DrumBeat: September 28, 2006
Posted by threadbot on September 28, 2006 - 9:15am
Topic: Miscellaneous
Small cars stage a big turnaround
Small-car sales could set a record this year, a comeback from decades of being disparaged as unsafe, cramped and poorly built."Small cars and CUVs are going to rule," says George Pipas, market analyst for Ford Motor. That's bittersweet news for Detroit, he adds, because 72% of small cars sold are foreign makes. Small cars are also notorious for delivering slim profits.
The 'Detroit disease' spreads to Chrysler
Chrysler is suffering from the same malady that has already infected Ford and GM — both have seen high gasoline prices decimate sales of their onetime cash cows, big SUVs and trucks. The two companies have together shuttered more than two dozen plants and cut more than 75,000 jobs in an effort to stem their multibillion-dollar losses, caught in a vicious cycle of shrinking market share and tough competition from Asia-based automakers, which dominates the more fuel-efficient car segment.
Concern over Middle East nuclear plans
Plans announced recently by Egypt and Turkey that they hope to build nuclear power plants are raising a ripple of concern about the long-term prospect of a nuclear arms race in the Middle East."It is easy to exaggerate and it is true that these countries have a right to seek all sources of energy but it is indisputable that there is also a strategic element to this," said Mark Fitzpatrick, senior fellow in non-proliferation at the International Institute for Strategic Studies in London.
What is the Peak Oil theory of value?
University of Arizona eyes a greener campus
The oil industry peaked last year, and half of the oil in the world has been used up, said Guy McPherson, a professor of natural resources and ecology and evolutionary biology."If global warming is a three on a scale of one to 10, then peak oil is a 12," McPherson said.
McPherson estimated a decline in oil supply during the next 20 to 30 years will account for the deaths of tens of millions of Americans.
Falling oil price a real boon but can Opec live with it?
Tom Whipple - The Peak Oil Crisis: The Perfect Storm
John Michael Greer: Economics: avoiding the Y2K fallacy
Axis of oil: Confronting the world's new petro-powers.
...President Bush recently invited journalists to imagine the world 50 years from now. He did not have in mind the future of science and technology, or a global population of nine billion, or the challenges of climate change and biodiversity. Instead, he wanted to know whether Islamic radicals would control the world’s oil.
Kenya: Student Violence Baffling
Thus, it was surprising that Kenyatta University students decided to go on the rampage on Monday night to protest power outage. In their mindless and misdirected anger, they resorted to stoning motorists on Thika road, and setting ablaze three vehicles, one of them a matatu (jitney).
Gas Pipeline Blown Up in Southern Russia
Bangaladesh: People go berserk for power
Outraged by frequent power outages, thousands of people swooped on local power distribution offices in Islambagh, Dhalpur and Shanir Akhra areas of the capital last night and disrupted road and rail communications.Angry people also attacked power offices in six districts--Narayanganj, Narsingdi, Cox's Bazar, Manikganj, Sylhet and Sherpur--last night and the night before.
Thousands of power-hungry people besieged the local power distribution offices at Dhalpur at 7:00pm and at Shanir Akhra at 9:30pm.
DOE Funds Six New Projects Aimed at Alternate Hydrogen Production and Utilization
The Department of Energy today announced the selection of six cost-shared research and development projects that will aid in alternate hydrogen production and greater hydrogen utilization.The selections help to fulfill President Bush's Hydrogen Fuel Initiative which describes a hydrogen economy that minimizes America's dependence on foreign oil, reduces greenhouse gas emissions, and provides funding for hydrogen research and development.
Dutch study imported biofuel production
PETTEN, Netherlands - Dutch researchers say they've determined liquid fuels can be produced economically from biomass, even if all the raw materials must be imported.
China carries out test of fusion reactor
It was once a forgotten wasteland in east London - now it's a thriving organic farm. Urban areas consume huge amounts of food, so why aren't there more places like this?
From Harvard economics professor Greg Mankiw:
The Omnipotent POTUS
If you don't want to take my word for it that prices aren't being deliberately manipulated to influence the election, then here you have someone else saying the same thing. Or read what Jerome wrote at Daily Kos:
There is NO manipulation of gas prices. An explanation
If you still wish to believe there is more to it than that, then I can at least say I gave it my best shot.
I still find the Goldman stats intriguing, and also find that Jerome's statements regarding speculators selling off en masse because they made the wrong bets, goes a ways to explaining part of the stats.
My point here is that there is no concerted effort to drop prices before the election. The level of complexity something like that would entail is mind-boggling.
That is not to say that certain things don't manipulate the market. If Bush announced that we were going to try really hard to work with Iran, it would put downward pressure on prices. If someone announced a breakthrough that promised cheap energy for everyone, it would put downward pressure on prices. But there isn't much an oil CEO can do, especially in the short term, to affect prices. He watches the prices rise and fall like the rest of us. He tries to make sure the company is in position to profit. What he doesn't do is dictate prices, and therefore dictate profits.
Robert,
I would like to remind you that Enron managed to thoroughly corrupt the California energy market for many months. There were a number of "experts" who maintained such actvity was not possible and "market forces" were at work, etc... I am sure you are familiar with the details. They were widely reported in major news media.
I haven't read the RR/joule debate, but to indicate energy markets cannot be manipulated is unwise.
There is a vast difference between what Enron did in California, and managing to have a big impact on a global commodity that trades on an enormous scale. It's like saying because a warlord managed to take over a small part of Afghanistan, he could then take over the world.
I haven't read the RR/joule debate, but to indicate energy markets cannot be manipulated is unwise.
That's not what I said, even in the post that you just responded to.
I mean no disrespect here. I follow your contributions avidly. But I disagree. California is something like the 10th largest economy in the world. The scale of market manipulation there was profound... and it went on for a long while. During which... it was denied by very experienced finance professionals.
In the recent Amaranth case, Bloomberg reported that Hunter (the trader) had purchased, in some cases, 20% of the market's available positions. Nymex NG, though not global, is not a small market either. My point is that the technology, the leverages and the access to many, many billions of $$$ does exist. My disagreement has nothing to do with gasoline going up or down, it has to do with your assertion that oil is too big a commodity to manipulate. Nate Hagens reminds us twice a week that's it's the marginal barrel that prices the market.
It would be interesting to know how Goldman-Sachs traded the market in the run-up to reducing that allocation <g>.
Of course this can backfire, as when the very good engineer and humanitarian Herbert Hoover tried to get reelected.
Is my memory right that Reagan is credited with using oil prices to destabilize and ultimately crash the Soviet Union? Beyond that, isn't it part of what governments are supposed to do - to maintain market structures. Keeping the price of energy down, whether with the 7th Fleet or subsidies, is government action. It strikes me as meaningless to say that a government does not influence prices. Of course it does. But it's not going to happen at RR's level - the Saudi princes, do they take GWB's phone calls - of course they do. I'd not even be surprised if God doesn't tell him where to tell them to drill and find new reserves.
cfm in Gray, ME
He didn't quite say it that way, but sure did turn down the saber rattling noises for now.
If someone announced a breakthrough that promised cheap energy for everyone, it would put downward pressure on prices.
Would the super-hyped announcements of months-old new from "Jack 2", count as "announced a breakthrough that promised cheap energy"?
> drop prices before the election
I'm shure you're right. Such an attempt would be crazy. Given all these efforts to make it work - and a single hurricane could easily send crude prices back to $70 or even $80.
And no politcal party can foresee the hurricane season until the elections are over.
My point here is that there is no concerted effort to drop prices before the election. The level of complexity something like that would entail is mind-boggling.
A few years ago it would have been thought technically impossible to monitor all telecommunications in real time and sort for key words. I assure you that no matter how complex a system is required for that task, the NSA and CIA computer complexes are doing it. Just because something is improbable doesn't mean it is impossible.
Well, a single oil CEO may not, but 'the industry' is more than one CEO. Again, I do not believe that the ever so politically convenient for incumbents drop in gasoline prices comes from a single phone call. Though of course a CEO determines profits, at least in the sense of deciding what margins are acceptable for a number of variables (like BP and Alaskan maintenance costs - the profits to be earned by not spending it on maintenance seem quite hard to resist, for example).
And I absolutely agree that major components of the price drop are externally induced. For example, as noted by your writing 'If Bush announced that we were going to try really hard to work with Iran, it would put downward pressure on prices' - which he seems to have done recently, as I recall.
Seasonality is also a very important aspect of the price drop, of course. It would be interesting to see how the switch over to heating oil is going this year compared to the past - New England is pretty much a loss for Republicans anyways, so refineries which keep producing gasoline later than customary could have an interesting effect on gasoline prices. (This could even increase the margin on heating oil later, making it a zero sum game.)
And if ExxonMobil or Chevron or Marathon or BP decided to get competitive in their retail markets, they could set off a price war, lowering gasoline prices a few percent easily - and of course, in this case, one CEO could start such a price war.
Strange - I just figured out one proven method (we saw it happen in real time, I believe), one unproven/conspiracy theory (though it could be checked), and one potential way (still open for exploitation) to lower gasoline prices by a solid percentage, and I didn't need to call anyone or even waste more than 5 minutes typing.
It is very likely that the pros can do a lot better than me in dropping the price of gasoline within a month or two window. And sure, events can overtake all of these methods - one large late season hurricane would really play havoc to such plans. (Not everything is under human control - but how you react separates the winners from the losers.)
But you seem so close to understanding the essential point -
'He tries to make sure the company is in position to profit.' without seeming to understand that the idea of 'position' is very multi-dimensional. I doubt very much that a company like ExxonMobil, for example, has lost so much institutional memory that they can't remember the windfall profits tax the last time oil prices started to have deep ramifications for the American voter - the same way that a company like ExxonMobil hasn't forgotten that the last time Americans bought small cars en masse, it equalled smaller profits. Oh, did I forget to mention how the price in gasoline could just happen to spill over into another ailing part of the American economy? Or have I wandered into the Iron Triangle?
Politics is at least as fun as watching oil prices - except oil has many more direct connections to physical reality. In this sense, you are right - the market is too complex to easily manipulate. What you forget is that the market encompasses much more than physical goods - the rule of law comes to mind, especially the current rule in America that seems to say oil companies are forced to charge higher prices because of leftists and nationalists who don't understood what profit means.
Profit, to a politican, is just another way to spell power - whether to tax or to appropriate or to redistribute or to keep among friends. Of course the oil companies have preferences - can you say tax cut? They certainly can - it comes in that part about 'dictate profits.' The oil CEO wants to dictate where the profits go, as that is infinitely preferable to having the voters determine, for example, that any company earning a gross profit above 3 billion dollars a quarter gets taxed at a 5% higher rate, the revenue to be placed in a special fund to be used to provide health care for children. Such intereference in the free market is what evil dictators like Chavez do (with commie Cuban doctors, no less), and it is not what America stands for. Lucky that American corporations still have the right to spend money in elections - what 50 million dollars last election cycle for the oil industry alone? - to keep such thoughts far from America's not to be trusted electorate.
This is the one that is important to address, because it is central to the argument. The only chance they have for doing that, is if inventories are on the rise. Rising inventories favor things like this. We have rising inventories right now for a number of reasons, but primarily because margins are still pretty good, so refineries are still running hard.
But if inventories were currently flat or falling, the CEO could not do what you suggest. Inventories would dry up, and we would run out of product. So, what you suggest is entirely dependent upon what is happening in the market, which the CEO does not control.
If people don't take anything else away from this discussion, take this: We can conjure up all kinds of theories of how markets could be manipulated. In fact, there are very simple reasons for falling prices at the moment that don't involve any conspiracy theories at all. And I am a believer in Occam's Razor.
I agree with you on the rising inventories this is of course for a number of sound technical factors. This effects the price of gasoline sure. But the dramatic effect on the price of crude worldwide ? Simply because in the US we have rising inventories ? No I don't buy it sorry. There are other factors at work. I see a price war seems to be starting and your correct that rising inventories support it but falling crude prices are key to being able to lower prices based on the increasing inventory. If say crude was still going up despite the healthy increase in inventory in the US ( note not the whole world ) I bet the downward pressure on gasoline prices would be far lower.
The mistake your making is that if any manipulation is taking place its in the context of the oil market and its financial not internal to the oil industry.
Your correct in that rising gasoline inventories are critical for translation into a drop in price at the pump.
And I suspect if anyone is attempting to manipulate the market they would not do it without rising inventories.
But on the same hand gasoline stocks have not exactly been low for several months and the effect of pump price was small till....
The price of crude dropped.
Your dealing with the current situation not what initiated it. I assert rising inventories
have been happening for a while without a dramatic drop in prices.
It seems to be crude is starting to rise now so we will get a chance to see how much inventories and crude prices interact to set the price.
But they keep trying to rise every morning till about noon
and someone pulls the price down all afternoon.
I guess the guy does not get up early. Just check prices after 2 pm or so after he gets back from lunch.
But there is no question that oil companies, speaking with a broad brush, prefer the current party in power in the U.S. to someone like Chavez - and the reasons have little to do with morality, and an awful lot to do with profit, and who gets to do what with it.
There is no question in my mind that this preference will be expressed in as many ways as possible. This is simple human nature, and not a conspiracy theory.
If a hurricane had hit a major swath of refining or production regions, a fall in prices this large (or at all) would not have occurred.
But here is a counterexample - why is Saudi Arabia still seeming to pump full out even as prices 'collapse?' (Collapse is so relative these days.) Could it be that the Saudis have a preference in the American elections? After all, Saudi Arabia could easily have oil at a price of $70 a barrel plus, just by announcing a production cut - or even by saying they anticipate cutting production on Oct. 21. But even pumping full out, the price seems stubbornly persistent above $60 a barrel.
We can play this out in any number of ways, but in my case at least, it is all just a game.
Nonetheless, a lower price before the elections would seem to be in the long term interest of oil company profits, and remarkably, prices are lower. Peak oil, in part, is the point where reality takes over from playing games - as witness how oil just doesn't seem to want to go below $60 a barrel, regardless of OPEC's commitment to full production. Of course, maybe a country like Iran is cutting production in an attempt to get Bush booted - this game is very fluid, which is why manipulation is such a silly term. There are too many players with too many goals for any of them control the outcome for any lasting time. But long enough for some of the world's largest and most powerful corporations to politically ensure their continued profits in the world's largest single oil market? I don't need to believe in any fantasies to think that greed is the dominant player in the marketplace, just as power is in politics. And when the two areas share a common interest - holding on to what they have - it is hard to imagine them doing nothing while potentially losing what they possess.
http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyID=2006-09-28T155051Z_01_L 28469961_RTRUKOC_0_US-ENERGY-OPEC-CUT.xml
This is the sort of thing that just ruins a good market manipulation - unless OPEC is manipulating the market, not that they would ever do that.
Not everything is domestic American politics.
But there is no question that oil companies, speaking with a broad brush, prefer the current party in power in the U.S. to someone like Chavez - and the reasons have little to do with morality, and an awful lot to do with profit, and who gets to do what with it.
This is no in dispute. It is just like the guy said over in Jerome's thread. Does Big Oil generally favor Republicans? No doubt. So, they probably see benefit to prices falling before the election, although profits this quarter will suffer a bit as a result. But that doesn't mean they are the cause, and there are actually logical explanations for the current round of falling prices.
But here is a counterexample - why is Saudi Arabia still seeming to pump full out even as prices 'collapse?'
For the same reasons refineries are still running full out. Even though margins have fallen, they are still pretty good. Prices haven't collapsed to the point yet that anyone is ready to cut back.
Exactly!
They can cut profits down still make a boat load of money. Help GW & Bushco. with the elections. Avoid a windfall profits tax. IMHO (and non-oil educated) I think this would be a wise business decision. Hell the oil exec's hardly got a slap on the wrist with congress's little dog and pony show.
Where are the democrats? My god GW and Bushco leave themselves open to attack. Who is twisting whose arms?
I wouldn't want to be associated with Bush if he was the last man on earth politically, if the deep seated feelings people I talk with is any reflection of the broader electorate- and I voted for the bastard on #1
If oilco CEOs have never dictated prices, they're unique among modern corporations.
Says the guy who decided to get in one more smear, and the last word.
Actually, what is so important to me is that issues are debated on the basis of facts and not ignorance. I have said before that I often see a lot of parallels in some of these debates and my years of debating Creationists. This is a perfect example. The Creationist, when confronted with the fact that the more science education a person has, the more likely they are to believe in evolution, will say "That's because they have been brainwashed by years of indoctrination. They have been blinded to the TRUTH." However, the truth is that they accept evolution because they understand what it really is, and they understand the scientific method. It is not indoctrination that caused them to accept evolution. It is understanding.
What we have here, Joule, is that you have formed an opinion based on little understanding of how prices are set, and when that opinion was challenged, you ultimately resorted to ad homs. The truth is that I am on the front lines of these pricing decisions, I understand the details behind pricing far better than you do, and that's why my position is what it is. You, in the role of the Creationist, resort to "You believe that because you have been brainwashed."
That's right. This is a global market. But here is the story I do know, and the message I am trying to convey. We set prices that show up on the street. My group. What influences the decision on pricing moves?
1). System inventories: When inventories are rising, prices are cut until margins don't look so good, and then production is cut.
2). What the competitors are doing: If they are lowering prices, and our inventories look OK, and our margins look OK, then we will follow. When system inventories don't look so good, we won't follow, and they will run out of product.
What happens on the NYMEX has no bearing on our pricing decisions. We look to the NYMEX for an indication of where prices are heading, and the markets sometimes behave in an unpredictable manner. But when we change prices, it is due to one of the reasons I mentioned below. When your local gas station changes prices, it can usually be traced to one of those 2 reasons. (An exception could be that the station has marked down winter gasoline to move it out before spring).
If one has a pretty basic understanding of economics, they should understand that prices can't fall for long when market fundamentals don't warrant it. If Bush called up all of the oil companies in the country and got them to start dropping price, then we would simply draw down inventories, and potentially run out of product as demand picked up.
Your comment below makes a lot of sense to me.
Politicians can try to do what they feel is best to ensure their reign of power continues. But their motives don't necessarily match those of an oil Co CEO. If oil companies were foolish enough to abide by the requests of the government politicos, I can't see them hanging on to these politico-prescribed manipulations when it starts to damage their bottom line.
My point is, if Bush-Dick are in cahoots with Big Oil on manipulating prices, there's no guarantee that these manipulative actions will be supported by the market through November. I don't think Big Oil would take that risk, so it's unlikely they'd even entertain the idea, in my opinion.
Tom Anderson-Brown