Oil company profits and taxes

[Shapley]

OPEC Market Share



OPEC lost a lot of market share following the oil embargo. Since the break-up of the Soviet Union, Former Soviet Satelites have increased their production, while other non-OPEC nations have done likewise.

OPEC's ability to set the market is limited by the willingness of non-OPEC nations to pick up the slack.

[Giant Communist Robot]

Au contraire, GCR. OPEC determines the price of a barrel of oil by its quota system. They've been throttling the flow for decades.

Why else do you suppose they meet?

Remember, Nancy Pelosi blamed speculators for the high price of oil, not OPEC.

The OPEC quota system does not really work so well. They look at the projected demand and divide that amongst themselves based on the relative reserves of each nation. In theory it helps maximize price. In practice, member nations often sell more oil than their quotas. It also leads to hilariously inflated reserve estimates--so that particular country can sell more. They lie to and cheat each other for more money.


Oil is freely traded http://www.nymex.com/index.aspx here. The price is set by demand.

[Trumpetmaster]

It seems to me that OPEC and the speculators
BOTH
contribute to this mess........ not just one group

[BigJon@Work]

OPEC has bigger competitors today. They don't have near the monoply power over oil prices they once did.

[Giant Communist Robot]

It seems to me that OPEC and the speculators
BOTH
contribute to this mess........ not just one group

OPEC is aware that a too high price of oil slows growth, and slower growth means less demand for oil. The optimal point is the intersection of growth and price.

Many people view speculation as gambling, and this is incorrect. The difference between the two is that speculation has an economic function. Here it is: speculators give liquidity to markets (to the benefit of the commercials) and assume risk from the commercials. What I mean is that speculators create supply where there is none, and absorb excess when that is the case. Commercials routinely take one position in the cash market and the opposite in the futures, thereby gauranteeing themselves profit. Where did the risk go? The speculator got it when he took the other side of the futures trade.

There can't be any doubt that speculation can cause prices to rise too high in the market, but without any fundamental reason to be at those levels prices must eventually fall to their true values. It can only be temporary, a bubble.

[Haggis@wk]

From Instapundit

May 08, 2008
I GET AN EMAIL NEWSLETTER from an oil trader and today it includes this tidbit: "In an interesting twist of OPEC news – in the folder titled 'Adequate Supply' – Iran has chartered an armada of supertankers to act as floating storage for as many as 28 million barrels of crude oil that is backing up on them. Analysts are blaming worldwide refineries yet to recover from maintenance programs. It’s not the first time that Iran has had trouble finding buyers; they temporarily floated 20 million barrels in 2006. No, I can’t explain this in light of record oil prices and continual cries for more release of OPEC crude oil. "

U.S. crude stocks are up, too. This is unlikely to be the case, but here's a thought: If I were, say, the United States government, and I anticipated military action in the mideast that might interrupt oil supplies, I wouldn't want to stockpile directly because that would be a tipoff. But if I manipulated markets into running up stocks, I wouldn't have to. . . . Nah. They're not that smart.

[Shapley]

President Bush has been filling the strategic oil reserves, which were severely depleted by his predecessor. Congress and one or two Presidential candidates have called on him to stop doing so, in order to reduce demand, but the President insists that it is necessary for national security. I'll try to find the article on it and post a link.

I think I can find it from a source other than Fox, perhaps the BBC, so OT will read it....

[Shapley]

Here is a recent link, from CNBC, which discusses the issue of the strategic oil reserves.

President Clinton used to tap into the reserves as a means of keeping the economy on track. To the Clintons, the economy was everything, so little things like preparing for war or national emergency paled in comparison to a few cents rise in gas prices, and the loss of Democrat votes such a rise would produce.

President Bush sees the Strategic Oil Reserve as a national defense tool, not an economic hypodermic needle. This President clearly has a different perspective (and a better one, IMHO) on what constitutes a 'crisis'.

V/R
Shapley

[Giant Communist Robot]

To the Clintons, the economy was everything

...and with hindsight it looks like he did the right thing. Oh! Wait a minute! They did the right thing.

[Shapley]

To the Clintons, the economy was everything

...and with hindsight it looks like he did the right thing. Oh! Wait a minute! They did the right thing.

President Clinton did many things right, often by bucking the Democrat Party line (NAFTA, Repeal of the ill-fated 'luxury tax', etc.) He also benefitted from the Pax Reagana, which allowed him to continue the drawdown of the military (too far, IMHO) that President Bush I had begun. The economic stimulus of the retroactive luxury tax repeal gave the economy a 'shot in the arm' right at the beginning of his term, allowing us to continue to drift out the economic doldrum in which we had been wallowing. Keep in mind the 'worst economy in fifty years' that they claimed President Bush had left us with was nothing of the sort, as I've pointed out numerous times. But, perception is everything, which is why the current non-recession is a recession to so many people.

I've also pointed out that President Clinton's famous 'tax surplus' never really existed. The Debt increased every year that President Clinton was in office. He was able to reduce the public debt, but only by virtue of borrowing from Social Security. That 'intergovernmental debt' has always been figured in the total debt, and accounts for about half of our obligations.

In fairness, however, I would point out that he did significantly reduce the deficit. However, the economy in 2000 was already in decline, so it is expected that the deficit would begin to increase in the following years, regardless of who won the election. The events of 9/11 put a further burden on government spending and receipts, and the wars which followed did likewise. I am not saying that Al Gore would have spent as much on Afghanistan and Iraq as President Bush did, (Probably not), but I am saying the non-existent 'historic surpluses' would have vanished regardless of which of the two leading candidates assumed office in 2001.

It is also fair to point out that the fiscal restraint the Republicans showed during the Clinton Presidency disappeared when President Bush assumed office. President Bush was apparently unwilling to veto any bill sent to him by a Republican Congress, with the result that the Republican Congress was guilty of the same type of unrestrained spending that they campaigned against in 1994. Nor do I hold the President blameless, as he requested much of that spending, and vetoed none of it. Nonetheless, it is the Congress that ultimately holds the purse strings, and the Congress that bears the blame if they are too loose. I am convinced that our government is best served when the President and the Congress are of different parties, as it tends to keep them more restrained.

Back on topic, however, President Clinton did tap into the Strategic Oil Reserves in 2000 in an effort to minimize gas price increases (and, many say, to bolster Al Gore's chances in November). I was a bit overboard in my use of the term 'depleted', but the reduction did have to be made up. President Bush II increased the size of the reserves, and has been filling them steadily throughout his Presidency, except for a two-year hiatus in filling them in an effort to hold down pricing. It was determined that that hiatus had little effect on the market, since the problem isn't really a lack of crude, but a lack of refining capability.

V/R
Shapley

[Shapley]

Iranian Supply Problems

This one casts doubt on Haggis earlier post.

It is true that Iran has had problems maintaining its' oil field equipment due to ongoing embargoes. Say what you will about American Oil Companies, they know how to pump oil. Since the Americans have been out of Iran, Iran is having problems keepings its oil infrastructure in place. They have the largest reserves in OPEC, but can't get them to market.

They've reportedly signed a deal with China to trade expertise for oil, I'll have to find the particulars on that.

V/R
Shapley

[Shapley]

Senate Urges President Bush To Stop Filling Strategic Reserves

Just a follow-up on an earlier discussion.

[Giant Communist Robot]

Senate Urges President Bush To Stop Filling Strategic Reserves

Just a follow-up on an earlier discussion.

.....and this will make a difference? Never say the senate will fail to take deciscive action!

[Shapley]

Senate Urges President Bush To Stop Filling Strategic Reserves

Just a follow-up on an earlier discussion.

.....and this will make a difference? Never say the senate will fail to take deciscive action!

The President's argument is that it won't make any difference. He stopped filling them for two years and it had a negligable effect on price increases.

The Senate wants to be on record as 'doing something' going into the election year. Their priorities lie with the election, not with security. (Well, it actually lies with their security.)

The President sees the Strategic Oil Reserves as a vital part of our security preperations, and he is planning to fill them come Hell or high prices.

V/R
Shapley

[jamiebk]

There is more oil in the strategic reserve than ever. Here are some facts from the DOE:
http://www.fossil.energy.gov/programs/r ... facts.html

Strategic Petroleum Reserve - Quick Facts and Frequently Asked Questions

The Strategic Petroleum Reserve is a U.S. Government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coast that store emergency supplies of crude oil.

Inventory
Current inventory: 702.7 million barrels
Highest inventory - On April 2, 2008, the SPR inventory exceeded 700 million barrels, the highest level ever previously held. The former record was reached in late August 2005, just days before Hurricane Katrina hit the Gulf Coast, causing the SPR to conduct emergency releases. Repayment of the Katrina loans and resumption of the RIK program (in 2007) has restored the inventory to its former level and beyond.

Current storage capacity - 727 million barrels

Current days of import protection in SPR - 58 days (Maximum days of import protection in SPR - 118 days in 1985)
International Energy Agency requirement - 90 days of import protection (both public and private stocks)
(SPR and private company import protection - approximately 118 days)
Average price paid for oil in the Reserve - $28.42 per barrel

Drawdown Capability

Maximum drawdown capability - 4.4 million barrels per day
Time for oil to enter U.S. market - 13 days from Presidential decision
############################
One must ask oneself why we are continuing to add to a reserve that is at record levels already. It would suggest that:

There may be an interruption in supply forseen
The price is going to skyrocket, making it more attrative to fill the cofferes now
The US is planning to use it for some "event" (war, invasion, etc.)

Seems to me that the time to economically fill the caves has passed. I guess the US adopts the policy of "buy high and sell low"

[Shapley]

I posted a link on that earlier. After Sept. 11, 2001, the President increased the storage capacity of the Strategic Oil reserves to nearly double their capacity, and began filling them. When oil prices began to rise signifcantly in 2003, the President suspended the filling, for two years, but it was determined that it had a negligible effect on prices, so the filling was resumed.

The President has stated that he fears a terrorist attack on oil fields overseas could have a devestating effect on our oil supplies, and the increased storage capacity would dampen that effect, allowing time for inventories to recover. At present levels, that would be about two months. The President believes that that is an insufficient timeframe.

As you note, the supply is the greatest it has ever been, but it still has not kept up with demand, which is also at the greatest it has ever been.

V/R
Shapley

From my previous link:

What is the Administration’s current objectives for the SPR?

The SPR is a creature of crisis. It was created in response to the 1973-4 oil embargo which accompanied the birth of OPEC.

It was authorized to stockpile up to one billion barrels, but an initial target was set at half that. Two months after 9/11, President Bush ordered an increase to 700 million barrels. At the time, the SPR contained 545 million barrels.

The Energy Policy Act of 2005 called for a pool of one billion barrels. It is currently at a little over 701 million barrels, the most ever, worth $19.9 billion based on market prices.

The Department of Energy aims to reach SPR’s capacity (727 million barrels) by the end of September. There is draft legislation to expand this to 1.5 billion barrels, at a cost of $5 billion. Last year DOE requested $168 million; $25 million was appropriated.

[Shapley]

BTW, I should point out that the President is only complying with the law, since the Energy Policy Act of 2005 required the DOE to fill the reserve to its' 1 billion barrel capacity. I do not know what discretion is available to the President regarding suspension of that filling (I assume he has some flexibility in that regard) but he does not appear to be desirous of a change in the policy.

[piqaboo]

To me, its not a matter that not filling will drop my price at the pump.
It just seems stupid to be buying reserves when the price is at a record high.
That's sure not when I stock up at the grocery store etc.