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So today, the price per barrel of oil rose to $50....hasn't been this "high" in 7 months.

The commentator stated that the increased price was "good for international economy".

Can someone help me figure out just *how* increasing prices on a "commodity" such as oil is in any way a good thing for international economies.

I was always under the impression that higher prices decreased demand...so as oil prices rise, consumer demand drops.

The oil industry is as big a scam as the pharmacy industry....so I realize that they need to maintain their multi-billion profits....

But it is still a bit baffling how that really benefits international economies.

It depends on how dependent a nation or area is on petroleum production. This is probably great news for Russia and Kuwait and oil workers in the Dakotas, probably not so much Western consumers and manufacturers however.

That said, yes, always take it with a big heaping bowl of salt when people talk about a resource price increasing as being great.

 TheMeanDM wrote:
So today, the price per barrel of oil rose to $50....hasn't been this "high" in 7 months.

The commentator stated that the increased price was "good for international economy".

Can someone help me figure out just *how* increasing prices on a "commodity" such as oil is in any way a good thing for international economies.

I was always under the impression that higher prices decreased demand...so as oil prices rise, consumer demand drops.

The oil industry is as big a scam as the pharmacy industry....so I realize that they need to maintain their multi-billion profits....

But it is still a bit baffling how that really benefits international economies.

How is it a scam out of interest? Both Pharmacy and Oil.

Its good because oil E&P is an international business with players throughout the globe. Its a capital intensive business who's labor is very well paid at all stages of the process.

As the price rises the concentration of economics diversifies further.

It helps the US because, guess what folks, we make almost no heavily engineered products outside of the military any more.


Automatically Appended Next Post:
Its good because oil E&P is an international business with players throughout the globe. Its a capital intensive business who's labor is very well paid at all stages of the process.

As the price rises the concentration of economics diversifies further.

It helps the US because, guess what folks, we make almost no heavily engineered products outside of the military any more.

It isn't worth it to the oil companies to drill on land for anything less than $50 a barrel, and that's cutting it close. As said, there are several countries that rely heavily on oil. Venezuala, for example was one of the OPEC countries being flogged by the low oil prices and begging the Saudis to quit driving the price down by flooding the market.
A lot of local economies also depend on drilling.
That being said, I don't think we'll be seeing many rigs going back into the mix until prices raise a bit more and stabilize at a higher level.
Right now, I see Canada added a rig, but the U.S. Is down 2 and Internationally, we're down 39 from the prior count.
At this point, there is a grand total of 1,394 active rigs in the world.


Here's a link to a good explanation of oil prices:

http://oil-price.net/en/articles/six-reasons-why-oil-prices-reached-new-highs.php


Here's the site to keep an eye on. When the rig count starts really climbing, you can figure oil prices are on a steep increase:

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsoverview

$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

The only 'scam' in any of this is the markets who have been making out like bandits with the ridiculous volatility in oil over the last two years.
Following the financial news narrative for the price changes is an exercise in brain melting.
One day the markets are paying attention to pump count, the next day to storage levels. One day the price shoots up based on an IEA estimate for a drawdown the next day it melts away because that estimate was completely wrong (pro tip: They seem to be completely wrong about 75% of the time).
Essentially wall street is doing what they need to do to make money and then retroactively justifying it with whatever data happens to fit that day.
Saudi prince looked sad at breakfast so prices dropped 3%.
One oil rig went off line this week...5% rally!

50$ is probably about 'right'. It's enough for many markets to adjust themselves to the point that it's still worth producing, but it's still tenuous enough that we aren't going to see a ton of money poured into new plays or exploration.
Even at 50$ I'd expect the excess bpd to have been accounted for by the end of the year.

 plastictrees wrote:
$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

The only 'scam' in any of this is the markets who have been making out like bandits with the ridiculous volatility in oil over the last two years.
Following the financial news narrative for the price changes is an exercise in brain melting.
One day the markets are paying attention to pump count, the next day to storage levels. One day the price shoots up based on an IEA estimate for a drawdown the next day it melts away because that estimate was completely wrong (pro tip: They seem to be completely wrong about 75% of the time).
Essentially wall street is doing what they need to do to make money and then retroactively justifying it with whatever data happens to fit that day.
Saudi prince looked sad at breakfast so prices dropped 3%.
One oil rig went off line this week...5% rally!

50$ is probably about 'right'. It's enough for many markets to adjust themselves to the point that it's still worth producing, but it's still tenuous enough that we aren't going to see a ton of money poured into new plays or exploration.
Even at 50$ I'd expect the excess bpd to have been accounted for by the end of the year.

Right now, the thought is that oil might hit $56 a barrel by year's end. At $50 a barrel, the holes already punched can make the companies money. It's when those reserves start getting lower that things become interesting.

 plastictrees wrote:
$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

The only 'scam' in any of this is the markets who have been making out like bandits with the ridiculous volatility in oil over the last two years.
Following the financial news narrative for the price changes is an exercise in brain melting.
One day the markets are paying attention to pump count, the next day to storage levels. One day the price shoots up based on an IEA estimate for a drawdown the next day it melts away because that estimate was completely wrong (pro tip: They seem to be completely wrong about 75% of the time).
Essentially wall street is doing what they need to do to make money and then retroactively justifying it with whatever data happens to fit that day.
Saudi prince looked sad at breakfast so prices dropped 3%.
One oil rig went off line this week...5% rally!

50$ is probably about 'right'. It's enough for many markets to adjust themselves to the point that it's still worth producing, but it's still tenuous enough that we aren't going to see a ton of money poured into new plays or exploration.
Even at 50$ I'd expect the excess bpd to have been accounted for by the end of the year. but its definitely better than $25.

Actually $50 means most pumping in the Americas ends within two years.

 Frazzled wrote:

 plastictrees wrote:
$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

The only 'scam' in any of this is the markets who have been making out like bandits with the ridiculous volatility in oil over the last two years.
Following the financial news narrative for the price changes is an exercise in brain melting.
One day the markets are paying attention to pump count, the next day to storage levels. One day the price shoots up based on an IEA estimate for a drawdown the next day it melts away because that estimate was completely wrong (pro tip: They seem to be completely wrong about 75% of the time).
Essentially wall street is doing what they need to do to make money and then retroactively justifying it with whatever data happens to fit that day.
Saudi prince looked sad at breakfast so prices dropped 3%.
One oil rig went off line this week...5% rally!

50$ is probably about 'right'. It's enough for many markets to adjust themselves to the point that it's still worth producing, but it's still tenuous enough that we aren't going to see a ton of money poured into new plays or exploration.
Even at 50$ I'd expect the excess bpd to have been accounted for by the end of the year. but its definitely better than $25.

Actually $50 means most pumping in the Americas ends within two years.

Yep. They're pretty much just pulling out of holes already made.

Why do I feel they are a scam?

Gas prices were at very low rates 1 to 2 months ago...lowest they have been in YEARS.

http://www.gasbuddy.com/Charts

Since Oct/Nov they have been $2/gal or less.

How do I want to say it.....*ponder*....

People are fairly predictible....habits are fairly predictible. The industry *knows* what their production needs are based on the fairly predictible driving habits of citizens. You can't tell me that the oil companies can't look back over history and see how many gallons of gas have been sold every hour of every day over the past 25 years (or more) and probably make pretty damned accurate predictions about how much gas is going to be needed for any foreseeable future.

Heck, the "oild futures market" is a real investment strategy...and pretty lucrative too.

It never seems to fail that oil companies meet or beat their revenue and profit goals every quarter....and they do this by blatant (I feel) manipulation of their production.

In July/Aug 2015, for example, prices started to be raised....for no apparent reason that I could find....and THEN a refinery had some "unscheduled" maintenance and shut down.

http://fuelgaugereport.aaa.com/midwest-gas-prices-jump-due-to-new-refinery-problem/

That immediately sent prices higher. But why? The gas supply isn't manufactured and used that very same day, now is it? One would *think* there is some cushion/padding/leeway.

In Florida (and many other states), a spike of $0.20/gal overnight happened....again...for "maintenance".

http://www.orlandosentinel.com/business/os-gas-prices-jump-orlando-20151007-story.html

Don't get me wrong...I get that there is maintenance to do..and that article is nice about explaining it.

However, look at the price per barrel then ($48) vs today ($49.88) and gas price then ($1.95 up to 2.15) to today ($2.31).

I believe that the petroleum companies blatantly manipulate the market to maintain their enormous profits...instead of actually allowing the market to dictate things.

1. Look at the 52 week numbers for oil companies. I won't say you don't have a clue because that would be rude, but I will say you'll see a massive decline in the equity values of E&Ps, and internationals. Also you might do a google search of the number of E&Ps THAT HAVE FILED BANKRUPTCY in the last six months. The oil patch is in a recession not seen since the bad old days of the 80s.

2. Refiners shift to summer blends in the late winter/spring. They additionally customarily do major turnarounds then. Look at the independent refiners and they have also taken a hit especially when 4th and 1st quarter cracks came in.

3. You're also ignoring regional PADDS related to supply of oils and the related refiners.

Here's how the price of gasoline breaks down:

http://commodityhq.com/education/breaking-down-the-cost-of-a-gallon-of-gas/


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 Frazzled wrote:
1. Look at the 52 week numbers for oil companies. I won't say you don't have a clue because that would be rude, but I will say you'll see a massive decline in the equity values of E&Ps, and internationals. Also you might do a google search of the number of E&Ps THAT HAVE FILED BANKRUPTCY in the last six months. The oil patch is in a recession not seen since the bad old days of the 80s.

2. Refiners shift to summer blends in the late winter/spring. They additionally customarily do major turnarounds then. Look at the independent refiners and they have also taken a hit especially when 4th and 1st quarter cracks came in.

3. You're also ignoring regional PADDS related to supply of oils and the related refiners.

True. Several companies have declared or are near bankruptcy since the Saudis flooded the market in an effort to eliminate competition. The trouble for the Saudis is that now they're seeing that they put themselves in suicide mode if they keep it up.

It is very important to realize that the average price of gasoline and the price of oil are two wholly different things. Likewise the "big oil" companies aren't all there is to it, there are a ton of upstream and downstream players. Heck, the big boys like BP, Exxon, etc. don't even necessarily refine the stuff they pull out of the ground!

Nutshell:
Low crude prices hurt drilling, exploration, and similar upstream activities the most. Rising/higher crude prices squeeze refiners, manufacturers, shippers, and consumers, but incentivizes more exploration and drilling, which tends to increase supply, production, etc. and lead to stabilization (or overproduction), which keeps prices in check. It also tends to push better efficiency and technology as a way to keep costs down. Cheap oil does not encourage alternative fuels!

Fracking played a major role in the lowering of oil prices.

It's hip to blame the Saudis, but the US has been flooding the market as well.

 d-usa wrote:
It's hip to blame the Saudis, but the US has been flooding the market as well.

Can't deny that, which is why I brought fracking into it. The Saudis thought they would protect their market share by putting foreign competition out of business by totaly flooding the market, though. That strategy is now backfiring on them.

You can't drive other players out of the market in the long term. The underlying commodity is not a perishable good.

However this is also to punish the Russians and Iranians by reducing their economics-effectively high altitude bobbin their economies through market dumping. In the long run, it can't last. in the short run the trick is to stay employed. . .

The Saudis also think they are going to build a multi trillion dollar fund to wean themselves off of oil dependency...by selling shares in Aramco. Maybe basing your economic policy on which of your princes is the most powerful doesn't lead to incredible decisions.

 Frazzled wrote:
You can't drive other players out of the market in the long term. The underlying commodity is not a perishable good.

However this is also to punish the Russians and Iranians by reducing their economics-effectively high altitude bobbin their economies through market dumping. In the long run, it can't last. in the short run the trick is to stay employed. . .

I've seen a lot of people disappear from this business since the start of 2015, when oil prices started dropping.

yes Houston is getting its ass kicked. I lived through the eighties and ended up in Cali. It nearly destroyed my family then.

 Frazzled wrote:
yes Houston is getting its ass kicked. I lived through the eighties and ended up in Cali. It nearly destroyed my family then.

I've seen over my 23 years in this business that it seems to go in roughly 5 year cycles. This is the craziest and longest I've seen this kind of dip in prices. The Saudis really wanted to shut down the U.S. and other producers in a big way. Prior to 2015, the U.S. had more rigs running than the rest of the world combined.

 TheMeanDM wrote:
So today, the price per barrel of oil rose to $50....hasn't been this "high" in 7 months.

The commentator stated that the increased price was "good for international economy".

Can someone help me figure out just *how* increasing prices on a "commodity" such as oil is in any way a good thing for international economies.

First up, you are right to take any commentary from someone on international economics with a heaping dose of salt. Most media pundits make no sense, predict nothing, and no-one seems to care.

On this issue though, while he isn't necessarily right, he's also not automatically wrong. The guy may have been talking about indicators rather than drivers. That is, higher oil won't be driving up growth, but it may be an indicator that growth is growing because of other things.

And even he was saying higher oil prices drive up growth, well then he still might not be wrong, because we are in very strange economic times. Right now investment is limited primarily by minimal demand, not the cost of resources. And much of the investment we have seen has been from oil companies looking to develop new sources (shale, fracking). As such it is possible that greater oil prices will have little impact on oil consumption, but could encourage more investment (or at least help existing production to stay in business).

Anyhow, I doubt there'll ever be any way to know if this prediction is right. But I do know that when oil prices collapsed it led to lots of prediction of greater economic activity, and none of that happened.


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 TheMeanDM wrote:
People are fairly predictible....habits are fairly predictible.

Lots of economy wide markets should be predictable for that same reason. Iron ore, nickel, everything would have a consistent price. The stock market would be a stable march upwards. But none of that happens, because complex systems are very unpredictable.

 plastictrees wrote:
$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

... ... ...

Tell me about it!

UK petrol prices are currently over 90% of their peak when oil was over $100 a barrel.

I know the raw material is only one part of the costs but it still feels wrong.

Thanks for the much broader education my friends.

That was my main intent and guess I should have gone with my gut and left my commentary off....I had debated that for a min.

I know, I know...feelings don't make a good argument...and I am not trying to argue anything...just answering the question asked and explaining my opinion on why I feel that the oil industry (I guess most specifically the fuel industry: gas, et al) has always felt like it manipulates everything at the expense of the consumers.

Tht"s alot of feels...lol.

Thanks again everyone for the great info and insight!

booga booga

 Kilkrazy wrote:

 plastictrees wrote:
$50 is low enough to encourage industry but high enough to allow most producers to stay in business.

The fact that prices at the pump haven't fallen as dramatically as the price per barrel is a whole different thing.

... ... ...

Tell me about it!

UK petrol prices are currently over 90% of their peak when oil was over $100 a barrel.

I know the raw material is only one part of the costs but it still feels wrong.

I can't speak for the UK (mostly since, honestly, I don't really feel like digging into the fiscal nitty-gritty) but around here, I'd say gasoline prices are at ~75% of peak - again, at the pump.
You're right that part of it is that the cost of refining fuels really has very little to do with oil prices, part of it is also that the cost of a lot of the transport infrastructure depends on raw oil prices for only a small %.

Aside from that (and more importantly) though, most (consumer and transportation) tax on fuels over here is not a percentage of the gross price, but a fixed amount per unit of volume. Therefore, a very large part of the cost of gas at the pump has precisely feth-all to do with the cost of raw materials of any sort.
This is a good thing both for consumers and for the treasury, by the way.
- Rising prices don't impact our wallets nearly as much.
- The treasury has a much more refined prognosis of revenues, which leads to more stable government policy, with a better sense of how to set policy for the medium- to long term.
- More stable rates create more confidence and willingness to spend/invest rather than save.

Finally, keep in mind that a lot (certainly not all, but a lot!) of those taxes on fuel go towards building/maintaining infrastructure. It is very much an effective way to make the heavier users pay more for the resources they use more of. And honestly, I'd like my roads to be generally free of potholes regardless of oil prices; if fuel taxes were set at a % of price rather than at a fixed amount by volume the money to do a lot of that would have to come from some place else.

Honestly, I'm sure someone somewhere has managed to make a decent profit here and there, but the impact of that on the price you pay at the pump would hardly make much of a dent from what I can see.

(And as an aside: yeah of course petrochemical engineering is a multi-billion dollar industry. That stuff underlies a bloody lot of what we do, worldwide. Profits as a percentage of revenue in most things oil-related wasn't even all that excessive last time I checked. Certainly healthy, but not excessive. Nowhere near pharmaceuticals, that's for sure. My point being, "all those billions in profit" is completely fething meaningless. Earnings after tax is the relevant measure, "all those billions" are just an indication that, yes indeed, there is quite a bit of oil in use around the world ;P )

 Vaktathi wrote:
It depends on how dependent a nation or area is on petroleum production. This is probably great news for Russia and Kuwait and oil workers in the Dakotas, probably not so much Western consumers and manufacturers however.

That said, yes, always take it with a big heaping bowl of salt when people talk about a resource price increasing as being great.

God forbid the high oil prices are good for the US or Canada...

 TheMeanDM wrote:
So today, the price per barrel of oil rose to $50....hasn't been this "high" in 7 months.

The commentator stated that the increased price was "good for international economy".

Can someone help me figure out just *how* increasing prices on a "commodity" such as oil is in any way a good thing for international economies.

I was always under the impression that higher prices decreased demand...so as oil prices rise, consumer demand drops.

The oil industry is as big a scam as the pharmacy industry....so I realize that they need to maintain their multi-billion profits....

But it is still a bit baffling how that really benefits international economies.

Uhh, you DO know that the government makes nearly 7 times the amount of profit through taxes on oil than the company itself, right?

http://www.forbes.com/2011/05/10/oil-company-earnings.html

*EDIT* Actually, I spent some time fact checking, and nobody honestly knows how much the Oil companies make a year, it's apparently dang near impossible by accounts of impartial people. But still, the "Big Scam" part of this is mostly simply an unfounded assertion.

*FURTHER EDIT* Looking over this conversation restores a bit of my faith in humanity. Logic and reason were exercised to reach a conclusion, people admitted to making mistakes and retracted previous claims. Proud human is proud.