Oil Prices

[PXW]

I have CONTINUALLY heard how oil companies do not make a profit from petrol, they said this when it was over £1.30p oer litre and they are saying it now but they MUST have been lying when they made their first claim or they are now giving the stuff away at a loss

John,

I have CONTINUALLY explained this , including in the post directly above yours, which is based directly on BP's reported figures today. You seem to confuse upstream and downstream activity; as I have said before both input and output prices for refining activity are commoditised. However, if you wish to persist with some big oil conspiracy theory, then I guess I can't do much to help

Peter the rationalist

 

[glojo]

John,

I have CONTINUALLY explained this , including in the post directly above yours, which is based directly on BP's reported figures today. You seem to confuse upstream and downstream activity; as I have said before both input and output prices for refining activity are commoditised. However, if you wish to persist with some big oil conspiracy theory, then I guess I can't do much to help

Peter the rationalist

Hi Peter
Your using the same source that first off claimed we were running out of oil and prices would never go down.

Your using the same source that claimed there is little or no profit in petrol when it was sold at $140 pr barrel

Where am I suggesting there is a conspiracy?

I am simply saying the cost of extraction from easily accessible wells has not changed very much in the last 6 months There are locations which are indeed quite expensive to explore and open up, BUT.... Once drilled ana on line are you suggesting it is labour intensive?

I laugh at the way accountants explain there is little or no profit in petrol, They are right because they are playing with figures and simply moving the numbers around to make sure they can say this so as not to anger the innocent motorist.

I could sell two products and claim I don't make any profit from product 'a', all my profits are from product 'b' but so what? The company is doing very nicely thank you very much. Plus of course I live in a mansion, have a private jet, a luxury car and of course a super yacht for my business meetings but these are company assets and are paid for by the business, oh and you should see my bonus package, but..... the company doesn't make much of a profit. Look at the released figures they prove I am not lying

Conspiracy theorist... Is that meant as an insult?

Whilst these companies have employees that commute from Australia to the UK to work and the company pays the air fares (business class), then I'm sorry but I will continue to disagree that these firm are not making huge profits (I am NOT talking about either middle or executive management).

John the conspirer

 

[hawk20]

I have CONTINUALLY heard how oil companies do not make a profit from petrol, they said this when it was over £1.30p oer litre and they are saying it now but they MUST have been lying when they made their first claim or they are now giving the stuff away at a loss!! Ten years ago oil was $10 barrel, what has changed? What has made it more expensive?

John

Supply and demand John. That is all. Just like the price of houses, and bread, and cd's and socks and pillowcases. No conspiracy, no plot, just good old fashioned supply and demand.

Ten years ago China demanded hardly any oil. Now it emits more CO2 from its vast expansion in productive capacity than the good ole US of A. The world has changed.

 

[glojo]

Supply and demand John. That is all. Just like the price of houses, and bread, and cd's and socks and pillowcases. No conspiracy, no plot, just good old fashioned supply and demand.

Ten years ago China demanded hardly any oil. Now it emits more CO2 from its vast expansion in productive capacity than the good ole US of A. The world has changed.

Totally agree and that is the bottom line. No baffling figures, no lies about not making a profit when it was $140 a barrel,. Huge profits were made and very nice profits are still being made.

I think the price went up because the system is designed to produce 'x' amount and for whatever reason a scare went throught the market and the gullible folks were convinced that oil was running out!! That is where Peter wants to point the finger. What idiots started these rumours (very rich speculators would be my guess)

Regards
John

 

[hawk20]

Totally agree and that is the bottom line. No baffling figures, no lies about not making a profit when it was $140 a barrel,. Huge profits were made and very nice profits are still being made.

I think the price went up because the system is designed to produce 'x' amount and for whatever reason a scare went throught the market and the gullible folks were convinced that oil was running out!! That is where Peter wants to point the finger. What idiots started these rumours (very rich speculators would be my guess)

Regards
John

No John. It wasn't gullible folks buying the oil. It was highly clued up investors, scared of staying in the dollar (rightly so at the time) and looking for a safe place to put their money. There was a massive flight into commodities, not for consumption, but as a safe place to put money.

 

[glojo]

No John. It wasn't gullible folks buying the oil. It was highly clued up investors, scared of staying in the dollar (rightly so at the time) and looking for a safe place to put their money. There was a massive flight into commodities, not for consumption, but as a safe place to put money.

And the crazy, crazy thing is that oil producer 'x' will sell the oil to Mr Speculator for $60 a barrel and then this very same oil producer will buy it back for $130. All this without the speculator actually receiving the product. Is that in the best interest of the oil company? Is the oil company actieng responsibly?

I understand fully what your saying and it has nothing to do with the actual nitty gritty costs of oil recovery. What you are corrctly discussing is capitism at either its best, or worse. (depending where your wallet is)

I was reading somewhere that if the amount of money that has recently been lost in this recession was stacked in £5 notes we would be looking at a pile three times higher than Mount Everest!! I will simply ask.... Where is this huge pile? Who has got rich and where has the money gone

 

[hawk20]

I was reading somewhere that if the amount of money that has recently been lost in this recession was stacked in £5 notes we would be looking at a pile three times higher than Mount Everest!! I will simply ask.... Where is this huge pile? Who has got rich and where has the money gone

The money that has gone form all of us to bail out the world's banks has so far totalled one sixth of the income of every single person on earth.

It is being taken from those who often have little, and who have done nothing wrong, and is being given to those who have plenty, and who through their negligence, corruption and stupidity, have brought the world economy to the point of collapse.

 

[crockers]

Houses at 7 and 8 times average earnings was unsustainable and bound to lead to a crash. I've been predicting it for over 3 years.

Hmmm don't think you meant that ---- think you meant the mortgages ...

Fortunately OPEC are only 40% of world oil production (and Saudi are about a quarter of the OPEC total and very sympathetic to the West).

I wonder why ?? Nothing surely to do with their despotic regime ....and fear of insurgencies..but that is a political statement so wont raise it.

 

[hawk20]

Hmmm don't think you meant that ---- think you meant the mortgages ...
.

No. I meant having houses valued at 7-8 times average earnings was not sustainable long run. Warning bells should have rung and action should have been taken much earlier to provide a gentle correction instead of the sharp one we are having now. And more to come no doubt.

But, of course, most people start with a mortgage and gradually get rid of it over their working life.

 

[PXW]

Hi Peter
Your using the same source that first off claimed we were running out of oil and prices would never go down.

Your using the same source that claimed there is little or no profit in petrol when it was sold at $140 pr barrel

Where am I suggesting there is a conspiracy?

I am simply saying the cost of extraction from easily accessible wells has not changed very much in the last 6 months There are locations which are indeed quite expensive to explore and open up, BUT.... Once drilled ana on line are you suggesting it is labour intensive?

I laugh at the way accountants explain there is little or no profit in petrol, They are right because they are playing with figures and simply moving the numbers around to make sure they can say this so as not to anger the innocent motorist.

I could sell two products and claim I don't make any profit from product 'a', all my profits are from product 'b' but so what? The company is doing very nicely thank you very much. Plus of course I live in a mansion, have a private jet, a luxury car and of course a super yacht for my business meetings but these are company assets and are paid for by the business, oh and you should see my bonus package, but..... the company doesn't make much of a profit. Look at the released figures they prove I am not lying

Conspiracy theorist... Is that meant as an insult?

Whilst these companies have employees that commute from Australia to the UK to work and the company pays the air fares (business class), then I'm sorry but I will continue to disagree that these firm are not making huge profits (I am NOT talking about either middle or executive management).

John the conspirer

Can't get multiquote to work, so:

Your using the same source that first off claimed we were running out of oil and prices would never go down.
No, I'm not. I'm using the source of my own two decades in the business and the published results of a major oil company. I have never claimed we were running out or that oil would never go down. Nor have BP.

Your using the same source that claimed there is little or no profit in petrol when it was sold at $140 pr barrel
No, I'm not, as above. And again you are confusing the crude oil market ($140/bbl) with the market for refined products.

Where am I suggesting there is a conspiracy?
If I might quote your post above:
It is the financial moguls of the oil companies and of course governments that keep these prices inflated NOT the end user.

I am simply saying the cost of extraction from easily accessible wells has not changed very much in the last 6 months There are locations which are indeed quite expensive to explore and open up, BUT.... Once drilled ana on line are you suggesting it is labour intensive?
No, I am not saying that. I have not argued that oilcos are makign poor profits from E&P - upstream - work. My analysis of BP's results in fact showed that they are - but that isn't profit from petrol sales.

I laugh at the way accountants explain there is little or no profit in petrol, They are right because they are playing with figures and simply moving the numbers around to make sure they can say this so as not to anger the innocent motorist.
That isn't the motivation for the presentation of the results. I know this doesn't suit your conspiracy theories, but please just accept that from me - I have spent a lot of my career wokring on these sort of financial reports!

Conspiracy theorist... Is that meant as an insult?
If the cap fits...

OK - I have now finished with this thread. I've posted numerous times to try to explain how the oil business works, how macro level supply and demand affects pricing, the effects of commoditisation of oil products, why oil companies cannot subsidise downstream activity from upstream profits, why oil companies can and do make very little from fuel sales etc etc. Not sure I have anythign further to add in the face of continuing cries of how the oilcos are ripping us all off.

Hope my comments have been of some use to some

Btw: Whilst I used to work for an integrated oil major, I don't any longer, so have no personal axe to grind.

 

[glojo]

No, I'm not, as above. And again you are confusing the crude oil market ($140/bbl) with the market for refined products.

I'm not confusing anything with anything.

When an oil producer charges $140 barrel for crude oil and claims that is the price required for the producer to make a profit, and then just ten weks later that very same producer is selling EXACTLY the same product for just $63 a barrel and still amking a profit, then something is very wrong. Forget speculators, forget anyone up the chain. Oil producers quite clearly stated we would never see the price of oil drop to less than $100 a barrel because of the cost of extraction.

All your long words and accusations of conspiracy pass way over my head, the fact is that OPEC stayed united, they cut back their supply but oil is still selling at $63 a barrel and the likes of BP or Shell or still making enormous profits. Note I have NOT used the word petrol. I am talking about crude oil being extracted from the ground.

All your theories have not explaind why it was allegedly so expensive to recover a few months ago, and so cheap now.

A farmer gets paid a pittance for milk and our speculators (supermarkets) put up the price as and when they feel like it, but the farmer does not try to deceive the end user, the farmer doesn't say grass has got more expensive, so milk will go up in price. Oil has not cost more to recover this year compared to last, this is all about speculation and manipualtion.

To see a producer sell his expected December product for $50 barrel and then when it finally comes out of the ground we have this very same producer then buy 'his' oil back from the speculator for $70 a barrel is sheer and utter lunacy and folks should be made accountable.

John

 

[hawk20]

John: it is like going back to Adam Smith. You seem obsessed with the idea that goods should sell at cost of production.

Diamonds don't do they?

Nor does oil. It sells at a price determined by supply and demand. No conspiracies, no plots, just good old supply and demand, just like most other goods do.

And no oil company said the 147 dollars a barrel price was due to costs of production going up. Not one.

 

[glojo]

John: it is like going back to Adam Smith. You seem obsessed with the idea that goods should sell at cost of production.

Diamonds don't do they?

Nor does oil. It sells at a price determined by supply and demand. No conspiracies, no plots, just good old supply and demand, just like most other goods do.

And no oil company said the 147 dollars a barrel price was due to costs of production going up. Not one.

I think you are trying to put words into my mouth and then type cast me.

I fully accept this issue was all about the open market and what folks were willing to pay. I fully accept that and have continually said so in my own sweet way.

I fully accept that oil was sold at $140 a barrel because idiots were paying that price for a barrel of crude. I fully accept that

I fully accept that oil sold at $140 becuase that was what was being paid for it and no where hac=ve I said otherwise.

What I have CONTINUALLY said is that it was NOT costing $140 to extract and that is what all the so called experts were claiming and now they are proved wrong they start putting up smoke screens and coming out with long words along with nonsensical facts and figures to try to alter their arguement.

Read my posts and you will see how I stated how governments have got rich exceedingly quickly simply because of this artifically inflated price.

I am simply saying it was poppy **** to say it cost that much to extract it, it was complete tosh and the price was solely down to manipulation away from the point of extraction.

Is a company acting in the best interests of its share holders when it sells a product it hasn't reclaimed, and then when the product is finally recovered, this company then buys back the same item for double the price it sold it at?

I hope you can make sense of that question.

In my garden I have a lump of coal.

I sell it to you for £20

I then pick up this piece of coal and buy it back from you for £40 and then I sell it on the open market for £45. Is that acting sensibly or should I have picked up my piece of coal and sold it for £45?

John

 

[Birdman]

The supply side of the equation is controlled by a cartel. In the EU and USA cartels are illegal and the conspirators would be locked up for rigging the market.

Thus a cartel is market abuse. So let no-one defend the price of oil on the basis of any theory of the free market. It is not a free market on the production side.

So if the market is rigged, how is the price struck?

Well, in the short to medium run, by our dependency upon oil to get to work and for there to be work to get to, which means we'll pay whatever it takes.

Some of the per litre pump price is manufacture & distribution costs. And the rest is down to governmant - in Europe about 65% -70% of the pump price is down to government.

So once again, the state interferes to distort the free market.

There is not a classical free market operating in oil or oil products because the price is a partially ADMINISTERED one - just like in the old Soviet Union - but by an international cartel on the producer side and by state intervention in the price mechanism (i.e. taxation) on the consumer side.

Sometimes the administration goes a bit wonky and like in the past year, out-of-control economic forces wreak havoc with OPEC's administration of the oil price.

The Oil Majors are traders & processors who play off both sides against the middle, being themselves, and pick up their cut on everything that goes down the line.

But I don't think the oil companies are the villains of the piece.

I reserve that honour for the sovereign states - both producers state cartels and more particularly, the consumer states' governments. E.g. our very own Mr Brown and all the previous Chancellors.

 

[crockers]

No. I meant having houses valued at 7-8 times average earnings was not sustainable long run. Warning bells should have rung and action should have been taken much earlier to provide a gentle correction instead of the sharp one we are having now. And more to come no doubt.

.

Sorry to sound thick but what has this to do with anything ... all houses have various values. Surely the price one pays for a house is irrelevant if one has the cash..the problem is when one borrows silly ratios of income to buy a house that is just out of ones reach. If the mortgage was restricted to a sensible ratio then no one would be able to get into silly positions (unless they lose jobs etc).

 

[hawk20]

I think you are trying to put words into my mouth and then type cast me.

I fully accept this issue was all about the open market and what folks were willing to pay. I fully accept that and have continually said so in my own sweet way.

I fully accept that oil was sold at $140 a barrel because idiots were paying that price for a barrel of crude. I fully accept that

I fully accept that oil sold at $140 becuase that was what was being paid for it and no where hac=ve I said otherwise.

What I have CONTINUALLY said is that it was NOT costing $140 to extract and that is what all the so called experts were claiming and now they are proved wrong they start putting up smoke screens and coming out with long words along with nonsensical facts and figures to try to alter their arguement.

Read my posts and you will see how I stated how governments have got rich exceedingly quickly simply because of this artifically inflated price.

I am simply saying it was poppy **** to say it cost that much to extract it, it was complete tosh and the price was solely down to manipulation away from the point of extraction.

Is a company acting in the best interests of its share holders when it sells a product it hasn't reclaimed, and then when the product is finally recovered, this company then buys back the same item for double the price it sold it at?

I hope you can make sense of that question.

In my garden I have a lump of coal.

I sell it to you for £20

I then pick up this piece of coal and buy it back from you for £40 and then I sell it on the open market for £45. Is that acting sensibly or should I have picked up my piece of coal and sold it for £45?

John

Your points one at a time.
1. I did not read a single expert or oil company saying that the price of oil had risen to $147 per barrel because of extraction costs. Not one. All experts know it is about supply and demand.
2. Oil companies don't sell a barrel of oil and then buy it back later at a higher price. There is a market for future supplies of oil. You can buy or sell oil for delivery in December. If you think prices may rise you may want to secure your supplies by buying now. If you think prices may fall, you may want to wait and buy oil at 'spot' prices in December.

What happened when people got scared to hold the dollar, was that they bought future commodities to protect the value of their money. THis put up commodity prices of many kinds -not just oil - until it becmae safe to hold currencies again.

BTW their fears about holding currencies were well founded at the time.

Those who think oil is 'controlled' by a cartel should bear in mind that OPEC controls only 40% of production, has great difficulty in stopping its own members from cheating, and has little control over non members.

 

[hawk20]

Sorry to sound thick but what has this to do with anything ... all houses have various values. Surely the price one pays for a house is irrelevant if one has the cash..the problem is when one borrows silly ratios of income to buy a house that is just out of ones reach. If the mortgage was restricted to a sensible ratio then no one would be able to get into silly positions (unless they lose jobs etc).

Whether house prices are driven up only by people with mortgages or, as happens in practice, by a mixture of people with mortgages and others (companies and individuals) with cash is not really the issue. The point is that once prices go to dizzy levels like 7-8 times average earnings, there is a high chance that prices will fall; a high chance that many will have negative equity; a high chance that many will default; and a high chance that the ludicrous amount of mortgage backed securities sold by banks would not be worth the paper they were written on.

All the signs were there for a mighty crash and action should have been taken here and in the USA a long time ago.

BTW, when Standard and Poors were giving wonderful security ratings to the mortgage backed securities, guess who employed them and paid them. Yes -- the banks who were selling the securities! What did the FSA do or the Bank of England or the Treasury/Government? Absolutely nothing. Just watched them all give themselves bonuses as they drove us all over a cliff.

 

[Dryce]

Just watched them all give themselves bonuses as they drove us all over a cliff.

Not so much different from all of those falling over themselves to leverage themselves into property as an investment without considering the risks.

Responsibility/culpability works both ways.

 

[hawk20]

Not so much different from all of those falling over themselves to leverage themselves into property as an investment without considering the risks.

Responsibility/culpability works both ways.

Agree entirely. Point is the govt should have controlled both instead of watching Rome so obviously burning and ready to explode.

 

[Mr E]

BTW, when Standard and Poors were giving wonderful security ratings to the mortgage backed securities, guess who employed them and paid them. Yes -- the banks who were selling the securities! What did the FSA do or the Bank of England or the Treasury/Government? Absolutely nothing. Just watched them all give themselves bonuses as they drove us all over a cliff.

These have been the two major issues I've had during this period.

The rating agencies are paid to provide a rating for the investment vehicle, and yet there is no comeback on them if they are proved wrong. I was talking to someone about this last week (a corridor chat) and he said that, like most of banking, it's based on reputation - unfortunately that has all gone out of the window and he wouldn't trust anyone in the financial sector to give his hand back if he shook on a deal. No-one was worried about the reputation - including the rating agencies - just the fees to be made.

There was nothing that the regulators could do - when the supervisory function was removed back in the 80's a financial organisation could do whatever it wanted so long as all the boxes were ticked, the i's dotted and the t's crossed. Nothing about prudence, nothing about best interest. Supervisory powers would have allowed someone (if they were capable enough...) to have expressed their misgivings about whatever scheme was being presented. Regulatory powers just check that the rules have been followed.

When we look back through the rubble in years to come, I doubt that we will find much that was illegal being done. in that respect, the regulatory authorities have done their job. It'll be the imprudence of financial gunslingers looking to make a fat buck and a killing while remaining within the rules that, I think, will be found at the core of this.