Gas is gonna get more espensive ... again

[Kirby]

http://news.bbc.co.uk/2/hi/business/4084989.stm

Oil cartel Opec has agreed to cut back on the rampant quota-busting which its members blame for the recent retreat in oil prices.

The group's 11 states are estimated to pump as much as 1.7 million barrels a day more than their 27 million quota.

The cost of a barrel of oil in New York has fallen 21% to $43.10 since its all-time high in October of more than $55.

Opec ministers said they would meet again on 30 January to discuss a possible quota cut if prices stay high.

Production is currently at a 25-year peak, driven by soaring demand from the US and China and supply disruptions.

'Overstated'

The main over-producer is Saudi Arabia, which has been pumping about 9.5 million barrels a day since August - almost 900,000 more than its quota allows.


OPEC'S BASKET
The oil on which the Opec basket price is based comprises:
Saharan Blend, Algeria
Minas, Indonesia
Bonny Light, Nigeria
Arab Light, Saudi Arabia
Dubai, UAE
Tia Juana, Venezuela
Isthmus, Mexico (non-Opec)
Opec ministers said Friday's agreement would reduce over-production by about a million barrels.

The cut is scheduled to start in mid-January.

"Everyone has committed for next month," said Kuwaiti oil minister Sheik Ahmad Fahad Al-Ahmad Al-Sabah.

Many Opec members - particularly those in the Middle East - are relying on higher oil prices to support the public purse, burdened by growing populations and high unemployment.

 

[BimmerBaller]

great

 

[epj3]

Anyone hear that gas companies profit increased by 60% or something like that?? Hmm.

 

[Wallie05]

Guys,

I wouldn't worry about gas prices rising just yet--hell, they dropped on lot this weekend. Traders are skeptical that OPEC will really push through with this, and even if they do, non-OPEC countries like Russia (from where we are increasingly getting more oil) this won't lead to significantly lower supplies--at least not enough to outrageously affect prices. I have friends who work in futures and I've asked our own firm's broker, who says he's not too worried either. This news came on Thursday I believe, and on Friday, oil futures continued to fall....

Don't forget, politics is almost as important as economics in this, and we some of the best lobbyists around, and the U.S. wields an enormous amount of political pressure--something to keep OPEC in check if they get to crazy. Also, look for our dependence to DECREASE on OPEC countries in the future...

Oil prices continued to drop on Friday after this came out. Friday's close was below $41.

From yahoo Finance:

"Crude futures closed under $41 a barrel for the first time in four months amid some skepticism the Organization of Petroleum Exporting Countries' decision to cut production by about 1 million barrels a day will lead to a significant tightening in oil supplies.

OPEC however did leave the option open for a future adjustment to the quota by agreeing to meet again on Jan. 30, ahead of the regularly scheduled March 16 meeting.

The benchmark crude January contract ended down $1.82 cents, at $40.71, shedding 4.3 percent on the week. "



http://biz.yahoo.com/cbsm-top/041210/2a185880b32b9672a8ef3f65e6c3558d_1.html

 

[MrElussive]

I read an article the other day that stated Kuwait is going to cut back their supply for 05, though. No idea how that affects us but it's just what I read.

 

[kscarrol]

I wouldn't hold my breath on this OPEC cut. I've followed the oil industry for years and OPEC's ability to live up to its quotas are very questionable. They have been producing 1.5-1.7 million barrels a day over their quota for over a year now. Even w/ the recent drop in the price of crude, it will be very hard for OPEC countries to turn off the tap at $43 per barrel. They need the cash badly, particularly Saudi, so I think it will take a much harder fall in prices fro OPEC to truly react and cut production on any meaningful scale that will drive prices back up.

 

[poboyis]

If the price of crude oil is so high, why is only gas and diesel fuel going up, why not other petroleum products like motor oil and things like that?

 

[kscarrol]

As for the price of motor oil, we're already paying what, $4-$5 a quart? Do the translation into gallons, then into a 42 gallon barrel of oil, and you'll see what kind of margins are made on motor oil. Despite the complaints of motorists paying $2+/gallon at the pump, margins for gasoline are very thin. The oil companies make their money finding the oil and selling it to the refiners, whether it is a third party or their own refining arm. Motor oil is a very high margin product and therefore can absorb price increases much easier than motor gas, where Exxon may literally make a just $0.03 a gallon profit. But don't feel bad for them, they'll get by...

 

[poboyis]

synthetic oil doesnt count. motor oil is on avarave anywhere from $1-$2 per quart

 

[kscarrol]

You are right, but the math still applies. Four quarts at $1.50 each equals $252/barrel (4 quarts to a gallon, 42 gallons to a barrel) where as $2/gallon for motor gas equals roughly $86/barrel. It is purely a question of the margins they earn and what the companies are willing to absorb and what they feel compelled to pass along to the consumer.

 

[poboyis]

in other words, gas is used more, so the more they push it up, the more money they make, got it (supply in demand)

 

[kscarrol]

Yes, that is part of the equation, but simply, a one dollar increase in the price of crude oil has a much larger impact on the margin for motor gas than it does on motor oil margins. Oil companies don't make the majority of their profits from selling motor gas, they make it from finding and producing the oil. The cost to find oil and natural gas is relatively stable, depending on rig dayrates and other factors like labor and the price of steel, but while the cost to find a barrel is up to roughly $9 a barrel from around $6-$7 per barrel a couple of years ago, the price has gone from $23/barrel to $40+/barrel. Cost are up just $3 per barrel but revenues per barrel are up $20+/barrel. That $17 per barrel is the huge increase in profits that you see the oil companies report, not the increase in a gallon of gas. They still make money producing motor gas, but they are simply passing on the cost essentially. Now you can argue that the companies are much quicker at passing on increases than decreases, that is true...

This has more to do with the US accounting for 25% of world oil demand, so as our economy grows, ao does our demand for oil. But the biggest factor over the past year or so has been the booming Chinese and Indian economies, where their demand for oil has skyrocketed. While still below the level of the US, this growth at the margin has been greater than the world's ability to increase production. So you're right, supply and demand at work. And no, I don't work for an oil company!

 

[Average Jae]

gas price goes up, i pay more, gas price goes down i pay less.. it usually evens out in the end. yes, it sucks, but there are others paying way more than us. besides, it's much cheaper than invading a country and taking over the oil fields, refining it myself to save some bucks.. who'd want to do that?