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  1. #1
    adarian_too's Avatar
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    At what point will the Oligopolistic Oil Companies be held Accountable?

    Let me see if I can follow the tortured logic of the oil companies. If you can say "supply and demand" you can rationalize your price increases at the pump? If you can cite to a news report, regardless of its validity, that says there is a possible strike in Nigeria or an explosion in Iraq, that means a possible disruption of supply. That possible disruption translates into fear in the futures market that the future delivery of oil will be more expensive and the price per barrell of oil should be more expensive. OK. So let's boil it down to current events.

    Refineries are threatened in the gulf because of hurricane Katrina. This event triggers the speculators in the trading pits of Chicago to bid up the price per barrel of crude oil to say $70 from its previous day price of $67. What is that? Approximately a 5% increase? Mind you a 5% increase in the FUTURE delivery of crude. But, here is the rape. Marathon, for instance, forwards instructions to raise the price of gasoline at the pumps from $2.52 to $3.09 the very NEXT day. Is it a 5% increase matching what is happening in the futures market? NO. It's a 20% increase. All in the name that consumer demand is insatiable and supply now has been constricted.

    Every once in a while some state or federal agency investigates whether the oil companies are in collusion and says they can find no proof of it. Huh?! First political economics lesson: in an oligopolistic environment, market leadership rotates. There will never be a paper trail that says that Shell is to set the price point and the other companies will toe the line. The unspoken rule is that market leadership is not to be contradicted. Regardless of whether Shell, BP, or Marathon sets the price point of the day, the rest are not to challenge it by not following suit. Collusion. Plain and simple.

    If it were truely an unfettered free market with unbridled competition, any one of the oil comanies could still be pricing gasoline to the stations at cost + reasonable profit. But here is the smoke and mirrors they get away with. For some convoluted reason, oil companies think they are justified in demanding REPLACEMENT cost, not actual cost. Now wait a minute, replacement cost is for capital equipment, not commodities. The gas at the pumps is existing inventory, procured at a previous price point.

    Once upon a time grocery stores were prohibited from changing the price of a product already on a shelf. If actual costs changed for new stock, the stock had to be rotated behind exhisting stock and the existing price sticker couldn't be removed. Well conveniently, with bar codes those price stickers disappeared and one could no longer readily tell when the product entered the stream of commerce. So charging consumer fraud became more difficult.

    Well what about that gasoline stock that is in the pumps? Prices for all the gasoline up and down your street rise in tandem, mostly within hours of each other. But did all those stations receive delivery from a tanker in middle of the same night? You and I know better. Collusion. Plain and simple.

    But let's go back to replacement cost. If the price at the pump is elastic enough to go up every day at the drop of a single "bad news report," does that mean, oil companies are negotiating delivery of new contract of say a million barrels of crude next year every day? What prudent businessman doesn't try to negotiate and lock in a price for future delivery of a known commodity as far out as possible? It is the speculators who are buying and selling futures contracts. It is the deceitful sort like Enron who are buying and selling the contracts to make money on the contracts themselves, not the commodity.

    Read the quarterly statements of the energy companies. Their record profits are based on the fact that ACTUAL costs are stable, suggesting that shipments of crude are being delivered at previous "low" prices and are being priced at some speculative future price.

    When say something like a Mad Cow disease scare surfaces, does the butcher at Kroger, rush out into the meat aisle, rip off the prices for beef and replace them with some unrealized future beef price? No. They pass along actual costs plus profit.

    Only the oil companies get away with this nonsense. Robber barons built this country. And robber barons are crippling this country.


  2. #2
    MOM's Avatar
    MOM
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    There will be no lowering of prices or investigations into oil prices unless we as a country get rid of Bush (Oil man) Cheyney (Oil Man) and 90% of all reps and senators (oil persons).
    The Good Ole Boy club of oilmen has us by the 'nads.
    [SIGPIC]http://www.stickershoppe.com/mm5/graphics/00000001/MLRPANCmini.jpg[/SIGPIC]This is for Randy! GO BRM!

  3. #3
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Quote Originally Posted by MOM
    The Good Ole Boy club of oilmen has us by the 'nads.
    Before I go into another facet oil political economics, I will say that it couldn't hurt for the public to explore the impact of interlocking corporate directorships on corporate policy.

    That said, you want a history lesson in gas pricing? A BP station in The Hollow went from $2.44 to $2.69 to $2.99 to $3.09 to $2.99 in an 11 hour span yesterday - this despite the news being just as bad as it was the previous couple of days.

    So excuse me if I get back on my soapbox of discontent. A question was asked about the news reports of gasoline shortages at various stations around the country and whether that doesn't justify the rise in prices in order to curtail demand. Unfortunately, the issue about supply and demand relates to the chicken-and-the-egg question. Which came first?

    I submit the initial shortages were artificially created. When Speedway raised its price for regular from $2.52 to $3.09 in the morning did that reduce demand? Economics 101 tells you it should have. But to the contrary it increased demand. Yes that is right. Contrary to the talking heads' PR spin, demand increased. What the rise in price at Speedway precipitated, was a stampede to the adjacent Shell station, which had left it at $2.57. Lines were formed by people who could quickly calculate that a fill-up was going to cost them about $5 -$10 more if they didn't act immediately.

    So it point of fact, the immedate supply was constricted by the demand for a higher price. So when someone says "supply and demand" again, pause for a moment and ask yourself if that is nothing more than two sides of the same coin not controlled by market forces.

    I now return you to your regularly scheduled dearth of journalistic investigation.

  4. #4
    HUbison's Avatar
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Quote Originally Posted by MOM
    There will be no lowering of prices or investigations into oil prices unless we as a country get rid of Bush (Oil man) Cheyney (Oil Man) and 90% of all reps and senators (oil persons).
    The Good Ole Boy club of oilmen has us by the 'nads.
    Mom, I think we would be hard-pressed to find any politicians without some oil interest. Don't get me wrong, there are robber barons everywhere, but if we limited our political choices to those without interest in oil, the ballot would be very short indeed.
    "Before the gates of excellence the high gods have placed sweat; long is the road thereto and rough and steep at first; but when the heights are reached, then there is ease, though grievously hard in the winning." --- Hesiod

  5. #5
    adarian_too's Avatar
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Now, just to be fair and not ignore all the news on this front I have to add this:

    By H. JOSEF HEBERT, Associated Press Writer
    26 minutes ago

    WASHINGTON - Twenty-six countries in an international energy consortium will release more than 60 million barrels of crude oil and gasoline to relieve the energy crunch caused by Hurricane Katrina in the United States.

    As part of that effort, the Bush administration will release 30 million barrels of crude oil from U.S. reserves.

    Energy Secretary Samuel Bodman called this an initial move, part of what he called an "aggressive" federal response to the hurricane disaster. The fuel being released by the Paris-based International Energy Agency will be in the form of both crude oil and gasoline and will be released over the coming month.

    The reserves will amount to about 2 million barrels a day coming into U.S. markets.

    Bodman said the oil would be put up for bids from the Strategic Petroleum Reserve next week with the first deliveries in 11 to 14 days. He said he had received indications from other IEA members that a significant part of their portion would be refined products, mostly gasoline, which will be released onto global markets.

    "We have made it known that we are facing shortfalls in available supplies of refined products in our country as a consequence of this storm," Bodman said, expressing confidence the gasoline will find its way to the United States where prices are expected to remain high.

    Already there are 20 ships carrying gasoline from commercial foreign stocks to the United States, he said. The supplies from government stocks would be in addition.

    The Paris-based IEA said in a statement that its member countries "unanimously support" the measures, which will take effect for an initial period of 30 days. The IEA board will meet in two weeks to review the situation, it said.

    "They've all agreed and this is something that they're prepared to do to stabilize energy markets worldwide," Bodman said in Washington.

    Bodman said the additional supply should help relieve high gasoline prices, but he gave no timeline. He also said the administration's main concern is "to avoid disruptions," rather than short-term price relief.

    "We have all been saddened by the tragedy still unfolding in the United States," British Energy Minister Malcolm Wicks said.

    "This coordinated response will free up extra supplies to help the market deal more effectively with the disruption caused by Katrina," he said. "This is a global oil market and so a multilateral response is the right way forward."

    Georgia and other states are moving to suspend state gasoline taxes, but Treasury Department officials said the possibility of reducing the federal tax on gasoline is not under active consideration in the administration.

    Legislation would be required to reduce the federal tax.

    Technically, even the release of supplies from the U.S.-based SPR is a matter of joint decision-making by the United States and its European partners. Until now, the administration has loaned oil from the SPR to several refineries, but has not had a general release of crude to counter supply problems. Under international agreements, such a release must be coordinated with other IEA members.

    The IEA is an oil market watchdog formed under the auspices of the Organization for Economic Cooperation and Development.

    Fears of escalating fuel prices spread across the country this week as damaged Gulf Coast refineries and fuel lines shut down. Gas prices jumped 35 to 50 cents a gallon overnight in many places, pushing the pump costs to well over $3 a gallon in some areas.

    On Thursday, President Bush urged Americans to be prudent in their consumption of energy, but called the hurricane a "temporary disruption" to gasoline supplies.

    Katrina has disrupted 90 percent of the oil production in the Gulf of Mexico. Nine Gulf Coast refineries have been shut down by electrical problems, flooding and other damage caused by Katrina. Two major pipelines carrying gas to the Midwest and East also have been partially disrupted by the Hurricane.

    Bodman said some of the shutdown refineries "are showing signs of recovery, some less so." He said some oil companies have been struggling to find their workers in the chaos of the hurricane and its aftermath.
    This could be a fascinating exercise in pricing power. I think it is fairly safe to assume that the stock of oil and gasoline being released into the marketplace was purchased at much lower prices. If governments are restricted from profiting from the release of the inventory (and that is an open-ended question for me right now) just what kinds of bids are the oil companies going to submit? And in turn, it should be relative easy to track the profit margins that they can restrain themselves to. Of course, now we are also going to see if the governments set bid reserve limits in order to replenish the strategic reserves based on the notion of replacement costs.

    Yeesh, isn't it high time for football. Then I can turn my attention to more important things like whether MB is going to survive a season behind another jerry-rigged OL?

  6. #6
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Hopefully, the California AG has the clout of NY's Spitzer to sift through corporate "confidential and proprietary pricing information" to establish the facts.

    One might recall, that California got very little support from FERC when they tried to recover from the electricty price gouging/manipulation earlier this decade.

    Calif attorney general to probe possible gas profiteering

    By Dan Whitcomb

    LOS ANGELES (Reuters) - California's attorney general opened an investigation on Friday into possible illegal profiteering by gas stations and oil companies in the state following Hurricane Katrina.

    Because America's most-populous state gets none of its crude oil and little refined product from the hurricane-devastated Gulf of Mexico, California Attorney General Bill Locker said, retailers should not be using the disaster to explain a spike in prices.

    "Certainly the storm cannot be used to justify gouging Californians while thousands of our fellow Americans suffer," Lockyer said in a statement announcing the investigation.

    "To unjustly profit from tragedy is unconscionable," he said. "I hope this investigation does not find that such greed has afflicted oil companies and gas station operators in California."

    Lockyer said the probe would try to determine if oil companies or retailers had colluded to violate anti-trust laws, fair business practices or a state law that prohibits retailers from unjustly raising gas prices more than 10 percent during government-declared emergencies.

    The attorney general said that he would support calls for Gov. Arnold Schwarzenegger to declare a state of emergency in California, which has long paid some of the nation's highest gas prices, in part because its largely self-contained oil economy.

    "We're always considered an island when we're getting reamed at the pump and we question whether we should now be integrated as part of the larger system (when that system is in crisis)," Lockyer spokesman Tom Dresslar said. "You can't have it both ways."

    According to the privately run Web site LosAngelesGasPrices.com, the highest price for regular gas in the state's largest city was $3.33 a gallon in the suburb of Signal Hill. The lowest was $2.71 in the suburb of West Covina.

  7. #7
    r8rh8rmike's Avatar
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Oil Companies. Unfortunately they drive the US economy and are in bed with every viable politician, Republican OR Democrat.

    It's always interesting that gas prices can spike almost instantly with the slightest rumor of supply problems, but need weeks or more to correct when those supplies flow normally.

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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    what is the gas price in California and Arizona?


  9. #9
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    Re: At what point will the Oligopolistic Oil Companies be held Accountable?

    Quote Originally Posted by RamDez
    what is the gas price in California and Arizona?
    Not sure about Arizona Dez, but here in the LA area, I saw most stations around $2.99, which didn't seem too bad considering. That could however change in an instant depending on which way the wind blows.

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