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Words From Near The Top--on Gas Prices; (Long)
Topic Started: Oct 12 2005, 07:15 AM (259 Views)
Heathertee
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Heather-Central Connecticut
This is from my cousin Steve, a senior VP at BP Corporation. He keeps us well-informed! (only the first comment is his; the rest are editorials from well-respected journals).

Quote:
 
At the macro level I think the editorials are accurate.  What’s missing is an analysis of how the independent dealers who market a portion of the major oil companies’ gasoline are behaving and the relatively ineffective controls on them. 



SAE



Price-Gouging Panderers
Chicago Tribune
September 8, 2005

Editorial

When Hurricane Katrina unleashed its worst on the Gulf Coast last week, it left a trail of damaged oil and gas facilities in its wake.  Eight U.S. gasoline refineries were knocked out, dozens of oil rigs were washed away, several pipelines were disrupted, and oil production in the Gulf of Mexico fell by 90 percent--all of which briefly pushed crude oil prices into the $70-a-barrel range.

Yet some politicians were shocked to see motorists hit with higher pump prices.

While thousands of stranded residents of New Orleans were desperate for food and water, elected officials far away were insisting that their constituents are entitled to a continuing supply of cheap gas.  Nine Democratic members of the House Judiciary Committee asked for action by the Federal Trade Commission against alleged price-gouging.  "These increases go far beyond anything justified or relating to the market disruptions caused by Hurricane Katrina," they declared.  Though there is no federal law restricting what service stations can charge, the Department of Energy asked citizens to report excessive prices.

Gov.  Rod Blagojevich railed against gouging.  Atty.  Gen.  Lisa Madigan, who got some 1,200 complaints, sent staffers to nearly 200 stations across the state to investigate and issued an emergency rule that declares it an illegal "deceptive practice" to charge too much for gasoline.  "We need to know if retailers and suppliers have in fact seen increasing costs or are exploiting a natural disaster," she said.

But the line between fair pricing and exploitation is a mirage.

There is no economics textbook that will tell government officials the right margin for retailers to get on their sales.  Fortunately, the market itself serves as a vigilant check on greed.  If one station tries to charge more than economic circumstances justify, it will lose sales to competitors that offer gas for less, and it will create lasting ill will among customers.

That is just as true during a crisis as during normal periods.  Competition, not government control, is the best consumer protection.

When nature interrupts supplies, though, consumers can hardly expect prices to be unaffected.  Higher prices are the market's way to promote conservation--encouraging motorists to park the car, take the bus, or at least avoid nonessential driving.  President Bush was justified in telling Americans, "Don't buy gas if you don't need it."

Higher prices are an incentive to heed that request.  Indeed, perhaps because motorists conserved, we've already seen some moderation from the immediate spike in prices.

Barring evidence of widespread collusion among retailers, which is highly unlikely, the government has no business trying to dictate what gas stations charge.  The right policy after Katrina is exactly the same as the right policy before:  Stay out of the way and let the gasoline market work.

Copyright 2005, Chicago Tribune.  All Rights Reserved.



The Wrong Answer For High Gas Prices
By Steve Chapman
Chicago Tribune
September 8, 2005

Opinion

When Rudyard Kipling said it was a great virtue "if you can keep your head when all about you are losing theirs and blaming it on you," he was not thinking of Sen.  Maria Cantwell, a Democrat from Washington.  This week, as gasoline prices remained above $3 a gallon, she proposed giving the president the power to tell retailers what they can charge at the pump.

A lot of people grew anxious seeing long lines forming last week, as motorists rushed to fill their tanks in the aftermath of Hurricane Katrina.  But Cantwell apparently enjoyed the sight well enough that she'd like to make those lines a permanent feature of the landscape.  If so, she has the right approach.  The government does many things badly, but one thing it knows how to do is create shortages through the vigorous use of price controls.

That's what it did in the oil market in 1979-80, under President Jimmy Carter.  He was replaced by Ronald Reagan, who lifted price caps on gas and thus not only banished shortages but brought about an era of low prices.

Cantwell thinks oil companies have manipulated the energy market to gouge consumers, though she is awaiting evidence to support that theory.  "I just don't have the document to prove it," she declared.  Her suspicions were roused when she noticed that prices climbed in Seattle--though most of its oil comes from Alaska, which was not hit by a hurricane.

Maybe no one has told Cantwell that oil trades in an international market, and that when companies and consumers in the South can't get fuel from their usual sources, they will buy it from other ones, even if they have to go as far as Prudhoe Bay.

If prices rose in Dallas and didn't rise in Seattle, oil producers would have a big incentive to ship all their supplies to Texas--leaving Washingtonians to pay nothing for nothing.  When a freeze damages Florida's orange juice crop, does Cantwell think only Floridians feel the pain?

The senator is clearly not a detail person.  Asked what price retailers should be allowed to charge, she confessed, "I don't know what the level should be."

Sen.  Byron Dorgan (D-N.D.), meanwhile, was outraged by the thought of giant oil companies making money merely for supplying the nation's energy needs.  He claimed they will reap $80 billion in "windfall profits" and wants the government to confiscate a large share of that sum through a special federal tax.

But the prospect of occasional "windfall" profits is one reason corporations are willing to risk their money drilling wells that may turn out to be drier than Alan Greenspan's reading list.  Take them away, and investors may decide they'd rather speculate in real estate.

Speaking of real estate, Americans seem to feel no moral compunction about getting rich from unforeseen increases in the price of another vital necessity.  You think home sellers in Baton Rouge haven't raised their asking prices in the last 10 days?  You think Dorgan wants to tax their windfall?

It's hard to see why oil companies shouldn't make a lot of money when the commodity they provide is suddenly in short supply.  After all, they are vulnerable to weak profits or even losses during times of glut.  Back when Americans were enjoying abundant cheap gasoline, the joke was that the surest way to make a small fortune in the oil industry was to start with a large fortune.

Oil companies are also subject to the whims of nature.  No one is holding a charity fundraiser for the businesspeople whose rigs and refineries were smashed by Katrina.  No one will come to their aid if prices drop by half.

Besides, high prices serve two essential functions:  encouraging production and fostering conservation.  Spurred by the lure of windfall profits, oil companies will move heaven and earth to get more gasoline to consumers.  Shocked by the tab when they fill up a 5,600-pound sport-utility vehicle, motorists will look for opportunities to leave the Suburban at home.  They may even commit a sin not covered by the 10 Commandments:  coveting their neighbor's Prius.

Controlling prices, by contrast, would have exactly the opposite effect:  Telling consumers they should waste fuel to their hearts' content, and telling producers to leave the black stuff in the ground.  When events in the world conspire to make oil dear, there is nothing to be gained from masking that fact.  We can ignore reality, but reality won't ignore us.

Copyright 2005, Chicago Tribune.  All Rights Reserved.



We're All To Blame For Pump Prices
By Michael Hiltzik
Los Angeles Times
September 8, 2005

Opinion

Like millions of my fellow Americans, I was subjected to an unprecedented experience in the last week:  I paid more than $3 for a gallon of gas.

This latest price spike is the product of Hurricane Katrina, high crude oil prices, holiday demand, refinery outages and (no doubt) rank opportunism.  It is accompanied, as night follows day, by calls in Congress and state capitols for price controls, windfall profit taxes on oil companies and more refinery construction.

All these ideas are good in some ways and bad in others.  It's a mistake, however, to view them as expressions of political strength and determination, as we're led to believe by images of senators and attorneys general striding to the microphones to shake their fingers at the oil industry.  Rather, they're expressions of impotence.

The United States is dependent on oil, 60% of it from overseas, because of decisions we've made and policies our leaders have implemented with our approval.  Gasoline demand is washing up against production capacity -- in this state and across the country -- also because of decisions we've made as a nation and as individuals.  As a result, every production constraint, whether it's a fire at a single refinery or the storm-brewed destruction of miles of Gulf Coast infrastructure, sends wholesale and retail prices screaming into the troposphere and elicits calls to execute the profiteers.

As Severin Borenstein, director of the UC Energy Institute at Berkeley, and several colleagues observed in a 2004 paper, it's extremely difficult to distinguish between price spikes caused by actual gasoline scarcity and those caused by the manipulation of market power, at least not without access to "smoking gun" documents.  This doesn't mean that gouging doesn't exist; it just means it's hard to identify the looters.  Some portion of the price increase is surely due to refiners and distributors squeezing a few undeserved pennies or dimes out of the pumps, confident that no one will ever pinpoint where in the huge, complex supply chain the vigorish was extracted.

The only real way to restore sanity to America's oil economy is to rebalance supply and demand.  Unfortunately, we're powerless to increase supply significantly.  Forget drilling in Alaska's Arctic National Wildlife Refuge; even once that oil starts to flow years from now, it will account for about 1% of the world's reserves, not enough to affect domestic gasoline prices to the extent anyone would notice.

How, then, to reduce demand?  One option is to force Detroit to make more fuel-efficient vehicles by strengthening the so-called CAFE, or corporate average fuel economy standards, which require manufacturers to hit a certain fuel-efficiency level encompassing all the vehicles they sell.  CAFE was introduced in 1975, two years after the first Arab oil shock, when cars averaged a paltry 13.5 miles per gallon and trucks, 11.6.

The rules required cars to be raised to 27.5 mpg over several years, but light trucks were given a pass, on the reasoning that they were only 20% of the market anyway.  Refashioned as SUVs, they've become 50% of the market.  You want to know why our oil consumption is out of control?  Take a look at the 3 1/2-ton vehicular pachyderm blasting down the freeway next to you with two passengers inside, getting seven miles to the gallon.

CAFE has had a sad history.  In 1990, the Senate considered raising the standards to a level that today would be saving us 3 million additional barrels of oil a day, or about one-fourth of current imports.  The idea flopped.  According to the Union of Concerned Scientists, the average fuel economy of new vehicles today is the lowest it has been since 1986.

Here, as in most areas requiring responsible and mature policymaking, the Bush administration is a failure.  A new CAFE system the White House proposed just before the arrival of Hurricane Katrina would slice it into narrow categories, so an automaker could actually evade some restrictions by selling more SUVs, not fewer, or by slightly increasing the dimensions of some vehicles to move them into a more forgiving category.  The greediest behemoths, such as Hummers, would be exempted entirely.  The administration boasted that the new rules would save 10 billion gallons of gas over 20 years.  At current rates, that amounts to 25 days' consumption.

CAFE rules are perverse instruments even under the best circumstances.  By making big vehicles more economical, they have encouraged our wholesale shift into SUVs, a change in driving habits that has increased our oil consumption overall while making the roads more hazardous for any driver not inside an SUV.

To state an uncomfortable truth, the only long-term solution to $3 gasoline is $4 gasoline.  A $1 federal surtax would place the incentive for automotive fuel-efficiency where it belongs -- with the car buyer, instead of the manufacturer.  Hummer salesmen in California, after all, reported sales drops of 40% to 60% when gas prices shot up earlier this year to just over $2.  Imagine the behavioral change at double the price.  America's reliance on foreign oil would plummet.

Borenstein favors such a policy but sounds wistful about its prospects for enactment.  He suggests that the gas tax revenues be partially used to give poorer people an income tax break to cover their higher costs, but that they be used mostly to fund a vast expansion of public transportation -- especially bus networks, which could be vastly expanded at a reasonable cost.

Certainly this is preferable to current policy, which amounts to pretending there's no long-term problem and dreaming of technological magic bullets like hydrogen fuel.  Meanwhile we continue to curse the oilmen and the Arabs, contemplate wars over their oilfields, and despoil our environment to wring the Earth dry.  We're going to end up in the same fix one way or another, so isn't now the time to bite the bullet?

Copyright 2005 The Los Angeles Times



In Praise Of `Gouging'
The Wall Street Journal
September 7, 2005

Editorial

One test of leadership in a crisis is whether politicians keep cool enough to resist populist furies, especially when it comes to the inevitable economic fallout.  Sadly, that's not what we're seeing in the current demagoguery over alleged oil-profiteering.

"Price gouging," says Missouri GOP Governor Matt Blunt, "is unconscionable and illegal . . . and should be rooted out and punished."  In Georgia, Republican Governor Sonny Perdue has signed an emergency executive order imposing sanctions on service stations that raise their prices too much.  In Illinois, Democratic Governor Rod Blagojevich has pledged to prosecute gas companies that profit from the price spike, as has Ernie Fletcher, his Republican counterpart in Kentucky.

Some 20 states, most of them in the south, already have anti-price-gouging laws on their books -- and many governors have declared emergencies to invoke them.  These de facto price controls typically place ceilings of between 10% and 25% on how much companies can raise prices in the wake of a natural disaster.  In almost all cases such laws are wrong-headed, because they exacerbate supply problems by short-circuiting the price system that matches supply with demand.

As infuriating as higher gas prices will be over the next weeks and perhaps months, there is one economic certainty here:  If governments will not allow the price system to ration the demand for gas, a new "price" system will emerge called gas lines, which have already appeared in many locales.

Let's explain why prices have been rising.  Katrina has knocked out about 90% of Gulf crude oil production and about 80% of natural gas output.  That translates into about two million barrels a day that are not available to consumers, an 11% decrease in supply.  This means that in the near term Americans are going to have to consume two million fewer barrels of gas every day, at least until the refineries are brought back on line and increased output and supplies from other nations arrive.  The way the market achieves this reduction in consumption is through a higher price.

The argument is also made that energy companies are reaping windfall profits from the Katrina catastrophe.  That is in one sense true -- the oil they've already extracted and refined is more valuable now, and we would be pleased to see some of these extra profits donated to the relief effort.  But artificially holding down the price of gas makes a bad situation worse.

This is also why many of the nation's governors are misguided, even if well-intentioned, in their attempts to suspend state gas taxes.  Given the high demand for gas and constricted supply, this gas tax cut will have one of two undesirable consequences.  If the savings are somehow passed on to consumers at the pump, demand will be elevated, thus heightening the risk of gas lines and/or "sold out" signs at service stations.  The alternative is that energy companies will keep the market-clearing pump price the same, and pocket the 10 to 20 cents a gallon reduction in the tax -- which would only increase their windfall.  Either way, consumers won't benefit.

So are the gas sellers guilty of "profiteering?"  Price gouging laws say companies can't charge significantly more than their "cost."  But what matters for wholesalers and gas stations isn't what they paid for the last tanker of fuel but what they expect to pay for the next one.  Economists call this the "replacement cost," and any gas station owner would soon be out of business if he charged $2 a gallon for gas that he knew would cost him $2.50 a gallon to replace.  As these replacement costs soar, it is entirely appropriate for gas stations to raise prices on a daily, or even hourly, basis.

"If prices do not increase," explained the White House Council of Economic Advisers in a section on "unexpected shortages" its 2004 Report to the President, "consumers do not receive a signal to cut their consumption and suppliers might not have the proper incentives to increase supply adequately."

Anti-gouging laws also punish companies for building excess capacity and reserves in advance of a crisis like the one we're now having.  One lesson of Katrina is that we should reward companies for stockpiling oil and gas for the times when it is most urgently needed.  Price gouging laws give them no incentive to endure the costs of carrying this excess inventory.

We could fill these pages with all the ways government has undermined U.S. energy security and raised production costs.  These include reformulated gas mandates, prohibitions on offshore and Alaska oil drilling, and environmental regulations and price controls that go a long way to explaining why not a single new oil refinery has been built in the U.S. since 1976.  Not one -- in 29 years.

These are the longer-term causes of the post-Katrina price increases.  And they are energy policy dysfunctions that Congress would do well to fix before the memory of this catastrophe fades.  In the meantime we can only hope politicians don't make this crisis worse by engaging in profiteering of their own, at everyone else's expense.

Copyright © 2005, Dow Jones & Company, Inc.





Stephen A. Elbert
Senior Vice President
Remediation Management
BP America Inc.
28100 Torch Parkway, MC 2-South
Warrenville, IL  60555   USA
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5thwheeler
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Get the message?
Katrina Schmina! Look at the big picture folks, oil is a non renewable resource and its days are numbered. Estimates are that the world supply of oil will be depleted within the next 30-50 years and wishing or believing differently isn't going to change that fact.

As for no new refineries being built since the 70's, well what are you going to refine? Most refineries are in a constant state of upgrading, while others near depleted fields and no longer of any use are being shut down.

Price gouging is a short lived local phenomena, but price manipulation by controlling world events is not. Take a look at the price of BP stock in January of 2003, which just happens to be just before we invaded Iraq. In January of 2003 BP stock was selling around $37 dollars a share, and just two weeks ago it hit $75. Why?

My wife works for BP and her office is right next door to the "Trading Room", where BP traders do they're thing. I remember her coming home one day in January 2003 all excited about the future of BP stock, and how we should mortgage the farm and buy as much BP stock we can. She said the traders were in a feeding frenzy and the place was a mad house. She said people were elated and praising Bush and Blair for "pulling it off". Now what does that tell you about Bush and his cronies using our military to manipulate world markets and create wind fall profits. One would have to be as blind as a bat, or incredibly naive not to see that.

Posted Image


For info purposes:

Remediation management refers to the management of all types of environmental clean-ups. They re-mediate the land or the soil, depending on the damage. It could be underground storage tanks from gas stations, or groundwater contamination in neighborhoods adjacent to a pipeline or refinery. Sometimes it's mining operation contamination from operations of companies acquired prior to the mergers. Sometimes they cart away top levels of soil, and sometimes they deal with containment dams.



History 101: When a popular myth is believed to be factual, teach the myth.

Its not possible to underestimate the intelligence of the voting populous.

Hummm, after seeing the results of the 06 election, I may have to modify my perception of the voting populous and refer to them as "Late Bloomers".

:ohmy:
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Fr. Mike
Member
I don't believe that gas or diesal is a regulated commodity like utilities.

Supply and demand are what determines the price. if you want the price to go down--then quit using so much gas and diesal.

By the way 5thWheeler--your wife isn't guilty of insider trading is she? I would think that information would be privledged and subject to securities regulations. You didn't mortgage the farm and buy stocks in BP did you?
A humble servant of the Lord Jesus Christ

Don't forget to say your prayers!
The unborn have rights too.
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roscoe
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I would have.
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jackd
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Member
As a former senior VP of a major oil company, I am ready to bet my right arm that neither BP, nor any other major oil company I know of, ever bought a single barrel of crude oil at or near $70.00/barrel.
Crude oil trading on NYMEX (which at one point in time was near $70.00/barrel) and day-to-day crude oil trading between producers/shippers/users are two totally different ball games.
Without trying to ambarass your cousin Steve, maybe he can feed us with some information on the REAL price of crude oil actually purchased shortly after Katrina hit, along with their refinery margins and their retail margin at the time.
:melodramatic:
U.S. major oil company profit history:.
2002 = $21 Billions
2003 = $58 Billions
2004 = $82 Billions
2005 = $132Billions (projected)
:cry: :cry: :cry: :cry:

GOOD READING HERE (Not totally true though)

I'm not saying what the oil co. are doing is wrong or right.........
Walk in front of me, you lead me,
Walk behind me, I lead you
Walk beside me, you are a friend.
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5thwheeler
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Get the message?
She would be guilty of insider trading if she acted on it... did she or didn't she? :slap:

The Energy Information Administration (IEA)... wow, for years I though I was the only one on this, and other forums researching they're information.

Jackd, you made my day! :clap: :clap: :clap:

Energy Information Administration (IEA)

Look up the countries in the Caspian Sea Region and it all makes sense.
History 101: When a popular myth is believed to be factual, teach the myth.

Its not possible to underestimate the intelligence of the voting populous.

Hummm, after seeing the results of the 06 election, I may have to modify my perception of the voting populous and refer to them as "Late Bloomers".

:ohmy:
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Fr. Mike
Member
Interesting reading Jack. I like the information exchanges we have on these forums.

Steve,

Only the shadow knows. :cool:
A humble servant of the Lord Jesus Christ

Don't forget to say your prayers!
The unborn have rights too.
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cmoehle
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Chris - San Antonio TX
Oil will not be depleted. As supplies lessen prices will rise and provide incentive for further explaration and innovation. Look at the oil sands of Alberta for example. Let market forces drive it, not more oil and gas rationing like the 70s.
Politics is the art of achieving the maximum amount of freedom for individuals that is consistent with the maintenance of social order.
--Barry Goldwater
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5thwheeler
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Get the message?
cmoehle
Oct 12 2005, 06:38 PM
Oil will not be depleted. As supplies lessen prices will rise and provide incentive for further explaration and innovation. Look at the oil sands of Alberta for example. Let market forces drive it, not more oil and gas rationing like the 70s.

"Oil will not be depleted" Say what! :floorrollin: The words out on oil, (although FOX news refuses to report it) God, ain't making anymore of the stuff, and hasn't been for the last several million years. Maybe GW can talk him into brewing up a batch or two just for us, and nobody else. Now he gotta insist God speed up the process a bit, or we will have to invade a few more countries. Several million years for the hooch to age just won't cut it. Sorry!
History 101: When a popular myth is believed to be factual, teach the myth.

Its not possible to underestimate the intelligence of the voting populous.

Hummm, after seeing the results of the 06 election, I may have to modify my perception of the voting populous and refer to them as "Late Bloomers".

:ohmy:
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cmoehle
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Chris - San Antonio TX
According to Hubbert peak theory the curve of deletion is asymptotic so oil will never completely deplete, it will eventually become too expensive to retrieve, but by then the high cost of oil will have paid for innovations in alternative energy sources.
Politics is the art of achieving the maximum amount of freedom for individuals that is consistent with the maintenance of social order.
--Barry Goldwater
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MDPD6320
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Frank - Gainesville, Florida

Of course, Chris, you're exactly right. I remember being told when I was in grade school
that the world's oil supply would be exhausted before we saw the 1980's. There are yet
undiscovered oil reserves as well as sand oil, shale oil and petroleum derived from coal.



" The government big enough to give you everything you want it is big enough to take everything you have."

"Extremism in the pursuit of liberty is no vice, and moderation in the pursuit of justice is no virtue"

All that is necessary for the triumph of evil is that good men do nothing.
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