The Oil Price Excuse Thread

It seems like every day I hear a news story on why the price of oil is trading at the level it is. Of course I rarely believe them.


Post the excuses you find.

Oil was little changed at around $133 a barrel on Tuesday after news of another attack on Nigerian oil facilities refocused concerns on immediate supplies.

Source

Oh no not Nigeria!

We ruin our land in Canada and still cannot get cheap product for ourselves? Something happens in Nigeria and we have to pay for it through oil traders.

Crude oil rose for a second day in New York and traded above $133 a barrel yesterday as militants attacked facilities in Nigeria and OPEC's president ruled out an increase in supplies.

If there is an attack that supposedly will impact supplies, why are they not concerned about increasing supplies to meet the supposed loss of supplies?

Source



OPEC influences the traders.

This has been your oil excuse of the day. Blame rebels for attacking Royal Dutch Shell supplies in Nigeria.


[edit on 27-5-2008 by Dulcimer]

I almost missed this one in the same article.

Markets were also unnerved by the weekend shut-down of StatoilHydro's North Sea oilfields Vigdis and Snorre A, which were shut by an oil leak at a nearby platform, although both restarted on by Monday.

Source

It is also interesting to note that OPEC doesn't seem to understand the influence they command.

OPEC has been adamant that the market remains well balanced and there is no need to raise production levels, blaming the rise in prices on financial speculators or other factors outside its control.

Do they think that the traders read a magic 8-ball to determine when to buy and sell oil?

I had a thought the other day.. Let me run this one by you.

I was thinking.. Its not the price of gas going up.. Its the value of our dollar going down. In essence, thats why our gas is more costly.
Our food is rising in price, and the basic needs to live are on the rise.

When bottom line its not the cost that is going up.. Its the value of our dollar that is going down.

Does that make any sense? Or is that just a misconception of the way our money works.. To me that seems the logical of the ladder. Or if you prefer Occam's razor.

My biggest complaint about the excuses for the "price of oil merely being a supply and demand issue" is the fact that oil companies profits are skyrocketing.

Clearly, they are counting on people not understanding economics. If it were JUST supply and demand, and the price were rising because of those two factors alone, their profits would be stable.

What they MEAN to say is, "We have the SUPPLY tied up now that we have a large independent producer like Iraq who was non-compliant with our price fixing schemes out of the picture, and you guys have no option but to continue to DEMAND oil. (As our buddies in the government have been kicking us the money instead of the alternative fuel industry) And since we have a near monopoly on the supply, and your government, you peons will pay us pretty much whatever the heck we want to charge you. Get used to it. And just you wait til we tie up Venezuela. Then you losers are really going to pay."

To an extent, maybe... Yes the dollar and oil correlate, but it is not responsible for the wild swing we are seeing.

If you want to see evidence of the dollar and oil effecting each other, look at the close of the TSX and the Canadian dollar. Canadian markets are very heavy in oil and you can see it effect the dollar on wild up and down days.

To what extent they fully effect each other I do not know.

The thing I cannot understand is this... if the economy sucks (does it really though?), shouldn't the consumer driven economy drive the price of oil down?

In a perfect world it would, but the rich who only talk about how much money they make on oil, not how much it costs to fill the tank.... they control it right now.

A recession should curb the price of oil. Maybe a worldwide economic slowdown would be needed actually. Inventories do not seem to be showing this lately though....

Can the numbers be trusted though?

edit to delete my post as it was totally stupid as I thought this thread was about us making up our OWN lame excuses for oil prices.


TRG* skulks away in utter shame.....

[edit on 27-5-2008 by theRiverGoddess]

I think people will find this useful.

1. Crude
Crude accounts for 40% of the world's energy supply and is the most actively traded commodity contract worldwide. Crude is the base material that makes gas, diesel, jet fuels and thousands of other petrochemicals.

More specifically, the type of crude in question is the light sweet crude oil variety, which, according to NYMEX, contains lower levels of sulfur. This type of crude is traded in dollars and cents per barrel and each future contract involves 1,000 barrels. As in the example above, when crude is trading at $60/barrel, the contract has a total value of $60,000. For example, if a trader is long at $60/barrel, and the markets move to $55/barrel, that is a move of $5,000 ($60 – $55 = $5, $5 x 1,000 bl. = $5,000).

Movement
The minimum price movement, or tick size, is a penny. Although the market frequently will trade in sizes greater than a penny, one penny is the smallest amount it can move.

Crude has a daily limit of $10/barrel, which is expanded every five minutes as needed. This means crude will never have an upper or lower lock limit. Remember, a $10 difference in a barrel of oil is a move of $10,000 per contract.

Delivery
The requirements of the exchange specify delivery to numerous areas on the coast and inland. These areas are subject to change by the exchange. For example, currently for the NYMEX, the delivery point is in Cushing, Oklahoma.

Because energy is in such demand, is it deliverable all 12 months of the year. To maintain an orderly market, the exchanges will set position limits. A position limit is the maximum number of contracts a single participant can hold. There are different position limits for hedgers and speculators.

Source

I would have liked to have seen the made up reason that was deleted. It cannot be any lamer than the excuses offered by the oil industry and our government, who are pretending it is pure supply and demand.

While it may have something to do with supply and demand, I believe it is due to this; (from Wikipedia)

en.wikipedia.org...

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek for a few over many. Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. The decisions of one firm influence, and are influenced by the decisions of other firms. Strategic planning by oligopolists always involves taking into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be at the highest risk for collusion.

Coupled with the fact that these corporate powers have enormous power over our government, (and hence our military) and are using that power to harass and eliminate competitors in the oil market who are not playing by the cartel's "rules."
(Iraq, Venezuela)

The beginning of the huge price jump is highly correlated with the Iraq war.
Image found in its original context here;

www.wtrg.com...




Iraq has the world's second largest oil reserves.

www.fas.org...

Iraq Oil Reserves and Production History. With 115 billion barrels of proven crude oil reserves, Iraq has the world’s second-largest endowment of oil, amounting to 11% of the global total.

Iraq had also just made an economic move that allowed that vast reserve of oil to trade in Euro's not dollars.

www.energybulletin.net...

From the article linked to above;

The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales - despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar [5]

Being able to bring the Iraqi oil reserves into a more controllable (and profitable) situation for the big oil companies allowed them tighter control of supply, and thus, greater freedom in setting price.

Venezuela also has large oil reserves, and a leader who is not "playing the game" with big oil;

en.wikipedia.org...

Venezuela had 80 billion barrels (13×109 m3) of conventional oil reserves as of 2007, the largest oil reserves of any country in South America. In 2006, it had net oil exports of 2.2 million barrels per day (350×103 m3/d), the sixth-largest in the world and the largest in the Western Hemisphere.

Which makes it entirely unsurprising that the US, on behalf of business interests, is looking for any opportunity to overturn Hugo Chavez and his regime. Like Saddam Hussein, reasons are being presented to distract attention from the link to his oil, (supposed humanitarian reasons) but an astute observer can see that we are not looking to intervene for humanitarian reasons say, in Burma, or in Tibet. (Who have no resources we currently desire control, in fact, our economic interests are in favor of the oppressors) Odd, isnt it, the correlation between the western worlds humanitarian impulse and the resources those recipients of our humanitarian impulse possess.





Edit to add external source and to correct a sloppy grammatical error. Further edit to add graph.



[edit on 27-5-2008 by Illusionsaregrander]

[edit on 27-5-2008 by Illusionsaregrander]