Record Profits For Exxon 10.7 B

[Imran Siddiqui]

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

Of course, because there won't a shortage there, even though you admited there would be one .

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

How do you account for rising prices then? If there is more than enough supply to match demand, the price shouldn't be rising so quickly right? If your argument is that there isn't enough supply (as I believe you were saying before with the kinked supply curve), then the producers haven't taken that fully into account.

Obviously demand has been going through the roof and there is enough supply to match it at the moment, but in a decade or two, we may need more technology to extract oil in order to meet the demand. The required tech will be sped up or taken more seriously if it is more economically feasible.

[Kidlicious]

Originally posted by Imran Siddiqui
Of course, because there won't a shortage there, even though you admited there would be one .

No. You said there would be. I said it would be insignificant. If you can't see the difference in the way people act when a major city is destroyed in a natural disaster and when the price for oil is capped at a reasonable amount I don't know what to tell you.

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

How do you account for rising prices then? If there is enough supply to match demand, the price shouldn't be rising right? If your argument is that there isn't enough supply (as I believe you were saying before with the kinked supply curve), then the producers haven't taken that fully into account.

I think the rise in price is permanent. I think it's due to the fact that the production of cheap oil has reached it's limit. Now expensively produced oil is coming in and we have a permanently higher price. A fixed price won't work, but theoretically it could if this were a different situation.

[Imran Siddiqui]

Originally posted by Kidicious
No. You said there would be. I said it would be insignificant. If you can't see the difference in the way people act when a major city is destroyed in a natural disaster and when the price for oil is capped at a reasonable amount I don't know what to tell you.

Please. The city was flooded and then a few days later people were talking about the pipes. As soon as the story broke, lines were forming at the gas stations in Atlanta. By the time 5 o'clock hit, some gas stations were at $6 a gallon!

Then a few months later there were more rumors of shortages. Once again, lines, lines, lines. And a minor potential shortage turned into a runaway situation.

Any rumor of shortages turns people nuts.

I think the rise in price is permanent. I think it's due to the fact that the production of cheap oil has reached it's limit. Now expensively produced oil is coming in and we have a permantly higher price. A fixed price won't work, but theoretically it could if this were a different situation.

So now a fixed price won't work?! Then why ask for one?

[Kidlicious]

Originally posted by Imran Siddiqui
Any rumor of shortages turns people nuts.

True, but in that case people were expecting much larger shortages than there actually were. I don't believe that expectations would be the same if the price were fixed at a reasonable amount.

So now a fixed price won't work?! Then why ask for one?

I didn't think it through before I suggested it. There are particulars about the oil industry that I didn't consider.

[Dauphin]

Originally posted by Spiffor
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 think we have different meanings of the word shortage. The fact that oil would still be available to all who are willing and able to pay the (new) equilibrium market price means to me that its not a shortage, but for sure its the poor who suffer when things are now more expensive as they are shut out from buying the oil they need and so are 'short'.

[Imran Siddiqui]

Originally posted by Kidicious
True, but in that case people were expecting much larger shortages than there actually were. I don't believe that expectations would be the same if the price were fixed at a reasonable amount.

I think people would be aware that the shortages would end up being very large if the cap continues into the future. It would result in some panic in the short term.

And in both cases, people were told over and over that there were small shortages. People think the government lies to them. Why would they believe them now?

[Kidlicious]

Originally posted by Imran Siddiqui
I think people would be aware that the shortages would end up being very large if the cap continues into the future. It would result in some panic in the short term.

Sometimes people panic less when the govt shows that they are actually doing something about the problem. Look at what happened in 1979 when Carter told everyone to save their money because the govt wasn't going to do anyting about inflation.

[Spiffor]

Originally posted by Imran Siddiqui
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.

That would require a way to allocate rare resources that isn't the market. Considering that international cooperation is extremely far from being mature enough to do such a resource-allocation scheme, the following is purely theoretical.

- Per-country quotas: each country gets to have X amount of oil (depending on a variety of factors), and has to make do with it.
- Per-individual quota.
- Need-based allocation (that's what France does to allocate its social services when the supply is insufficient, such as day care or cheap housing)
- Lottery (that's what the US does with a very rare ware it supplies: green cards. The US doesn't sell its green cards to the highest bidder = a resource-allocation scheme that is outside the market)

In the case of oil, I'm not saying these solutions are inherently better or worse than a market-based allocation of resources. I haven't made a judgement on them as I'm typing. However, I wanted to show that the market is not the only possible way to allocate rare resources, and it is also not the only possible way to face a shortage.

[Spiffor]

Originally posted by Dauphin
I think we have different meanings of the word shortage. The fact that oil would still be available to all who are willing and able to pay the (new) equilibrium market price means to me that its not a shortage, but for sure its the poor who suffer when things are now more expensive as they are shut out from buying the oil they need and so are 'short'.

Indeed. My definition of "shortage" is partially motivated by my distrust of the concept of "demand".

The economic concept of "demand" encompasses those who both want and can afford a product. Those who want the product, but can't afford it, are entirely forgotten (except in that they're seen as potential demand should the price drop).
This is all nice and good as long as we're talking about superfluous goods, but I think this concept is really wicked when talking about necessities such as food, housing or health-care. Despite the fact that we all need these items, a strict interpretation of "demand" would lead to think that the poor don't demand such services. And that, as a result, all demand is satisfied by the market.

Now, wrt oil, I'm not as clear-cut as with healthcare (which I believe should be strictly out of the market mechanisms). Oil isn't so much of a vital resource as food or health. However, if the demand is to be lowered by rising prices, those who will stop buying oil will be the poorest countries, and it could very well hurt the development of their economies (most oil-based machinery is fairly cheap in comparison with more modern machinery that use other sources of energy).

[Flubber]

Originally posted by Spiffor

Considering that international cooperation is extremely far from being mature enough to do such a resource-allocation scheme .

Now there's an understatement

Originally posted by Spiffor



- Per-country quotas: each country gets to have X amount of oil (depending on a variety of factors), and has to make do with it.
-.

Just curious but would "having a lot of oil" be a factor-- Canada for instance has a lot and as it stands we do very well from that industry. I cannot fathom any regime where we would agree to have a shortage or quota here without being handsomely rewarded.

Ditto for Russia, and most of the Mid-east countries. many of the places that produce lots of oil are not even particularly fond of the places that would NEED that oil.

This strikes me as an option that requires a new world order.

[Spiffor]

Originally posted by Flubber
This strikes me as an option that requires a new world order.

Hence the "purely theoretical"

Edit: and I didn't know that words such as "extremely" and "purely" made for understatements

[KrazyHorse]

Originally posted by Spiffor

That would require a way to allocate rare resources that isn't the market. Considering that international cooperation is extremely far from being mature enough to do such a resource-allocation scheme, the following is purely theoretical.

- Per-country quotas: each country gets to have X amount of oil (depending on a variety of factors), and has to make do with it.
- Per-individual quota.
- Need-based allocation (that's what France does to allocate its social services when the supply is insufficient, such as day care or cheap housing)
- Lottery (that's what the US does with a very rare ware it supplies: green cards. The US doesn't sell its green cards to the highest bidder = a resource-allocation scheme that is outside the market)

In the case of oil, I'm not saying these solutions are inherently better or worse than a market-based allocation of resources. I haven't made a judgement on them as I'm typing. However, I wanted to show that the market is not the only possible way to allocate rare resources, and it is also not the only possible way to face a shortage.

The problem is that a black market would very quickly develop in oil.

Say I use less than my per-capita allowance. I would, of course, try to sell my additional gas for as much as it would bring. And since the supply of oil to my country is artificially limited, the price on this black market would be even higher than the current free market price.

[KrazyHorse]

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?

On the marginal oil supply, yes.

If so, how would you explain the record profits?

Because only the last barrel of oil costs that much. All the supply available previously is still there, and is now producing even higher margins.

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.

There is some lag time, yes. And no, the marginal supply does not make up a huge percentage of the market currently. But it is there. And a "minor" shortage of oil would lead to some seriously catastrophic effects.

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.

No. But demand is already ~3% higher now than in 2004. And that's with the significantly higher prices already factored in. 2004 levels aren't enough. Nor are the 2004 supplies quite still there. They're not sticking around forever. Oil is getting costlier to extract as time goes on. So demand is increasing (in spite of massive price runups) and supply is slowly being erased. What's the consequence? I leave it to you to see. Current prices are slightly high, and will shift downward as additional supply comes online. But 50$ oil is a cold new reality people are just going to have to face. We were protected from oil prices slightly due to economic downturns in Asia and then in Europe and North America. Recovery means increased demand, and in a market as inelastic as the oil market that means a shock to the markets. Which is what we've seen. Going back to 2004 levels is not an option. And I can guarantee that a demand cartel is going to be a lot harder to hold together than a supply cartel. A week of shortage would be enough to shrink the balls of any politician in a democratic country that tried this. There would be ****ing riots in the streets.

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

You have your terms wrong. There is no shortage of oil. The supply meets the demand at the current price. Just like there is no shortage of health care in the US in the economic sense. Anybody who can pay the price gets the service. There is a shortage in the individual sense, that people don't get the health care they need or deserve as fellow human beings. But trying to confuse the two is nothing but wordplay.

[Spiffor]

Originally posted by KrazyHorse
There is a shortage in the individual sense, that people don't get the health care they need or deserve as fellow human beings. But trying to confuse the two is nothing but wordplay.

I'm not trying to confuse the two. I only consider the latter meaning to have any sense. The purely economic meaning of "shortage" is absurd IMO, as it doesn't consider a "shortage" the fact that some people don't get the resources they need (because they can't afford them).

Hence, I did no wordplay. I was positioning myself out of the free-market paradigma, precisely because I think market mechanisms are a failure here.

[Spiffor]

Originally posted by KrazyHorse
The problem is that a black market would very quickly develop in oil.

Black market is much less convenient for everybody involved than white market. A black market can lead to high profits for some individuals, but most of the resource-allocation will still be out of the market mechanisms. Especially if the shortage isn't catastrophic.