Originally posted by: amish
Originally posted by: dmcowen674
Oil Apologist admits incompetence of his hereos.
How many years have they been making gasoline and they can't get it right all of a sudden?
so now oil barons control the weather too? i know that a 20° shift in the weather isn't uncommon for indiana, but i had no idea that it was the fvcking oil barons that caused it.
or is it that oil barons should predict the weather good enough so that what cyclowizard is talking about doesn't happen? screw meteorologists, i'll just listen to the oil baron's weather report.
but i must hate america, or be a sheeple, or be a shill, or any other of your stupid catch phrases that have no relevancy to a topic. so
How long have they had to deal with tempature changes over the years?
Is this the Oil Barons first time ever going from winter to spring?
I don't believe that the immediate result of high demand would be gas stations out of gas. Why would you assume that?
Let me give you a comparable analogy: If California's citrus-growing region has a freezing storm that destroys much of the fruit, do grocery stores immediately run out of oranges? Of course not. They can always bring oranges in from other regions like Florida, or even import them from other countries.
amish
Diamond Member
- Aug 20, 2004
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Originally posted by: dmcowen674
Originally posted by: amish
Originally posted by: dmcowen674
How many years have they been making gasoline and they can't get it right all of a sudden?
so now oil barons control the weather too? i know that a 20° shift in the weather isn't uncommon for indiana, but i had no idea that it was the fvcking oil barons that caused it.
or is it that oil barons should predict the weather good enough so that what cyclowizard is talking about doesn't happen? screw meteorologists, i'll just listen to the oil baron's weather report.
but i must hate america, or be a sheeple, or be a shill, or any other of your stupid catch phrases that have no relevancy to a topic. so
How long have they had to deal with tempature changes over the years?
Is this the Oil Barons first time ever going from winter to spring?
no, dave, it isn't. it isn't a weathermans first seasonal change either and they can't seem to get the weather right on a daily basis. you expect the oil barons to do it a month in advance. :thumbsup:
I've actually taught engineering economics.
Sure, money has a value that is time-dependent, but it's almost never more profitable to take out a loan to pay something off when one can pay cash up front. Since the oil companies have more cash than they know what to do with, the decision seems pretty simple to me.As with any multivariate optimization problem, there is an optimal solution. In this case, the objective function I'd optimize is the total profit. You're right that having an absolute price spike that instantly recoups the capital costs would be detrimental to business. This is just a simplification (i.e. the Dirac delta function) that I used to explain what I meant by 'spike.' They will not truly be minimizing the payback period - they will be maximizing the profit. However, since demand is relatively inelastic, they can pay themselves back very quickly without worrying about scaring away the buyers. Competition between the oil companies doesn't do much to alleviate this particular situation because all of the companies are required to make the same changes at the same time.
Does cold weather destroy oil/gas? I don't think so.
The .30 cent jump in gas is just more profitering as far as I can see. It jumped sooner and higher then usual this year. Why? I'm guessing the fat cats didn't want to miss out on the spring price hikes and jumped in the futures market hoping to cause a bit of a run. I hope they all get BURNED too.
Wow, admits Supply & Demand is BS, price gouging is rampant and a monoploy all in one spewage.
Awesome job. :thumbsup:
shira
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- Jan 12, 2005
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Maybe I'm missing something here, but the article stated
Note that date range. Thus, I don't see how the normal Winter-to-Summer transition period-induced shortage could possibly have caused the recent increase in gasoline prices: That transition can't have happened yet, as it's extremely unlikely that the refinery change-over occurs three or four months PRIOR the June 1.
No and I didn't say that. A freeze that kills citrus decreases the supply of citrus and prices rise accordingly. Keep in mind too that Congress legislated that Daylight Savings begin earlier so again, you have a rise in demand for gas as Americans get more daylight hours to drive. So you have a switch to a warmer weather formulation coupled with an increase in demand. There could be other factors too, but I'm simply pointing out the most obvious ones.
3chordcharlie
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- Mar 30, 2004
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But not all face the same purchases at the same time, and there's no reason to 'give away' the added cost of the catalyst later. Especially considering that (according to your numbers) you will probably have to replace that catalyst mid-season, and won't have the luxury of all companies making the switch at the same time. Further, a competitive company would respond to the action you describe by averaging the price over the recipe-season, cannibilizing early season sales. This would last for about one season, and then all the companies would do the same. The situation you describe is the equivalent to a bus company tacking a few bucks onto each ticket for the next week, because they had to change the oil.Originally posted by: CycloWizard
I've actually taught engineering economics.
As with any multivariate optimization problem, there is an optimal solution. In this case, the objective function I'd optimize is the total profit. You're right that having an absolute price spike that instantly recoups the capital costs would be detrimental to business. This is just a simplification (i.e. the Dirac delta function) that I used to explain what I meant by 'spike.' They will not truly be minimizing the payback period - they will be maximizing the profit. However, since demand is relatively inelastic, they can pay themselves back very quickly without worrying about scaring away the buyers. Competition between the oil companies doesn't do much to alleviate this particular situation because all of the companies are required to make the same changes at the same time.
Predictable expenses are simply part of the regular price, and if they aren't, they probably indicate a market failure of some sort. I don't think there is a market failure going on in refining, but if this policy is in place, I'll probably change my mind.
In any event, the price shock form this really can't be all that large, as compared to the 40 cent a litre (well over $1 a gallon) that we saw two summers ago, and which was not at the beginning of the season, if I recall.
Whether you pay with cash or a loan is actually irrelevant, except that even for large companies there is some gap between what you could be paid for a short-term deposit and what you pay for a loan. The difference in the 'cost of the money' is pretty small when you have great credit and are talking about large deposits.
I'm having a hard tiem buying into the argument that since daylight savings gives us another hour of daylight that we are burning enough extra gas to run the price up .30/gallon. Thats well over a 10% increase?
Most people get off of work at what, 5 pm? An extra hour of daylight doesn't really allow them to drive someplace and still have enough daylight left to do something when they get there?? The days just aren't that long yet.
Well now, just a second there, professor. I never said anything that would indicate this. 'According to your numbers' only works if I've actually used numbers to indicate anything similar to what you suggest, which I haven't. Mid-season temperature changes are minimal, so the only reason catalysts would need changing at this time would be due to poisoning. Since the oil companies know this, they overdesign reactors to account for poisoning so that they will only have to crack them open when a new formulation is needed. You're just switching things around to suit what you've already said. Unfortunately, that's not how this works. There are facts, period. Opinions should be formed based on these facts. Facts can't be rearranged to support your opinion.
But I've already stated why averaging it out over the entire season is not a good way to maximize profits. Money in hand now is money that can be invested and used to make more money. Money on loan is money that you're paying interest on rather than investing. I guess the bottom line is that without actually performing any financial analysis, we are not going to change our minds. You've made up your mind based on your theory and I've made up my mind based on what I have been told oil companies actually do by people who work for them. *shrug*
The prices of precious metals have changed drastically in the last few years, so buying precious metal catalysts is not necessarily a predictable expense. If your averaging scheme is right, then the company would have to know exactly how much the stuff was going to set them back if they wanted to have this buffered in the cost. I don't really follow precious metal markets, but a quick Googling of gold prices indicates that the price of gold has risen over 100% since 1998 (from ~$300/oz to ~$650/oz, not correcting for inflation). I guess the only point that this makes is that the situation is a little more complicated than you're making it out to be. Yes, the companies could try to average it out, but it's not always a predictable thing. In fact, this could contribute to some of the fluctuations we see, even if they are well time averaged by the oil companies.
3chordcharlie
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Sorry - I interpreted a statement of yours to mean that mid-season replacement was a fact of life. If that's not the case, this does change things somewhat.
If this is the way they act, they are not acting competitively, and I will have to rethink my current position, which is that there is not a market failure in refining and distribution of gasoline.
My original statement, if you recall, was actually that this formulation change has never been used as a reason before, and it just stinks of convenient fabrication. Oil companies are in the interesting position now of having to convince people they aren't crooks, when the fact of the matter is they were crooks for decades (OPEC), but are not any longer.
You just said they buy it once a season - thus they need to change the price based on this only once a season, and no guesswork is required.
I think you might be surprised. If last year is any indication, U.S. gas demand increases starting in April, peaking around September and then dropping the rest of the year:
http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html#demand
Plus, you have the reformulation costs as refineries switch to warmer weather blends.
I've long said that oil companies are in cahoots. They have little reason to compete when collaboration allows them to maximize profits. This is true even on a local level and is readily observable. If you go out early in the morning and see one gas station jack up their prices, the rest of the stations in the area will raise their price in a similar fashion. This is true whether or not the station receives gas that day, at least in my (anecdotal) experience. It benefits every gas station if they can come to an agreement on price.
This is what I perceive as the problem: oil companies are not beholden to the market in the way that other companies are. The startup cost for any competitive oil company now would be in the hundreds of billions of dollars. Further, virtually all drilling rights are owned by an existing company - even those spots that cannot yet be tapped due to technological limitations (e.g. >4000 ft (or whatever it is) depth in the oceans). In other words - no new competition can arise. They have achieved this position over more than 100 years of existence by buying up other oil companies, monopolizing drilling rights, and essentially hording a resource that is perceived increasingly as very finite. They developed insane technologies to allow them to predict exactly where oil is and where it will pop up, even where they can't actually see it yet, then they bought up all of the rights to these places. Now, even though there is a ridiculous amount of oil left, they are jacking up the prices by artificially decreasing demand. They have found the price that the market will sustain without immediately pressing for alternatives and are now exploring that a little more by perturbing the prices. It's all a game for them to see how much money they can squeeze out of their known holdings before they have to invest in deeper drilling technologies. By holding off on developing these technologies, it gives them room to claim that there is indeed an oil shortage even though we are far from such a shortage. They are essentially feeling out the elasticity of the demand to allow themselves higher profit margins.
3chordcharlie
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- Mar 30, 2004
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I used to think exactly that, but now I'm not sure. Even OPEC doesn't seem to be restricting output, and to me there's little question that the price at the pumps is being created by supply and demand.
Whether the stations and distributors are actually price fixing, I don't know, certainly most gas is now essentially sold on consignment (at least in Canada) with a franchise owner taking all the business risk and being paid a flat profit for volume sold. (I don't know exactly how the contracts work, but that is what they amount to).
I think oil is in bed with government, but if they're in bed with each other (OPEC excepted), they're doing a pretty good job of it. My feeling is that overall demand versus slow-to-grow capacity, supply shocks (there have been a number of refinery disasters lately, not just in the US) and speculation have been doing the price-controlling thing without the companies having to help out much. But I could be wrong.
They're not 'restricting output' per se, they're simply not increasing their output to keep up with demand. They easily could, but it's not as profitable for them to do so.
Like I said, this was just an anecdote. I don't know how the gas stations here are set up, but I think they also take a fixed amount per volume (something like $0.06/gallon comes to mind). If this is true, this traces the price control back to the source of the gas, as the supplier is telling the stations how much to sell for.
I know for sure that the supply could be increased significantly without threatening even the known accessible reserves for the next 80+ years. I learned this from this guy who taught my petroleum engineering class when I was working on my masters degree. He designed 9 multiphase pipelines for Shell in the Gulf over about 4 years, then they mysteriously stopped building pipelines despite record discovery rates of new drilling sites. The only reason this would be a reasonable course of action is because the other companies are also sitting on their reserves rather than pumping it out and refining it. Well, maybe there is one other reason - there aren't really any companies that will build a refinery anymore, at least in the US. The scale of the refineries currently open is so massive because they have been added on to over the years to keep up with increasing demand, but now they've reached the limit. New refineries simply aren't cost effective, especially given that they would have to conform to all existing environmental regulations. I can't recall when the last refinery was built in the US, but it was at least 20 years ago (maybe even in the '70's). I think demand has about doubled in that time.
3chordcharlie
Diamond Member
- Mar 30, 2004
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This supply system (owning production and distribution top to bottom) is what lets the companies pretend that gasoline doesn't make money.
I know for sure that the supply could be increased significantly without threatening even the known accessible reserves for the next 80+ years. I learned this from this guy who taught my petroleum engineering class when I was working on my masters degree. He designed 9 multiphase pipelines for Shell in the Gulf over about 4 years, then they mysteriously stopped building pipelines despite record discovery rates of new drilling sites. The only reason this would be a reasonable course of action is because the other companies are also sitting on their reserves rather than pumping it out and refining it. Well, maybe there is one other reason - there aren't really any companies that will build a refinery anymore, at least in the US. The scale of the refineries currently open is so massive because they have been added on to over the years to keep up with increasing demand, but now they've reached the limit. New refineries simply aren't cost effective, especially given that they would have to conform to all existing environmental regulations. I can't recall when the last refinery was built in the US, but it was at least 20 years ago (maybe even in the '70's). I think demand has about doubled in that time.[/quote]
If the decisions you talk about are real, they are coordinated, and if that includes companioes in the western world, this coordination is highly illegal.
Of course it's always possible that you have found conspiracy theorists inside the industry.
Then show me where the oil has run out.
Show me refineries idle because they have no oil to crack.
Explain why oil inventory levels have never dropped below five year highs.
So the increased demand doesn't start until April, yet the price jumped in the middle of March? the price rise comes before the demand?
I think that is what I said, the specualtors got greedy and jumped the gun this year in fear that they may miss out on some of the annual price gouging.
Normally, yes April. But Congress moved Daylight Savings back this year so that it starts about 3 weeks earlier. Which is where? Yes, early March.
Depending on their level of cooperation, the oil companies could be colluding, which would clearly be illegal.
LOL, I think we're going around in circles.
Just because daylight savings started earlier this year is no reason (IMHO) for the gas prices to jump. The days are still only 12 hours and most people work at least 8 and then have communting time on top of that. I remain unconvinced that the earlier start of daylight savings made any significant difference in demand, let alone enough to justify a 12% increase.
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