Thread: Price of oil unrealistic.

Originally Posted by WickedTribe

Maybe you missed the second section of the article, titled, "Increased Demand Boosted Margins."

The greatest profit in the oil business comes from selling physical crude bbls. Some major oil refiners such as Valero, don't own a bbl in the ground. Others like Exxon, Shell and Chevron do....that's the big bucks. I believe the increased demand is for refined products i.e. gasoline, diesel, jet fuel. Refined product margins are easier to 'see' because it's the difference between what the delivered crude costs (depending on the type of crude the refinery can run) plus the cost of production and the price the refined products bring in the market. Margins at a refinery are up and down and often negative depending on regional market drivers, logistics, specifications, volume through the refinery....blah blah blah.

Originally Posted by deathgodusmc

Maybe you missed the second sentence where it ends with "as it produced more oil to take advange of higher prices."

There are at least three other major forces at play besides the now fuzzy supply/demand relationship of crude/refined products. 1) The international beating the U.S. dollar is taking (the dollar is the basis trade denomination for world petroleum buy/sell/trade). It the dollar value goes down in the world the cost of crude goes up. 2) The geopolitical effects on petroleum product/crude supply whether actual or suppositional. Example: Egypt is all fouled up and "what if they close the Suez Canal for a while?". 8% of the worlds crude goes through the canal....wrist ringing begins and crude futures market reacts upward. 3) The stock market so to speak for crude oil. Several years ago it became legal to speculate on the value of crude in the future without ever having to take posession of a physical bbl of crude. So when the tech market tanked speculators moved towards the oil market. Now the money involved in crude oil speculatoin is so huge that when they get nervous or scared up or down it is amplified to a great degree. It was much better and more supply/demand driven when only oil companies who actually took risk with physical bbls instead of just contracts drove the crude/product futures market.

Originally Posted by deathgodusmc

When they produce less (on purpose mind you) the price goes up. We have another natural resource that has supply and demand water. The government took control of it and regulates every bit of it that goes to homes and businesses. Of course that does not include the obvious like bottled water. They also control another resource electricity. Sure you get it thru your electric company but they cant change the prices without getting approval thru government. So why should oil be any different? Why should they be able to create the demand and jack up prices when they see fit?

Most production facilities do best financially when full out. Refineries are no different. My experience with refineries is you only slow down when you are losing your ass. If the market is long on gasoline, diesel and jet fuel you aren't making money....slow the refinery down until the demand allows you to raise prices to make money at your refinery.

Originally Posted by Red_Lizard2

I've heard (can't confirm) that a large amount of the money big oil makes, is through trading commodities and the such, and less on their sale of gasoline.

True...the bucks are in selling crude to refiners. Gasoline margins are up and down constantly.

Originally Posted by Blackgold1967

There are at least three other major forces at play besides the now fuzzy supply/demand relationship of crude/refined products. 1) The international beating the U.S. dollar is taking (the dollar is the basis trade denomination for world petroleum buy/sell/trade). It the dollar value goes down in the world the cost of crude goes up. 2) The geopolitical effects on petroleum product/crude supply whether actual or suppositional. Example: Egypt is all fouled up and "what if they close the Suez Canal for a while?". 8% of the worlds crude goes through the canal....wrist ringing begins and crude futures market reacts upward. 3) The stock market so to speak for crude oil. Several years ago it became legal to speculate on the value of crude in the future without ever having to take posession of a physical bbl of crude. So when the tech market tanked speculators moved towards the oil market. Now the money involved in crude oil speculatoin is so huge that when they get nervous or scared up or down it is amplified to a great degree. It was much better and more supply/demand driven when only oil companies who actually took risk with physical bbls instead of just contracts drove the crude/product futures market.

Excellent post I was wondering when someone would bring this to the table.

Originally Posted by deathgodusmc

Never happen. The reason cities became so big is due to population increase. Seeing as we are still a growing populace the likely hood of a change is almost non exsistant.

Soviet yes it was brought up and its 8 cents a barrel plus taxes on the products produced.

I believe the 8c per bbl is for a federal level clean up fund. Fed taxes on gasoline for street use is 18.4c. Each state then tacks on more for their highway funds or whatever....varies from 8c in AK to 32c in WA. So when you pull in for gasoline in my state I'm paying $3.15 for unleaded reg of which 50c is for taxes to state and local government. On road diesel tax is the same....off road fuel is treated diff. I don't know how jet fuel is treated. Those are the three highest volume products in the U.S.

Originally Posted by Blackgold1967

I believe the 8c per bbl is for a federal level clean up fund. Fed taxes on gasoline for street use is 18.4c. Each state then tacks on more for their highway funds or whatever....varies from 8c in AK to 32c in WA. So when you pull in for gasoline in my state I'm paying $3.15 for unleaded reg of which 50c is for taxes to state and local government. On road diesel tax is the same....off road fuel is treated diff. I don't know how jet fuel is treated. Those are the three highest volume products in the U.S.

PS: the taxers are per gallon not per bbl.