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treerootCO
03-31-2008, 09:01 AM
http://www.9news.com/news/article.aspx?storyid=89036

I know that I have almost zero impact but I support the driver's strike. Maybe someone with an economics background can explain to me why diesel is at $3.99 a gallon. The last excuse was the hurricanes, then the pipeline was offline, then that they had to convert all the plants to low sulfer, then the easter bunny... all the while the industry has reported record profits in the billions every quarter.

jjhancock
03-31-2008, 09:22 AM
It'll be interesting to see if enough truckers strike to make somebody take notice. It does amaze me the rising fuel costs for both gas and diesel, yet the record profits that the fuel companies are bringing in. I only average about 20 miles a day round trip for work, but it still pains me every time I fill up (and to only get 12 miles a gallon).

Jethro
03-31-2008, 09:28 AM
I found this article useful in explaining the price of gas and diesel:

http://www.msnbc.msn.com/id/23662031/

treerootCO
03-31-2008, 09:34 AM
I love that the mainstream is only concerned about the price of gas. The news reported a station that was charging 4.00 a gallon for unleaded and all hell broke loose. The station had to offer refunds to all the customers who purchased the gas at 4.00. At the bottom of the article the station said they accidentally matched the gas price to the diesel price. No one cares about the rising price of diesel? This affects everyone! Trains, trucks, ships, etc. all carry goods for you....including your precious gasoline.

subzali
03-31-2008, 09:55 AM
Funny, I just started on this project last week: Algae biodiesel (http://www.popsci.com/scitech/article/2007-07/greenest-green-fuel)

DaveInDenver
03-31-2008, 10:48 AM
Some other interesting links about Exxon and fuel.

http://www.fool.com/investing/general/2007/02/06/is-oil-too-profitable.aspx

http://www.gaspricewatch.com/usgastaxes.asp


From Snopes:
http://www.snopes.com/politics/gasoline/strike.asp

"In February 1974, four months after OPEC had declared an oil embargo against the U.S. and other western nations over their support of Israel during the 1973 Yom Kippur War, a group known as the Owners/Operators Independent Drivers Association of America staged a national strike to protest the spiraling costs of fuel, fuel shortages, and reduced speed limits. (In response to the OPEC oil embargo, President Nixon had signed a bill imposing a 55 MPH speed limit on interstate highways.)"

wesintl
03-31-2008, 11:01 AM
The demand for diesel is greater than that of gasoline, more diesel trucks, cars etc need diesel. A diesel strike isn't going to do much, they just need to pass on the fuel surcharge like others are doing. I'm going to have to start taking my trash to a local dumpster since the fuel surcharge is so much.

Ah. the good old days I remember when gas was .99

treerootCO
03-31-2008, 11:10 AM
I don't think regulating prices is the answer but until I see some sort of reasoning for price changes, I will remain skeptical. Prices change while I am at work, prices raise every year for spring break, prices change because the place across the street changed, and prices change as I drive from the North end of town to the South end of town.

Red_Chili
03-31-2008, 11:35 AM
What you describe is the free market working to change prices. The seller is motivated to sell at as high a price as she can. The buyer is motivated to shop for the lowest price that she can. Somewhere in the middle, the price moves around. No one sets it, because no one can (unless they are breaking the law via back room anticompetitive agreements, which are illegal precisely BECAUSE they are not free market in nature); somebody else will see a market opportunity and undercut the price. That is how it is *supposed* to work.

Striking is also a market input however. It is the consumer saying the price is unacceptable, prior to being forced out of the trucking business due to nonprofitability.

I agree, that something is fishy when oil companies show record profits when fuel prices are high enough to shake an entire economy. It suggests that it is not as free a market as it should be - which it isn't, inasmuch as we tie ourselves to consuming fuel. It may not be free due to other reasons as well. Should be interesting to see. Much political pressure is dammed in that arroyo.

The good news from an environmental perspective is that mass transit is becoming more acceptable to the consumer. Light Rail use has FAR outpaced planned usage. That is good.

DaveInDenver
03-31-2008, 11:37 AM
I don't think regulating prices is the answer but until I see some sort of reasoning for price changes, I will remain skeptical. Prices change while I am at work, prices raise every year for spring break, prices change because the place across the street changed, and prices change as I drive from the North end of town to the South end of town.
http://www.thepriceoffuel.com/

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/27/AR2006042701693.html

If you want to read more about the computational economics behind gasoline pricing due to supply and demand, knock yourself out. I attached a couple of PDFs dealing with pricing models for gasoline and here's a couple more FTC links.

http://www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf

http://www.ftc.gov/be/seminardocs/0207atkinson.pdf

A lot of things are being priced without regard to anything realistic anymore. I have my opnions, but it boils down to unchecked inflation since the dollar is not tied to anything real anymore. If I started down this path you'd think I'm completely done since I think the illegal (not a mistake, the Federal Reserve system IMHO is blatantly Unconstitutional and goes against what the Founding Fathers wanted) basis of our financial system on the Federal Reserve and their removal of our money from the gold standard is largely to blame. Nothing is realistically priced and the price just keeps going up without any reason.

Red_Chili
03-31-2008, 11:42 AM
It has its reasons. Tied to interest rates and GDP now instead of an artificial standard. JMHO.

RockRunner
03-31-2008, 11:57 AM
Most of the blame is directly related to the global economy. With the success of the Chinese population and other Asian countries demand for oil has increased. The demand for crude will continue to increase as long as those countries continue to prosper. More and more people are able to buy personal transportation in China and India that never before were able to afford that luxury. They need crude to fuel their success this causes the prices to rise.

The success of the oil companies is not directly tied to the cost of crude but more to the amount of gallons sold. They have a certain percentage of profit in their product. The more product you sell the more profit you make. Look at the amount of fuel being used by the world today compared to ten years ago. Even with the rising prices Americans continue to drive their cars not to mention all the Europeans and Asian countries. We still haven't hit the price where people say enough is enough, for me it is close.

As long as the consumer continues to pay the price asked for a gallon of gas the prices will continue to rise. OPEC does control the price to a certain point by controlling the flow of crude. Less crude in the market place coupled with a larger demand equals higher prices. If demand for crude falls OPEC lowers production and prices stay the same or may even go up.

So how do we lower the price of crude you ask? Driving less is not going to do it. A strike may effect the price temporarily until things settle down, just look back a year when gas hit a all time high and people where outraged. The news was reporting on it every night, what to do, this is terrible, we can't afford this!! Gas prices dropped 10 cents and stayed there for a while, the public was happy, only thing was that the price was still 10-15 cents more than two months ago. We were duped into thinking that the prices were lowered. Two three months later the same cycle starts up again and gas prices once more increase and stabilize 10 cents more than before.

For the U.S. to enjoy lower gas prices we have to drill locally. We need to increase our own production so we are not depended on foreign oil. We need to drill in the Gulf of Mexico more and open up drilling in Alaska. We can do both of those with minimal impact to the environment. Once we do that I believe we can control our own future and bring gas prices back down to a reasonable level if that is what the government wants for us. I know what some are going to say, "what about the hybrid cars?" I am all for hybrid cars once their price justifies the savings in fuel not to mention their impact on the environment. Right now the savings in fuel does not outweigh the initial cost of the car. I know this will create a stir but that is my opinion.

the simple answer is that crude oil prices will continue increase as long as the market will bear it.

Nay
03-31-2008, 12:55 PM
Oil is priced on futures markets. It is not demand right now, it is the weakness of the dollar. When the dollar is worth less, it costs more to buy any foreign (imported) good. The dollar has continued to slide, and oil investors are hedging that by buying oil futures at high prices.

The reason diesel is high compared to gas is because diesel has a higher crude component, and therefore is more closely tied to the commodity price, whereas gas prices have a lot to do with refining capacity.

This has nothing explicitly to do with the oil companies, who have ensured that supply continues to meet demand, at least domestically. You have two oil families running the federal government, waging war(s) in the middle east, and prices have more than doubled because of the geopolitical risk factors in the market.

You add to this a Federal Reserve sponsored housing crisis (remember the "soft landing" Greenspan was selling us?) and you have a perfect storm with the weakness of the dollar and emerging international preference for the Euro. You want some Freedom Fries with that?

Seems there is no free lunch exporting manufacturing and services to cheap labor markets. You create a middle class in India and China, explode energy demand, and pay for it anyway.

But hey, the IRS is going to give you a rebate, so you can so shopping again. No worries, mate :hill:

treerootCO
04-18-2008, 12:54 PM
I don't understand economics. Taken today on my way home from breakfast.

powderpig
04-18-2008, 01:13 PM
Where do you think the domestic oil crude from alaska has gone? It has not been shipped to the US for many years. It has gone to Japan and China. the oil in alaska has a high sulfur content and was not sutiable for refining in the west coast of the US. So we take and ship it some where else. How does this help us become not dependent on other sources?
It is not about econimics as much as bleed the conusmer dry, make a profit for the shareholder. I wonder how the share holder feel (of some of these big oil companies )when they get there dividends?

wesintl
04-18-2008, 01:18 PM
I wonder how the share holder feel (of some of these big oil companies )when they get there dividends?

Pretty good.

If you can't change it you have to work the system to your benefit.
http://moneycentral.msn.com/investor/charts/chartdl.aspx?D5=0&D4=1&ViewType=0&ComparisonsForm=1&CP=0&PT=7&CE=0&&ShowChtBt=Refresh+Chart&DateRangeForm=1&D3=0&PeriodType=7&Symbol=US%3ABPT&C9=1&DisplayForm=1

Red_Chili
04-18-2008, 01:20 PM
.. I wonder how the share holder feel (of some of these big oil companies )when they get there dividends?
I think they cash the check.

Economics is supply and demand. You will sell something for the highest possible dollar someone else will pay.

What Robbie describes is what happens when government intervenes (and sulfur is a problem), but another government is happy to turn a blind eye. Environment schmironvent.

The other part that isn't really free market (yet) is that we are somewhat of a captive audience, we have few alternatives. While we don't have an energy monopoly going on quite exactly, that is a monopoly dynamic in the marketplace.

It is not long sustainable. Never has been historically. While things adjust it sucks though. Historically this is exactly the kind of time that is ripe for an entrepreneur to pluck and make an incredible fortune with 'the next big thing' (alternative energy). Well, one of them will, and the others will go bankrupt trying... :eek:

Mendocino
04-18-2008, 01:31 PM
I have not read this entire thread so this may have been covered. I was in the EU earlier this week and diesel in about .70 a *liter* cheaper than gasoline. There are also far more diesel rigs than gasoline. When we bought our diesel truck in 2001 diesel was about $.45 cheaper than gasoline.

Currently we have the truck parked because the diesel is so expensive.

DaveInDenver
04-18-2008, 01:33 PM
I wonder how the share holder feel (of some of these big oil companies )when they get there dividends?
ExxonMobil shareholder here, nice check four times a year at $0.35/share. It pays for a few tanks of go-go juice in the Wonder Truck. You can beat your chest and crow all day about the corrupt system, but that don't pay the monthly bills.

Bikeman
04-18-2008, 02:26 PM
What gets me is that the 3/4 and 1 ton trucks that are diesel are almost a wash to the gas versions now. Unless you are pulling more than 5K, it doesn't seem like diesel trucks will in the long run be more economical. They need to get better mileage, as well. My '04 Powerchoke got 14mpg, stock, lifted, in town, highway, it did not matter. What happened to the diesel trucks that got 18-22mpg years ago?

We are selling more bikes because of the price of fuel. Even though the math may not support it on a really expensive bike, people don't want to give their money to oil companies. They also want to ride for good health, but many will use the bike for a short period and then hang it up in the garage.

What pisses me off is that I want to drop a lot of coin into my Cruiser, ie 6" lift/ 35's or 37's, but I am freaked out about being able to feed it when I can't make any more money to offset inflation and the rising cost of fuel.

SteveH
04-18-2008, 02:28 PM
First, the oil companies were quite profitable when gas was .82/gal and no one complained about them being robber barons. Why are they now?

Second - I'm glad they're making billions - Exxon also paid somethink like $100B in taxes in the last 5 years. Someone has to pay for our bloated government, right (even if I disagree with corporate taxes in general)?

Third - the actual profit margin Exxon is 11% - and Microsoft is 32%, which one is 'raping the consumer'? (Source: http://www.gravmag.com/oil.html)

Fourth - Because of environmental pressures, no new refineries have been built in the US for many years. If people are totally torched about high gas prices - start your own refinery! Enjoy all the 'free money' that Exxon enjoys.

Steve (Exxon stockholder...)

Red_Chili
04-18-2008, 02:34 PM
What gets me is that the 3/4 and 1 ton trucks that are diesel are almost a wash to the gas versions now. ...My '04 Powerchoke got 14mpg, stock, lifted, in town, highway, it did not matter. What happened to the diesel trucks that got 18-22mpg years ago?

My '97 Powersmoke got 17mpg.
They got bigger. Because we wanted to buy bigger (on average. I am an outlier...:lmao:).

Give me a turbo diesel '85 4Runner and I'll stop complaining! :hill:

treerootCO
04-18-2008, 02:48 PM
My view of inflation:

What really gets me is that when I was younger, my grandma gave me $50. In my world, you could buy anything for $50 bucks. I think if you gave your kids $50 dollars these days, they would look at you funny. $5 or $10 bucks was an insane amount, $50 was unreal. The more experienced folks need to be careful not to show your age on this one.

My Duramax gets 23mpg if you keep it under 55. 17mpg if you drive 56 and up

Evrgrnmtnman
04-18-2008, 11:52 PM
Sounds like as good 4wheelers that we are. Maybe "Share a Ride" on the trails or "HOV" lanes on the trail as well. No single drivers..sorry. Has anyone bought a hybrid rockcrawler lately? There is no oil shortage.....this is nothing more than future traders driving up the prices.

Red_Chili
04-19-2008, 03:49 PM
Well, dunno bout that. There are definite supply constraints and more and more consumers (India and China, then Russia, then ???). The futures traders are able to bid up futures contracts only because of anticipated real shortfalls, gasoline inventories going down, etc. It is speculative, but there is a reality component - it is not just made up out of whole cloth.

DaveInDenver
04-19-2008, 05:09 PM
Well, dunno bout that. There are definite supply constraints and more and more consumers (India and China, then Russia, then ???). The futures traders are able to bid up futures contracts only because of anticipated real shortfalls, gasoline inventories going down, etc. It is speculative, but there is a reality component - it is not just made up out of whole cloth.
There is more consumption, like you say the demand in China and India is astronomical. Russia and the old Iron Curtain countries are increasing their use. There is definitely not a reduction in people using oil. That I think pushes the price of oil up, no doubt. I do think that the rapid increase lately has some basis in the generally weaker equities market. Stocks and mutual funds are relatively weak and with the softness in the real estate market I think commodities are getting more action than is typical. Oil just happens to be a good future to trade because for all the talk and rhetoric, no one seriously believes that the rate of consumption is going to change drastically any time soon. So even 12 months out, it's a pretty safe investment.

Red_Chili
04-19-2008, 07:30 PM
Maybe that will change a bit... only a bit... as I think equities are a very good thing to get into right about now. They are a lot less beaten down than they have been, and the bottom seems to be holding. But there is that consumption thing, and it ain't going down.

DaveInDenver
04-20-2008, 08:12 AM
It's weird, the commodities markets right now. People are trying to play on the volatility and so the pricing is getting confused. Grain commodities markets are one example, the derivatives market is trading at an irrationally higher value than the cash market, which is screwing up farmers' and co-ops' planning. The belief is that index and hedge funds are screwing up the futures market by pouring money into commodities without considering true market fundamentals. They have to put their money somewhere and so it gets moved around into investments that don't necessarily make sense. What it does is cause the price for raw materials to jump as contracts come and we're seeing that result in double digit price increases for our food.

I do honestly believe that the last 12 months of run-up has more to do with this and the falling dollar than with any underlying supply and demand market force to push oil to $120/bbl. Take for example the long term oil contracts against short traders. If you believe the bearish oil traders, the end of cheap oil happened in about 2003 or 2004 and the trends support that assessment. That's roughly when the long term contract price overtook the near term price. That meant that the market started believing that future shortages would be the norm rather than exception.

8769

When you examine the real rate of discovery and recovery of oil, peak oil may have already happened or is likely to happen in the next few years. So there is certainly a recognition that future use will not subside and future supply cannot increase proportionally, so the natural price must increase. But since the ratio of long-to-short contracts is changing towards shorter term contracts, investors it seems are hedging as to when the poo hits the fans. So it's a self fulfilling prophecy, the price must go up because of fundamentals and inflation, so people knowing that oil is a commodity the keeps the economy moving are betting that they can make more than the broader market in this commodity and so more money comes in. That pressures the price up independent of the true market price.

8767

8768

But, what is the true fair market price for oil? If you chart the trend and correct for inflation, it's actually sort of where you'd expect it when the U.S. is involved in Iraq. But the real price verses the artificially propped price isn't clear. I mean, the market is gonna do what it's gonna do. Forward moving oil consumption trends really started to move up around 1995 or so. It took 10 years for the price to move significantly in response, but that may be due to price controls as much as anything. IMO, there is about a 10~15% premium on oil right now above it's natural price. I think it's due to politics and public perception more than economics, but if the market can sustain $115+ barrel of oil, it will go to that price.

8772

This is a good analysis of why oil prices move and their basis.
http://www.wtrg.com/prices.htm

8770

Red_Chili
04-20-2008, 08:30 AM
Here is an interesting thought: the function of futures markets (all cynicism aside) is to use greed to price in the likelihood of shortages. This anticipates the real shortage, and creates a deterrent to using that limited resource in favor of others. This is a good thing - imagine a real post-peak-oil shortage happening even more suddenly after prices are held artificially low.

Catastrophic. No time to react, to find other substitute resources. The high prices are doing us a favor, and making both exploration (forestalling the inevitable collapse of supply) and alternatives research financially viable.

As a side benefit, political pressure is likely to make the replacement more environmentally friendly, and the restructuring of the economy around efficient energy usage more sustainable.

I do not consistently toe the conservative line, because I am not really what may be described as a conservative in the traditional sense. But based on historical observation I do believe in the efficiency of the markets over time, given limited government intrusion (false supports), good private property laws, and democracy. take any one of those away and you are on your own.

Even greed fuels it. It also deals with bubbles like derivatives, if somewhat painfully.

DaveInDenver
04-20-2008, 08:54 AM
I don't know enough to comment on the fundamental wisdom of trading derivatives, but I do think it's a necessary function of the market, even if it's more akin to Vegas than sound investment. That's a personal decision to participate I'd guess. Greed here is not clearly defined. If trading and making money is greedy, then a free market is not possible. But it's the only fair way in my view to find the real value of something.

I would agree that having oil prices become a larger part of the monthly budget can get people to do what you want. That's the view that economies are adaptable to policy. But I would have to disagree that using voluntary pricing of a resource or commodity to force a response at the expense of crippling the economy is wise. If oil supply is or will be reduced, the price will rise and we don't have to do anything to force that. Like you say, having a futures market can make that inevitable truth somewhat less painful. But a long term oil contract is 5 or 6 years and we're looking decades down the road to true changes in oil availability.

BTW, a good book about all of this is called "Twilight in the Desert" by Matthew Simmons. He talks about peak oil in Saudi Arabia, its exploration and availability. It's a pretty gloomy book, but seems pretty factual and I think the concepts can be applied to the oil market and world as a whole.

Your comment about higher prices and exploration is interesting. The general consensus is that Exxon et al are making 'obscene' profit. Profit is where research and development money comes from and accumulated cash (Exxon is wise about saving and investing cash) for lean times when pricing does not directly support continued exploration. So one has to be careful pointing fingers at what is considered obscene because while it may seem like a lot of money, if Exxon or Shell or Chevron go under due to bankruptcy our situation would be worse. I hate that CEOs make tens of millions of dollars and that is part of the greed you mention. But making a profit is not illegal, immoral or wrong in and of itself. Then the relative scale at which profit is made must be a sliding, subjective scale. A 10% profit margin is not generally considered excessive and just because they happen to be capitalized at $500 billion should be considered when their profit is mentioned. Lots of companies do not make through lean cash flow years and oil exploration and development is not a cheap business to keep running when profits are low or revenue is negative.

BTW, politically, I'm not and haven't been Republican pretty much ever. Never was a Democrat, either. Politically I fall into the libertarian (little 'L') probably best. Pure Jeffersonian, live and let live. In the past 50 years, 'conservatives' have done just as much damage to the U.S. and the Constitution as any 'liberal' might have. Both of them follow agendas that I disagree with.

Red_Chili
04-21-2008, 08:43 AM
If trading and making money is greedy, then a free market is not possible without acknowledging that greed is a necessary component.
Fixed it for ya. One man's greed is another's "reasonable expectation of profit".

DaveInDenver
04-21-2008, 10:01 AM
Fixed it for ya. One man's greed is another's "reasonable expectation of profit".
That's a slippery slope, looking at another person and concluding he has made enough and any more is greedy. Who or what is used to judge what is enough and what's not?

Red_Chili
04-21-2008, 10:04 AM
Exactly.
What you have is too much.
What I have is not enough.
:lmao:

leiniesred
04-21-2008, 10:15 AM
I sure like my bicycle commute.

"Bad Traffic" to me is 3 people chatting away side-by-side-by-side pushin' strollers and walking dogs on 20 foot leashes on the multi-use path.

My idea of "High gas prices" is farting with a tailwind.

Red_Chili
04-21-2008, 10:44 AM
She got more mac-n-cheese than you?

:lmao:

FJBen
04-21-2008, 11:41 AM
I sure like my bicycle commute.

"Bad Traffic" to me is 3 people chatting away side-by-side-by-side pushin' strollers and walking dogs on 20 foot leashes on the multi-use path.

My idea of "High gas prices" is farting with a tailwind.

x2 just started riding the bike last week...

although this morning was under 30 and a bit chilly :Princess:

PabloCruise
04-24-2008, 10:55 PM
The Easter Bunny hates diesels...

nuclearlemon
04-25-2008, 10:09 AM
The Easter Bunny hates diesels...


hhhhhmmmmm, reminds me of a poem i wrote in college

"the easter bunny's dead
i chopped off his head
blood and fur
flies purr
sweet dreams tommy go to bed"

now i have to go hop in my diesel and go to the store :lmao:

Red_Chili
04-25-2008, 10:30 AM
That's disturbing... :hill: