Record Profits For Exxon 10.7 B

[Dauphin]

Originally posted by Spiffor



The oil prices have risen by about 50% between 2004 and 2006 (source). Do you think it is because the production costs have risen by the same amount at the same time? If so, how would you explain the record profits?

Its to do with marginal costs. The marginal costs are higher for the latter units required to fill increased consumption. If you set prices too low (but still higher than before) then you will not make the latter units to fill demand, but at the same time the earlier units make a larger profit due to the price being higher than before.

[Imran Siddiqui]

Originally posted by Spiffor


The oil prices have risen by about 50% between 2004 and 2006 (source). Do you think it is because the production costs have risen by the same amount at the same time? If so, how would you explain the record profits?

We are clearly witnessing a situation where increased demand didn't result in an immediate increase of supply (what with oil infrastructure being long and costly to build, as seen with Exxon in Alberta), and the demanders are competing for a rare resource, with price being the discriminating factor between the have-oils and the have-not-oils.

If the demanders agreed on a lower price (say, the 2004 prices), it might stifle the industry's willingness to invest in oil fields that would be costly to exploit. But it would not lessen their willingness to produce oil with the fields that were already existing and profitable in 2004.

Oh, and the shortage is already there, but only the poor suffer from it.

When demand rises that fast (and will rise by even more in the near and far future - see China and India), demanding a ceiling will massively increase a shortage, which will not be fun for anyone.

Also, I believe that Iraq's production back to Oil for Food production levels took a long while. That created big time supply problems after the invasion.

[Kidlicious]

Originally posted by Dauphin
If the supply curve is vertical price is set by demand. If you artificially lower prices how do you plan to ration the supply?

I don't think you would have to ration, but you might have some lines at the pump. The demand for oil is pretty inelastic.

[Kidlicious]

Originally posted by Imran Siddiqui


Yeah, um... I've seen how people react to price increases and how they replied to small shortages. There were no lines at gas stations, with consumers holding drums to fill with gas, for price increases.

Well, no ****. You can't compare the two. Let the price start increasing a lot and you will see people start hoarding. Conversely, if you have small shortages people won't hoard anymore than when there are small increases in price.

[Imran Siddiqui]

Originally posted by Kidicious
Well, no ****. You can't compare the two. Let the price start increasing a lot and you will see people start hoarding. Conversely, if you have small shortages people won't hoard anymore than when there are small increases in price.

What in the Hell did you think the oil shortage after Katrina was?! Did you consider that a massive shortage?

[Spiffor]

Originally posted by Dauphin
Its to do with marginal costs. The marginal costs are higher for the latter units required to fill increased consumption. If you set prices too low (but still higher than before) then you will not make the latter units to fill demand, but at the same time the earlier units make a larger profit due to the price being higher than before.

Yes, but in any case, the supply of oil will increase only if the high prices remain high (if not, the oil industry won't drill expansive oil fields). As a result, the prices of oil shouldn't drop nearly as strongly as they have risen. And if the high prices remain high, many people in the world will be unable to afford oil. As far as these people are concerned, they are suffering from a shortage.

[Kidlicious]

Originally posted by Imran Siddiqui
When demand rises that fast (and will rise by even more in the near and far future - see China and India), demanding a ceiling will massively increase a shortage, which will not be fun for anyone.

You're talking about long run planning now. A high enough price ceiling won't hinder industry development. As Flubber said, there are plenty of projects available to produce more oil at these high prices. Prohibiting short term prices from reaching astronomical proportions won't affect their decisions.

[Imran Siddiqui]

Originally posted by Spiffor

Yes, but in any case, the supply of oil will increase only if the high prices remain high (if not, the oil industry won't drill expansive oil fields). As a result, the prices of oil shouldn't drop nearly as strongly as they have risen. And if the high prices remain high, many people in the world will be unable to afford oil. As far as these people are concerned, they are suffering from a shortage.

I wonder how they'll handle that actual shortage as China and India increase their demand month after month and no new capacity is added.

[Kidlicious]

Originally posted by Imran Siddiqui




What in the Hell did you think the oil shortage after Katrina was?! Did you consider that a massive shortage?

Yes. Read this slow. A big price increase is comparable to a big shortage, and a little price increase is comparable to a little shortage. The effect on the consumer is the same. That is, they hoard the same way.

[Imran Siddiqui]

Originally posted by Kidicious
You're talking about long run planning now. A high enough price ceiling won't hinder industry development. As Flubber said, there are plenty of projects available to produce more oil at these high prices. Prohibiting short term prices from reaching astronomical proportions won't affect their decisions.

No, you moron, I'm talking about short term, RIGHT NOW stuff. Why do you think the demand has been rising so much over the last decade or so? Chinese and Indian demand is not going down anytime in the next year or decade. What do you suggest the world does until the new technology comes online? Go into a Depression?

[Imran Siddiqui]

Originally posted by Kidicious
Yes. Read this slow. A big price increase is comparable to a big shortage, and a little price increase is comparable to a little shortage. The effect on the consumer is the same. That is, they hoard the same way.

The shortage after Katrina was a very minor shortage! It was just the rumors and fear that turned it into such a run on gas.

[Kidlicious]

Originally posted by Imran Siddiqui
No, you moron, I'm talking about short term, RIGHT NOW stuff. Why do you think the demand has been rising so much over the last decade or so? Chinese and Indian demand is not going down anytime in the next year or decade. What do you suggest the world does until the new technology comes online? Go into a Depression?

If demand is increasing that fast (and it isn't) the price would go so high that the economy would be adversly effected the same as if the price was fixed. In fact, it would probably be worse, because the general price level would start fluctuating wildly.

[Imran Siddiqui]

http://www.iags.org/futureofoil.html

The two countries with the highest rate of growth in oil use are China and India, whose combined populations account for a third of humanity. In the next two decades, China's oil consumption is expected to grow at a rate of 7.5% per year and India�s 5.5%. (Compare to a 1% growth for the industrialized countries). It will be strategically imperative for these countries to secure their access to oil.

You are saying?

[Kidlicious]

Originally posted by Imran Siddiqui




The shortage after Katrina was a very minor shortage! It was just the rumors and fear that turned it into such a run on gas.

Good. Then we wouldn't have to worry about that happening with a fixed price.

[Kidlicious]

Originally posted by Imran Siddiqui

http://www.iags.org/futureofoil.html

The two countries with the highest rate of growth in oil use are China and India, whose combined populations account for a third of humanity. In the next two decades, China's oil consumption is expected to grow at a rate of 7.5% per year and India�s 5.5%. (Compare to a 1% growth for the industrialized countries). It will be strategically imperative for these countries to secure their access to oil.

You are saying?

Don't you realize that oil producers have already taken into account this growth?