Fixing oil ? What's your approach?

[KrazyHorse]

It's more price gouging than profiteering maybe.

Anyway, I say set a price ceiling. I don't think there would be shortages because the price of oil is so high. As long as the ceiling wasn't too high it would be ok.

What the **** are you on? Price gouging is generally accepted to mean a short-term, localised runup in prices due to an unusual situation (such as a natural disaster). How does that relate to current oil prices, which have remained high for many many months and which are worldwide?

And if demand met supply at a lower price then why is the price so high?

[Arrian]

If you set a ceiling, you limit supply. There are lots of places we can extract oil from, but do not, because it would cost more to extract than you can make back by selling it. If you cap the price, you limit supply and (in the absence of stopping the increase in demand - fat chance with China and all!) in turn you get shortages.

-Arrian

[KrazyHorse]

Translation: Kidicious doesn't like paying 2.50 a gallon for gas, so something must be wrong with the world's economy.

[Kidlicious]

Originally posted by Arrian
If you set a ceiling, you limit supply. There are lots of places we can extract oil from, but do not, because it would cost more to extract than you can make back by selling it. If you cap the price, you limit supply and (in the absence of stopping the increase in demand - fat chance with China and all!) in turn you get shortages.

-Arrian

Not necessarily. Producers will produce as long as they make profit. If there are shortages right now it means that producers would be producing more if they could, but they can't (unless of course the market isn't free). If the consumers set a price ceiling the price can be made lower and the supply won't change because the producers will still be making marginal profit on the last barrel sold.

[KrazyHorse]

Translation: in Kid's world there are no barrels of oil being extracted at a cost greater than X dollars (where X is a magic price he's determined to be fair). In addition, demand will magically remain constant if the price drops from the current level to X.

[Arrian]

Producers will produce as long as they make profit.

That is exactly my point. You will not be able to increase supply b/c with a price ceiling you will make lots of potential future development economically unfeasible (no profit).

Meanwhile, demand continues to rise. Global demand: this is not something the United States can really counteract. Even if we cut our consumption (hah!) dramatically, it doesn't impact China.

And we already have talks with OPEC (and non-OPEC countries) about their production to prevent them from increasing the price to the point where it creates an economic shock (which they don't really want either).

-Arrian

[Arrian]

Besides, as Drogue says, I'm thinking the higher prices are a good thing, long-term. They highlight our dependency and create additional incentive to look into alternative energy sources. The collateral benifit is (maybe) a cleaner environment.

-Arrian

[Flubber]

Originally posted by Kidicious
.

Anyway, I say set a price ceiling. I don't think there would be shortages because the price of oil is so high. As long as the ceiling wasn't too high it would be ok.

Who sets this price ceiling?
What organization and by what mechanism?

I'm just thinking if the US alone for instance had a regulated oil price, you would see much production going elsewhere as long as the "world" price was higher.

Are you contemplating a consumers cartel of some sort??

[Kidlicious]

Originally posted by Arrian
That is exactly my point. You will not be able to increase supply b/c with a price ceiling you will make lots of potential future development economically unfeasible (no profit).

Meanwhile, demand continues to rise. Global demand: this is not something the United States can really counteract. Even if we cut our consumption (hah!) dramatically, it doesn't impact China.

Free prices can sometimes send the wrong single while fixed prices send better signals. With fixed prices producers know what to expect. Make it known that the price will be fixed to encourage future development but prohibit windfall profits and producers will actually have more dependable information to make their development decisions.

And we already have talks with OPEC (and non-OPEC countries) about their production to prevent them from increasing the price to the point where it creates an economic shock (which they don't really want either).

OPEC doesn't want an economic shock, but OPEC doesn't have as much power as they once did. They can't control prices. The price we have now is a free price.

[Flubber]

Originally posted by Arrian


I know YOU weren't. You work for the oil industry, don't you?

You brought it up in the OP, so I thought I'd throw out a comment on it.

-Arrian

OK -- I didn't recall if you were in the other thread. Because I work around the industry I find the topic very interesting. I just hear some people complain vigourously about the issue so I thought heariong solutions might be nice.

As I said before, complaining is easy.

[Arrian]

Are you contemplating a consumers cartel of some sort??

Yeah, I think he advocated that in the other thread.

If the US went it alone, the oil would just be sold elsewhere.

If you had a consumers cartel, then you still run into the supply shortage problem at some point. Maybe not right away - you could cut into profits a bit before you reached a breaking point. Of course, an attempt to create a consumers cartel would be laughable. Getting the US, Europe, China, India, et al to all take a united front?

Cumbaya, my lord, cumbaya...

-Arrian

[Flubber]

Oh as an aside, a large user of petroleum can contractually fix their price for a period of time. Producers are only too willing to agree to sell oil for years and years at a fixed price and share the price risk. My understanding is that very few do ( I don't work that end of the business)

[Arrian]

Free prices can sometimes send the wrong single while fixed prices send better signals. With fixed prices producers know what to expect. Make it known that the price will be fixed to encourage future development but prohibit windfall profits and producers will actually have more dependable information to make their development decisions.

So are you saying this price cap will be adjustable? I mean, I assume it would have to be adjustable to keep up with inflation, but I mean more than that. Supply will shrink as we use up the oil. In order to get more, we will need to extract it using more and more expensive methods. Thus, as time goes on, the price must go up, no?

...

OPEC doesn't control things, no. There are other major producers who are not in OPEC. Two things, though: 1) OPEC still matters, even if they're not the whole show; and 2) if you form a consumers cartel, you better believe that the non-OPEC countries will join OPEC (or form a new group).

-Arrian

[Kidlicious]

Originally posted by Flubber


Who sets this price ceiling?
What organization and by what mechanism?

I'm just thinking if the US alone for instance had a regulated oil price, you would see much production going elsewhere as long as the "world" price was higher.

Are you contemplating a consumers cartel of some sort??

I don't know if individual nations could accomplish it. It might be kind of risky. The US does have the reserve though. It would have to negotiate with a dependable supplier to get the oil. All this is hypothetical of course, because there is no will for this to happen.

[Flubber]

Originally posted by Arrian

. Of course, an attempt to create a consumers cartel would be laughable. Getting the US, Europe, China, India, et al to all take a united front?

Cumbaya, my lord, cumbaya...

-Arrian

That was generally my thinking. If supply was then very constrained,one of the countries would start to feel the pinch fist (which one is irrelevant) and then start to suffer real economic harm. IMHO someone would break, because they would see themselves suffering disproportionately and would pay the going rate. Supplies would flood to them and cause greater shortages in the other areas-- soon it would end


Plus there is the issue of how you enforce such a "cartel". Does the US tell its many companies that they are not ALLOWED to pay more than X for oil?