About Oil Prices

Paul Simari asked:


John started to make his own diesel fuel for his Mercedes about four or five months ago. He discovered a company named Green Machine that reduces furnace oil price waste and oil treatment waste by enabling people to make their own fuel in their own homes. Not only did it help protect the environment, but it saved John a ton of money.

So far, everything was going well. He had ordered the heater kit oil waste package from Green machine NJ, and had set up a working station in his basement where he would create the fuel he needed for his car.

But soon, John began to notice something strange. His neighbors that he used to talk to on a regular basis stopped talking to him, and instead, began to give him weird looks. It seemed as though they were even spying on him; John could have sworn he noticed the woman across the street looking at his house through binoculars one night. John had no idea what he was doing that was causing this behavior, but it was beginning to freak him out!

The next day, as he was carrying in two containers of oil vegetable waste that he was getting from a local restaurant, it finally dawned on him - his neighbors may be thinking that he is a terrorist! Of course, they didn’t know that John was using the veggie oil as an alternate to Diesel fuel. But since John was of Indian descent, he figured that any type of suspicious activity would draw attention. It also didn’t help that he had UPS deliver packages to his house once a week or so that he was ordering from DSE.

About a week later, as he was in his basement, he heard a loud knock on the door. He wondered if his neighbors had finally come to ask him what he was up to; but instead, he looked out of the peephole and saw two police officers! He calmly opened the door, and the officers asked if they could come inside for a minute.

The officers started to tell him about how they received calls from several of his neighbors because he was drawing a lot of suspicion. They asked him to explain the videotapes of John bringing in mysterious containers into his house and the frequent UPS deliveries that his neighbors had secretly recorded.

The policemen were surprised when John showed them how he made his own diesel fuel to power his car. John explained the process to the officers, and told them how he brought in vegetable oil and showed them the website, http://www.GreenMachineNJ.com, from which he was ordering the items that UPS was delivering to him. The policemen were so impressed that they started to make their own Veggie Waste oil fuel too, as well as every neighbor on John’s street!



Carmen

Dylan Sun asked:


Oil prices rose to a new record settlement price Tuesday as traders turned their attention to a government inventory report expected to show tight supplies and shrugged off OPEC’s decision to boost output.

Even factoring in OPEC’s decision to increase oil production by 500,000barrels per day starting Nov. 1, “supplies are tight,” said Addison Armstrong, an analyst at TFS Energy Futures LLC. And according to analyst predictions, they’re going to get even tighter. Analysts surveyed by Dow Jones Newswires, on average, expect Wednesday’s report from the Energy Department’s Energy Information Administration will say that crude oil inventories fell by 2.7 million barrels in the week ended Sept. 7.

Investors had already priced in OPEC’s increase, and many were looking for a larger production boost, analysts said. Light, sweet crude oil for October delivery rose 74 cents to settle at $78.23 a barrel on the New York Mercantile Exchange after alternating frequently between gains and losses. The settlement price bested the previous record, set July 31, by 2 cents. Oil’s rise pulled October gasoline 0.25 cent higher to settle at $1.9811 a gallon after the contract spent much of the day in negative territory. In other Nymex trading, heating oil futures rose 1.11 cents to settle at $2.1827 a gallon, and October natural gas added 4.3 cents to settle at $5.934 per 1,000 cubic feet.

In London, October Brent crude oil rose 90 cents to settle at $76.38 a barrel on the ICE Futures exchange. OPEC, which produces about 40 percent of the world’s oil, had long been expected to hold production levels steady at the meeting. But rumors started circulating on Monday that Saudi Arabia was campaigning to boost production. Many analysts think the Saudis are worried high oil prices will crimp demand for crude oil, which could hurt OPEC nations in the long run.

However, some analysts interpreted the fact that Tuesday’s meeting lasted longer than expected as a sign the Saudis had a hard time persuading other OPEC nations to boost production. Tim Evans, an analyst at Citigroup Inc., thinks some OPEC members are worried demand for oil will slow in the fourth quarter, which combined with more supplies could mean sharply lower prices. Many OPEC countries already produce more oil than their quotas. But Omar Farouk Ibrahim, spokesman for the Organization of Petroleum Exporting Countries, said the announced increase would be based on the group’s current production, not quotas ?a

Meaning the 12-nation cartel will be adding actual oil to the market. That translates into a quota increase of nearly 1.4 million barrels per day, Evans said. “This is a big number,” Evans said, adding that it would take futures traders a while to digest its significance. “This is not something that the market’s going to adjust to in a few minutes.” At the pump, meanwhile, gas prices slid 0.5 cent overnight to a national average of $2.814 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 in late May.



Esther

nogooder asked:


Seculators on wall street are driving up prices on oil and other consumer goods. Why isn’t the government intervening, oil exporting countries say there is no shortage. They have even started pumpimg more oil.

Ron

Neil asked:


Real estate nation wide, Bank notes, currencies like the dollar or yen or euro, stocks, or anything? Has anything gone up in price worldwide as much as oil prices? Since oil prices effects the price of everything from a postage stamp to food to airlines to vacation travel, shouldn’t the congress and the president have done something to bring this under control?

Kathleen

roostershine asked:


Now that oil prices are slam-dunk low, isn’t this a great time to start building a future based on oil all over again?

Oil for our grandkids’ grandkids, yipeee!

Are people excited for drill baby drill?

Chad

Ed Lathrop asked:


Gasoline prices are at an all-time high in the United States today. Even though this price pales in comparison to the prices paid in some other countries around the world, it can no longer be reasonably argued that the price we pay at the pump today in the U.S. is a bargain.

In recent times the price of gas hovered around $3.20-$3.30 a gallon. Then, we used to be able to argue that this price was not an all-time high when based on the price adjusted for inflation. It is true in parts of this 50’s, 60’s and ’70s gasoline prices were higher than $3.00 a gallon if we adjusted the dollars for inflation.

It’s at an all-time high

However, at $3.80 a gallon we’ve broken through this threshold. Now of course, the gasoline we buy at the pump today is a much more expensive blend than what we bought at the pump in the ’50’s, 60’s, and 70’s. This is because the gasoline we buy today has to meet much stricter environmental standards and this pushes the price up.

Still, the price of gas is high when compared to just a few years ago and this begs the question, why? In this article, we will explain the reason we pay what we do for gasoline today. First, let’s start with what the reason is not.

Evil big oil

How do high gasoline prices help oil companies? There is no logic to the assumption they do. If there was only one oil company it would be different, however, there are a lot of oil companies. Each one competes against the others. If one company can sell for less, this company will. In doing so they will gain a larger part of the market and make more money. By raising prices, companies stand to price themselves out of the market. This is senseless!

On top of that, with prices so high, alternative fuels become more viable and relatively affordable. Is this what gas companies want? Are they looking to put themselves out of business? Blaming oil companies is an easy and convenient answer to our problem, but it is not logical.

Economics 101: Supply and demand

Any capitalistic economy depends upon the law of supply and demand to set prices. Prices are based on how much of a commodity exists and how much demand there is for this commodity. In recent years, China and India have become huge buyers of oil. Since the supply of oil has not increased, the price of course, has increased. If the people of China were still using rickshaws as their mode of transportation, perhaps we wouldn’t be having this problem.

Normally, when a commodity has increasing demand, suppliers will make more of this commodity in order to gain a larger share of the market. In America, oil companies are not allowed to do this. There have been no new refineries built in the United States since 1967, and American oil companies are not allowed to drill in the Gulf of Mexico like Mexican companies are.

For the last several years some folks, George W. Bush being one, have called for the drilling for oil in the ANWAR region of Alaska. Certainly, if we were drilling for oil there, the oil supply would be increasing.

A republican led bill calling for drilling in ANWAR was proposed in 1994 and President Clinton vetoed it. Some say there is a veritable Saudi Arabia in this region, if this is true, and this bill was not vetoed, it stands to reason we would be more than meeting the supply of our oil consumption by now. So, this price pinch would not be occurring.

Market volatility

Added to the two problems of the growing need for oil and the supply which environmentalists prohibit us from using, is the problem of market volatility. In capitalism, prices of commodity swing wildly upward and downward. A case in point would be the recent real estate boom. During 2005-2006, prices of real estate became very high; to a lot of people, the prices were actually untouchable. It was at this time, the pundits started to ask, when will the real estate bubble burst?

They asked this question because it was obvious the price of real estate could not keep going up forever. There had to be a point at which no one would be able to afford real estate if it kept shooting upward. The pundits were right. The bubble did burst and the price of real estate has come tumbling down.

We can also look back to the tech stock boom of the 90’s. At one point the NASDAQ was trading over 5,000. At this time, many analysts were telling us to keep buying these stocks because the NASDAQ was going higher. However, there came a point when the NASDAQ was no longer a bargain and the price came tumbling down; all the way to 900. Obviously, the NASDAQ had been overbought and could not sustain trading at such high numbers.

Right now it’s impossible to look at what’s happening in the crude oil market and not see similarities between the real estate bubble of 2006-2005 and the NASDAQ boom of the late 90’s. It is very likely crude oil is now very much overbought and will come tumbling down as well.

However, for the time being were stuck with high oil prices and though there are politicians who want us to never become oil independent, there are many of us who believe we will always be under pressure from high oil prices if we don’t start drilling our own.



Clyde

The Daydreamer asked:


In general, what is the significance of oil prices? Does it have a more significant meaning than just the oil industry? For example, is it also an indicator of inflation, etc? What do fluctuations and current oil prices mean for the US economy?

Christian

ariesto asked:


Oil prices have hit record highs above $145 a barrel and have more than doubled in less than a year.

There have been calls for oil producers to increase supply.

However, they blame the high prices on speculators and the weakening US dollar, which makes oil a more attractive investment.

No one seems to

Why are oil prices so high?

Economists will tell you that prices are set by supply and demand and, indeed, at the heart of the rise in oil prices are what are known as the fundamentals.

Demand for oil has been growing as Asia’s power-house economies such as China and India fuel their rapid economic expansion.

At the same time, there are all sorts of worries about the supply of oil.

A lot of the world’s oil comes from somewhat unstable countries, so every time oil workers are attacked in Nigeria or Iraqi oil facilities are damaged, people get concerned about the supply of oil.

So fundamentally, people are worried that demand may be growing faster than supply, and oil is such an important commodity that they are prepared to pay more and more for it if they are worried.

That all sounds pretty simple then

Well it would be if everybody had exact figures for the fundamentals that influence oil prices.

The problem is that nobody knows exactly how much oil there is in the ground, many producers are a bit cagey about admitting how much they have taken out and we do not know how much oil is in tankers being shipped around the world.

On top of that, we do not have reliable figures for how much oil most countries have squirreled away in case of emergencies or indeed exactly how much oil is being consumed.

So what determines prices is not the fundamentals but everybody’s perceptions of the fundamentals.

That means that when proper figures, such as the weekly US inventories figures, are released, undue weight is placed on them because few countries are so transparent.

But other than that it’s just like any other commodity?

Unfortunately not.

First of all there is the Organisation of Petroleum Exporting Countries (Opec), which controls 55% of the world’s oil exports.

The idea is that its members only raise or lower their production when all the other members do.

It does not always work, but it certainly means that oil is not a free market.

Also, there is a finite amount of oil in the world.

The oil that has been taken out of the ground first is the easiest, and therefore cheapest, to access.

As oil prices rise, it becomes financial viable to spend more to extract oil that is in trickier places to mine.

But as the available oil is depleted, the price will naturally rise because it is harder to find and more expensive to mine.

In addition, when there is talk about supply being threatened by unrest in the Middle East or storms in the Gulf of Mexico, how much of a problem these factors will actually be is generally a guess.

So is it unfair to blame the speculators?

The speculators certainly have a part to play in all this.

To an increasing extent, financial institutions are trading in oil as an investment like shares or currencies.

They buy oil contracts in the hope that their value will go up before they sell them.

Alternatively, if they think the price will fall, they may sell oil contracts they do not have and buy them later, in time to settle the deal.

Even those who believe that the market is based on fundamentals accept that the participation of speculators has created greater volatility in the market.

Factors that in the past might have moved the price by a few cents could now move it by more than a dollar.

It has also given sudden relevance to factors that in the past would not have moved oil prices at all.

What sort of factors?

Events such as rocket testing in North Korea have been cited as reasons for the rising price of oil.

But it is hard to imagine how it could have any direct effect on its supply or demand.

In a market with such a serious shortage of reliable information, as long as enough people believe that a factor will affect the oil price, it will.

And in some cases the effect of factors have been reversed.

How can that happen?

Up until less than a year ago, a weakening US dollar would have been seen as a sign of weakness in the US economy, which would have meant that demand for oil was likely to fall and so the oil price would fall.

But recently, many traders have believed that some people are treating oil and the dollar as alternative investments.

So, if they think the dollar is falling they will buy oil instead and if they think oil is falling they will buy dollars instead.

Because people believe this to be the case, a negative relationship has built up between the oil price and the dollar.

Whether people are actually treating the two as alternative investments is no longer important - what matters is that people believe that they do.

But a market based on so little concrete information and so much belief is vulnerable to people changing their minds.

source: www.forexoptical.com



Frederick

you did three things wrong asked:


Oil prices have fallen 23% over the past month, but gas prices have not matched that rate. On the flip side, when Oil prices were going up gas prices appeared to increase, percentage wise, more than oil.

Mildred

frustrated asked:


We are planning a trip home to South Africa in July 2009 from Colombia but the ticket prices are extremely expensive. What are the chances of the prices dropping because of the lower oil prices?

When is the best time to book for specials?
Thanks

Jessie