Price of gas is quite low, why aren't the Oil Comps screaming about

a bailout or why aren't they laying off bunches of people? How can their product "price" decline by half and not hurt the "industry"? Any ideas?

There were lots of people on DU that claimed $4 gas was because of dwindling supply.

1. They are waiting for $20/barrel oil
2. They are waiting for $2/barrel oil
2. They are waiting for $20/hr hookers and forgot to buy their viagra.

:hi:

They just take money in.

The Banks lent money to anyone, qualified or not . . . and the auto industry relies on those loans as people get new cars.

Remember how quickly they skyrocketed because of fuel costs? Natually the converse does not, ever, hold true.

It went up to $1.59 about ten days ago and then dropped. It is $1.31 here today at the "mainstream" station for regular.

I know it is a pox on me but at one time worked for a company that statistical analysis mainly for energy companies (oil and natural gas).

When oil companies search for oil they use set off explosions and "listen" to the reflections. Some of the data is very old, some new. Some uses one method. Some uses another. It is pretty expensive stuff. Each "shot" cost anywhere from $10K on up. Building a 3D map can take 20-50 shots depending on the size of the find. We did work that allows them to combine multiple sources of data into one comprehensive map.

Ok anyways I learned when working there that for the oil companies:
short term is 4-5 years
medium term is 2-3 decades
long term is 40+ years

They work on much longer timeframes.

Oil in $35ish now. Commodity Futures are already showing oil in the $50 by end of 09, and mid $60 by end of 2010.

Long term price of oil is going up and staying up. China is adding 20-30 million people to the middle class every year. They all want cars, Big Macs, air conditioning, the American lifestyle.

The problem with oil isn't that we are running out of oil. It is we are running out of CHEAP OIL. The cheapest stuff has already been tapped. Now we are moving onto the mid cost stuff. Eventually they will run out and as they do the oil companies will move on to more and more expensive wells. Price longterm will continue to go up.

I also suspect that the prices are artificially low because they are hoping that President Obama will not be able to push alternative energy without high prices.

Oil is going to be in flux until world economy recovers (whenever the hell that is 2010? 2011?)
We "may" even see oil hit inflation adjusted low of $20 before economy recovers. I think $25-$30 is more realistic.

Long term though: 10yr, 20yr, 30yr oil is only heading higher. Then again if I am wrong I won't be complaining.

There is a lot of talk though how the crash of oil is already hurting Alt E.
A lot of stuff that makes sense economically at $80 oil really makes sense at $140 oil but not so much at $40 oil.

Oil at $40 a barrel is still profitable, just not AS profitable. The marginal investment in production for a barrel of crude oil is in the range of $5-20, depending on where it's pumped. Everything above that is profit (or recouping development costs). You also apparently have a minimal understanding of the mechanism by which oil prices are determined; it's a commodity, traded globally on an open market; supply and demand are the greatest single factor determining price. Demand has slumped dramatically with the present economic crisis, therefore the price of oil has slumped dramatically.

Also, oil companies have tremendous cash reserves thanks to their recent record profits (something that banks, that saw billions in book value wiped out thanks to fractional reserves and bad loans, and auto companies like GM that haven't been profitable for a while, DON'T have).

So demand has halved?

Oh right, you'll have another formula to explain that away.

not when you're talking about global demand being at or near global output (right around 82-84 million barrels per day). Increased competition and demand pressure leads to higher prices when there's less margin for overhead.

IF Peak Oil is correct then max world production is 80-90 million barrels a day.

Once demand exceeds that threshold oil will run up massively.

Those that think demand change = price change will be shocked.

A supply-demand inbalance leading to large volatility can occur in commodities when supply or demand outstrips the other by as little as a few % (1%-2%).

Once demand for oil starts exceeding 80 mbpd we are in trouble.
Oil production will fall by 3%-5% annually so even if demand stays flat we can expect some massive moves.

On a 20 year chart (say from 2000-2020) the "peak" at $147 and the fall back to $35 may look like a small dip on a massive move upward.

That was not true demand. True demand HAS slumped - but not by 50%. I don't think half the population that drove - simply do not drive anymore. I live up in Canada, so it might not be the same as some areas in the US - but traffic seems just as heavy and congested as always.

IF - and it is a big IF demand for alternative energies, and electric/hybrid vehicles increase, then perhaps the true demand will never return to what it was.

Oil companies are used to bust/boom cycles - and have planned accordingly long term as one poster indicated. Yes - they are still quite bloated from $147 barrel boomtimes.

as soon as it ends they have already announced cutting back on exploration and development of new fields.

No "high demand"? No more cries of "Oil is vastly underpriced!"

Funny how all these things just stopped happening.

The prices are controlled by speculators.

And right now, they've got somewhere else to put their money.

The big oil companies, especially in the US, own most of the wells, but many are very low production wells, some only a few barrels a month. These wells are pumped about once a month (sometime less) to get the oil that had seeped to the pump. The rest of the time the pump sets so that whatever oil remains in the field slowly oozes to the pump. Water is often added to force the oil to move, but most of these wells are just left alone till enough oil is in the area of the oil pump to be pumped out. Profit margins on these wells are huge, the cost to drill the well was depreciated decades ago, as was the pump. All that is needed is for the pump to be oiled and maintained just before it is used.

Exxon has thousands of these types of wells, if each one only pump one barrel a month and it took only a Two gallons of oil to pump that barrel AND get it to the refinery (and then to your local gas pump), that leaves 40 gallons of pure profit. At a barrel a month for a 1000 wells, that is 40,000 gallons a month or 440,000 gallons per year. At a dollar a gallon profit per gallon that is $440,000 a year, at $2 profit that is $880,000 a year, at $3 profit that is $1.32 million a year. Most of the wells Exxon owns produce more then a barrel a month, but such seeper wells are and were a big part of the profits of Exxon, before the recent price spike, at the price spike and today.

Now world price for oil is NOT set by Exxon, but by the seller who is willing to STOP producing when the price hits a certain low point (Prior to the peak, price was set by the person who decided he could do without oil at whatever price it was, but that was when prices were going up, now they are in decline). These seeper wells are profitable at almost any price of oil, but produce no where near what is needed (The US imports almost 60% of its oil, the biggest suppliers are Canada and Mexico, but Venezuela and Saudi Arabia are also huge sources of Oil used in America). Thus the question today is at what price will enough producers cap their wells and wait for a higher price for oil? That is the point oil prices will bottom out. It seems to have approached bottom right now, no radical drop in the last 1/2 month or so but also no push for higher prices either. Thus Exxon is stuck with profits from is seeper wells at today's price for oil, thus its profits will drop over that of last year, but they are still making profit, selling their own oil AND whatever oil they can buy overseas and re-sell. Exxon knows people need oil to be refine and shipped and in those two areas Exxon is still a dominate force. From those sources Exxon gets a nice Steady profit and can survive on that profit alone, but such profits are very small compared to the pure profits off the seeper wells if the price of oil goes through the roof again.

My point is simple the obscene profits Exxon has reported is more a reflection of the higher profits from its own wells do to the rapid increase in the price of oil. Exxon has not and can not depend on such high profits from those wells, its main thrust of business has been refining and transportation of oil with some search for oil on the side. The reason Exxon had huge profits over the last few years is Exxon was more willing to recognize profits then to spend money on projects that had little hope of finding new oil. Given that lack of opportunity to find oil, the only thing Exxon could do was recognize the profit and give it to its stockholders. Exxon had nothing to invest the excess profits in (Which is how most companies handle excess profits, spend it on future opportunities, Exxon saw none to invest is so took it as profit instead).

Exxon's profit will be much less next year (Unless the price of oil goes up again) but sooner or later the price of oil will go up and so will Exxon's profits.

First off you have to understand that gasoline will never be sold at a loss in this country - NEVER! The reduction in cost at the pump is just that, a reduction in COST reflecting the reduced cost of raw materials, but there has been no corresponding reduction in gross profit, that is still included in the price of final product. If profit had gone down on par with the sale price of the final product the price at the pump would be much lower than it is now. What they are doing is maintaining profit levels seen with $4 gasoline even though the price has dropped to $2.