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Originally Posted by Broadsword2004
Well from my limited understanding (very limited I might add!) of the oil industry, it isn't affected just by supply and demand. It also is affected for example by the number of refineries. There might be enough oil to lower prices but if the refining capacity is limited, that will keep prices higher.
Some say its environmentalists who don't allow the construction of more refineries, but I've also read the oil industry does not want more refineries either because that way it keeps oil more costly.
Oil companies operate on a very small profit margin and the oil industry is cyclical.
The other part is the financial markets, which influence the prices of commodities as well. That oil bubble in late 2008 was financial, it had nothing to do with lack of supply to meet demand.
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Almost every point you bring up above is supply and demand related. If demand is high…and supply low (no matter what the reason) the price goes up. That’s why the futures market guys cant just jump out there and say…”sand is now worth $100 an ounce”. Hell, I’d go fill up a bucket and go buy that F-150 I’ve been eyeing.
You do make a good point on the refineries. Again…it is about supply and demand. Curtail the ability to refine the raw material to what the user needs…less supply and more demand. Higher prices.
I have not yet heard the “oil companies don’t want to build” conspiracy theory yet. I thought about it and that argument just doesn’t hold water. Why would an oil company want to keep refining capacity down? So they can jack up prices and have the consumer change their habits to fit their pocketbook? Yeah…I am selling $5.00 gas…but my output just significantly dropped. Consumers adjust habits to fit the pocketbook. The result is more product on the market…and a drop in prices. I guess it all boils down to Government control. Is it more profitable to build a refinery and deal with the governmental bureaucracy and environmental BS (there is no cost benefit to expanding that part of the industry) …or roll like we have been and hope for the best. Remember...government is not about turning a profit. As a matter of fact the dogma of the two groups (government and business) are diametrically opposed.
I agree that, although it goes against all logic, the profit margin for big oil is low. Say what? Even though they recorded the highest profits EVER, that was a snapshot in time. On day X…they made 15 gajillion dollars profit…fast forward two quarters…don’t they have to now go out on the market and buy crude that 6 months ago cost $50.00 and now costs $75.00...or $100.00? There goes them wild profits. Ask yourself, what costs more, refining our own product …or buying over-inflated crude from an international cabal?
Drill here…drill now…government needs to get the hell out of the way of capitalism. Let the free market rule! I am all in agreement with TRs post.