Oil Execs to Congress: I Drink Your Milkshake

"The fundamental laws of supply and demand are at work."

-- John Hofmeister, chairman, Shell Oil Co. 5/21/08

It's an economic principle that's fairly easy to understand: Rising gas prices are traditionally accompanied by a rise in bullshit. When it comes to oil prices and oil company press releases, the correlation coefficient of getting gouged to getting lied to is 1.

Why are prices going up? Oh, it's refinery maintenance. Did I say "refinery maintenance?" I meant hurricanes. No hurricanes? Well, then it's obviously Nigerian rebels. Or fear of Nigerian rebels. Or fear of Hurricanes. Or fear of Nigerian rebels worshiping hurricanes, when they should be performing refinery maintenance.

(The Yoruba have a goddess named Oya, specifically for hurricanes. You do the math.)

What other explanation is there? Must be environmental red tape. Or speculators. Or competition from India. Or a combination of all three, a shadowy partnership of polar bears and Laurie David, gaming the Bombay Stock Exchange.

I don't know. I'm not an economist.

When it comes to gas prices, only one fact is absolutely certain: They have nothing to do with oil company profits.

Record oil company profits.

They can't help it if they're lucky.

This week, executives from Chevron, BP, ConocoPhillips, Shell and Exxon Mobil were in Washington to talk about the $36 billion in profits their companies have made in the last three months. Not earnings. Profits. It was a pretty hollow exercise, but what was sort of striking this time was how little energy they put into the oldies and greatest hits (OPEC/environmentalists/Oya) and how often they said prices were a simple result of supply and demand.

The "...comma, stupid" was implied, but not stated.

In a general discussion of economics, "supply and demand" is what you say when you want the other person to know you think they're an idiot.

And when an oil executive claims the price of his product is determined by supply and demand he means: "Haha, the fix is in. Fuck you."

Because supply and demand is one factor in determining price, but another factor used to be called "competition." Again, I'm not an economist, but I'm pretty sure that was supposed to drive prices down.

Now, of course, not all markets conform to a model of perfect, atomistic competition. For that you need:

Homogeneous products
Mobility
Perfect knowledge of the market
Free market entry and exit
Many firms and buyers

Does that describe American drivers and gas? Let's see:

Homogeneous products. The products must be not only identical but also perceived as identical by consumers. One brand of gas is as good as any other, right? Except Arco. There's water in that crap.

Mobility. Can the consumer buy it in many different places? Yes. Some gas stations even have mini-marts. Can the seller move it around? Yes, in those big shiny trucks.

It conforms to the shape of its container, being a fluid.

Perfect knowledge of the market. Can the consumer learn what other gas stations are charging for the same product? Yes, he can look at those large signs.

Free market entry and exit. Can the consumer choose where to buy gas? Yes. Can an entrepreneur start his own oil company? Ditto. All he needs is a shovel. I saw it in "There Will Be Blood." Before I feel asleep.

Many firms and buyers. Of course. There are 200 million drivers in America and they all buy their gas from... five companies.

Huh.

That's funny.

I wonder if that's the problem.

Why aren't the supermajor energy companies competing for customers by undercutting each other's prices? Shouldn't at least one mover seek that advantage?

It's almost like -- and this is going to sound nutty, but -- in any classical economic model, the only explanation for windfall oil company profits is collusion.

That or Oya.

Comments

[Bladernr1001]

I think what we have the most to worry about is the democrats who keep blocking the oil companies' abilty to get to more oil on our own soil.

Read and weep:

http://www.hermancain.com/news/press-opinion-052608.asp

[speakeasy]

Alright, we're gonna do some simple math, based upon factual information (i.e. not the article you insulted us with).

The USA currently produces around 8 million barrels a day. This number is declining every year anywhere from 3-6% (Hubberts curve). At most, if ANWR and any new coastal drilling was opened, they would produce around 2.6 million barrels a day at 100% flow. Now, if it takes 5 years to get these wells online and at the same time our other wells are in decline (3-6%) all this new oil will be doing is replacing oil lost to declining wells. WE WILSTILL BE IMPORTING 13 MILLION BARRELS+ PER DAY. ANWR or the coast will never pump 20 million barrels per day, the logistics and current technology do not work.

Now, drilling in these areas may be worthwhile if, at the same time, we reduce our consumption of oil by 20%, then maybe an arrangement could be worked out. If we keep wasting this valuable resource in HUMMERS (for example) then drilling in these areas makes zero sense, except to oil companies.

The USA has 5% of the worlds population, yet we consume 25% of all oil produced each and every day.

It will take a gargantuan discovery (100 billion barrels plus) in US territory to make a difference. Shale works, but the technology isn't there yet.

[mikecal]

I'm afraid that we are all capitalists until the price of something that we care about or need goes up. Then we become socialists. Oil companies are not models of capitalist probity but they are essentially extracting a product that has a limited supply and selling to it to us with some mark up, whatever they can get. There are no ethics involved in "how much" that mark up is; it's just what they can get for it. If they can cooperate with each other to keep that margin high, they will do it. They don't need to formally collude and risk legal action to basically play off each others prices.

So, while I personally wish the price of gasoline would go down a little because I use a lot of it, I feel like the oil companies are really doing us all a favor by raising gas prices, so we can get off the stuff onto electricity and, maybe, for airplanes and ships, biofuels. Commenters here seem to be all into the conspiracy part and not see the big picture.

[bgregs]

Okay, I'm gonna have to answer this one, even though I'm a couple days late:

"Pure" capitalism does not exist in this nation. We came close to it in the last part of the 19th century, when the robber barrons (Rockefeller, JP Morgan, etc.....) were able to amass HUGE fortunes by creating monopolies. Then Teddy Roosevelt came in with this idea that the govt is supposed to protect the American People from ALL enemies, foreign and DOMESTIC, and he broke the trusts. Since then the US has been a nation where we protect the people against the unchecked power of the corporation, until Raygun started to end that policy, and bushco(tm) destroyed it. This is why the oil companies are allowed to sell to us at a markup percentage that NO company should be allowed to, all the while claiming that their record profit numbers (not record for OIL companies, record for ALL companies, in ALL of human history!!!!!) are not really there.

As regards the thought that they are slowly weaning us from oil, yes, that minor aspect of it is good, except that they will keep us on oil until it all runs out, and they will have no plan for the future AFTER oil! That's where the govt is supposed to come in, with the long view, since they aren't supposed to be looking for a short term profit to the exclusion of all else!!!

[Bladernr1001]

The whole "Robber Baron" thing is a myth.

If for example Standard Oil was a Monoploy why did kerosen oil drop from about $5/gal to about $0.50/gal from 1850 to 1895? The common wisdom is that prices rise when monoploy exists.

[research]

A trillion dollars would pay to replace all electrical generating plants with solar and wind. Including converting all cars and trucks to electric. Sustainable forever. Cheaper then war crimes for oil.

[TRex86]

I don't think this is the return of tulip mania (not yet). The major driver is simply the decline in the dollar. We have become a bad credit risk, a 3rd world debtor nation up to our ears in foreign borrowing to finance our idiotic misadventure in Iraq. Our hubris in Mesopotamia will bring nemesis soon.
Everyone knows that petroleum will EVENTUALLY dry up. Everything we know now we knew when Jimmy Carter was president and told us about it. So we elected Ronnie, borrowed trillions of dollars and threw a party. The national debt was $1 trillion when Carter left office (driven by the post-Vietnam recession). By the end of GHWB's term the debt had quadrupled--but at least it was domestic borrowing.
Bill Clinton (or Robert Rubin) understood the vast implications of multiplying debt, so by the end of his term we had a budget surplus and a plan to pay down the national debt. We had stopped issuing 30 year bonds because we wouldn't need them. Enter GWB and the looting of the Treasury financed by foreign lenders (and borrowing from Social Security). Our creditors clearly see the dire situation. We don't have the economic strength to work our way easily out of our current sub-prime/­stagflatio­nary recession.

[bgregs]

The only thing that can fix this is an end to our military spending (at least at levels higher than the rest of the world combined!) coupled with a REASONABLE tax structure (actually tax the rich at rates that match what they use out of the common infrastructure!!) and combined with spending policy which includes paying down the national debt and realistic economic policies, similar to the New Deal!!!

[pmag88]

Have you noticed the latest TV adds from these folks?

http://www.americaspower.org/

Their new pitch isn't just that we have enough oil, gas and coal to power 160 million homes and 60 million cars for another 60 years from domestic supply. (notice they end up with the number 666)
Now they say that if you have a pension fund or you're invested in the stock market, your financial future depends on THEM.

And they say it so nice with a smile on their face.

[wolf58]

The New Boston Tea Party

BOYCOTT ALL EXXON MOBIL PRODUCTS for one year

We the people can no longer look to our government for help in this issue. We must take back America one greedy oil company at a time.

This is a national security issue.
The oil companies have become eco-terrorist

[bgregs]

Unfortunately this wouldn't do ANYTHING to help us. Gasoline and oil are BOTH fungible products. This means that whether you are buying gas from an Exxon station or a Shell station or a Texaco station, you are still buying gasoline! They will simply sell any gas that WE don't buy from them to OTHER gas stations, and still make their profit. And oil is even worse, since out of a 42 gallon barrel of oil, only 22 gallons go to make gasoline. This leaves 20 gallons to make everything from heating oil and diesel fuel to plastics, and there's no way to tell whether the plastic bottle you are buying (no matter what the product inside it may be!) comes from Exxon, Shell, Texaco, recycled, or anywhere else. So while I appreciate the sentiment that you have here, I also recognize the futility of your suggestions. There is one more choice, however, that you aren't listing. Everyone should drive less. Everyone should buy less plastic. Everyone should find out whatever products that they use which contain petroleum, and use less of those products. Eventually, the prices will drop!

[Bladernr1001]

What about the fact that a new oil refinery has not been built in this country in 30 years!....yes 30 years. That would tend to reduce competition and increase the impact of a "maintenance shutdown"....way to go enviros.

[theistus]

what about it? the existing refineries have all been vastly expanded over that time period, and the oil companies themselves say they don't need new refineries.

Even if it was a factor (which it isn't) the problem isn't 'enviros'. it's NIMBY - Not In My Back Yard. No one wants to live next to a refinery.

[mileage]

Here's to you, theistus. I've heard this correlation between refining capacity and gas prices, but how that would help with oil at $130 isn't clear.

And we're all enviros when the proposed refinery is next door. We're even NIMYS when the wind farm and solar arrays are next door!

[Soulsurfer]

Gotta love BR's logic ( and mucho macho tag), but let's see.......could the oil companies know that suppressing supply means increased prices? Ever hear the rationale for the richest companies in the world not building new refineries? It goes like this; "The profits from refining are not high enough at this point in time to justify the expenditure." The refining business is wholly different from upstream business, with an unstable market, fluctuating profit margins, and yes, environmental concerns. I just love the simplistic, moronic jibes from wingnuts who kneejerk kick their favorite targets instead of looking in the mirror.

[Bladernr1001]

Where sitings has been proposed near populated areas that may be true. But many siting propsals has been proposed away from populated areas and were still shot down. You cannot tell me that the hysterical enviro influence did not drive some of this.

[Seattle34]

I don't think you'll find anyone in industry that says they don't need new refineries.

Can you cite a source for that?

[daddyG56]

The oil companies would build new refineries if they needed them. I think it's pretty obvious that they have exactly as many as they need, since there is NO shortage of gasoline, diesel, home heating oil, etc. I also think it's clear that they collude to manipulate markets and fix prices.

The problem seems to be that they've got all the bases covered. Their lawyers are smarter than our legislators and their money spreads influence like a cancer throughout our government. Hell, they even managed to get 2 oil men into the White House. Ideas that work, such as solar construction and electric cars, have been ridiculed and underfunded into non-existence by those of you who deride "enviros", tree huggers, etc. We saw it coming and we couldn't (wouldn't) prevent it.

We are being royally screwed, and we are going to keep being screwed for many generations to come. Get used to it, because the powers that be are in league to squeeze every penny out of us.

[Bladernr1001]

Well I have to say that this points up another weakness of government overregulation: It serves as a barrier to entry by would be competitiors to the established oil companies.

The established oil companies have been fed these regulations incrementally for years and thus have been able to absorb them into their operating system. But a new competitor having to start from scratch climbing the oil regulatory mountain would probably conclude that money could be better invested elsewhere. so yes, the existing establisged oil companies now have a vested interest to some extent in the existing regualtory structure in that it discourages healthy competition.

Again, I bame government more than I blame private industry.

[randyjet]

The fact is that the price rise is caused soley by speculation. I refer all to Star-Teleg­ram.com/ed­_wallace and read his article Thank You Bubble Boys. The fact is that the major oil companies have gone out and bought out all the competition. There used to be a number of small refineries scattered all over the country, but they were all shut down and the number of refineries was thus actually reduced. If you look at the stats, the US refineries are only running at 80-85% capacity now. Demand has fallen by 4% since this time last year. Gasoline stocks are ABOVE what they were last year at this time by 13%! So demand is down, stocks are up and the price is up. THAT is NOT supply and demand in anybody's book.
I retired from the oil business so I know what the deal is. The oil companies are not the ones to blame, though they ARE the beneficiaries since ALL of their crude stocks go up in value too. And they price it at market rates. The money going into oil futures has gone from $9 billion in 2000 to $241 billion today. THAT is what is causing the rise. If one uses some intelligence, you can figure that out on your own. When Goldman Sachs made the announcement that crude would go to $200/bbl, the price jumped by $2 with NO threat of shortage at all.

[Veri]

Free market capitalism requires a degree of honesty. Huh? Yes. The problem is not the system, but the people involved in the system. We all know for years that oil companies collude with each other in fixing the price of gas by using zones. That is why the price of gas at competing stations never varies that much. Among markets such as the Southwest in comparison to the Northeast, there are price differences. Local markets? No.

Ever notice when one credit card company raises rates, the rest follow? Now, you sign a contract with your credit card company that they can modify at any time. That is not a contract. You are being dictated to. After all, who else are you going to go to for that credit card? Contracts are negotiated.

Airlines? One raises the rates, the others follow. We no longer live in a capitalist system. We live in a corporate system where the consumer is dictated to. As far as the shovel comment and oil, it is possible to start a small company. Lack of access to capital, tightly controlled by banks is the limiting factor.

Ever notice how when Pepsi is on sale, Coca-Cola is not? And vice versa? There's a clue to the true system we live in. You are controlled by your lack of access to capital. Capitalism cannot stand everyone having too much money. It needs to keep people poor.

[mileage]

There is a fine line between collusion and between signalling higher prices to an industry in the hope competitors will follow. In the airline industry, anyway, pricing power seems to collapse pretty quickly and none of them are making money now anyway. If this is collusion, it's q quite lame version of it.

[bgregs]

As regards the airline industry, they are failing because none of them are willing to raise the price of a ticket. They know that if they do their lower COST competitors (like Southwest!) will simply sweep up their customers. What they need to do is actually raise the cost of flying to reduce the number of passengers to the point where they are making a profit with the number of planes that they have in the air, but they won't do that because the big ones WILL go under!

[Soulsurfer]

AND in debt.

[DofG]

It's been stated by this writer before.
The "free market system" is a good thing. However, there is a fundamental problem with it. And as long as we see it as sacrosanct, and above need of change, we will continue to see negative consequences play out in our social order.

Just as an object in space will move in a certain trajectory, unitil profoundly acted upon by an opposing force, so too, do our thoughts and the paradigms they create. And as long as we keep seeing these economic problems as independent of each other, our efforts will be futile, for all things are bound by singularity.

We are much more powerfully creative, collectively, than apart. However, this concept has been, historically, simplistically demonized to maintain the tragic status quo.

[Veri]

A "tightly regulated" free market system where those that have good ideas have access to the capital necessary to realize their idea. This is not the case in The West. Poor and middle-class people are at a disadvantage when they are born.

We all grew up with the false idea that if you work hard and keep your nose clean, you will succeed. Disillusioned yet? Sure, we have our SUVs, our homes, nice toys and electronics. Always being bought on credit. You don't own those until you pay them off. And with consumer debt at an all time high, many people own less than they think.

Our system of capitalism is designed to reward those that can best manipulate the system. Market manipulation and the subsequent loss of pension funds and mom-and-pop retirement money is detrimental. There goes retirement, ala Enron, and you are now forced to work the rest of your life. Manipulation creates crime, as people turn toward crime as a way to make ends meet. And what is the punishment of impovershing tens of millions of people? Pretty damn light in comparison to murder.

[Bladernr1001]

Give me some examples.

I don't agree with your statement. Are you talking about
Walmart? Sam was just average middle income guy when he started his business. The baggy hip hop clothing that came into vogue a few years ago was started by a couple of black kids from South Central LA (I won't even mention the dozens of rap stars that grew up in the ghetto and in many cases started their record lables). Most folks that find business and financial success did not start out rich.

I will say this: If this is the attitude you have you will not become financially successful.

[crease]

C.K. , I believe these guys are trying to bankrupt this nation and hold us hostage because as of now they are actually running the country with the SHRUB as the head puppet.WE are ina tailspin while these XO`s of the oil industry reap the profits and our GOV`T is in a catch 22 situation.I say congress should just say phuck it and take these bastards down and nationalize the oil comapanies and have a democraric party gov`t run the oil companies.What is happening to me and others like me in the blue collar work force is we are spending more and more to get to work while we have less and less to put on the dinner table day to day, pretty soon me and my family are going to gov`t assistance to put food on the table.Something needs to be done soon or a depression the likes we have never seen in this world will comet to fruition and nobody will be able to get to work acccepy by bike and a lousy public transportation infrustructer.I believe if we stop this insane bullshit in the middle east and bring our soldiers home we could cut our gas prices down because the military is gobbleling up half of our gas and diesel products that need to be used here to keep and grow our economy and stop this warmongering and war profiteering which is disgusting.

[julianne]

Absolutely. What we're missing is your common sense. Say its "supply and demand" or whatever you want, but when you make 36 billion or more in quarter after quarter while spending 100's of millions of dollars to field lobbyists to deflect us from pursuing our Energey Agency on the level of NASA (last poll, 93% of us want it), lay track and create a new national train system, renovate the electrial grids to accept alternative energy sources while rebuilding our infrastructure, close our borders to allow our population to blend into some kind of balance with the carrying capacity of our environment, and lie and try to defeat anyone who accepts what the vast majority of the world's scientists call worldwide, catastrophic "global warming" - doing all this while funding the American Enterpise Institute, the home of the privatized Neocons that led us into the insane invasion of Iraq while ignoring the 9/11 Commission Report's allegations that it was always a majority of Saudis and Saudi financiers who promulgated and carried out the attack on New York - then you are not our fellow citizen. You are a predator and a mortal enemy of our posterity.

[Veri]

I made the point a few days ago in another post that if it is more expensive to produce the product, oil, then prices should rise accordingly. Demand should factor in also with a corresponding rise. The price is at of all proportion with what is actually occurring in the market.

In addition, oil is pegged to the dollar. As the dollar falls, oil prices rise in order to compensate for lost purchasing power. It takes more dollars to buy an ounce of gold. So, if you sell oil, and it now takes $2.00 to buy an ounce of gold, you raise prices. Food prices follow this principle. Peg oil to another currency and America is screwed while the rest of the world is not. Because our dollar is quickly becoming toilet paper.

The Fed damn well knew what they were doing by flooding the market with dollars. Bankrupting our nation. And the Demo-Republicans Party let them do it. Ultimately, who is responsible for this? Look in the mirror. We let this happen.

[indypete]

"Nationalise the oil companies...."

Yes, Yes Yes, YES, TES, YES, YE-E-E-E-ES!!!!

(And further impressions of Meg Ryan in the diner scene of "When Harry Met Sally")

Taxpayers become shareholders... taxes become investments... socialist? I guess, but all it needs is a bit of spin on the language to sell it. I grew up in the UK before the railroads, steel, coal, shipyards, public transit etc were privatised. Everything worked quite nicely, thank you very much. Now all those industries are buggered... train and bus service is awful (and expensive) steel towns have become ghost towns, coal barely exists any more, Thatcher killed the mines stone dead. Free market systems only work if they are not corrupt... doon't hold your breath waiting for CEOs and their puppets in government to be clean and honest.

[TxAggie]

Yes, yes, yes, but why stop with the oil companies? How about the drug companies, microsoft, Starbucks or any other damn industries or companies that make a profit. We nationalize the oil companies so they can be as successful as what the Postal Service? Maybe they would be as effiecient as Congress?

The Big Oil companies record profits pale in comparison to the drug companies, banking (Mastercard), Microsoft and many other others. Currently the industry's return on capital is slighly higher thant the S&P. US Oil companies are the good guys!! they do an extremely difficult job managing risk, hazardous resources, government overregulation and stupid gov't inaction. Foreign companies can drill closer to Florida (offshore Cuba) than can us companies. Our gov't does not allow drlg and devlopment of our own resources in the US while they allow foreign companies to come in and buy US reserves. How does this make sense?

[Seattle34]

You can readily become shareholders of oil company profits. Buy oil company stocks.

If you would have bought Apple stocks and Exxon Mobile stocks a year ago, your Apple stocks would be more than 50% higher than your Exxon Mobile stocks today.

Folks will try to manipulate the uneducated by showing oil company profits followed by a lot of zeros. When that happens, you can be sure you are being played a fool. They are banking on you not understanding how all this works. They are playing to your emotions.

It's very easy to determine how much money a company is actually making: look at their stock price relative to other companies over a certain period of time. If a company is making unprecidented amounts of money (net margin), it will be reflected in the stock price.

But as we see above, Exxon Mobile's stock price is total crap compared to Apple...Either you are being lied to by those wishing to manipulate you for political gain, or the Exxon Mobile stocks are incredibly undervalued and that anyone purchasing the stocks now would be on the cusp of making untold riches. Hint: Don't buy Exxon Mobile stocks, it's will remain a mediocre investment.

[scottaa]

"In a general discussion of economics, "supply and demand" is what you say when you want the other person to know you think they're an idiot."


For such a self-assuredly smart guy, that's a weird thing to write. When is discussion of "supply and demand" appropriate then? In physics does one look like an idiot for mentioning gravity? Nice try taking it off the table, though.

How about "profit margin"? Am I an idiot for bringing up such a silly term in an economics discussion? Somehow you managed to write this whole piece without mentioning it, so maybe.

[indypete]

He did mention collusion. That creates "enhanced" profit margin. (By enhanced, of course I mean ridiculous).

[Seattle34]

Why don't you look up and report back to the group Exxon Mobile's profit margin. And also report back whether or not it is exceptional.

Answer: It's not exception. It's mediocre

[bgregs]

And yet they keep claiming that the reason for the increased price of oil and gasoline in this country is due to a simply supply and demand curve, in spite of large amounts of evidence of collusion by the oil companies and OPEC to gouge the American people.

And please don't try to bring up profit margin. You seem to be implying that the oil companies are making the same profit margin that they were before, but that is proven to be wrong by the fact that they aren't selling very much more product worldwide than they were earlier, and yet they are making profit NUMBERS never seen before by ANY company in the history of man. In fact, they are making profit numbers which are a good deal larger than many national GDPs even today!!

[mkelch]

The price of oil is not due to corporate collusion now or when oil was trading at less than $10 a barrel. Blaming oil companies for the high cost of oil is equivalent to blaming farmers for the high cost of corn, rice or wheat; it seems logical but it just ain't true.
Our nation got the head's up 40 years ago that the middle east was not a stable source of energy. Had we responded by setting clear cut, energy policies the social-eco­nomic-poli­tical landscape would look much different today. The failure is one of political leadership on both sides of the aisle. To expect corporations to act like anything other than the amoral, profit seeking machines that they are is naive. They never have and never will. It is the role of government to recognize that relying upon oil as the foundation for our energy supply is ill-advised.
Our leadership has been focusing upon more pressing issues such as a gay-marriage amendment, White House sex scandals and the use of steroids in professional sports at the expense of steering the ship of state towards a stable energy supply. Relying upon oil companies by giving them tax breaks or drilling rights for oil in ANWR only exaggerates the problem. Sadly, what is forcing investment into new energy technologies is $135/barrel oil. I do believe our government will get the problem with steroids in professional sports resolved; what a relief.

[TxAggie]

I agree with you. Our gov't has focused on politics rather than the business of running the county, little things like the illegal immigration problem, the social security issue, our energy needs, drugs, crime etc, instead they have acted like politicians rather than statesmen.I have been empoyed in the oil and gas industry for 27 years. I am a landman- I am the guy that buys the leases, makes the deals with other oil companies, coordinates with the landowners when wells are drilled, production is found etc. I have worked for 5 companies, none of which had more than 2000 employees and currently work for 1 with 100 employees. I survived the bust of the 80's where our industry lost over a million jobs. . We are now acccused of collusion, thievery, making excess profits, etc.
Well the truth is we work very hard to do our best for our communities and our country. We are beseiged by higher costs, increased regulation and a government that has suddenly realized that "we" have a problem. That is akin to Claude Rains discovering in Casablanca that there is gambling going on in Rick's Cabaret. To close- you can rely on your US oil industry to deliver- we simply need access and opportunity to pursue existing reserves and resource potential right here at home.

[Necron99]

"...and then the well can't produce, and blow gold all over the place."

[indypete]

Tex, it's your new socialist buddy here!

You're the guy that knows the poop, aparrently. What's the real deal on how much oil is under the US and how much environmental damage does or does not get done to yank it out of there? I've been reading that it's a drop in the bucket and it's too hard to get at. Real questions, by the way, honest interest...just in case you think I'm having a dig at you because we don't agree on things.

[Bladernr1001]

"Relying upon oil companies by giving them tax breaks or drilling rights for oil in ANWR only exaggerates the problem. "

Well I don't think may tax dollars should be given to any company so I am with you there. But allowing drilling in ANWAR would increase supply of domestic oil...plain and simple. We know how to manage the environmental aspects of a project like this. It is stupid that we let this area get so political.

We have oil shale too. We have nuclear. The enviros have managed to put all this off limits and now we are just begginning to pay the price.

[bgregs]

Actually, we were starting to do quite well as regards looking for alternative energy, thank you. Then Ronnie Raygun stepped up to the plate, and undid EVERYTHING that Jimmy Carter had done with regards to a sensible energy policy, and here we are!!!

[Awash]

There is substantial evidence that the large amount of speculation in the current market has significantly increased [oil] prices.' On May 13, the price of a barrel of oil was a record $126.98 on the Mercantile Exchange The reason was ostensibly that Iran was cutting oil production. But there is no gas shortage. So why are prices still going up?

We do know that refineries in the U.S. again cut back their utilization to 85%, in a season when production is normally 95%, only because they're trying to draw down gasoline inventories to bid gasoline prices up. The May 8 report from Oil Movements, a British company that tracks oil shipments worldwide, shows that oil in transit on the high seas is quite strong; almost every category of shipment is running higher than it was a year ago. 'In the West, a big share of any [oil] stock building done this year has happened offshore, out of sight.' 'Oil in temporary floating storage offshore is hard to pin down, and we don't have useful info on that. Bloomberg has reported that Iran is again storing its heavy crude on tankers in the Persian Gulf because the country has run out of onshore storage tanks while awaiting buyers. Further, Saudi Arabia has extended discounts on its sour crudes to $7.45 for Arabian Heavy. Doesn't sound like there's any real supply problem with that grade of crude, does it?

[Veri]

Are you suggesting we live in a managed economy? Gasp, Communism masquerading as capitalism. Who would've figured.

[Seattle34]

Sour crude is very high in sulfer, and cannot be processed by most of the world's refineries. In fact, you can't even transport sour crude in a ship because it is so corrosive.

Your figures are refinery capacity are off, too. Here's the historical time series of refinery capacity: http://tonto.eia.doe.gov/dnav/pet/hist/mopueus2m.htm

You'll note that we have historically bounced around the 80's to 90's. Refinery capacity margin is absolutely required to ensure that you can cope with a problem. If you run at 99%, and an accident occurs, then the will have a 5% shortfall and at that point you can rationing. If you run at 85 or 90%, and two accidents occur, you can cope.

[Puller58]

Chris, you know it takes two to tango. Now that the Democrats are in charge in Congress, the shakedown goes on. The dog and pony show that went on this week merely confirms that all is well in DC. Senator Leahy was straining to keep a straight face when defending the hearings. The Oil companies pony up to the PACs. The GOP can't say anything without giving the game away. (And they plan to pick right up when they are able to regain their majorities.) The Democrats figure the GOP will get the blame for the gas prices since Bush's rosy scenario vaporized like gas in a cylindar. And of course they can point to GWB as the roadblock to lower prices. Let either McCain or Obama in the white house and you'll see nothing in the way of lower prices. Remember how prices dropped before the 2006 mid terms? Some folks felt the Oil companies were trying to save the GOP. Guess they figure the gravy train will never end. Our government, don't you love it?

[Veri]

Pounding it in again, are you? So what exactly are the differences between the Democrats and Republicans?

[leduck]

I went through half the comments b4 I gave up...., As far as I know, no one has mentioned the main actual problem. Regardless of whether world oil production has peaked or pleated, world oil production has been flat since at or about 2005. All those familiar with supply and demand would immediately now figure it out. Supply and demand are not in sink anymore. As world demand continues to rise..., although slower because gas is getting expensive..., it's still rising were as supply has been, and remains overall stagnant for years.

I'm sure the falling dollar isn't helping..., I'm sure the oil companies are taking advantage of the situation..., I'm sure we can nominally increase world production of light sweet crude through Iraq, maybe Saudi Arabia, tar sands (minimal increase) and through other means..., but other super giant fields throughout the world are in terminal decline; Fields such as Canterall, the North south, etc.

As long as supply outpaces demand, prices will continue to rise overall. If you look at a price curve over the last decade or so, you'll notice this rise doesn't look like a spike, and it starts roughly when world oil production starts to flatten.

In other words, regardless of whether or not we hit peak oil or plateau oil, I'm sure the era of cheap energy is over.

[indypete]

I agree with you on the supply and demand issue but like Mr Kelly said, the monopoly situation trumps everything by cancelling out the free market. I'm sure there's no way we could be paying a buck a gallon for gas in this day and age but I'd bet a weeks pay against a bag of donuts this four dollar crap is an out-and-out gouge.