thu 20 Jan 2005, 04:00:00
- Location: OR, USA
Re: Basic question about price / value setting
by joewp » Fri 02 Sep 2005, 01:52:36
$this->bbcode_second_pass_quote('SpasticDancer', '')$this->bbcode_second_pass_quote('jaws', 'R')ead this article: price gouging saves lives for more detailed explanation of the phenomenon of price gouging (aka prices going up with demand).
Thank you very much for that. Very cogent. Very succinct. I feel smarter now, for having read that.
Let's not get all carried away, he's talking about ice. That's not energy, that's not something that people *need*, it's not oil/gas/gasoline. If you have a refrigerator and electricity you can make your own ice. If you don't have the electricity, you can't and need to buy it from price gouging ice merchants, who practice rationing by ability to pay. Make his example "food" instead of "ice" and see how well it plays out.
Joe P. joeparente.com
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian Proverb
-
joewp - Intermediate Crude
- Posts: 2054
- Joined: Tue 05 Apr 2005, 03:00:00
- Location: Keeping dry in South Florida
Re: Basic question about price / value setting
by jaws » Fri 02 Sep 2005, 02:54:42
$this->bbcode_second_pass_quote('joewp', 'L')et's not get all carried away, he's talking about ice. That's not energy, that's not something that people *need*, it's not oil/gas/gasoline. If you have a refrigerator and electricity you can make your own ice. If you don't have the electricity, you can't and need to buy it from price gouging ice merchants, who practice rationing by ability to pay. Make his example "food" instead of "ice" and see how well it plays out.
Ice is what people need to keep food from spoiling. What the gouging does is make people more selective about how much food they want to preserve. If ice is cheap then someone will buy all the bags to be extra sure that he will keep his food until the power comes back. That means other people will lose all their food. If instead ice was expensive, the first buyer might think "maybe I'll just keep the bare necessicities and that deer in the second freezer will have to thaw", then he'll just throw a barbecue to get rid of the deer. The second and third buyers of ice, who might be people having real emergencies will then have plenty of ice to buy (although they also will have to economize).
The same is true of food and energy. In an emergency we want to avoid waste as much as possible. If you keep gas prices low people will waste it driving around for no reason until everyone shorts out and no one can get gas. That applies to the rich and the poor. If you let prices rise only those who most desperately need it will get it.
The worst case scenario is of course someone buying all of a commodity, ice, gas, food or whatever, at the government-imposed lower price, who then resells it on the black market for the market price. That person has now abused government regulation and stolen from the original owner who couldn't raise his price.
-
jaws - Heavy Crude
- Posts: 1228
- Joined: Sun 24 Apr 2005, 03:00:00
