Wall Street does it again to oil prices

[Fred1609]

I read all the threads about the price of crude, oil coming to the US from the middle east, blah blah blah. With all this instability in the world why didnt the US embrace the keystone pipeline? Secure oil from a strategic partner in North America. Now Canada is looking at selling oil to China instead. Boy thats smart! Whose playing politics now.

[LadyFitz...]

Originally Posted by jzick

I am sometimes a commodity trader, and, other than personal use, I do not use commodities. Orange juice, sugar, various metals, hog futures, bananas, wheat, corn, and, my favorite, oil, are some of the commodities I have traded. Sometimes I have made money, a few times lost. This is wrong because?

It's wrong because the money you make comes from the pockets of the end users without having added to the value of the commodity itself. Commodity speculation does nothing to increase the value of the commodity itself and, as far as I'm concerned, is nothing but legalized theft.

[henderson]

Originally Posted by Tyler6357

I respectfully disagree. This assumes that an increase in domestic oil production doesn't affect world prices which is totally unrealistic. If America were pumping more oil then America would be increasing the world supply of oil thus putting downward pressure on the price of oil on world markets. If America was flooding the market with oil then those speculators would be speculating that the price is going to drop instead of rise and prices would come down quickly. The Saudis cut and increase supply to affect the price of oil all the time. Why do you think OPEC was formed? The answer is to control the price of oil by limiting production. The truth is, speculation is based on supply and demand. When supply increases at a quicker rate than the demand increases prices go down, when it doesn't they go up, plain and simple.

If we or any non OPEC country were to start putting massive amounts of oil on the market OPEC would cut production to maintain prices. There is a finite amount of oil controlled by OPEC, they would rather sell 50 barrels at $100 than 100 barrels at $50, same income but they keep more of their oil in the ground.

[henderson]

Originally Posted by Fred1609

I read all the threads about the price of crude, oil coming to the US from the middle east, blah blah blah. With all this instability in the world why didnt the US embrace the keystone pipeline? Secure oil from a strategic partner in North America. Now Canada is looking at selling oil to China instead. Boy thats smart! Whose playing politics now.

I've read that much of the oil from the Keystone pipeline was for export as refined product, not domestic use.

[laj]

Originally Posted by LadyFitz...

It's wrong because the money you make comes from the pockets of the end users without having added to the value of the commodity itself. Commodity speculation does nothing to increase the value of the commodity itself and, as far as I'm concerned, is nothing but legalized theft.

Sounds like what retailers do
So is that theft too?
Perfectly legal and anyone willing to take
The risk can play, so don't whine about those willing to put their money on the line when they make a profit

[henderson]

Originally Posted by LadyFitz...

It's wrong because the money you make comes from the pockets of the end users without having added to the value of the commodity itself. Commodity speculation does nothing to increase the value of the commodity itself and, as far as I'm concerned, is nothing but legalized theft.

Originally Posted by laj

Sounds like what retailers do
So is that theft too?
Perfectly legal and anyone willing to take
The risk can play, so don't whine about those willing to put their money on the line when they make a profit

The retailers do add value by storing and dispensing product

[Tyler6357]

Originally Posted by henderson

If we or any non OPEC country were to start putting massive amounts of oil on the market OPEC would cut production to maintain prices. There is a finite amount of oil controlled by OPEC, they would rather sell 50 barrels at $100 than 100 barrels at $50, same income but they keep more of their oil in the ground.

Don't be too sure about that. Often times the OPEC nations can't agree among themselves and sometimes will stab each other in the backs to sell oil at market prices. If America or any other non-OPEC nation starts to flood the market with oil, OPEC might try to cut production to keep prices up but you are correct that they only control a finite amount of oil and their production isn't a high enough percentage of overall world production to totally control the price of oil. Sure, if they all stick together they are able to influence the price but they wouldn't be able to stop the decline in prices. As prices fall their strategy of cutting production to keep prices high starts to cost them big bucks. For example, let's assume that the world price of oil is $100/brl and America start flooding the market with oil to drive the price down to $90/brl. If OPEC cuts production to even out supplies, America will start selling the oil that they used to sell costing them more money. As the price continues to fall they will start losing more money by not selling what they have before the price drops to 80. As this happens one or more of the OPEC nations will break away and start pumping, it's happened before.

[LadyFitz...]

Originally Posted by henderson

The retailers do add value by storing and dispensing product

You beat me to it.

[CLIFFTALL]

Originally Posted by Tyler6357

Don't be too sure about that. Often times the OPEC nations can't agree among themselves and sometimes will stab each other in the backs to sell oil at market prices. If America or any other non-OPEC nation starts to flood the market with oil, OPEC might try to cut production to keep prices up but you are correct that they only control a finite amount of oil and their production isn't a high enough percentage of overall world production to totally control the price of oil. Sure, if they all stick together they are able to influence the price but they wouldn't be able to stop the decline in prices. As prices fall their strategy of cutting production to keep prices high starts to cost them big bucks. For example, let's assume that the world price of oil is $100/brl and America start flooding the market with oil to drive the price down to $90/brl. If OPEC cuts production to even out supplies, America will start selling the oil that they used to sell costing them more money. As the price continues to fall they will start losing more money by not selling what they have before the price drops to 80. As this happens one or more of the OPEC nations will break away and start pumping, it's happened before.

Why would America flood the market with oil? Any oil co that's producing the product will want the most profit for all those stock holders. They also , as mentioned above would only produce at the most profitable level. 50 barrels at $100 is more profitable than 100 at $50.

[Tyler6357]

Originally Posted by Clifftall

Why would America flood the market with oil? Any oil co that's producing the product will want the most profit for all those stock holders. They also , as mentioned above would only produce at the most profitable level. 50 barrels at $100 is more profitable than 100 at $50.

America should flood the market with oil to increase supply, lower prices and reduce the power of OPEC to control those prices in the future. Once the supply of oil starts to out pace the increase in demand, OPEC's power and arbitrary supply limits will have less and less influence over the price of oil giving them even less control. They will also lose customers to those pumping oil costing them more money. Also, consider that as prices drop demand will increase as more people can afford to travel. It might be more profitable to sell 50 barrels at $100/barrel than to sell 100 barrels for $50/barrel, but it is also more profitable to sell 1000 barrels at $50/barrel ($50,000) than it is to sell 100 barrels at $100/barrel ($10,000). It's much like Henry Ford who was able to make much higher profits than other car companies even though Ford charged less per car because they made up for it in volume. It's much like when the government increases tax rates, taxpayers flee the country, hide their money, engage in less business creation and commerce causing tax revenue to go down. Would you rather have 50% of $10 or 10% of $100? This is simple supply side economics.
Any oil company that is pumping oil will want to pump as much as possible and sell it at market prices to maximize profits. The more they sell the more profits they make. They don't have the luxury of setting prices. Prices are set by speculating what the supply and demand will be in the future.

[CLIFFTALL]

Originally Posted by Tyler6357

America should flood the market with oil to increase supply, lower prices and reduce the power of OPEC to control those prices in the future. Once the supply of oil starts to out pace the increase in demand, OPEC's power and arbitrary supply limits will have less and less influence over the price of oil giving them even less control. They will also lose customers to those pumping oil costing them more money. Also, consider that as prices drop demand will increase as more people can afford to travel. It might be more profitable to sell 50 barrels at $100/barrel than to sell 100 barrels for $50/barrel, but it is also more profitable to sell 1000 barrels at $50/barrel ($50,000) than it is to sell 100 barrels at $100/barrel ($10,000). It's much like Henry Ford who was able to make much higher profits than other car companies even though Ford charged less per car because they made up for it in volume. It's much like when the government increases tax rates, taxpayers flee the country, hide their money, engage in less business creation and commerce causing tax revenue to go down. Would you rather have 50% of $10 or 10% of $100? This is simple supply side economics.
Any oil company that is pumping oil will want to pump as much as possible and sell it at market prices to maximize profits. The more they sell the more profits they make. They don't have the luxury of setting prices. Prices are set by speculating what the supply and demand will be in the future.

I'm afraid this is a pipe-dream ( couldn't help it , sorry ). America is a great Country and a lot of good things , however we are not an oil co. Furthermore I would venture to say that most co's drilling here are not American co's.

[Tyler6357]

Originally Posted by Clifftall

I'm afraid this is a pipe-dream ( couldn't help it , sorry ). America is a great Country and a lot of good things , however we are not an oil co. Furthermore I would venture to say that most co's drilling here are not American co's.

No, it's not a "pipe dream", it's actually called economics (haha, sorry, I couldn't help it). Of course the country is not an oil company. The truth is that it doesn't really matter if most oil co's drilling in America are actually American companies or not because drilling oil will increase world oil supplies and when they are increased faster than increases in demand for oil lower prices will result no matter if the company is an American one, British one, or anything else, that is the point. It doesn't even matter if they are drilling in America or not just so long as they drill.

[LadyFitz...]

Originally Posted by Tyler6357

No, it's not a "pipe dream", it's actually called economics (haha, sorry, I couldn't help it). Of course the country is not an oil company. The truth is that it doesn't really matter if most oil co's drilling in America are actually American companies or not because drilling oil will increase world oil supplies and when they are increased faster than increases in demand for oil lower prices will result no matter if the company is an American one, British one, or anything else, that is the point. It doesn't even matter if they are drilling in America or not just so long as they drill.

The reason you will never see that happen is there is a finite supply of oil in the ground. The oil companies want that supply to last as long as possible. As I already said, the oil companies are in the oil shortage business. Besides, most of the prices increases we are seeing right now are from speculators, not the oil companies.

[raycon9]

no one has mentioned this so i will throw it in.

according to "CNBC" the world supply of oil is 137 million bb/day.
the world demand is 135 million bb/day.
American demand is going down.
China and Indian demand goes up every day.
Aren't those supply/demand numbers a big part of what's going on with the fuel price ??
therefore, if we drill more wont the balance shift? JMO