Stupid Question Concerning Oil Prices

[JMH]

Well, I'm paying $1.32/L for 94 octane gasoline. The middle eastern conflict is routinely cited as the culprit.

Canada doesn't import oil...........from anywhere.

We are the worlds #2 (or 3) supplier.

Again, I'm paying $1.32/L for gasoline.

Surely, a Canadian oil executive could at least TRY to spin this financial rape of consummers into a justifiable

nessesity- if for nothing else...........the humour.

[BubberMiley]

Imagine what you'd be paying if they didn't invade Iraq.

(If you're able to, I'd like to know.)

[bush_cheney2004]

Well, I'm paying $1.32/L for 94 octane gasoline. The middle eastern conflict is routinely cited as the culprit.

Canada doesn't import oil...........from anywhere.

We are the worlds #2 (or 3) supplier.

Actually, Saudi Arabia, Russia, and the United States each produce far more oil than Canada. Also, Canada imports about 1,000,000 bbl/day for the East because of pipeline distribution efficiencies and lack of refining capacity for petroleum distillates. Canada is a net exporter and is estimated to be #2 or #3 in proven oil reserves.

I'm gladly paying $3.01 US per gallon....still cheaper than Diet Coke.

[August1991]

Well, I'm paying $1.32/L for 94 octane gasoline. The middle eastern conflict is routinely cited as the culprit.

Canada doesn't import oil...........from anywhere.

We are the worlds #2 (or 3) supplier.

Again, I'm paying $1.32/L for gasoline.

Surely, a Canadian oil executive could at least TRY to spin this financial rape of consummers into a justifiable

nessesity- if for nothing else...........the humour.

Even if Canada was the world's largest producer of oil, we'd be foolish to sell it to ourseleves at less than the world price. If your husband was a professional hockey player, would you force him to do the dishes at minimum wage rather than let him play in the playoffs?

Imagine what you'd be paying if they didn't invade Iraq. (If you're able to, I'd like to know.)

I thought the Iraq war was about the crude, dude - securing oil for American SUV drivers. How do higher oil prices fit into that scheme?

[gc1765]

I thought the Iraq war was about the crude, dude - securing oil for American SUV drivers. How do higher oil prices fit into that scheme?

Things aren't going as planned?

[bush_cheney2004]

Things aren't going as planned?

Oh, has Saddam risen from the dead? Gas lines in Ontario, Canada...but not Ontario, California?

[jbg]

Well, I'm paying $1.32/L for 94 octane gasoline. The middle eastern conflict is routinely cited as the culprit.

Canada doesn't import oil...........from anywhere.

We are the worlds #2 (or 3) supplier.

Again, I'm paying $1.32/L for gasoline.

Surely, a Canadian oil executive could at least TRY to spin this financial rape of consummers into a justifiable

nessesity- if for nothing else...........the humour.

If you're in the mood for an intelligent answer (which I doubt) I'll give it.

Oil, and gasoline and other refined products for that matter, are what are called "fungible products", the same way wheat is. They trade on a world market. This means that the price is set by worldwide supply and demand, and that local conditions are more or less irrelevant. At most times, oil in New York harbor is at the exact same price as it is in Rotterdam. This was true during the 1970's, when the US had price controls, and it is true now.

The US price control regime is a good example. When supplies are ample, the price of oil and refined products everywhere, before taxes, are the same. During 1973-4 and 1979, when supplies tightened, price controls did indeed hold prices in check for a short time, and at a horrific cost in shortages. The prices were allowed to rise once a month, which meant that at the end of each month, gas lines would appear in certain parts of the States. Why did this happen? Because if oil, say, were selling on the international market at $40 per barrel (as it was during much of 1979), and were domestically held to around $22 per barrel, any importer would face a loss on each import transaction. This actually occurred for a while during May-July 1979, while US controlled prices were being allowed to rise slowly to the international replacement cost level.

If Canada tried controlling prices, it would have to somehow levitate moneys earned out West from pipeline exports to the US to hold down prices in the East, where it imports oil. Thus, even though Canada is a net exporter, it is on the world market.

The only countries which can effectively control prices are huge net exporters, such as Venezuela. The trouble is they are wasting a lot of potential exports on subsidized, $0.04 litre sales.

[geoffrey]

Even if Canada was the world's largest producer of oil, we'd be foolish to sell it to ourseleves at less than the world price. If your husband was a professional hockey player, would you force him to do the dishes at minimum wage rather than let him play in the playoffs?

Bang on, and a brilliant analogy.

Plus, it's cheaper for you Easterners to get your oil from the Middle East, Norway and the Gulf than for us out here to pipe it to you. Everyone benefits from the current arrangement. Keeping more Canadian oil in Canada would be more costly for everyone, short and long term.

[jbg]

Even if Canada was the world's largest producer of oil, we'd be foolish to sell it to ourseleves at less than the world price. If your husband was a professional hockey player, would you force him to do the dishes at minimum wage rather than let him play in the playoffs?

Bang on, and a brilliant analogy.

Plus, it's cheaper for you Easterners to get your oil from the Middle East, Norway and the Gulf than for us out here to pipe it to you. Everyone benefits from the current arrangement. Keeping more Canadian oil in Canada would be more costly for everyone, short and long term.

Did you read my post on the same subject?

[speaker]

geoffry, why would it be more expensive in the long term for Canadians to keep more of our resources here for our long term use?

[jbg]

geoffry, why would it be more expensive in the long term for Canadians to keep more of our resources here for our long term use?

Because of a serious risk that others with lower production cost would get their oil out first. That could easily happen if Iran, Iraq, Saudi Arabia, Nigeria or other countries obtain greater political stability, and find a way to allow private development of reserves, whether covertly or overtly.

One of the reasons for disinvestment in US productive capacity was the availability of "cheap Middle Eastern" oil through the 1950's, 1960's and very early 1970's. It wouldn't take much for that to come back, and Canada's chance at extraction income would have come and gone.

[speaker]

Ok so let me make sure I understand this, The US cut back on their productive capacity because other nations were willing to, or at least did sell cheaper than the states could financially justify. Therefore keeping more oil in American sub-soil was better for the States, long-term? short-term?

But the same would not hold true for Canada because well we don't understand that there is a long term. Just for example, extraction income from our oil would not be there when we elected to remove it because oil and gas are highly volatile substances and would probably evaporate before we thought to pull it out.

[Wilber]

Well, I'm paying $1.32/L for 94 octane gasoline. The middle eastern conflict is routinely cited as the culprit.

Canada doesn't import oil...........from anywhere.

We are the worlds #2 (or 3) supplier.

Again, I'm paying $1.32/L for gasoline.

Surely, a Canadian oil executive could at least TRY to spin this financial rape of consummers into a justifiable

nessesity- if for nothing else...........the humour.

Buy a diesel. $.94 here

[Topaz]

The reason gasoline is so high is because the oil companies won't build any refineries to put out more gas because if they did, the price would come down and they wouldn't be able to make such high profit. Canada, sells the oil to the US and then BUYS it back as gasoline. Now this is plan is stupid and we SHOULD have our own refineries to make our own gas. The US reserves are at 85% and Canada I understand don't have any. Another stupid action!!

[jbg]

Ok so let me make sure I understand this, The US cut back on their productive capacity because other nations were willing to, or at least did sell cheaper than the states could financially justify. Therefore keeping more oil in American sub-soil was better for the States, long-term? short-term?

I guess you need a primer in how private enterprise works. It's businessmen, not governments that make the investment. If oil has an exploration/lifting cost of around $3 (in 1972) in the US and the Arab costs were about $0.20, and the market price was the same worldwide, which oil would you produce first?

But the same would not hold true for Canada because well we don't understand that there is a long term.

You're babbling. The "long-term" could be very long term if the Mideast gets its political and economic act together.

[speaker]

Thanks for the primer jbg. We should start a whole thread dedicated to the workings of private enterprise.

For example private enterprise in the form of oil companies, doesn't do anything, anywhere in this world unless there is significant investment by the local and national governments. Either in tax write-offs, environmental write-offs, social write-offs, etc. If the US believed over the last fourty years that there was a serious risk other countries like Iran, Iraq, Saudi Arabia, Nigeria, Canada, etc would be able to make all those sales and the US would lose out on it's opportunities to develop it's own reserves it would have gone ahead and done so through such write-offs. You say I'm babbling,,,,,, lol.

You think the mid-east is going to get it's act together anytime soon? Please show us the signs. Long term, the oil in the ground will now be worth more than the oil we burn, wastefully.

[jbg]

Thanks for the primer jbg. We should start a whole thread dedicated to the workings of private enterprise.

So start it. No one's stopping you.

[geoffrey]

For example private enterprise in the form of oil companies, doesn't do anything, anywhere in this world unless there is significant investment by the local and national governments. Either in tax write-offs, environmental write-offs, social write-offs, etc.

They've played the game well, and you'll likely retire on their success.

Only someone without reason would blame a corporation for taking advantage of a government's weakness. Blame the government, not the oil companies, for the tax breaks. It's the government's that give them.

[B. Max]

opportunities to develop it's own reserves it would have gone ahead and done so through such write-offs. You say I'm babbling,,,,,, lol.

Every business there is gets right offs. Or there would be no business.

[speaker]

They've played the game well, and you'll likely retire on their success.

Only someone without reason would blame a corporation for taking advantage of a government's weakness. Blame the government, not the oil companies, for the tax breaks. It's the government's that give them.

In hockey a team takes advantage of its opponents weaknesses and if they do it better than the other team and have some luck, they are said to have played the game well, and hopefully they win. If they bribe the refs so that the rules are interpreted differently for their benefit they weren't playing the game well at all.

The oil companies have the largest political donations, lobbying efforts, legal and accounting staff, etc. all working to twist the rules for their profit. Combine that with the billions used in PR for consumers who also incidendally elect the politicians the oil companies are lobbying, and the monopolistic powers of the oil giants and I'd say the game analogy kind of drops off. Kind of in inverse ratio to their profits.

Blame the governments and the politicians for being weak? sure I'm ok with that. but I don't think it goes far enough.

[jbg]

The oil companies have the largest political donations, lobbying efforts, legal and accounting staff, etc. all working to twist the rules for their profit. Combine that with the billions used in PR for consumers who also incidendally elect the politicians the oil companies are lobbying, and the monopolistic powers of the oil giants and I'd say the game analogy kind of drops off. Kind of in inverse ratio to their profits.

Blame the governments and the politicians for being weak? sure I'm ok with that. but I don't think it goes far enough.

How do oil companies control the spot market trading prices?

[speaker]

jbg, good question, maybe we could start a thread.... here's another good question, how would they not control the market?

[Topaz]

One thing Canada doesn't have are oil reserves, the US is said to have 80% filled. Is there a reason why Canada can't set the oil prices separate from OPEC?? I read it cost Canada 28.00 for the oil from the sands while OPEC is 65.00.

[jbg]

One thing Canada doesn't have are oil reserves, the US is said to have 80% filled. Is there a reason why Canada can't set the oil prices separate from OPEC?? I read it cost Canada 28.00 for the oil from the sands while OPEC is 65.00.

Very simply, it would encourage consumption of oil with a lower value than can be obtained from exports. Basically, one of the reasons for Venezuela's parlous financial condition is over-consumption of oil domestically, fueled by subsidized prices.

[speaker]

Topaz,

Canada does have oil and gas reserves, but they are in the ground yet. I'm not sure about your figure of $28 for oil sands, seems pretty low from what I've been hearing about the social and environmental costs of that extraction. I wonder if it is taking into account the cost of the subsidies that we are paying the oil companies to develop it. Resource depletion is another factor. Quite often none of those costs are included, however I suppose tax revenues make a dint in the total expenses.

I don't know of any legal reason why we can't sell to ourselves cheaper than we charge when we export, but I think we should engage in an assessment of what our costs are in production, and what the future value of our resource might be before we start selling too cheaply.