The Oil Market, Explained

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Saudi oil minister Ali al-Naimi has it all figured out: "The price today has nothing to do with supply and demand."

The Saudis blame rising gasoline prices in the U.S. on speculation, not on the underlying price of crude oil. There, all done.

(thanks to Edward Bird for the tip)

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  1. Hey, $, if you really believe big oil is in collusion to screw the little guy, why not buy some big oil stock so you get your money back?

    OPEC can still have dramatic influence on oil price, since there’s little excess capacity to be brought on line quickly if they actually ever stuck to a quota. Even one large producer shutting down can have a significant impact, as seen recently with political turmoil in Venzuela.

  2. Shannon,

    You mentioned EPA regs stipulating different formulas for seasons.

    Do the regs also include the actual levels of pollution for those seasons allowed under the clean air acts?

    Would regional pollution markets help? Perhaps by allowing cities to band together to reduce overall levels, they could spread the cost of niche fuels across larger markets than currently?

    Could we then have more standardized fuels for larger markets rather than the niche markets existing due to EPA air quality assesments?

  3. I’ve been reading a lot of news stories lately saying that prices are rising not because of OPEC or speculation or any human behaviors, but because ‘the boom’ is over, we’ve already extracted most of the oil that can be CHEAPLY extracted, and now have to move to oil that costs more to reach.

    Recently, at the recommendation of a friend of mine, I did a Google on the phenomenon known as “peak oil.” Some Peak Oil believers are obviously paranoid, predicting global warfare resulting in the deaths of three-quarters of humanity, but some of it sounded very reasonable.

    The most believable peak oil theory I’ve read is basically this: We are approaching the very end of the era of cheap petroleum, and within 20 years should expect the price of gasoline and plastics and other petroleum products to rise far faster than rates of inflation. This will not result in the end of civilaztion, but WILL result in radical changes which will happen more quickly than can be comfortably adjusted to.

    On the one hand I believe this, but on the other hand I’m still paying into my pension fund rather than stockpiling food and supplies as protection against Der Tag.

    Any opinions out there?

  4. Jennifer,

    In a few years we will be mining current landfills for their plastic content, and daddies can say, “I put my kids through college by slaving away in the plastic mines”.

  5. Glen-

    My boyfriend’s action-figure collection alone ensures that if plastic becomes valuable, we’ll rival Bill Gates in wealth AND surpass him in personal attractiveness. Ha, ha, ha!

    But seriously, the only rebuttals of this I’ve read basically boiled down to “Oh, c’mon! If it hasn’t happened before it can’t happen later,” or “C’mon! Nothing this bad could happen to US.”
    Which to my mind is like me saying “I’ve never died before, so I must be immortal.”

  6. You’re referring to the “Hubbert Peak”.

    Hard to tell if the supply has truly peaked as long as it remains cartelized and not under true market pressures.

  7. So it’s US speculation huh? Nothing at all to do with certain companies shutting down their refineries, or OPEC planning to cut production… those were all just coincidences, huh?

    Riiiiiight!

  8. Nothing to do with supply and demand?

    The Saudi oil minister would fit right in with the DEA. “Nope, the insane profits accruing to narcoterrorists are in no way connected to artificially constricted supply or the removal from the market of firms that don’t use violence to compete.”

  9. OPEC can’t be the sole or perhaps even the major cause of high oil prices because OPEC can no longer corner the market on oil as it’s member states now control only a little over a third of world crude production. Even then, member states routinely ignore OPEC quotas. Not that any of this gets OPEC off the hook. Oil prices would be lower if they let the market set the price But they wouldn’t be dramatically lower.

    The spike in gasoline prices, which is larger than the spike in oil prices, is mostly caused by restrictions in refinery capacity. Clean air regs have made gasoline non-fungible across the US. The regs also require that different formulation be used during winter and summer meaning excess capacity from one season cannot be used in the other. The list goes on.

  10. If the US starts drilling again you will see oil drop to $23bbl.What we need to do is establish fake drill riggs all over the country so they think we are drilling.

  11. didn’t I say, “kill their leaders, convert them to christianity, and take over the oil fields”?

    well, on second thoughts, I didn’t say the last bit.

  12. Gas prices will go to $2 a gallon soon; in the Fall Bush will release some petroleum from the strategic reserve to get the prices down (they might go down a bit anyway in Fall).

    Bush-haters will decry this opportunistic move (forgetting Clinton did this in 2000 – to favor Gore – thus depleting the reserve)

    Bush-lovers will support his decision on the basis of our “energy-security” or some such crap (forgetting they bashed Clinton for the same)

  13. Bush-haters will decry this opportunistic move (forgetting Clinton did this in 2000 – to favor Gore – thus depleting the reserve)

    Bush-lovers will support his decision on the basis of our “energy-security” or some such crap (forgetting they bashed Clinton for the same)

    For once, you and I agree 100%. Both sides will be hypocritical on this.

  14. Shannon is correct – and lets also be critical of subsidy huffing corn farmers in the midwest.

    Mostly, lets remember that the Saudis are not our friends. Bush’s friends, sure. But, greedy, corrupt scumbags are no one’s friends but their own.

    Its enough to make me consider purchasing a diesel vehicle and running it on restaurant scrap.

  15. zorel,
    Actually, Kerry has been calling on Bush to stop filling the SPR and has said he will stop filling it if he takes office. Actually, I read that many Congressmen on both sides of the aisle have been calling for Bush to do this, so it’s not like it would be out of the blue.

    I thought the Iraq war was supposed to make gas cheaper…

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