Thread: Big Oil and the Truth
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Old May 24, 2007 | 03:20 AM
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BrianBrave
<--- Huge Horsepower
Joined: Apr 2007
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From: So Cal
Default Re: Big Oil and the Truth
Hi Sterling13 – WOW! Are you misinformed?

I have spent a great portion of my life studying economics and business so here is a basic overview to your question.

In economics there is a term called “fungible commodity” that basically states that one commodity will provide the same (interchangeable) function as any other commodity.

Thus an automobile is really a fungible commodity - a Chrysler Crossfire will get me from point A to point B (obeying all laws) as say my Kawasaki 650C motorcycle (or even other cars). Even though the designs of a Crossfire and a motorcycle are very different.

Milk is fungible with baby formula (for children). Interchangeable is the key concept.

With this said, what substitute can you use to power your car? You can’t decide tomorrow to fill up your tank with Hydrogen, NAT Gas or propane. You are stuck with GASOLINE.

AND Gasoline is an “inelastic commodity”. I have posted a very good link to this concept to save me the time of typing – it basically says that if there are no substitutes for what you are purchasing, and you have great demand for that product – the producer of that product has you by the *****. They can raise the price and you will still purchase the same amount of product. Switching cost also come into play as it will cost you lots of money to sell your Crossfire and buy a Chevy sprint. But even then you will still need to buy GASOLINE.

WHO KILLED THE ELECTRIC CAR? – go rent the video.

http://en.wikipedia.org/wiki/Price_elasticity_of_demand

I could go even deeper but I think you get the point. There are no easy substitutes for petroleum products and we need the same amount of petroleum products no matter what the price is. It still takes X gallons of gas to fill my crossfire and if I need to drive my crossfire to work, I need X gallons of gasoline to do this every week. VERY INELASTIC. IF prices triple – I still need X Amount of gasoline and I will still buy X amount no matter the price. Think of poor UPS trucks. Man, are they getting screwed. Unless they purchase forward contracts to offset their ... Wait that’s another dissertation.

A good example to use is one local to me – California Rolling Blackouts. You remember this? Heck we recalled Governor Davis over this and put Arnold (Da Govenator) in his place. What substitutes did we have for electricity?? Thus if electric providers knew California needed lots of their product, and had nowhere else to go get it, plus add in de-regulation, all it took was to shut a few power plants down for maintenance here and there and BANG – spot prices jumped, a few blackouts to scare the state to use tax $$ into purchasing kilowatts at 100X the price paid 6 months prior (because regulation kept electric companies from having large cash reserves). ADD Employers threatening to leave the state if this was going to continue – well you get the picture. No rolling blackouts since then, and no new power plants to come on line since then – except they did get huge tax breaks and state/federal funding to start construction of more plants. WOW did that work out well for the power companies. (Manipulation)

Didn’t Exxon and other oil company’s just get a sweetheart tax incentive to drill/explore/lease more oil fields from congress? And after $$Billions in profits?? Remember US OIL RESERVES BELONG TO YOU AND ME – we just lease it out to EXXON.

I could go on and on but this is a good start. The point is – reduce domestic supply when demand is high (damn SUV’s and Trucks) and import 30% of the product at exuberantly high prices, and you just increased the price of the 70% of domestic supply to the same level. In other words – I was getting only $20 a barrel for domestic oil, but shut down 30% of my wells and import that amount at $60 a barrel and BANG - now I can charge $60 a barrel for 70% of the product that I was only getting $20 for last month. And what did it cost me? NOTHING!

To answer some of your other statements – Big oil only earns more that 30% of is income from the USA – A LOT MORE – look at the income statements from EXXON and other oil companies. Look at their Cost of Revenue (how much they spent) VS profit for 2005 to 2006. it only cost Exxon $253 million more to make $6.702 billion in gross profit. NICE – And they lend that money to the US Govt for you and me to pay back to them someday.
http://finance.yahoo.com/q/is?s=XOM&annual

The USA is the second largest producers of oil and the largest consumer of oil.

http://www.scaruffi.com/politics/oil.html

This tells you the whole answer to the record $$Billions$$ in profit every 3 months. That’s right – EVERY THREE MONTHS. Look at oil production in the USA – there is a large (and very old) oil field 20 miles from my house and all the pumps that go up and down are motionless yet there is still plenty of oil in the ground. Go figure that one. OPPPS - we need to shut down the Alaska Pipeline due to rust. Tension/war in the Middle East.

I wish I could say I am a purest but I saw it coming and purchased oil stocks in my 401K so I'm doing OK.

Gasoline tax:

Huge cash cow for federal, state and local governments. IF they give this up, then they will need to borrow more money to finance their budgets.

Who will they borrow this money from? The oil companies? OPEC? China?

And remember that GAS tax is by the gallon, not by the price. Filling your 20 gallon tank up with gas at $3.50 does not bring in anymore tax revenue to the government than 20 gallons at $2.00. And if gas taxes were removed, the price of gas would jump up that same amount the next day – why – because you got no where else to go and there is no gasoline price control in the USA. If you paid $3.25 a gallon for Gasoline and the Gas tax (say .60c a gallon) is eliminated – why should Exxon sell you gas a $2.65 tomorrow if you were willing to pay $3.25 yesterday? BANG – you would never see a price reduction, and Exxon would lend the instant profits to your now broke government. JUST PAY UP SUCKA!!

Ask me how to fix the problems and I will be glad to type for another hour – if you can stand to read it...just tell me what you want – lower gas prices – less dependencies on OPEC, Global warming – they all require a different mix of solutions and most are really, really painful... and the OIL COMPANIES KNOW THIS. OH yea - DID YOU KNOW THAT EVERY BARREL OF OIL SOLD ON THE WORLD MARKET IS PRICED IN US$$. That's right the US greenback - China buys oil from Canada - they do so in USD. Japan buys from Iran - USD.

No we need to figure in currency exchange rates and market currencies... no no no enough for now.


BASICALLY WHAT I AM SAYING IS THAT YOU GOT ALL WRONG DUDE!!!
 
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