I am just amazed that simple supply and demand is being dismissed on this thread. China and India alone have economies that have rapidly grown in the last decade. All this growth is fueled by petroleum.
The gold standard created any number of economic crisis' because it lacked flexibility . Many economist attribute the gold standard as one of the reasons the great depression was so severe. Which major currency today is backed by it ? Let's leave gold where it belongs ;in industrial applications and in fine jewelry .
As you pointed out in post#2…”But stockpiles are not as high as they should be ,and there is a greater demand from countries like China and India “.
I can agree with that, it’s just that they are spiked by the falling dollar because the dollar buys less oil today than it once did. Well, according to Mansoor Mohi-uddin, the head of foreign exchange strategy at UBS, in Zurich and Stephen Jen, the global head of current research for Morgan Stanley in London.
From about $19 a barrel in late January 2002, the price of oil has catapulted to $81.62. Since then, the dollar has tumbled by 39 percent against the euro, to $1.4081, and by 34 percent on a trade-weighted basis.
After the Federal Reserve cut its federal funds rate by half a percentage point to 4.75 percent on Sept. 18, crude oil rose to a record $83.90 a barrel and the dollar fell to a record low of $1.4120 to the euro.
What is the main, real reason that a barrel of crude oil has gone above $90?
Hello again:
The question asked about the MAIN reason for the high price of crude. I answered it. You guy's are not wrong about your jillions of little reasons. But, they are LITTLE reasons.
Because for some reason, the fed is printing ungodly amounts of money and the dollar is virtually worthless. They have been proping up a seriously failing economy. Now, paper money is finally comming back to it's true value...0!
I will not argue with your ego however. You need to figue it out for yourself before the truth finally means something.
Just like anything else, as long as citizens BELIEVE paper money is worth something and can be used as legal tender to purchase things and pay for services it's value will be greater than zero.
I'm not a banker or economist, but I bet that if every US citizen cashed out all their savings, checking, retirement, investing accounts there would not be enough 'paper' money to cover this kind of run.
if every US citizen cashed out all their savings, checking, retirement, investing accounts there would not be enough 'paper' money to cover this kind of run.
Hello in:
Actually, it's not even paper anymore. It's just zeros and ones on a memory chip. When you say, "cash in", you probably mean from one computerized dollar denominated account to another.
If you mean "cashed" in actual paper money, you're right. There ain't near enough. But they'll just bring back the $10,000 dollar bill.
Not having read any of the posts that came before this, I will chime in fresh.
1) Supply and demand: there is a limited supply of oil due to a limited number of refineries in the world. There is a huge demand from every developed and developing nation on Earth for oil. Ergo, prices are high. One way to decrease the price of oil is through the construction of additional refineries.
2) The general unsureness regarding oil sources: the Middle East is a place of turmoil. Iran is hostile to the western world. Iraq is the site of a war. Kuwait is on the border of that war. Saudi Arabia is in a constant state of political flux. Venezuela has become hostile to the USA. So about 70% of all oil sources are in politically unstable environments. That drives oil prices up.
3) I don't know if the value of the dollar has been mentioned on thjis thread, but I suspect it has. Some people will argue that the decreasing value of the dollar is a main source of the price increase in oil. I happen to disagree. And for proof, I offer the fact that oil prices are increasing EVERYWHERE, regardless of what the value of a particular currency is. Nevertheless, the falling value of the dollar makes that increase more evident here in the USA than elsewhere.
4) Willingness to pay: it seems to me that people are still willing to fill it up at the pump. There doesn't seem to have been any major decreases in travel, despite the increase in gas prices. People are still willing to pay at the pump, so the oil companies are willing to take people's money. Decreases in travel would go a long way in lowering oil prices. But as long as people are willing to pay at the pump, prices will stay high. Whatever the market will bear...
However, it should be pointed out that the price of oil isn't as high as some other everyday products we use.
The pricce of oil is roughly $90 per barrel. A barrel is 42 gallons. Thus the price per gallon is roughly $2.14.
Here are some prices per gallon for some household products:
Pantene Pro V shampoo = $50.69
Pantene Pro V conditioner = $47.31
Aquaphore skin lotion = $358.03
Dial hand soap = $27.96
Listerine Cool Mint Mouthwash = $20.01
Degree Antiperspirant & Deodorant Aerosol = $127.68
Gillette Series Shave Gel = $60.16
Comet soft abrasive bathroom & kitchen cleanser = $17.01
Ajax dish liquid = $12.01
Clorox spray and mop floor cleanser = $18.61
Liquid Plumr drain de-clogger = $25.34
Pledge furniture polish = $40.86
Folgers 97% caffine-free instant coffee = $95.89
Breyers chocolate chip ice cream = $11.98
Why are we so worried about the cost of gas when the fact is that the cost of most other items we use just as often are actually much higher? What is the big deal? Why is this generating so much of a ruckus?
Why are we so worried about the cost of gas when the fact is that the cost of most other items we use just as often are actually much higher? What is the big deal? Why is this generating so much of a ruckus?
Hello El:
Spoken like a man who takes the train to work. Plus, I wonder if your support of the oilman in the Whitehouse has anything to do with it??? Nahhh.
Most people in this country, El, have to drive to work. They don't have to buy Breyers ice cream. But, that's not gonna be a problem shortly, cause they won't be able to AFFORD Breyers ice cream.
What percentage of the cost of any product is transportation costs? Frankly, it is relatively low on the overall expense list of any product. A 20% rise in the price of oil might effect the price of shampoo... by a penny or two. Maybe.
Excon,
I take the train to work, but my wife drives. I still heat my home. I go to various meetings and errands with my car. The idea that because I don't drive to work I must not know the cost of a gallon of gas is rather silly.
Furthermore, you may not need that gallon of ice cream, but you probably do need the shampoo, soap, mouthwash and deoderant. Not to mention the cleaning supplies to clean your home. Picking on ice cream ignores the rest of the items I listed.
Also, despite the fact that gas prices are so high, and people are paying more for it, they still seem to be buying ice cream. I haven't seen any reports that sales of ice cream are down due to lack of affordability, have you? If people are still buying the stuff even though it is a luxury item, that tells me that people are still buying luxuy items... and that the effect of the rising price of oil has been minimal.
Sorry, excon, but I just don't see it as that big a deal. I certainly don't see it as a case where people will be paying so much for gas that they won't be able to afford food and shelter... or that the rise in gas prices is causing a major rise in the prices of other products. We already pay exorbitant prices for our daily household needs. Much more exhorbitant than the price of gas.
I got a cost comparison for consideration. Back in the 1970s I had a gas guzzling clunker that went about 10-12 mpg. I paid $30 at the pump and went apx 200 miles when it was tuned up . Today for the same $30 I travel 300-400 miles in a car that excedes 30mpg . Was I better off then or now ?
1) Supply and demand: there is a limited supply of oil due to a limited number of refineries in the world. There is a huge demand from every developed and developing nation on Earth for oil. Ergo, prices are high. One way to decrease the price of oil is through the construction of additional refineries.
Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.
None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest. The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothin' yet. A company in India has just announced plans to produce a $2500 automobile.
Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e., nearby) and foreign (i.e., distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.
Sorry, but the refinery bottleneck theory doesn't fit the facts. Crude oil is the raw material for refineries, and transportation fuels are the primary outputs. If a lack of refinery capacity were the main problem, crude oil would be selling at a big discount to refined products, refineries would be making money hand over fist and companies would be falling all over themselves to build more.
None of this is happening. Crude is expensive, refinery margins are modest at best, and new investment in refineries is also (appropriately) modest.
But it is. Take a look at the price of gas at the pump vs. the price per gallon of crude. Crude is selling for about $2.14 per gallon whereas prices at the pump are running an average of $3.25 per gallon or so. That's a 52% markup on refined product.
As for the fact that there has only been modest investment in refineries, I agree. But where I disagree is about WHY that is happening. You believe that it is because of lack of demand. I disagree. I believe that the lack of refinery investment (and overall oil-ifrastructure development) is because of POLITICAL reasons... the NIMBY syndrome (Not In My Back Yard), and a general dislike and distrust of all things "oil" by a large segment of the US population. From a market perspective, there clearly is a demand for increased refinery capacity. Your argument below just proves that point.
Quote:
The supply-demand shift that's happening is more fundamental, having mostly to do with huge demand increases in the developing world, especially India and China. We ain't seen nothin' yet. A company in India has just announced plans to produce a $2500 automobile.
China made the same announcement about a cheap car in 2005. I'm still waiting.
But assuming that it is true, that will mean an increase in oil demand overall, and specifically an increase in refinery capacity, which is where the bottleneck in oil production takes place today. There's no shortage of crude right now... there's plenty to go around, actually. We're actually producing more crude worldwide than ever before. It's in refined product that we see shortages due to a shortage of refinery capacity. Granted there are countries that use crude oil sales as a political tool, and there are other cases where production capacity is questionable because of piolitical unrest. But in terms of actual overall crude reserves and crude production, we're way ahead of where we were in, say, the 70s. Even if we had to buy our oil from third parties, the oil is still available. The real bottleneck is in the refineries.
Quote:
Having said that, I do agree with your conclusion that it's not as big a deal as many would like to make of it. Transportation has been artificially cheap for a very long time, so there is a lot of potential to adapt to a more realistic (significantly higher) price for it. One by-product of that will be a reduction in the cutthroat competition between domestic (i.e., nearby) and foreign (i.e., distant) producers of everything from baby shampoo to steel. Consumers will pay more, but more of their dollars will end up in their their neighbors' pay envelopes instead of halfway around the world. Not such a terrible thing, it seems to me.
And since net incomes will increase domestically, there will be an increase in retail sales, which in turn jump-starts the whole economy, increasing employment, increasing wages, and increasing production based on increased demand. That increase in production will drive prices back down, and the greater earnings of the average American will keep up with any increases in oil prices. So yes, it really isn't that big a deal. (Unless taxes are increased, pulling the rug out of the jumpstarting economy by decreasing personal net incomes.)
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