Supply and Demand redefined
I am not an economist but I am pretty sure that Tim Russert was on the losing end of this exchange:
MR. RUSSERT: Mr. Secretary, if, if demand is up but supply is down, why are the profits so high?
MR. BODMAN: For that reason.
MR. RUSSERT: No, think about that.
MR. BODMAN: You know?
MR. RUSSERT: Play it out.
MR. BODMAN: Demand is up.
MR. RUSSERT: Correct.
MR. BODMAN: Right?
MR. RUSSERT: Right.
MR. BODMAN: So you’ve got more demand, you’re going to force price up.
You’ve got, you’ve got limited supply, and you’re going to have…
MR. RUSSERT: But that’s a decision by the oil companies.
MR. BODMAN: No, it is not. That is a decision—those are—oil is traded every minute of every day, and it’s traded basically 24-by-seven. And it’s, it is determined in marketplaces in New York and London and Tokyo, all over the world. That’s the, the—the oil companies do not determine the price of oil; the producers determine the price of oil.
MR. RUSSERT: They determine, they determine, help determine the price at the pump. And if the, if their profits are going up, they have made a decision to add on the cost at the pump at such a level to guarantee higher profits.
(video link is from expose the left)
You would think that the crack staff at “Meet the Press” might have done a little research before sending the boss out there with that one. By the way the guy who looks like he is about to have a seizure is Jim Cramer from CNBC’s Mad Money.
I know a little about the oil business from growing up in a refinery town and it really isn’t that difficult in concept. A company owns a prducing set of wells that cost the X dollars to develop. If the price of oil is X+1 they make money, if it’s X-1 they lose money. The price is set by the traders who buy and sell oil on the various commodities markets. Just like any other commodity if demand is high price goes up. Right now demand is really high and supply is lower than normal for a variety of reasons so the cost of oil is X+ a bunch (and yes that is a technical term).
I happen to believe that the price of oil is artificially high at the moment. Reasons are varied but include decreased Iraqi production, Decreased Gulf production due to Katrina, Inadequate refining capacity augmented by a loss of capacity from Katrina, War in the Sudan and Nigeria and Hugo Chavez trying his best to be the next Castro. This all leads speculators to bid up the price like a bunch of geeks on e-bay going after a Superman #1. Prices are going to come down though, Gulf state refining capacity is slated to be back on line this summer, there is a cease fire in the Sudan, and the Nigerians are in peace talks. As those situations stabilize prices should decrease.
On a completely different note: I should have done this before and for some reason I didn’t but I want to thank Insider and Senior Administration Offical for giving me the opportunity to post here. It’s great to be associated with this effort.
Similar Independent Sources posts:
- If Barbara Boxer’s Hot Air Production Was An Energy Source, The Problem Would Be Solved: We find it hard to believe that Barbara Boxer was an economics major in college when we get emails from her like this: ... I am also a cosponsor of le ...
- Peak Oil Bubble?: Researchers Didier Sornette and Ryan Woodard of ETH Zurich in Switzerland and Wei-Xing Zhou of the East China University of Science and Technology in ...
- Howard Dean: “What Is This Plan You Seek?”: Howard Dean, with Tim Russert on Meet the Press: (Democratic National Committee Chairman Dr. Howard) DEAN: We have an alternative agenda. We made it v ...
- Another one of those unintended consequences – Sugar too expensive to use for Ethanol: Believing they have a surefired recipe for economic success lawmakers from sugar producing states have been jumping on the Ethanol fuel bandwagon. The ...
- Are Speculators Selling Off Oil Stocks?: Floyd Norris in the has an article in the New York Times Business Section entitled "The Beginning of the End for High Oil Prices" in which he speculat ...
May 22nd, 2006 at 6:17 am
[...] – .WMV DOWNLOAD – .MP4 » Read More
Independent Sources linked with Supply and Demand redefine [...]
May 29th, 2006 at 4:54 pm
i try to find something at google.com and take it on your site…thanks