They buy it under contract, not at the spot market price. If Exxon negotiated a contract today, it would be at a price much closer to the spot market price. Any refiner paying close to spot market prices is getting hosed on the spread between raw materials price and end-item price.
I agree that the energy cost increase will need to be gradual, but this gradual increase needs to be sustained over about a decade to reach a reasonable level. A sudden “blip” in prices (like the current one) will not do anything to reduce consumption and will cause problems for low income people who can’t afford to react. I would rather see gasoline prices increase by $0.50/year for 10 years than increase by $1.50 in one year and drop by $0.50 the next year (which is likely to happen when the speculators bail out of the oil market). Also, the producers are not going to increase capacity in a volatile market, it’s just too risky. Their biggest fear is that they will invest several $100M in a refinery over 5-10 years and the price of oil will drop to $50/barrel, it’s safer to do nothing and rake in the profits.
I am still amazed that heating oil is used in the NE (and I used to live there), it is much too valuable to be used in a stationary application. How high do you think oil prices will need to go to get most people to convert there heating systems to something else (a significant investment)? Getting rid of home heating oil would certainly put a dent in oil imports.
I’m not going to defend oil companies “morality,” but if they did anything different than maximize their management teams would probably be unemployed. I do agree that they should not be subsidized by the government while they are making large profits (the same goes for farmers, but the farm bill just passed with significant “farm welfare” included). The government has a very poor record of regulating industries, they are likely to make things worse if they try to intervene in the energy market.
The lack of freedom in the market is mostly the lack of access to develop more reserves. We stated in a previous post that over 75% of the world’s remaining reserves are in the hands of foreign National Oil Companies and off-limits to US and European firms and only accessible on the terms of the host countries. These countries really determine the overall long term supply vs demand relationship. If US and European firms had unlimited access to drill wherever they wanted, the supply cushion would be much greater and oil would trade at around $55-%65/barrel, the cost of developing high cost reserves.
In other words, the current oil price is the result of uncertainty of future supply in the face of rising demand. The difference between the $134 today and the $60 or so that a steady supply/demand situation needs is part speculation, part fear of supply interruption and part fear of a collapse of the US dollar.
Much has been made of US firms wanting to access the Alaska wildlife area, coastal areas, etc. These areas cannot begin to close the oil import gap of the US or affe ct the price of oil. Deep drilling in the Gulf of Mexico is technically now possible, and considerable oil is still available from there. It will take quite a while, however to develop these super-deep reserves.
The benefit of these sky-high oil prices is that the US can now start looking at technology to turn its immense coal reserves into oil, and bio fuels from cellulose and twitchgrass will soon be economic.
Every developed country (even those with lots of oil), except the US, has put in place curbs on gasoline and non-commercial diesl consumption through gas guzzler taxes, total tailpipe emissions, fuel taxes, road taxes based on weight and horsepower, and in Japan’s case, the physical footprint to park the car.
It’s time Americans stop living in a make-believe world where resources are made available by magic regardless of the needs and desires of the 6.2 billion other residents of this planet.
The government has a very poor record of regulating industries
And industries have an even WORSE record in regulating themselves.
I guess I don’t understand what outcome you would like to see; are you looking for lower prices, more stable prices, higher prices, less imported oil, more domestic production, etc.? Personally, I don’t care how much profits oil companies make, I’m only interested in the end result on the costumer and the economy. If you think oil company profits are too high, buy their stock and get in on the profits.
I don’t expect morality from a corporation. Corporations are soulless entities that do what is in their best interest. Besides, what is less moral, providing a product for which people are willing to pay, or living a gluttonous lifestyle in a country where more energy is consumed per capita than any other country in the world?
Clean air should have been enough reason to conserve energy. There a lot of folks who were not moral enough to conserve energy when it was cheap. Now they have additional motivation. The moral thing to do would have been to conserve energy before it got expensive. You can?t blame the oil companies for demand. They didn?t create demand.
George Bush said Americans are “addicted to oil”. Quite true, but I would say “addicted to cheap oil”. So many of these posts are calling the supplier of the addictive material the villain! It reminds me of an addict on a TV talk show blaming the drug dealer for his cocaine habit!
Heating oil makes sense only in areas not accessible by the gas distribution grid. Now that most of the NorthEast is supplied by piped gas from both Canada and Texas, only rural areas should be oil heating oil, or propane where available.
Ground effect and air heat pumps make sense in many rural areas of the North East. It may take some initial grants to get these installed and get the movement going.
I guess I don’t understand what outcome you would like to see
I am NOT against regulating the oil and gas industry. Or are there other solutions we haven’t even thought of.
For years the telecom industry was taxed on any profit over a certain amount. That’s ONE solution. Then take that money and invest into other technologies. I’m just guessing here…What I do know is the system is NOT working and the oil companies have the power right now to destroy our economy…and personally I don’t trust them to “Do the right thing.”
"What I do know is the system is NOT working and the oil companies have the power right now to destroy our economy…and personally I don’t trust them to “Do the right thing.”
I’m not so sure, it seems to be working fine, at the moment. The U.S. has an abundant supply of very cheap energy, there are no shortages, rationing, or lines.
The only part that is not working in the dependence on energy imports, which means that the current system is not sustainable for the long term. IMO, the only realistic solution is a slow, steady increase in energy prices until consumption levels are reduced. I’m guessing that doubling the current prices within a decade would actually make some alternatives cost effective (there is no shortage of alternative technologies). I am concerned that raising prices too quickly would be inflationary and could drive up labor costs, the trick is to do it slowly enough to avoid trashing the economy.
As Gordon Grecko said, “greed is good.” (-;
I’m not so sure, it seems to be working fine, at the moment.
How can you say that??? Oil companies are making RECORD PROFITS…And our economy is either in a recession or starting a recession…depending on which analysis you talk to. Gas prices are rising…which is raising the cost of everything else…which is a major contributor to the recession (there are about 10 analysts I heard recently saying just that). Some people are having a very hard time feeding their family because a good portion of the budget has increased because of gas prices…and now food prices are going way up because of the cost of transporting the food is going up. I guess where you live people aren’t being effected by the gas crisis. Our church has seen a 200% increase in people asking for help in the past year…and that’s just ONE church.
“How can you say that??? Oil companies are making RECORD PROFITS…”
I would only care about oil company profits if I was a large stockholder, otherwise it’s not relevant. The only (long term) problem with gasoline prices is they are not high enough to reduce consumption yet, and that the speculation bubble may burst before they reach a reasonable price point. The U.S. economy has much bigger problems than the price of domestic gasoline, not the least of which is the devalued dollar and the trade deficit (partially due to importing too much energy).
The U.S. is probably already in a recession, which it deserves based on recent monetary policy. The sooner the U.S. public figures out that the era of cheap energy is over and makes the necessary adjustments, the better off they will be in the long run. The U.S. simply cannot continue to consume more energy than it produces and make up the difference by printing more money. They can either have a little pain now or more pain later. Reducing the short-term price of energy is not the solution, that will just cause joe six-pack to go buy another SUV or a bigger house. If you have a less painful way of reducing U.S. energy consumption, this would be a good time to share it, otherwise it’s going to get ugly out there before it starts to get better.
I do feel sorry for folks who were suckered into living beyond their means by artificially cheap energy costs and loose credit. Obviously, these are the people who bought a big house they couldn’t afford 50 miles from their job and bought a gas guzzler for their commute. Now they are stuck because they are upside-down on both the house and the car and can’t afford to put gas in their silly car. They did the same thing as the U.S. government, just on a smaller scale; and, like the government, the sooner they fix either their income or their lifestyle, the sooner they will be out of this mess. It is also unfortunate that these folks have to rely on churches and other private institutions for help (but that’s another problem).
I do feel sorry for folks who were suckered into living beyond their means by artificially cheap energy costs and loose credit. Obviously, these are the people who bought a big house they couldn’t afford 50 miles from their job and bought a gas guzzler for their commute.
If you think only people who have bought too large homes and a big gas guzzler are the only ones having problems I suggest you take a look around…Sorry but you are DEAD WRONG. Many many families who drive small cars and who live in apartments have had to make choices of buying food or gas to go to work. And many of these people are hard working 2 income families.
I’ll agree that the US economy has other problems…but the gas crisis is probably the BIGGEST problem to the working poor and lower middle class. A couple of our grocery stores have started laying off employees because sales are down (which is partly caused by increased gas prices). Ford just announced yesterday that they are going to build a lot less vehicles and laying off thousands of workers because of the gas crisis. It’s not just buying gas that is causing a hardship…it’s the residual effect.
Mike, I do understand the impact on some folks, but this issue is not going away and energy prices are not going back down significantly anytime soon. There was a time when the average “working poor” person did not own a car and lived where they could take a bus to work. We are probably returning to that situation again, this may really be more of an urban planning problem than an energy issue. I suspect that there will be significantly fewer private vehicles owned by the “working poor” in a couple of decades, and that increased public transportation will be required to make up the difference if local employers want to attract lower paid employees. I also suspect that the average “middle class” person may decide that they don’t really need to own either the SUV and the power boat they tow with it. This will have an impact on the overall economy, and it will take a while to sort itself out. U.S. society will look different in 20 or 30 years.
I’m surprised ford is still in business (I owned one once, one too many), the “gas crisis” is the least of their problems. I think it’s safe to assume that the “big 3” will all be gone in a couple of decades. I can’t believe they are still trying to do any manufacturing in the U.S., truly a lost cause.
“If you think only people who have bought too large homes and a big gas guzzler are the only ones having problems I suggest you take a look around…Sorry but you are DEAD WRONG. Many many families who drive small cars and who live in apartments have had to make choices of buying food or gas to go to work. And many of these people are hard working 2 income families.”
Mike, I don’t want to sound insensitive; but anyone who is in a position of having to choose between buying food and getting to work is living beyond their income (and was probably living much too close to the edge before the cost of fuel increased). It is probably not their fault, but they need to either fix their income or change their lifestyle. That may mean they need to sell the car and move, or find another job in a different location with a lower cost of living. If they wait for the government to help them, they will have a long uncomfortable wait; and the cost of energy is only heading in one direction.
Many of our grandparents got on a boat and left their home countries when they needed to support their families (back when the U.S. was the “land of opportunity”). I don’t know where our grandkids will end up living, but they will also do whatever it takes to support their families.
Ground efect and heat punps become ineffective as the temp drops…not practical for cold winter months. Oil is still the fuel of choice for the rural NE. and there is little that can be done to change it. Even wood chips, best home grown source in Maine is practival only if someone is home to tend the fires. Oil is and will continue to rule around here.
“Oil is and will continue to rule around here.”
Until the price gets too high, them people will change to something else.
I feel that as diesel comes on strong, consumers should be allowed to use both interchangably with home additives for vehicles. Please…rent “who killed the electric car” to get a correct perspective on personal vehicle transportation.
Oil prices are controlled by speculation as we all agree. If the “speculators” KNEW that EV’s were available and practical (WHICH THEY ARE) for the majority of consumers, the price of oil would drop faster than it has risen.
There are NO rational arguments against the use of EV’s for the majority of commuters that can’t take public transportation. EV’s can get 60 to 100 miles on TODAY"S tech. Plug in at work and solar assist makes the ranges well within the reach of 99% of commuter’s needs…
Ground effect heat pumps don’t care about the weather; they extract heat from undergound. Air based heat pumps, I agree, are best in a milder climate; Maine, New Hampshire and Vermont are probably too cold. Although Washington state has many heat pumps, even inland, since electric power is relatively cheap and the heat pumps doubles in the summer as the A/C unit.
True but depends on area. Daughter has a heat pump home in SAC CA. Even though below 35 degrees periodically winter it’s still an ok system because the house is well insulated.
For the heat pump and alternative heat arguments, insulation is highly cost effective. In Feb I installed additional ceiling insulation to R30 standard SCAL. Over two weeks, crawls, pushups, body twists to install batts of insulation. Worth it. At 74 if I can you can. Our annual natural gas bill was $160 for the year 2007. Yes it’s SCal. Our indoor temp evening is 64 degrees. 50 at night. Century 21 America is about whining and not doing.