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Thread: We're in a hole (oil)......so lets dig down more!....

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    We're in a hole (oil)......so lets dig down more!....

    while I understand that some profit should go back to the shareholders, etc.....

    so much for the thought that oil-companies are going to use the profit for oil-exploration..."in these desperate times that call for more drilling"..


    [AP: HOUSTON - As giant oil companies like Exxon Mobil and ConocoPhillips get set to report what will probably be another round of eye-popping quarterly profits, just where is all that money going?
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    The companies insist they're trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.

    It's good news for shareholders, including mutual funds and retirement plans for millions of Americans, but no help to drivers already making drastic cutbacks to offset the high cost of fuel.

    The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, up from 30 percent in 2000 and just 1 percent in 1993, according to Rice University's James A. Baker III Institute for Public Policy.

    The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.]

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.
    I can assure you that all of the major oil companies would gladly spend a higher percentage on oil exploration IF they are given access to drilling areas that offer any reasonable opportunity for large enough oil discoveries to offset the exploration and development cost. Currently, the major oil companies are restricted from most such areas - such as drilling off the US coasts - by legislation and environmental protests, or by short term leases on gov't land that will expire before the area could be developed sufficiently to return their investment. As such, rather than spending billions drilling dry holes in areas that are not likely to ever repay the exploration and development cost involved, the major oil companies chose to instead spend those billions for the benefit of their stockholders.

    Where high risk low probability oil exploration is concerned, this traditionally falls to small independent oil companies ... who are in turn bankrolled by high risk high return speculative investors ( as opposed to the conservative investors i.e. retirees, gov't pension funds, financial institutions etc. that typically own major oil company stocks and typically vote for conservative management ). This is still the case today ...

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    All of this call for new drilling is simply a ruse. No doubt the oil companies would make money if they found a big new reserve somewhere, but that is 10 years down the road. They are beholden to their executives' bank accounts and stock holders now. Oil is not elastic in the same way oranges and pork bellies are, partly because it's heavily subsidized, and partly because our entire economy and financial systems depend on it. What the oil companies really want are the permits. No one knows how much oil is off our coasts or in ANWR, but the oil companies' stock profits are based on their current reserves. By getting those permits, they can say they are sitting on billions of new barrels of crude, when in fact this may not be the case.

    Secondly, all the drilling they can come up with will not matter in the face of rising demand. For instance, the oil companies optimistically predict a maximum of 800,000 barrels per day out of ANWR, but they conveniently leave out the fact that that equates to only $0.03 at the pump.

    All of the oil companies know that production here has been falling since 1970. All of the easiest oil to find, pump, and refine has already been used up. Even the vast reserves that Venezuela claims it has found in the Gulf of Mexico are 6 miles down. So, not only is world demand for oil increasing, but so is the cost to get it out of the ground and refine it. Drilling is not gonna change that in any negligible way.

    Thirdly, oil is a global commodity in its purest form. The way our oil is distributed is thru permits to private oil companies who sell whatever they get on the global market. There is no law or rule saying that they have to sell it to us, and in fact they will sell it to the highest bidder. When you hear politicians talking about "our" this and "domestic" that with respect to oil, run away as fast as you can because they are lying, which is what they do best. They try to make it sound as if our oil actually belongs to us, when in fact they will be signing it over to ExxonMobile or whoever they give the permits to. In all likelihood, that oil will end up filling gas tanks in Bangalore or Beijing.

    Lastly is the problem we have with too few refineries. This problem did not occur overnight, but it presents one major problem - there is a financial incentive for the oil companies NOT to build new refineries. The shortage is one thing that's bringing them record profits. Why on Earth would they want to mess with the goose laying their golden eggs. Of course, environmentalists and Democrats make for great scapegoats tho. LOL!

    The fundamental problem is that we the United States use 20% of the world's energy. That simply is not sustainable. We seem to have no problem building up other countries so we can exploit their cheap labor, but we have to understand that once we build them up then they're gonna demand and need to eat from the same slice of energy pie that we're used to enjoying for ourselves.

    I would encourage everyone to read the first two pages of the following site. It's a long read, but it should impress that the solutions to this problem go far beyond drilling and mere legislation.

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    Sorry, but recent events refute your argument ... specifically that the news of a 3 million barrel ( = 1%) change in available oil inventory levels resulted in the price of crude oil dropping by more than $10 a barrel ...



    I won't disagree with your point about the need to increase US refining capacity. However I have to take issue with your claim that offshore oil production would require 10 years ... Schlumberger ( offshore drilling rig experts) say 4 years for most possible locations, maximum of 6 years for the deepest and most difficult locations. If there is a 10 year delay, more than half of that delay will come from environmental objections / lawsuits etc.

    I would also make the counterargument that oil is priced based on futures, thus a committed action that WILL result in additional future production will have an immediate impact on oil futures price levels !


    In the interest of 'equal time', I would provide some alternative reading on the subject ... at

    (snip)"There Is No Gas Shortage - But Washington, Wall Street, and ethanol and oil and gas companies want you to think there is, says automotive expert Ed Wallace

    by Ed Wallace"(snip)

    (snip)"So what is going on here? Why would our Energy Secretary say there's a supply and demand problem when none exists? Why would he say that speculators have little or nothing to do with the incredibly high price of oil and gasoline, when it's clear they do? President Bush—a former oilman—gives the ever-growing demand for gasoline as the primary reason prices are so high, yet that notion can be dispelled with one minute of research. That's the problem with rhetoric; it rarely matches the facts.

    3. Speculation is Up, and the Dollar Is Down

    On the same day the President and our Energy Secretary made those foolish comments, no less an authority than ExxonMobil (XOM) Chief Executive Officer Rex Tillerson was quoted by Marketwatch as saying, "The record run in oil prices is related more to speculation and a weakening dollar than supply and demand in the market." He added, "In terms of fundamentals, fear of supply reliability is overblown."

    As for the speculators, in 2000 approximately $9 billion was invested in oil futures, while today that number has gone up to $250 billion. Now, if any publicly traded company had an additional $241 billion put into its stock in the same period, its stock would rise out of sight too—even if the company was not worth anywhere near that amount of market capitalization.

    Moving on to the weak U.S. dollar as a primary cause for skyrocketing oil prices—there is "some" truth in that statement. But consider this: The dollar has depreciated 30% against the world's currencies since 2002, while the price of oil has gone up 500%. So is it the weak dollar that has caused a 500% increase in the price of oil, or is it the extra $241 billion worth of speculation? You can make the call on that one.

    Possibly just to ensure oil prices don't respond to real-world market conditions, Goldman Sachs (GS) forecast on Mar. 7 that turbulence in the oil market could cause oil to spike as high as $200 a barrel. This flies in the face of all known information—but then again, Goldman Sachs is the world's biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely watched barometer of energy and commodities prices.

    What Is Washington Thinking?

    Rounding out the list of experts discussing our oil and gasoline situation is Bill Klesse, head of San Antonio (Tex.) Valero Energy (VLO). He spoke in San Diego a week after those comments from Goldman Sachs, the President, and Secretary Bodman. Believe it or not, Klesse said poor margins may cause Valero to sell one-third of its refinery operations; he stated that poor margins in recent months had caused planned refinery expansions—which would have produced 500,000 more barrels per day—to be canceled. Moreover, according to a report from Reuters on Mar. 11, 2008, Klesse recently released the information that gasoline production has been curtailed in response to slowing demand.

    Imagine that: Refiners cut gasoline production, yet gasoline reserves have grown to their largest since late 1992. So much for "surging demand."

    Klesse also called for the government to start imposing a tariff on imported gasoline to protect U.S. refiners' profits. Protectionism? As famed economist John Kenneth Galbraith correctly said, "In America, the only respectable form of socialism is socialism for the rich."

    Which takes us back to the original question: Why is Washington doing everything it can to convince us there is a shortage when there isn't one? After all, the only people they're protecting are those heavily invested in oil futures—and that's to the detriment of all other Americans.

    We're Paying for What?

    When it became undeniable that poor decision-making by company executives had put a respected 85-year-old U.S. institution in financial peril, why did the Federal Reserve rush in to save investment bank Bear Stearns (BSC)? Of course, we need to restore confidence in our financial institutions, but why protect the personal assets of those who were responsible for the mess? Both the corporation's officers and its board members should contribute their personal assets toward saving the bank they put in the ditch—the bank all of us are going to pay to bail out.

    Instead, the Bush administration is protecting those responsible for creating yet another speculative bubble in oil futures, and is protecting investors in the ethanol industry—much to the detriment of food-processing companies such as Pilgrim's Pride. And the net result of all this is that the prices of crude and gasoline rise ever higher thanks to a "shortage" that does not exist, while food costs are soaring thanks in part to the ethanol mandate."(snip)

    ~
    Last edited by Melonie; 07-21-2008 at 06:58 PM.

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    It doesn't matter if we pull more oil out of the ground. We have no way to refine any more. We (globally) are at refining capacity. Also, refineries represent a net loss to corporations, so there will be no more refineries built without some humongous government subsidy to back it up.


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    Default Re: We're in a hole (oil)......so lets dig down more!....

    A $10 per barrel price drop will be negligible at the pump. That is because the global demand for oil is so high. That's why 800,000 barrels per day coming out of ANWR will only change the price at the pump by 3 cents. Oil is bought and sold out of a global bathtub. Even our own reserves don't belong to us. They belong to globalized private industries.

    Yes, the price of oil is based on futures. But, the stock prices of the oil companies is based on the size of their reserves. That is why they can make a fortune simply by getting permits to drill into supposed "massive reserves". If they do drill, and do find oil, the futures price, and subsequently the price per barrel of crude will go down. But, just like with what has happened with every other oil field in this country, production begins to drop after 18 months or so and then the cost per barrel it takes to get it out of the ground will go up and up.

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    Oh yeah, I left something out. It's not that oil is running out. The problem is that cheap oil is running out. The oil companies themselves have estimated that the Earth contains around 2 trillion barrels of oil. We basically used the first half of that up in just the last 50 years, and now the rate at which we used the first half up has increased substantially. That means, even if we could get at the 2nd half as easy as we did the first, we'd use it up a whole lot faster than we did before. Unfortunately, the 2nd trillion barrels is getting more and more expensive to get out of the ground, while at the same time demand is rising at a rate greater than we have ever seen.

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    That's why 800,000 barrels per day coming out of ANWR will only change the price at the pump by 3 cents. Oil is bought and sold out of a global bathtub. Even our own reserves don't belong to us. They belong to globalized private industries.
    Again I dispute the accuracy of these prognostications, based on the recent fact that 4 days worth of 800k BPD production i.e. 3 million barrels caused the crude oil price to drop 7% from $140's to $130's. 3 cents on the $3 per gallon wholesale price of refined gasoline (before taxes and retail markup) is only 1%.

    But you DO seem to be missing a major element of oil money flows, though. When crude oil is pumped out of Alaskan land, a portion of the money spent by consumers to purchase refined products made from that Alaskan crude results in royalties that go to the US and Alaskan gov'ts and in turn to Alaskan citizens and in turn back into the US economy. The same principle applies (or would apply) to oil pumped from US federal land, from coastal water off California / Florida / Louisiana / Carolinas etc. In other words, for every $4 gallon of gasoline that an American consumer purchases that originates from American crude, some $2 worth of that purchase would be paid to federal or state gov'ts in the form of royalties. That represents $2 that the federal or state gov'ts do not have to borrow or raise through increased taxes.

    When an equal amount of money is spent by consumers to purchase refined products made from Saudi crude, however, those $2 a gallon royalty payments 'leave' the USA permanently and go into Saudi Sovereign Wealth Fund coffers instead ... enriching the Saudi princes, increasing America's trade deficit, decreasing the 'purchasing power' of US dollars, increasing the future tax burden of future US taxpayers as the US gov't must pay interest to 'borrow' that money back from the Saudis (via the sale of US Treasuries etc.), and a whole host of other bad stuff ! THIS is the essential difference between importing oil from foreign sources and pumping oil from US territory !

    It should also be pointed out that there ARE certain American interests who presently profit handsomely from America's continued US reliance on foreign oil imports, and who would stand to lose billions if the present petrodollar recycling ( i.e. the US Treasuries trade, Saudi Sovereign Wealth reinvestment trade etc.) were to be replaced by direct oil royalty payment transfers to the US federal and state governments. It's no coincidence that these certain American interests are the same interests that are currently being 'bailed out' by US taxpayers ( see posts in Dollar Den - I won't repeat them here ) !


    We (globally) are at refining capacity. Also, refineries represent a net loss to corporations, so there will be no more refineries built without some humongous government subsidy to back it up.
    well the US government is providing huge grants and subsidies (production tax credits, 'stealth' ethanol tax kickbacks) for the construction and operation of ethanol refineries ! I wonder if they can be converted to gasoline refining once America comes to its senses about corn ethanol ?

    !
    Last edited by Melonie; 07-21-2008 at 08:33 PM.

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    Quote Originally Posted by SecondChance View Post
    A $10 per barrel price drop will be negligible at the pump.
    I don't know. I paid $3.86 a gallon yesterday. A month ago I paid over $4.15 a gallon.
    "never trust a big butt and a smile"-- Bell Biv DeVoe

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    Default Re: We're in a hole (oil)......so lets dig down more!....

    $3.65 today at several name brand stations and I saw $3.59 at an off brand station.

    I find myself scoping out the price boards all the time even if I don't need a fill up. A year ago, I just drove by without looking.

    FBR
    Once again I have embraced my addiction and have put off the moral dilemma to another day.

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