Fixing oil ? What's your approach?

[Kidlicious]

Originally posted by Arrian
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?

You would have to adjust it since you don't have control other prices. You should adjust the price so that it stays above cost but just at a reasonable amount.

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).

Then the consumer cartel could work with OPEC to set the price.

[Sandman]

For the UK:

1) Nationalise public transport. There is no point having heavily regulated, heavily subsidised private companies running the trains and buses. Build two thousand new miles of rail track.

2) Heftier environmental measures on new housing; insulation, heat pumps, double glazing, the works. Same for existing housing stock. Start with government owned stuff to set an example.

3) Go for a four-way split between clean coal, renewables, micro-generation and nuclear.

4) Strongly encourage more efficient cars.

[Japher]

Rats! Thwarted again!

Anyway, clearly bass-ackwards, Japher.

I don't think so. The threat of a decrease in consumption cause gas prices to increase.

[Flubber]

Originally posted by Kidicious


I don't know if individual nations could accomplish it. It might be kind of risky.

IMHO one nation . . . its impossible. The US not buying world price oil would probably drop the world price a bit as ALL the supply went toward other consumers. But the US imports far too much oil and the reserve is far too small for this to be a long term strategy

Originally posted by Kidicious


It would have to negotiate with a dependable supplier to get the oil.

I would bet that there are any number of suppliers that would jump at a long term fixed price contract for oil from a dependable consumer. Now given the current spot price, your 20 year price might be 50 bucks or 60 bucks or whatever ( with an inflation adjustment each year of course). Why would they jump at that? because it eliminates the price risk in their business and allows long-term investment

[Arrian]

Japher,

Less consumption = lower demand = lower prices (all other things being equal).

Now, because of things like OPEC, it might not be quite that simple. OPEC has a habit of decreasing production when prices fall, so they maximize their profits.

-Arrian

[Drogue]

Sandman Though I'd add government grants for research into renewable fuels, reducing, tradable pollution permits and higher fuel tax.

[Japher]

Less consumption = lower demand = lower prices.

Now, because of things like OPEC, it might not be quite that simple. OPEC has a habit of decreasing production when prices fall, so they maximize their profits.

I don't think it quite works that way with Oil.

When OPEC wants to raise the price of crude oil, it simply reduces production. This causes gasoline prices to jump because of the short supply, but also because of the possibility of future reductions. When oil production dips, gas companies get nervous. The mere threat of oil reductions can raise gas prices.

from http://auto.howstuffworks.com/gas-price4.htm

from what I read if consumption goes down, production goes down, so gas companies charge more

[Kidlicious]

Originally posted by Flubber


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?

I see that the US and Japan are by far the largest net oil importers. The US imports 12.1 mbd and Japan imports 5.3 mbd. China is third and growing with 2.9 mbd. The EU probably imports as much as Japan though (it just lists the individual nations). If you formed a cartel with the US, Japan and the EU it would probably hold at least for awhile. Alternatively you could form one with the other combinations as long as the US was part of it since they import so much.

[Flubber]

Originally posted by Kidicious

You would have to adjust it since you don't have control other prices. You should adjust the price so that it stays above cost but just at a reasonable amount.

.

But which cost? Today a conventional well might have say 3-5 dollars a barrell production costs while an oilsands project might have costs of 25$ of barrell to produce and extract to sweet crude, AND an offshore project might have production costs of $8 a barrell but there was 500 million in exploration costs in the 20 years before production started. So its not easy to say what it "costs" to produce a barrell of oil.

[Kidlicious]

Originally posted by Flubber
I would bet that there are any number of suppliers that would jump at a long term fixed price contract for oil from a dependable consumer. Now given the current spot price, your 20 year price might be 50 bucks or 60 bucks or whatever ( with an inflation adjustment each year of course). Why would they jump at that? because it eliminates the price risk in their business and allows long-term investment

Big consumers and big businesses have a lot of power to negotiate prices even without signing long term contracts. Look at Wal Mart and how they get low prices from their suppliers. There are a lot of oil producers that would be very eager to supply a large cartel. The cartel would have plenty of negotiating power.

[Arrian]

Originally posted by Japher

I don't think it quite works that way with Oil.

from http://auto.howstuffworks.com/gas-price4.htm

from what I read if consumption goes down, production goes down, so gas companies charge more

Dude, I accounted for that, as so:

Now, because of things like OPEC, it might not be quite that simple. OPEC has a habit of decreasing production when prices fall

However, OPEC is not all-powerful. There are other major producers (Russia, Venezuela, Canada, etc). The cartel artificially limits supply, but it's not a total cartel. So it's complicated. However, as mentioned above, the USA is only part of global demand. Getting better gas mileage will have a small impact on our consumption, and a truely neglible impact on world consuption. Ergo I don't think it's gonna have much effect on OPEC's production levels. The real gold is in getting off of oil entirely.

-Arrian

[Sandman]

Originally posted by Drogue
Sandman Though I'd add government grants for research into renewable fuels, reducing, tradable pollution permits and higher fuel tax.

You can only raise the fuel tax so high, IMO. Too high and it'll just become a shambles.

[Japher]

There are other major producers (Russia, Venezuela, Canada, etc).

Venezuela is in OPEC

Ergo I don't think it's gonna have much effect on OPEC's production levels. The real gold is in getting off of oil entirely.

I agree, but I didn't think that was the kind of awnser the OP was looking for.

[Kidlicious]

Originally posted by Flubber


But which cost? Today a conventional well might have say 3-5 dollars a barrell production costs while an oilsands project might have costs of 25$ of barrell to produce and extract to sweet crude, AND an offshore project might have production costs of $8 a barrell but there was 500 million in exploration costs in the 20 years before production started. So its not easy to say what it "costs" to produce a barrell of oil.

The price would have to be set in consideration of the highest current cost of production, not the lower. And exploration costs would have to be considered.

[Arrian]

Originally posted by Japher
Venezuela is in OPEC

Oops, my bad. For some reason I thought they were an independant.

-Arrian