Redstate

Bill O'Reilly hasn't been doing his credibility any favors with his "populist" ranting about "price-gouging" by oil companies. He even shouted down FoxNews' own Neil Cavuto who was trying to set him straight.

Oh, by the way, right after Katrina I paid $3.49 a gallon for gasoline. Now it's down to $2.53. Earth to Bloviator-in-Chief: supply and demand do drive prices...in both directions!

I noticed on their "crawl" yesterday morning, a remark that gasoline prices had retreated by 25 cents a barrel, due to the fact that oil companies had "resumed drilling in the refineries".

Brilliant, just brilliant.

There's also a bunch of shale in Colorado, Utah, and Wyoming.  Enough to make the bottom drop out of OPEC.

The moral of the story is: don't trust any advertisement(s) run on NewsMax.

Did you know you can also, in just 10 days, learn Israeli fighting techniques which will make you look eerily similar to Jeff Gannon AND be able to kill any man with one punch?

in their 8/22/05 issue. End of civilization comes sometime next summer.

That it's currently prohibitively expensive to extract oil from the shale deposits. Shell's got a line on a process that they think can do it @ $30 a barrel, which is a vast improvement over current prices, but I'm not sure it'd 'make the bottom drop'.

Would love to see that! Maybe what you do is drill the tiles underneath the lunchroom. After a few decades of continuous operation, the doughnut crumbs are converted through heat and pressure into sweet crude. LOL!

Even though there are hundreds of billions of barrels of conventional crude down there (and probably a lot more), I don't think the US can achieve energy independence by exploiting any of it. I hear a lot of people making terrific arguments for eliminating the barriers to domestic exploration and refining capacity, but I just don't think the enviros and the Feds will let it happen (apart from the capital risks). As long as we are able to continue importing (even at high prices), and make small improvements through conservation, then there will be no immediate crisis and we'll boil slowly like the proverbial frog. When it's too late, nothing will have been done. That's what I worry about.

Restating his belief that oil will soon reach $35 a barrel.  This goes hand in hand with my contention that the Middle East will produce oil at or below the price that will discourage other oil extraction approaches (oil shale, oil from coal).  The ME has oil at $3 a barrel and they can drop world prices for short periods when they are threatened with our hard to get at oil.

Drilling in ANWR is the only thing we could easily do to counter the periodic price rises that will come between price drops.  In other words until we have enough other sources to prevent OPEC from controlling the world price we will see volitility in oil.  This includes the increasing demand from Asia.  Eventually the OPEC cartel will not be able to drop the price and oil from shale plants will be profitable and will be built.

is that it has become a relative term depending on your position on the issue.  I posted here many moons ago that I have first hand experience as an observer on several drilling rigs.  A close friend of mine is what they call a "drilling consultant", and he is the top guy on the ground at drilling sites.

He manages all operations including oversight of regulation compliance.  No need for substantiatiing links here; it is not profitable to drill for oil in the states because of the 3 tiers of regulation.  State and Federal regs are just too painful, expensive, and time consuming(these are the non-environmental regs).  The environmental regs (the EPA third of this stuff) address site set up, soil retention, residual by-products of the drilling process, ongoing soil, surface & ground water testing, etc.  The costs of "protecting" the environment during exploration and extraction "almost" penalize you for finding a productive hole.  The more you extract, the greater the cost of site-containment.  

It doesn't matter if there's enough oil in the ground to last 50,000 years.  The people with the money to go get it aren't interested in all the up front costs associated with it.  AND, it costs HUGE amounts of money to run the drill site once you have the land, the licenses, the governing bodies in place, etc.  The daily cost can be over a million dollars.  There's little in it for them DURING the drilling.  If the market is controlled by these supply and demand external forces, we are asking these guys to spend the money and HOPE they can make a profit from a hole that may or may NOT produce enough to get back the investment.  Rich investors are rich for a reason.

Now, I'm no bleeding heart looking for a little love for the oil barons...they are definitely doing well AT THE MOMENT from what they ARE producing.  But, plenty means nothing if there's no incentive to go after it.  

a few days ago. Aside from getting too much spam from them, their stories are too one sided (even if it is the right side) to be credible.

It would be.

In any case, if we can get it to $30 a barrel, that is a huge hit in the wallets of the Saudis and Hugo Chavez.

I recently read an article you might enjoy? The case is being made that oil deposits maybe refilling themselves.http://www.wnd.com/news/article.asp?ARTICLE_ID=38645 ">here

Here's an excerpt taken from worldnetdaily.com:

-"An intriguing theory now permeating oil company research staffs suggests that crude oil may actually be a natural inorganic product, not a stepchild of unfathomable time and organic degradation. The theory suggests there may be huge, yet-to-be-discovered reserves of oil at depths that dwarf current world estimates."

I stopped reading several months ago. Too much garbage, not enough decent stories.

Well, who knows how much oil there is.  Facts like that are difficult to pin down, since it is such a politically and economically charged issue, and scientifically nontrivial to determine.

I worry more about sudden political events -- terrorism in Saudi Arabia or the lunatic who rules Venezuela.  A sudden shutdown of oil production would not give us time to develop alternatives, which would be a bad thing.

But I do think there is plenty of Energy: The USA has vast deposits of coal, especially lignite.  We have the capability of growing bio-energy crops.  We could build nuclear power plants, including new designs that consume thorium.  And let's not forget the fact that the Sun dumps 1373 watts per square meter on the Earth.

If they drilled holes in tanks or pipes so that oil leaked out, that would lower supplies and RAISE prices!

Why can't the media (liberal or conservative) find reporters who know something about the oil industry?

I even read an editorial in the (supposedly conservative) Washington Times  a few weeks ago which claimed that since the price of a barrel (42 gallons) of gasoline was $40 higher than the price of a barrel of crude, that meant that refineries were making 95 cents a gallon on gasoline.

Which is ridiculous, since only a small fraction of the compounds in crude oil can be refined into gasoline, and other products (diesel fuel, jet fuel, home-heating oil, asphalt, etc.) sell for lower prices than gasoline. Plus, some fuel needs to be burned to provide heat to run the refinery, and oil companies must pay people to operate and maintain the refineries. The real profit margin is much less than 95 cents/gallon of crude. But try to explain that to a reporter!

To be fair, the Washington Times did publish my letter to the editor!

I'm pretty sure we do not need to be 100% free of importated oil. I think we need to be marginally free of imported oil to see the same effect as 100% free. I'm not sure what that number is - no one does But I bet if the U.S. got its act together and threatened to explore all the resources we had it would find the margin.

I can tell you from living in the hurricane zone $3/gallon gas results in panic hording. One day after my wife waited in line for 20 minutes to pay over $3 to top off her tank the same gas station had the same product for $2.79!!

It seems that if there is a gas line the dopes in this area must get in it. A big sign $3.10 gallon is a magnet. Too funny.

I was thinking a few weeks ago the marginal price for gas may be as much as $4 or $5 but now I think it is more like $2.99!!

Same goes for crude. If we had a few marginal million barrels of crude at $30-40 I'd bet it cause some real problems for OPEC. It would be interesting to see.

. . . to lose weight while I sleep.

A nice thought, but the world just doesn't work that way.

Same with these magic recharging oil reservoirs. I smell grant money available.

From one of your links:

It was here, in 1995, that the scientists ran out of grant money and PennzEnergy lost interest in continuing. "I'm not discounting the possibility that there is oil moving into these reservoirs," says William Van Wie, a PennzEnergy senior vice president. "I question only the rate."

I read on the website of the Minerals Management Service recently that some 1,000 barrels of crude per day leak into the environment naturally via existing surface faults offshore California and Louisiana. Migration along fault planes is a fact, but oil and gas reservoirs were filled over geologic time, say 500 thousand to 500 million years, give or take. I'm skeptical that there's a process occuring on a scale big enough to be significant relative to the rate of extraction.

. . . unleaded gasoline is $1.629 per gallon, in bulk quantities, F.O.B. New York Harbor. That's $68.42 per 42 gallon barrel.

Compare that to $61.90 per barrel for crude oil. The finished product is 10% more valuable than the raw product, but that excludes the cost of refining, capital recovery on the refinery, and the fact that gasoline is the premium part of the barrel.

In other words, refining works on volume, not margin.

The difference between $1.629 and what you pay at retail is transportation, storage, and overhead, plus a few pennies for the retailer. Oh, and let's not forget taxes; in Louisiana we pay 38.4 cents per gallon between the Feds and the State.

As for journalists who understand the business, they are very, very few in number. The only mass media outlet that can be relied on generally to "get it right", believe it or not, is the New York Times.

The first time I read the article but something has always bothered me about the plant and dinosaur theory they taught in school.

This in all probability is wishful thinking but I would love to find some solid evidence to counter this "War on Oil" coming from the left.

I was duped into subscribing once. I never will be again though.

When Chris Ruddy calls for the end of the Iraqi "occupation"- I'm done with him and his magazine.

But I bet if the U.S. got its act together and threatened to explore all the resources we had it would find the margin.

Exactly right. My point is that I fear we will never get our act together, because of bureaucratic obstruction and the environmental lobby.

If you agree with this, then you'll accept that "energy independence" will not come through new domestic petroleum production. We will have to either look elsewhere or (more likely) accept some terrible consequences when we do nothing.

The only place as crazy as NewsMax is WorldNetDaily, at least on our side of the aisle.

I used to think FreeRepublic was bad, but nowadays I have a lot more respect for them.

You are making the same mistake as the reporter referenced in the above post, by equating a barrel of gasoline and a barrel of crude.

Gasoline yield differs by refinery and by input (crude) type, but think of it as about half -- i.e., the barrel of crude yields about half a barrel of gas.  The other half of that barrel of crude is also sold at a profit, as diesel, jet fuel, heating oil, bunker oil, asphalt, naphtha, and all the other petroleum goodies we like.

So, your $62 barrel of crude yields about half a barrel (roughly $34, using the figures you provide) of gasoline, plus whatever they can sell the other half for.

But, note something else.  We're speaking as if the refining part is independent of the crude production, and indeed there are independent refiners.  But remember that the large integrated oil companies are also making money on the crude; in other words they are not sending $62 to King Abdullah for every barrel they process.

Reporters get any story wrong. Part of it is the deadlines they work under. Another part is their inability to either read their notes, or understand the recordings they make.

I have never read an article about something I can be called an expert in, without finding major factual errors in it.

Just keep looking and oil can be found. In Utah is a place that was overlooked. It's pretty big.  

"At the present cost of crude oil, reserves in the vicinity of the Wolverine oil strike in south central Utah could be worth $5 billion, a legislative committee learned Wednesday."

ref: http://deseretnews.com/dn/view/0,1249,600142092,00.html

Also, that oil as a renewable is an old Russian idea. I think it's a crock.

There is lots of COAL in the ground of the US. Turning it into gas is not as problematic as it used to be. This technology looks good.

From NPR, if you can believe it: "Two of the country's largest utilities say they will build a new kind of power plant that will turn coal into gas in order to cut back on emissions of carbon dioxide."

ref: http://www.npr.org/templates/story/story.php?storyId=4566454

"at least on our side of the aisle"

...because I've been out of touch regarding the blogosphere lately. But does that mean you've crossed over to the darkside?

If so... Welcome!

Some parts are worth more, some less, but we don't have time nor the inclination to figure the weighted average value of the finished product; it's probably equal to or less than the value of 42 gallons of gasoline, which was my point. I don't know, but I'll bet that refinery margins run a lot less than 10%.

A quick lookup of Tesoro and Valero (TSO & VLO), two downstream refiners, show 8 & 12% gross margin.  That's gross margin, before operating costs.

If we went nuke for electricity, retiring most CO2 producing power plants, and reserved liquids for things like jets and airplanes, we would be far far ahead.

Oil would be a great feedstock for plastics, fuels, etc.

Natural gas burns clean but does produce a lot CO2.

We could, at the reasonable high end of cheap nuke production probably use the abundant electricity for cracking water and then we would have H2 to burn in most automobiles.

Oil is too good a mineral to waste it by burning so much of it. Producing more plastics etc., along with specialty fuels and liquids like lbe oils would be a better use.

Of course getting to this energy utopia is pretty tough and frankly unlikely.

A buddy of mine has multiplied his investment (40k) by five on one of these operations recently.

Even in the NY Times, which compounds the error with their tone of careful, well-researched probity. Whenever they write about something I understand well, I see screaming howlers that betray a complete lack of understanding by the writer. But to a nonexpert, these crashingly basic errors look and sound just like everything else you read in the Times. The lightbulb went off when I realized that there was no way for me to know how much of the rest of it was garbage, and I was being fooled by the editorial polish and finesse.

The Times must be taken, in toto, as nothing more than light entertainment. And this game is played by all of the elite media. NPR's ads give the game away by saying in so many words that they do the thinking so we don't have to. And that's presented as a value proposition!

At least where I live in Texas, diesel fuel is considerably more expensive than gasoline.

"Well for one thing it costs billions of dollars of capital investments to get to this oil and there is no guarantee that the consumers will not eventually cut back at current prices."

It is my belief that this is a large part of the currently high oil prices.  Oil companies, while for the moment are reaping huge profits, have had periods of deep busts when oil prices plunged due to over-exploration and over-drilling.  Basic supply and demand is at work here: the more oil that oil companies find, the less each barrel they extract will be worth.

There is also the OPEC cartel to consider.  Though it sounds like a good idea to begin refining our own oil shale and tar sands and become independent of Saudi oil, these sources of petroleum are pricey.  If we were to fully switch the U.S. to domestic sources of oil, OPEC almost certainly would respond by flooding the market with oil, making oil much cheaper for the rest of the world, while we have to make do with much more expensive sources of petroleum, harming our economy.

there was an article on drudge today stating that conocophillips profits where up 89% for the quarter. anyone who believes that profits go up 89% in a quarter legimately needs to have their head checked. oh, and this was not a jump for 1 million to 1.8 million. it was from $2 billion to $3.8 billion.

there needs to be an investigation. and don't give me the old supply and demand line. supply is controlled by very few and demand is very difficult to curb.

Those gougers!

http://finance.yahoo.com/q/bc?t=5y&s=COP&l=on&z=m&q=l&c
=ebay

The Byproducts of extraction are, last I checked, major pollutants and would turn the shale deserts into toxic wastelands.

That's the other part that's holding them up.  Trying to do it without making the area uninhabitable...

Let's say we were to investigate ConocoPhillips. What do you think the investigation would find? And what do you propose we should do about it?

Shell's new process is in situ, which means they think they can do it without mining & crushing the shale. And the last time I chacked, the area was pretty much uninhabited, anyway.

Were you concerned that their profits were too low was $10? You should have been, because they didn't have the cash flow to reinvest. That's what they do with those nasty old profits, you know.

By reinvesting their cash flow wisely, they'll find new supplies and prices will come down. (Sorry, I just had to invoke supply & demand.)

By the way, if the very few of "them" were so good at controlling the market, why would prices ever be low?

And if you were king, how much would gasoline cost?

A lot of people believe we should start building a hydrogen based energy economy.  Use gas pipelines and metal-hydride storage for hydrogen, and generate H2 with solar and nuclear plants.  

En enormous amount of energy is wasted by long-distance transmission of electricity.  While fuel cells and electrolytic hydrogen generators (inverse fuel cells basically) can be up to 70 percent efficient.

It's a huge infrastructure change though.  I believe the Bush administration has put a little money into researching this, but there will have to be big economic incentives at some point -- like high oil prices for example.

Hydrogen also had the advantage of not effecting the CO2 content of the atmosphere.  Not that we know for sure about CO2 and global warming, but obviously its an important issue to keep an eye on.

in a market were consumers have relitively no choices and few alternatives?? surely you jest.

pardon me if i don't feel sorry for the oil companies when there profits were only $2 billion per quarter.

if there was a true supply/demand relationship to oil prices, and if consumers had any alternatives, then when prices soared, profits would tumble not double. while demand will fall some with these prices, it won't fall much. it can't.

i don't know that any of the oil companies have done illegal, and i am not sure anything should be done about it directly, but they need to be exposed for taking advantage of the consumers. if enough people make noise it will stop. if we all just accept that they can charge whatever they like, then they will and our economy will take the brunt of it.

i hope that everyone defending the oil companies enjoys the recession that it is going to bring along with it. these high fuel prices will take their toll. everything you buy is effected by the price of fuel, and the costs will be passed on to the consumers.

every spike in fuel prices since the invention of the automobile has been followed by recession.

sleep well price gougers.

1. Stop using gasoline in your car. (Make sure you put the car up on blocks otherwise the tires will go out of round.)
   
   
2. If you use oil to heat your house, stop doing that. (When you go to buy your extra woolen sweaters and socks, don't buy them from Walmart.)
   
   
3. Stop using products like nonseasonal fresh fruits that require a significant amount of transportation by truck.
   
   
4. Use instant messaging and netmeetings instead of flying.
   
   
5. Convince 100 million of your closest friends to do all of the above.

If you do all of these things, I can confidently say that the price gouging will stop.

Glad to see you have so many insightful opinions.

But I do have a serious question for you. Do you accept that high demand coupled with constrained supply results in higher prices? If you do accept that, then what do you think energy companies should do to lower prices? If you don't accept it, then why in your opinion are energy prices high right now?

high demand and constrained supply absolutely result in higher prices, but my contention is that demand or supply have not changed much in the past year. it is not possible. for prices to change this much, supply would have to be cut in half, or demand would have to double. neither of those things have occured. also, if it were strictly a supply/demand relationship, profits would remain the flat. that is simple math.

do you not agree with my logic?

Prices are not necessarily linear with supply and/or demand. When production capacity is fully utilized, tiny changes in supply or demand can produce wide price swings. That's especially true in an industry like petroleum where increasing production capacity (exploration and downstream) is not just a simple matter of adding capital and flipping a few switches.

If you want to see this in action, just look at the stock market on a big up day when the shorts are caught with their pants down. They have to get flat so they'll buy at any price they have to pay, and you see some wild stuff happen.

Another example: how much will you pay for gasoline if you absolutely need to drive in order to get to work? You'll howl and scream and cut out unnecessary driving, but you'll pay whatever you have to pay rather than lose your job. And if everyone in your neighborhood is in the same spot, then even a tiny reduction in supply will cause prices to shoot way up. You're competing with your neighbors for the available fuel.

You thought I was just being offensive when I suggested upthread that your stop using gasoline. But my point is that demand causes prices to go up, and you have a certain amount of control over the demand that you create. That's not the oil companies' fault, it's no one's fault.

Exxon reported record profits for the quarter.

you can stop with the supply/demand retoric now.

XOM offered at $55.87/share, down 33 cents. There's a lot more to this picture than the headline profitability numbers.

By the way, I own a great big chunk of this stock. Are you telling me that I need to dig into my own pocket (and see this stock fall yet farther) in order to reduce what you pay for fuel?

Oh and by the way, do you have a pension fund, 401(k), or insurance policy? If you do, then congratulations and welcome to the XOM shareholder base. Are you going to take money out of your own retirement fund in order to reduce what you pay for fuel? Come on now, I want an honest answer to that.

Ex items, XOM's quarter came in about 6 cents/share below the consensus estimate. That's why the stock is getting slugged. They lost production capacity due to the storms, and a barrel of oil you don't produce or refine is one you don't sell. Tell me again how this is good news for XOM.

because hydrogen takes a lot of energy to generate and store in order to get the relatively high effiency.  For a long time we may just transmit nuclear generated electricity and continue to use fossil fuels while waiting for the hydrogen economy to become financially viable.  

Of course the other thing about all the oil alternatives is that some OPEC director can arbitrarily lower the price of light sweet crude every so often and drive the alternative energy start ups out of business and dry up any venture capital they may have had a line of credit with.  This process can and will keep expensive alternatives in the bag until oil becomes expensive and does not swing back below $35 a barrel.

again, should i feel sorry for a company who just reached record profits for a quarter?

. . . but apparently you slept through Econ 101.

Without a profit motive, no wells get drilled. With a profit motive, ConocoPhillips will reinvest those $2 billion in new wells. There will be more supply. No, it doesn't happen overnight. [What do you think they'll do with the $2 billion, put it in some kind of giant money bin, a la Scrooge McDuck?]

Record real prices of oil peaked in 1981, and peoples' consumption habits changed big time, just as bubbagump suggests. That hasn't happened yet for this cycle. What have you done to conserve fuel?

in gasoline prices is being driven in part by falling demand, so it would seem that there is some elasticity in demand for at least gasoline. I suspect that many people have found ways to cut out unnecessary driving--I know I have.

To turn it into a toxic waste.  However, I had heard of Shell's idea.  The downside is trying to make it affordable.