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Thread: Gas Prices...

  1. #1
    Senior Member Butrcup98's Avatar
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    Default Gas Prices...

    A friend just wrote a blog claiming that some Saudi sheiks have asked the US to raise gas prices so that the price per barrel will raise also. He believes that if we don't comply, then they will simply withhold our oil orders until gas becomes scarce and the price goes up.

    Has anyone else read/heard about this. I tried to Google it, but couldn't find anything.

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    Default Re: Gas Prices...

    No I have not, but I have heard that gas prices will go back up because we can and will pay for it.

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    Banned Melonie's Avatar
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    Default Re: Gas Prices...

    For starters, despite the impression that some elements of US mainstream media and some elements of the US congress may have tried to make, the fact is that the US has extremely little control over world oil prices. These prices, which is the price that oil producing countries receive when they sell oil for export, are actually set by 'free market' sales in commodity markets around the world. And the driving force behind the 'free market' price determination is an aggregate supply versus demand equation.

    It's obviously no secret that the economic downturn in general, and the downturn in energy intensive industries like auto / appliances / homebuilding / mining / shipping etc. have greatly reduced the worldwide demand for oil (fuel oil / diesel). Additionally, cutbacks in personal 'discretionary spending' for vacations and other travel has further reduced worldwide demand for oil (jet fuel/ gasoline). Thus for a few months now the world has been consuming less oil than the OPEC suppliers have been pumping. Arguably, the point is now being reached where oil storage tanks throughout the world are becoming filled to the brim, with resulting reduction in bids for additional OPEC oil and resulting price drop.

    The 'tin foil hat' crowd will tell you that many of the oil producing countries have gradually become dependent on the continuing flow of trade surplus US dollars that had resulted from the combination of high sales volumes at high prices over the past few years. Now that bids for OPEC foreign have declined greatly, in combination with a major decline in price, these countries are now seeing a 'double whammy'. If the truth be told, countries like Iran, Saudi, Russia, Venezuela etc. have all become used to redirecting part of their oil revenues toward placating an otherwise unhappy and potentially unstable portion of their populations (via what we would refer to in the west as gov't subsidies and social welfare benefits). With sales volumes down quite a bit, and with prices received down a lot, the source of funding for these programs has become drastically reduced.

    Keep in mind one other point. When US aggregate demand for oil falls by say 20%, domestic oil production levels remain unchanged. Thus US demand for imported oil falls by 30%. And if the US is able to maintain import levels from non-OPEC suppliers like Mexico and Canada, US demand for OPEC oil falls by 50%.

    Not wanting to go too far down this road in Dollar Den, but ...

    Where the Saudis in particular are concerned, their Sunni leadership has basically used oil revenues to placate a large number of Shiites both in Saudi Arabia as well as in surrounding countries. There is some fear that, should the gov't subsidies be reduced, unhappy Shiites could quickly turn Saudi into Iraq. Certainly the Saudis have billions of dollars in Sovereign Wealth Funds that has been accumulated from past oil trade surpluses, but selling off these assets to raise cash would result in a further tanking of US and other western banks and stock markets ... as well as putting at risk their previous investments ( for example the Saudis have bought up 14% of CitiBank ). But at least they have those assets. Russia, on the other hand, does NOT have similar assets. Thus there is major concern throughout the world that Russia faces solvency problems in light of reduced oil export revenues. This has recently tanked the exchange rate of the Russian Ruble as well as prompting foreign investors in Russia to start running for the exits.

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    Senior Member Butrcup98's Avatar
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    Default Re: Gas Prices...

    Thanks. That article states that Iraqi's want $80 p/barrel. But aren't we paying $50 right now? I kind of enjoy supply and demand. For many years we have been gouged by the price of gas. And while I know that the low prices won't last, it's nice to know that the unwilling sacrifice we have made has made a dent in the overall price. In LA, we are paying slightly less than $2 p/g. Because of all the driving I do for work, that cut our monthly bill from over $200 p/month to just over $100. Now we can finally start saving again.

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    Banned Melonie's Avatar
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    Default Re: Gas Prices...

    ^^^ don't count your chickens. Part of the reason that crude oil / gasoline prices in the USA are down right now is because the US dollar has strengthened relative to other currencies. This is a byproduct of bank distress ... specifically the requirement that European and Asian investors holding credit default CDO's (basically insurance) against US banks like Lehman Bro's have been forced to 'buy' US dollars with their Euros and Yen in order to pay off settlement claims. This situation, unfortunately, will probably not continue very long. Thus even though the 'demand' side of the equation is likely to remain 'weak', keep in mind that foreign oil prices are subject to the US dollar's exchange rate (purchasing power) declining versus the currencies of other global buyers i.e. the Euro, the Yen.

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    Banned Melonie's Avatar
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    Default Re: Gas Prices...

    here's some commentary from one of my favorite insane analysts the Mogambo Guru on the subject of oil prices ...



    (snip)"But I now find that I can save a lot of time by just showing them an article from the Financial Times newspaper, which plainly states that "Output from the world's oilfields is declining faster than previously thought."

    In fact, the Times said that the International Energy Agency's annual report, the World Energy Outlook, declares that "Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent." Yikes!

    Not surprisingly, the Times says, "The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand." Demand will be higher than supply!

    Interestingly enough, they figure that even with the forecasts of China, India and other developing countries ramping up oil-related investments totaling $360 billion every year until 2030, it will not be enough, and "even with investment, the annual rate of output decline is 6.4 per cent." Yikes again!

    And beyond this huge decline in supply, Byron King of WhiskeyandGunpowder.com notes that "According to the International Monetary Fund, Iran, Venezuela and Nigeria need oil prices above $95 per barrel just to cover their respective national budgets. Saudi Arabia requires oil prices above $75 to cover its budget. Well over half of the revenues of the Russian Federation come from taxes on hydrocarbons. Mexico gets over 40% of its federal revenues from taxes on Petroleos Mexicanos (Pemex), the national oil company."

    He concludes that "low oil prices are causing problems for the oil-exporting states of the world", which is probably why the Financial Times reports that "The Opec oil cartel yesterday cut its forecast for demand growth next year to 500,000 barrels a day, down from 800,000 b/d."

    And if that is not enough, since speculators in futures seem to be routinely slaughtered by the commercial traders, the FT also reported, "Data on hedge fund positioning from the Commodities Futures Trading Commission showed that speculators on Nymex had made their most aggressive bet on falling oil prices since November 2005."

    And, as the news just keeps getting worse, Iran just asked OPEC to cut production by a further 1.5 million barrels per day, which comes just after OPEC cut production by 1.5 million barrels last month! Yikes!

    So, reanimated with a renewed sense of urgency, I go back to the supermarket, jostle the Salvation Army bell-ringer aside, and loudly reiterate my Mogambo Message To The Masses (MMTTM) "Buy oil, you morons! Buy oil! Look at this Financial Times piece if you don't believe me, you jerks!""(snip)

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    Default Re: Gas Prices...

    Melonie, which vehicle correlates better with the price of oil aside from the futures' market, ETFs like USO or OIH? Or DIG?
    thank you.

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    Default Re: Gas Prices...

    an 'inverse' Russian Ruble ETF ... as soon as one becomes available !

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    Default Re: Gas Prices...

    The Saud's want 75 per barrel. Just raising our gas prices won't increase the price per barrel.

    Also Melonie, the Sau's are not controlled by Sunn's, but by an even more extreme group, the Wahhabis.

    Also, when the price increased, it showed that we were willing to buy less (rethink driving), prices will only go up so far that it doesn't impact that again.
    Quote Originally Posted by The Snark View Post
    But then I suppose the sort of people who write this kind of crap generally don't allow their opinions to be tainted by things like "facts" and "reality".
    Distortion becomes somehow pure in its wildness
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    Default Re: Gas Prices...

    Quote Originally Posted by Melonie View Post
    an 'inverse' Russian Ruble ETF ... as soon as one becomes available !
    you mean the oil prices will continue collapsing?

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    Banned Melonie's Avatar
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    Default Re: Gas Prices...

    in the short term ... probably ! Consumption will continue to drop as the worldwide recession weakens, and many of the oil economy countries don't have any other major source of revenue thus OPEC oil pumping volumes won't be reduced.

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    Default Re: Gas Prices...

    The funny thing about the drop in prices is that Iran and Venezuela needs oil at 90pb to meet their budgets. lololol
    Quote Originally Posted by The Snark View Post
    But then I suppose the sort of people who write this kind of crap generally don't allow their opinions to be tainted by things like "facts" and "reality".
    Distortion becomes somehow pure in its wildness
    The note that began all can also destroy

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    Default Re: Gas Prices...

    ^^^ actually, that's not funny because it's dangerous. It essentially means that an increasing number of unhappy Iranians and Venezuelans will not be receiving their former gov't subsidies, which will probably result in demonstrations (or worse) against existing Iranian and Venezuelan leaders. Threatened leaders have a tendency to make rash decisions if they help those leaders remain in power. For example, starting a new war with Israel would both consolidate Alimenijad's hold on power in Iran as well as almost instantly increasing worldwide oil prices.

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    Default Re: Gas Prices...

    SO should we increase the price to 90pb so they can meet their left-wing agenda?

    I think it is funny, because it shows how little grasp on reality they have.
    Quote Originally Posted by The Snark View Post
    But then I suppose the sort of people who write this kind of crap generally don't allow their opinions to be tainted by things like "facts" and "reality".
    Distortion becomes somehow pure in its wildness
    The note that began all can also destroy

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    Banned Melonie's Avatar
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    Default Re: Gas Prices...

    ^^^ well the Iranians have enough grasp to realize that lobbing a few missles at Israel would result in $75-$90 a barrel oil prices within a week ... and particularly so if they menace tanker traffic in the straits of Hormuz at the same time ! Not wanting to get political in Dollar Den, but the Obama speculators would point out that such an Iranian move would be far less likely to draw an immediate US military response after January 20th.

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    Default Re: Gas Prices...

    Quote Originally Posted by Melonie View Post
    ^^^ well the Iranians have enough grasp to realize that lobbing a few missles at Israel would result in $75-$90 a barrel oil prices within a week ... and particularly so if they menace tanker traffic in the straits of Hormuz at the same time ! Not wanting to get political in Dollar Den, but the Obama speculators would point out that such an Iranian move would be far less likely to draw an immediate US military response after January 20th.
    And the Iranians also realize that they are dependent on foreign oil refineries to supply the majority of their refined gas needs.
    Quote Originally Posted by The Snark View Post
    But then I suppose the sort of people who write this kind of crap generally don't allow their opinions to be tainted by things like "facts" and "reality".
    Distortion becomes somehow pure in its wildness
    The note that began all can also destroy

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