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What is really so destructive about oil prices is not the highs and the lows, but the volatility of such a basic component of the modern economy. That's a product of demand inelasticity, where small changes in demand or supply lead to large changes in price. The beauty of fracking is that it will provide much greater elasticity in supply to respond to changes in prices. The valve can be turned on or off depending on the price. With the old oil rigs, often times when you shut it off, it was off for good.
That's right, for the last 10 years O&G engineers know that the oil price is not set up by the costs of extracting and refining the product (unless you are Saudi Arabia) but by pure speculation. First layer is the OPEC and the second are the financial markets/ institutions. When the oil was above $100, there was some talk about making buyers take physical ownership of the tankers and barrels to stop the financial speculation. It seems it wont be happening for the time being.
That's right, for the last 10 years O&G engineers know that the oil price is not set up by the costs of extracting and refining the product (unless you are Saudi Arabia) but by pure speculation. First layer is the OPEC and the second are the financial markets/ institutions. When the oil was above $100, there was some talk about making buyers take physical ownership of the tankers and barrels to stop the financial speculation. It seems it wont be happening for the time being.
This invites a question: is there some workable way to damp the enormous gyrations in oil-prices, without creating a cumbersome regulatory burden, or destroying the incentive to innovate/explore? Otherwise, we seem to only have two alternatives, both woefully unsavory: state control of oil (as in Saudi Arabia) untrammeled and destructive speculation.
Fund Mgr. who's been right on oil has new predictions (lower)
According to an article I just read oil will most likely stay below mid $20's for several years to come. Will this result in constant lower gas prices? Who really knows since gas prices are controlled by those making/selling said gas.
Since there's no law restricting how much profit they'er allowed to make they could send it back up to $2.50+++ whenever they feel they need to.
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Quote:
Originally Posted by justin230
Grocery stores haven't heard either. When gas was $4.00 per gallon, they used that as an excuse to raise the prices. Now that gas is cheap, the grocery prices are still high.
Worth repeating. It will go up again and the old excuse will be new again. People have short memories.
Lat I check price of gas at the pump has not reflected the rate of decline in the commodity exchanges. They will raise gas prices as fast but not dropping gas prices that fast.
Just my luck that gas prices started going down after I retired in 2014, and no longer had to commute 80 miles a day. But better late than never, I guess. It will go back up at some point, but I'm enjoying the low prices while they last.
As of yesterday, it was $1.59 here in my little corner of Kansas.
This invites a question: is there some workable way to damp the enormous gyrations in oil-prices, without creating a cumbersome regulatory burden, or destroying the incentive to innovate/explore? Otherwise, we seem to only have two alternatives, both woefully unsavory: state control of oil (as in Saudi Arabia) untrammeled and destructive speculation.
If you really would like an oil price based on supply/ demand of oil consumption or usage, well just make the buyer take physical ownership of the goodies, which is quite expensive so it would reduce speculative transactions. Or you could only allow players in the market who use or consume oil based products, from extrusion plastics to oil refiners and airlines/ transportation companies. However they would never do that as there are plenty of sovereign funds (besides hedge funds, investment banks and pension funds) taking advantage of the speculation, even if deemed legitimate oil agents (for the purpose of selling and buying strategic reserves), the fact is that most countries can make a bunch of money out of volitale markets.
Quote:
Originally Posted by jimj
According to an article I just read oil will most likely stay below mid $20's for several years to come. Will this result in constant lower gas prices? Who really knows since gas prices are controlled by those making/selling said gas.
Since there's no law restricting how much profit they'er allowed to make they could send it back up to $2.50+++ whenever they feel they need to.
Worth repeating. It will go up again and the old excuse will be new again. People have short memories.
They will never reduce prices unless people stop buying their products. Those increases are already taking into past inflation, so unless there is a deflationary period, the current prices would only go up by the general inflation rate, after all workers are takng COLA increases not reducing their salaries, oh and forget about touching margins once they are up you really have to explain to the board with blood and tears why they are going down.
... the fact is that most countries can make a bunch of money out of volitale markets.
From the viewpoint of a small-investor, what irritates me is the making of profits not from entrepreneurial activity, or business-ownership, or even the selling of a high-margin product because it's suddenly in demand. What irritates me is the making of profits from volatility itself. It is the fluctuation in prices, and not the charging of high prices themselves, that seems to be the preferred modern paradigm.
From the viewpoint of a consumer, if we had $4.00 gas more or less in perpetuity (adjusted for inflation), it would be possible to adjust our habits and lifestyles. But the up-and-down gyrations cause us to question our choices for where to live, what to drive, how to heat our houses and so forth.
Instability is great for speculators, but awful for consumers, producers or mainstream investors.
Why, instead of a cheap-oil bonanza, is there such rampant talk of a recession?
Because Asia might be entering a recession.
Quote:
Originally Posted by kettlepot
What is really so destructive about oil prices is not the highs and the lows, but the volatility of such a basic component of the modern economy.
Speculators cause problems.
Quote:
Originally Posted by saltine
Case of oil at the auto parts store nearly same as barrel. Haven't they heard?
Oil has to be transported, processed and then refined. Haven't you heard?
Quote:
Originally Posted by ohio_peasant
This invites a question: is there some workable way to damp the enormous gyrations in oil-prices, without creating a cumbersome regulatory burden, or destroying the incentive to innovate/explore? Otherwise, we seem to only have two alternatives, both woefully unsavory: state control of oil (as in Saudi Arabia) untrammeled and destructive speculation.
The problem is speculators.
Making speculators take physical possession of oil before re-sale will reduce speculation.
Before someone pipes up that speculators take possession of houses, note that cutting speculators off from Fannie Mae/Freddie Mac will force speculators to bear the cost of mortgage insurance.
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Fund Mgr. who's been right on oil has new predictions (lower)
Will this result in constant lower gas prices? Who really knows since gas prices are controlled by those making/selling said gas.
