[Eli]

What move on is doing is called pandering.
$this->bbcode_second_pass_quote('', 'P')ander- 1. To act as a go-between or liaison in sexual intrigues; function as a procurer.
2. To cater to the lower tastes and desires of others or exploit their weaknesses: “He refused to pander to nostalgia and escapism” (New York Times).

[Windmills]

$this->bbcode_second_pass_quote('jdmartin', 'W')hy is it price gouging when you charge a 20% markup (say, $3 gasoline when your wholesale+taxes =$2.50) on gasoline but good business sense when you charge 100% markup on a Chinese blender, tv, t-shirt?

[jbrown]

$this->bbcode_second_pass_quote('BitterSweetCrude', 'Y')ou can see the ads on the moveon.org website if anyone is interested.Thoughts?

[MrBill]

$this->bbcode_second_pass_quote('Windmills', '')$this->bbcode_second_pass_quote('jdmartin', 'W')hy is it price gouging when you charge a 20% markup (say, $3 gasoline when your wholesale+taxes =$2.50) on gasoline but good business sense when you charge 100% markup on a Chinese blender, tv, t-shirt?

[Carlhole]

I'm sitting here watching Hardball - not with Chris Matthews - with David Gregory who is sitting in. And Gregory is asking two state governors about "sky-rocketing gas prices. Both governors insist that this is price gouging by the oil companies and are talking about the "obscene profits" made by the majors this year (XOM - $36 billion).
I've heard this again and again for a couple of years now, but the news shows never seem to have voices from Wall Street, like, say an oil analyst with Merril Lynch, who could describe exactly what is going on with oil company profits. Or have several of them on to argue about it like they do.

Whenever oil company executives are interviewed on the subject, they say that they do not set prices, prices are set by the markets. And they are right. But yet they HAVE made a ton of money lately, AND they've ben given huge tax breaks by Bush. So what exactly is going on with oil company profits? What's the detailed Wall Street answer?
If the majors sit on reserves as a normal part of their business operations and those reserves increase in value trememdously, that's not really gouging.

If individual gas stations are hiking the price of gas per gallon by much more than the increase per barrel would indicate, then that is gouging by gas station owners, not the majors.
Does anyone here have access to oil analyst reports about this subject?
I used to be a broker with Merrill Lynch and used to devour those kinds of reports. I wish I could just log on and read them now.

[bobcousins]

You don't need a Wall St broker to explain it. It is supply and demand - Economics 101. It is really very simple, but some people seem to find it too abstract a concept. I guess you really need to understand where value comes from.
It's worth noting the lifetime of the oil extraction and production infrastructure, investment decsions were made decades ago, when the IOCs production costs were based on oil at $15/barrel. If people want to pay $75/barrel - that is not their fault!!
There is an article over at the TOD if you are interested.

[jimk]

It does seem like an efficient marketplace shouldn't support an equilibrium where anybody is making huge profits. Whenever there are huge profits being made, that should motivate some new supplier to come in and make just a little less profit by selling at a slightly lower price.
But crude oil is clearly not an efficient marketplace! Here's what I think is going on: there are only so many low cost oil fields, and they are owned by particular players, and those players can block anybody else from drilling or pumping oil out of those fields.
Oil field ownership is basically a monopoly, and monopolies are market inefficiencies.

An analogy would be some patented technology. For example, a patented drug. A drug company might be able to manufacture the drug very cheaply. But if that drug cures a common deadly disease, the drug company can charge a very high price, and make a huge profit.
The idea behind patents is that they help everyone in the long run because the prospect of such huge profits is what motivates people to invest lots of resources into risky research. Oil field ownership is obviously more complicated, since there is a lot of international politics involved. But still, it's expensive and risky to explore for oil, so some nice juicy return is not completely unreasonable. Perhaps the specifics of the present situation are out of line though, I don't have the perspective really to offer a meaningful opinion.

When the oil fields are owned by a public corporation, then maybe this is a more practical way to manage things than to allow everybody to drill some oil field. Everybody can just buy the stock. It may be smarter to let just a few experts manage the oil field to get the most oil out of it. If all those juicy profits either get returned to shareholders or get reinvested wisely in future exploration etc., then really the economic system hasn't done such a bad job of mediating the collective decision making. If, on the other hand, the executives of some public corporation don't act in the interest of their shareholders but instead funnel the profits into their own pockets, then the economic system isn't working well.

Then too there are the broader social questions, e.g. what if the stock is not really owned in any socially equitable way but narrowly held, or the oil fields are owned privately by just a few individuals or families, so the decision making gets distorted in a way to amplify inequities. But these problems are not specific to the oil business. Of course, since oil is just about the biggest business on the planet, the general problem of self-reinforcing inequity will manifest there most obviously.

[big_rc]

$this->bbcode_second_pass_quote('jimk', 'I')t does seem like an efficient marketplace shouldn't support an equilibrium where anybody is making huge profits. Whenever there are huge profits being made, that should motivate some new supplier to come in and make just a little less profit by selling at a slightly lower price.
But crude oil is clearly not an efficient marketplace!

[jimk]

$this->bbcode_second_pass_quote('big_rc', 'T')he crude market is one of the most efficient markets on the planet.

[firestarter]

I heard a gentleman from Public Citizen go on about it only costing $20 to get a barrel of oil out of the ground, implying that the $55 spread between $20 and $75 bucks was where the gouging originates. He saw the bidding middle man (trader) as no more than a shill of the oil companies, being that the oil companies are generally lock key operations.

[big_rc]

$this->bbcode_second_pass_quote('jimk', 'B')ut it sure seems that the planet has just so many oil fields that can be pumped profitably at $10/barrel, or $15, $20, etc. Once those $10 fields are locked up, no future suppliers can produce profitably at that price.
Are you saying that a legally enforced monopoly (e.g. property rights over an efficient oil field) doesn't introduce inefficiency into a market?

[jimk]

$this->bbcode_second_pass_quote('big_rc', 'L')egally enforced monopolies in the form of property rights over an oil field do not introduce inefficiency into a market. If there were no property rights, then we would enter into a situation called "tragedy of the commons" where noone holds any rights, so everyone tries to extract the resource as fast as possible. This is why the world's fisheries are in dire straits.

[bobcousins]

$this->bbcode_second_pass_quote('jimk', 'I')nefficiency is not defined in terms of alternative arrangements. An efficient market is one where the price gets set so the marginal cost for suppliers is equal to the marginal benefit to consumers. The inefficiency in the oil market comes from the fact that marginal costs are different for different suppliers. The folks who own very efficient oil fields have very low marginal cost. The oil market settles on a price where the marginal benefit to consumers will equal the marginal cost to the least efficient supplier. The high efficiency suppliers make large profits.

[Lighthouse]

$this->bbcode_second_pass_quote('jimk', '.').. Inefficiency is not defined in terms of alternative arrangements. An efficient market is one where the price gets set so the marginal cost for suppliers is equal to the marginal benefit to consumers. The inefficiency in the oil market comes from the fact that marginal costs are different for different suppliers. The folks who own very efficient oil fields have very low marginal cost. The oil market settles on a price where the marginal benefit to consumers will equal the marginal cost to the least efficient supplier. The high efficiency suppliers make large profits...

[Doly]

$this->bbcode_second_pass_quote('jimk', 'E')ven if that were true, the monopolistic nature of oil field ownership - coupled to the limited nature of the resource and its non-uniform distribution - would still make that market inefficient.

[kerosene]

the idea of a monopoly being less effcient is as follows.
15 guys sell potatoes. The price is 1 $/lbs
3 guys raise their prices to 2$/lbs - nobody buys from them

slowly on of the farmers collects capital and buys all other farms. Now he has all the potatoes. He sets the price at 2.50$ - everybody have to buy from him. see.
That hardly is the case in the current oil industry though. Everything is being brought online it seems. ebem the 'evil' opec is breaking its quotas.

[jimk]

$this->bbcode_second_pass_quote('bobcousins', 'Y')ou use the term "efficient" in three different contexts. Instead of making up nonsense based on thermodynamics, why not learn some basic economics?

[Jellric]

You cannot haul Supply and Demand before a congressional panel.
So people need a scapegoat.
The response thus far has been depressing to me.
Seems people would rather feel good than do good.
Maybe when gas hits 6$/gallon opinions will change.
Until then I'm stocking up on gold and silver coins/ mining stocks and supplies..

[bobcousins]

$this->bbcode_second_pass_quote('jimk', 'I')s there, in economics, a term that captures some measurement of how well a market structure works in pairing up buyers and sellers?

[jimk]

$this->bbcode_second_pass_quote('bobcousins', 'A')s for restricted markets, I think this can be considered as movements of the supply/demand curves.