Tuesday, May 10, 2011
Oil Prices, Drilling and the Spot Market
All oil is purchased on the international spot market. The price is in play while the tankers are at sea and the price only locks in at a per barrel rate when it gets unloaded at the ports.
The fact of the matter is that America is the smallest player on the spot market and doesn't have enough oil to influence the price. You need to be able to flood the market to drive the price down.
You could gut this country and its coasts, dismantle all the environmental regulations and have a drill in every front yard and square inch of ocean and still the American oil supply wouldn’t make a dent on the international spot market where all trading (buying and selling of oil) takes place.
Understanding that now ask yourself this. Why would people who make their living selling oil want to bring the price down? It’s not in their best interest.
Destroying your billion dollar tourist industry isn’t going to get you cheaper gas but it will depress your community, put people out of business, close up hardware stores, put the fisherman out of work, close up restaurants, depress the housing market, drive tourists away, lower the tax base and decimate main street. So if you want that go ahead and vote for the drilling representatives they’ll get theirs and vacation in St. Barts, and you’ll get well nothing, not even lower gas prices.
OPEC controls the supply and the price because they alone have enough oil to flood the market.
Commodity speculators drive up the price on the spot market gambling that when a war breaks out or a driving season approaches (like Memorial Day, Labor Day, Christmas Time) that demand will go up (they’re geniuses aren’t they) on a promised supply quota.
OPEC sets the supply quota that’s why when they make an announcement about the guaranteed per barrel release to the spot market it affects Wall Street, the DOW, and the price at the pump. They are shrewd enough to understand global demand and watch the supply closely. They want to maximize their profit but not cripple the global economy because when the global economy is crippled like right now because of the Wall Street debacle that is still trying to shake itself out – demand is low and they sell less oil.
But if OPEC came out today and said they were going to increase supply on the spot market by 5 billion barrels a day the price of a barrel of oil would drop like a rock and then and only then would you see it at the pump.
The meager supply off our coasts is only valuable to industry speculators who want to corner what’s left of our pitiful supply to just own the leases. They have thousands of leased areas all over our coasts and in the gulf but weren’t drilling them before the moratorium. It was a shrewd political move by the President to put off shore drilling in play because a) the risks outweigh the benefit of drilling both in the cost to drill, and the risk to each communities bottom line, and b) it pointed out that the oil companies who already own a ton of leases don’t want to drill them. Owning the leases increases their portfolio, makes their stock more attractive, and makes them more money and companies more valuable to own.
At the end of the day this is about industry speculators trying to pad their portfolios and commodity speculators trying to make a quick buck.
The things you should take away from this post and mull over for yourself are the following: OPEC is the only one who can significantly control the price because they control the supply. There is no way the holder of 2% of the worlds supply can compete with those who control 80% of the world supply.
Speculators never actually take possession of the oil they just trade paper. The price of the paper tied to a barrel of oil is in flux the entire time the tanker is at sea. It locks down the minute the tanker gets to port and unloads.
It takes 6 months for oil to come out of the ground, and get refined before it ever shows up at your pump. Gas Stations receive a call each morning TELLING them what price to set their pumps at and post on their signs.
And as long as you are driving gasoline fueled cars with no other alternative – well like all monopolies – they’ve got "YOU" by the short hairs.
They are not going to lower the price at the pump no matter how much oil they have. They are going to price it just high enough where it doesn't drive demand down too far and bid it up in time of war and seasonal driving because they are gambling on demand.
The only way to lower prices is to flood the market and OPEC won't do that and we can not do that - so our only solution to lower gas pump prices is to create COMPETITION with alternate forms of fuel and automobiles including Electric and compressed air which are both ready now, increase fuel mileage which lowers demand and lower prices, commodity reform, and promote public transportation.
You want lower prices then you can not have only one form of combustion (oil) to fire your personal vehicles and you need to have a choice of personal vehicles that don't just rely on gasoline. That's the monopoly right there and it needs to be broken.
Once competition is introduced the price will come down but the oil industry doesn't want that at all. Be careful who you vote for - don't fall for looks, wedge issues, or folksiness, VOTE YOUR POCKETBOOK and break the monopolies that are ruining our country. Its not jobs versus the environment - that's a spin campaign slogan meant to stop competition. All of our economy is based on the environment its where we get our food, water and natural resources. The whole entire economy of the world is based on the environment. Without it there is no economy, nothing to trade, buy or sell. The environment is the economy and how we use it, manage it and preserve it is how successful we will be.
More Information - The Tyranny of Oil