I might add a few items:
1. People complain about the size of oil company profits- remember
the current companies are each a combination of several large corporations that
existed independently a few years ago. The profits are not as large as
they seem in comparison.
2. To reduce foreign dependency, we need to
a. use non-oil fuel
sources to generate electricity- nuclear, hydroelectric, wind, etc.
b. we need to use more natural gas for
automotive and heating use- domestically supplied, huge reserves, and clean
burning.
3. Alternative Biofuels and oil tars/oil sand sources are nice, but
they have a big cost. The open market will provide these sources when oil
prices become high enough to make them profitable. Subsidizing them makes
no sense.
4. Oil is a world market- world demand sets the prices. We
still have cheap gas prices compared to most other parts of the
world. Oil is expensive in the US because of our weak dollar; when the
price is adjusted to inflation, it is historically close to normal.
5. World supply is declining (5-10% year, including the new large
discoveries in S. America), world demand is increasing rapidly
(20-30%/year). Prices will rise much faster in the future.
----- Original Message -----
Sent: Thursday, May 15, 2008 6:32
PM
Subject: Oil Thoughts
Tracy and Timothy,
I agree.
Somebody somewhere decided to make things more
expensive in a gradual manner. Although there are several factors for the
recent run-up (which I don't think was planned especially before the
election):
1.) Dollar depreciation (thanks allot
Greenspasm!)
2.)China-crappy electric grid. Lots of factories
for Wal-Mart junk use diesel gen sets.
The Chinese gov. tried to do
something incredibly stupid.
a.) Cash in
depreciating dollars for oil (not so stupid)
b.) Fix the
price of diesel (pretty dumb)
Result is many of the small refiners in China
stopped making diesel because the input went up and the profit went away
DUH!
So then they started to buy up diesel on the open
market. We actually export a lot of diesel because our older refineries only
make high sulfur distillates. Which the EPA outlawed. Nobody else makes this
low sulfur diesel. So we don't have enough refining capacity to make it, and
we can't import it.
The refiners are not making much money as Timothy
mentioned. The Crack Spread is at historic lows. Last summer the oil companies
were making about $40 per barrel of oil. Now they are making about $4 or less.
Remember how cooperative the oil companies were before the last election
when crack spreads went to nothing! Then they got their reward during the
$40/barrel moment......but then CHINA!!!! Maybe they DO know what
they are doing......happy thoughts, happy thoughts....
Check Microsoft's operating margin VS. oil
companies, or any other company for that matter. They do not
make excessive margins especially considering the capital at risk. The
scale is huge however, so the numbers are mind blowing. Especially if the only
balance sheet you ever see is your credit card
bill..
I expect the crack spread to resolve
itself in two ways
1.) $5/gallon gas
2.) Oil price decline
Unless we do something stupid in the middle east,
and then all bets are off.
We have been filling the strategic petroleum
reserve. It's full now. Plus Goldman Sachs just said oil is going to
$200/barrel. Got to get the rubes worked up to buy out their
contracts.......
I also agree.....we can't handle the truth, most
of us.
Maybe they just assume those who can will
find the truth and make money from it.
Still I think calling Politicians smart is
giving them way too much credit. The smart ones aren't the grandstanding brain
dead variety you see on TV.
The Scary thing is....politicians ARE playing to
the masses. Giving them what they want to hear.
Happy thoughts, Happy thoughts......
Monty