Arthur Robey

Oil, like rent is an inelastic commodity. In other words it responds sluggishly to increased price. You just have to pay your rent no matter how hard they slug you. Eventually you may be forced into a caravan. It is going to take a lot of weaning to get us off oil.

If you desire to draw some kind of relationship between inventory and price it should hold at all times and your data clearly shows it doesn't.

That’s completely false. Do you know what r-squared signifies? Do you understand that a relationship that holds at all times will have an r-squared of 1? Even the relationship between crude and gasoline doesn’t always apply. It gets cold in the winter in Maine. Yet that doesn’t hold “at all times.” Therefore it’s false? We can’t draw relationships? Again, you have some very bizarre notions.

As to gold prices spiking up, they are mostly crushed right after they have a good spike.

Right. I note this comment from you last year:

I knew we were setting up for $600 gold when we broke out of the triangle last July/August. I had advised a friend to hurry up and buy last July when gold was hovering around $435 just before the breakout, it went up $10 the next day and never looked back. He bought just before that rise and he still can't believe how well he has done.

Had gold shortages developed to warrant such a price rise? Did gold mining companies profit from the spike? Did they actually raise the price? The vast majority of what you wrote is simply a red herring. So what if the banks try to control the price of gold? OPEC tries to control the price of oil. That doesn’t change the fact that when gasoline prices spike, oil companies make money as a result – not because they spiked gas prices.

This isn't correct, it's just wrong. You make a statement without the basis of any kind of relationship to justify it's correctness.

That you can’t see the relationship does not mean that everyone else can’t. Demand has been up all winter. Yet not until inventories started to plummet did the price start to rise. But there’s no relationship there. Nothing to see, move along.

What I know is that gasoline usage is up, not down and that prices are up right along with it. There has been no demand destruction due to price increases and so the prices have continued to increase.

Demand was up in the winter to record levels, yet prices were suppressed. Can you guess why? Hint: The relationship that you can’t see between inventories and price.

What you are doing in your post is calling the rest of us who don't agree with you stupid.

Well, so far, “the rest of us” is just you.

You have posted a bunch of data that isn't connected…

Let me ask you once more, since you didn’t answer the first time. Have you ever taken an economics course? You seem unable to understand that there WOULD be a relationship between inventory and price – especially when the inventory is racing toward the MOL (as it was).

What you have failed to show is that prices are not fixed. Until you can do that, most people aren't going to believe you.

Well, you are never going to convince the conspiracy nuts. I more or less write them off, because nothing you post is going to convince them that this isn’t all decided in a smoke-filled room between all the Big Oil CEOs.

Yes there was but it wasn't half as large as the drop in 06 but produced nearly the same price increase. Moreover, if you look at Sep/Oct 06 there was a nice draw down and yet prices continued to fall.

Think that might have had something to do with how close we got to the MOL this year? Nah, couldn't be that we were getting close to the MOL and were at record low inventories right before peak driving season. I mean, that would just blow those conspiracies right out of the water, and we can’t have that. We must maintain that these issues are unrelated.

I would also point out that last year’s spike had much more to do with the rising price of crude, and that the drop wasn’t nearly as steep, nor nearly as close to MOLs. You may have seen Stuart’s essay demonstrating the relationship between crude and gas prices. Now, the r-squared wasn’t 1, but it was pretty high. But I know that 1 is your criterion for there being a relationship.

I said as long as the supply at the pump isn't interrupted that prices shouldn't spike like they have.

So, when gold prices spiked last year, was the supply interrupted?

After all, it is the oil companies that set the price, it's their stores that put up the signs.

Yes, and there is surely a complete disconnect from the NYMEX and the price that buyers are willing to pay - and what ends up on those signs. I guess the oil companies must consult tarot cards before changing those signs. Or they say "Hey, inventories are falling fast. Let's lower prices!"

If that weren't the case I would be albe to go bargain on the price I wanted to pay form my gasoline now wouldn't I?

So, I can do that with gold? Then I guess the gold mining companies ARE setting the price of gold.

You have a very muddled view of markets and supply/demand relationships. And your whole view of oil is completely contradicted by the fact that other markets behave in the same way with respect to supply/demand concerns, but the oil companies are "special" because they actually set the price of gasoline. Whatever.

Wow, I've never been called an "oil company apologist" before.

It really would help if you would answer the question parts of my post. And yes, I did notice that you ignored the rest of the first paragraph you quoted, where I pointed out that there were expectations for a repeat of '05s hurricane season, hence the inventory draw-down increased futures prices.

So, to ask again, are you defining supply to only mean "supply at the pump"? What do you call fuels between the time they are refined and delivered to the "supply at the pump"? If they aren't a part of supply, what are they?

I think your statement "it is the oil companies that set the price" is the fundamental misunderstanding of the market that most people have. The oil companies only set a small part of the price, as long as they want to stay in business. They don't set the price of crude, they don't set the prices on the futures markets, they don't set the price of refinery infrastructure, they certainly don't dictate the weather, they don't really set the price of much of their labor, and they don't set the taxes on the fuels.

Let me try a different tact. You can bargain on the price. You can go to a website like www.gasbuddy.com and find the best price in your region and shop there. Beyond that, do you expect to go to Best Buy and be able to haggle over the price of a DVD player? Have you tried haggling over the price of gas? I wouldn't personally expect to be able to haggle over the price of much of anything. If I want a better price, I shop around. So, no, I wouldn't expect you to be able to go bargain on the price of most things. Does that mean there's illegal collusion in the supermarkets and clothes stores?

If that weren't the case I would be albe to go bargain on the price I wanted to pay form my gasoline now wouldn't I?

You can always choose not to buy it, it's a free country.

you have some decent points in your long posts here but this is deeply flawed.

The marginal price of gasoline is mostly set on NYMEX in the USA. Even PAD V looks hard at NYMEX for pricing signals even though it is almost completely isolated from PADS 1-3 where NYMEX rules.

NYMEX futures are heavily traded. They are not controlled by the oilcos who are adverse to trading risks/rewards (with BP the exception). Prices here are much more in the hands of big Wall Streeters and other speculators.

While you are correct that oil companies "set" the price of gas when they sell to their distributors, wholesalers or stations, that price setting is done in an environment wher they have the alternative of selling the gas in 50,000 bbl pieces into a fungible pipelines to many comers. The idea that oilcos will sell at a lesser price in order to hold their profit margins at yesteryears low levels is a fantasy.

WRS, I suggest you do a little research. The biggest of the behemoths, Exxon-Mobil produces about 4 million barrels of oil a day, Chevron-Texaco about 3 mbopd, Bp, Shell, Occidental about 6 mbopd between the lot. If you add it all up its less than 25% of world production of 85 mbopd, the rest is produced by national oil companies, who actually set prices.
Believe me, big oil would fix prices if they could do it, they're not charities. But, they don't have control of the market and haven't since the sixties when Texas was the swing producer. Opec used to be the swing producer, and they held prices down until the turn of the century. But they can't anymore, they don't have the capacity. Its out of control! I understand your anger and frustration, but its misdirected.
And, if the gold market is so manipulated, don't buy it. Its not an investment, investment make money. It parts fools from their money, and removes capital from real enterprises. Instead buy an oil production trust and get on the winning side!

As OilCoEx points out, we never should have allowed all those mergers.

No, not if you would rather buy your gasoline directly from Saudi or South Korea.

This is probably wasted on you, but finding, producing, and refining oil are very capital intensive. It requires economies of scale. And even ExxonMobil is a fraction of the size of the NOCs. As big as they are, they are at a disadvantage. Why do you think all of those smaller producers went out of business?

I suppose you missed the recent senate hearings, where the FTC testified on the impact that the mergers had on gasoline prices. They said that their model suggested that the mergers had increased gas prices by 1 cent a gallon (but they said it could be as much as 7 cents due to the margin of error).