Down with the evil Gas lords III: Kaak's Redemption

[Adam Smith]

Offshore oil rig locations overlayed with Katrina (R) and Rita (L) hurricane tracks and wind speeds.

[MRT144]

1000 odd posts and we are still discussing economics 101?

[Flubber]

Originally posted by Adam Smith
Offshore oil rig locations overlayed with Katrina (R) and Rita (L) hurricane tracks and wind speeds.

Thanks Adam-- I pretty much knew that was how it would look but I was too busy to look

[KrazyHorse]

Wow. There's a load of those things.

[Kaak]

KH: Did you not see the graphs from the other thread? Supply and Demand have increased syncronously. Doesn't really explain the jump in prices.

[Kidlicious]

Originally posted by Whoha
how much of the increase in the cost of oil is coming from the increase in the money supply and inflation?

Well ther dollar has been strong lately and there's only modest inflation so not much.

[Kidlicious]

Originally posted by Flubber



Hmm generally it does?? So in the last 15 years, when I submit that profit levels were NOT adequate, are you saying that there were not periods of increased demand at the retail level?

I, too, see some correlation but I think you are drawing a more certain link between retail demand/consumption and refiner profit than I would

What would the profit levels be if there were less demand? Please just say lower.

[Flubber]

Originally posted by Kidicious


Well ther dollar has been strong lately and there's only modest inflation so not much.

US dollar strong ?? Canadian looney is hitting 15 year highs-- Its mostly do to the strong Canadian economy as IIRC we are appreciating against a broad range of currencies. BUt you do buy a lot of oil from Canada so a certain percentage of oil price increase would be need to provide the same revenue to a Canadian producer (in the Canadian dollars in which the bulk of the costs are incurred)

Loonie cracks 89 cents
Move driven by rising rates, hot commodities

Published: Friday, April 28, 2006
Rising commodity prices and the prospect of higher interest rates helped drive the Canadian dollar to a close above the 89 cent US level for the first time since November 1991.

The dollar closed up 0.43 to 89.04 cents US, its fifth positive session with the currency up 3.5 per cent year to date.

In addition to the prospect of higher rates, "a large part of it is because of commodities," said Bank of Montreal chief economist Rick Egelton, adding currency markets have plenty of good reasons to like Canada and the loonie.

"We have an economy operating at capacity, pretty good economic growth, we're the only country in the G8 with a budgetary surplus, we have very large current account surpluses."

The currency gained fresh momentum this week when the Bank of Canada raised its key rate a quarter point to four per cent and signalled further hikes could be in the pipeline.

That view was reinforced by the Bank of Canada Thursday.

Its new monetary policy report said higher demand for commodities, along with strong domestic demand, is fuelling robust growth that may require higher interest rates to cool down the economy.

In contrast, U.S. Federal Reserve chairman Ben Bernanke indicated Thursday that the central bank may be ready to take a pause in raising interest rates.

"And that caused the U.S. dollar to weaken off against a range of currencies, including the Canadian dollar," said Egelton.

But along with the prospect of higher rates, the dollar has benefited greatly from huge global demand for oil, nickel and zinc.

"So here is some offset to the negative impact of the higher Canadian dollar because we are generating income from those commodity sales," said Egelton.

"We're a country that, on balance, sells commodities to the world, and so when the price of something you're selling to the world goes up . . . people need to demand more of your currency to purchase more of what you're selling.

"And that causes the value of your currency to rise."

Along with the recent rise in the Canadian currency are fresh questions of just how far up the dollar can go.

Egelton said much depends on commodity prices, many of which have hit record levels while gold has hit 25-year highs.

But prices eased Thursday as investors took in a surprise announcement from China's central bank it was raising its key rate by just over one-quarter point, raising concerns about demand from that country.

"It really depends on where we see commodity prices moving and, if commodity prices remain high, we can easily see the Canadian dollar break 90 cents (US) over the course of this year," said Egelton.

And it could stay at those lofty levels.

"If commodity prices remain high, and don't come off, then I think we're going to have to live with a currency that could well move beyond 90 cents."

© The

Oh and everyone hammers at oil but pretty much ALL commodities are up ( and yes I am aware that they partially fuel each others increases)

[Kidlicious]

Originally posted by Velociryx
Total profit is in a given year (and a running total of profit so far) is useful to a point, but not really very telling.

Excuse me, but total profit is the ultimate goal. Things like return on investment, cash flows, balance sheet comparisons only help you predict what total profit will be and understand why it is what it is. Anyone who thinks return on investment is the ultimate goal is just plain silly.

[Flubber]

Originally posted by Kidicious


What would the profit levels be if there were less demand? Please just say lower.

Sorry -- cannot comply

Are you assuming

1. that the capacity or supply would remain the same ?

or

2. that the refiners (who you seem to think exercise monoplistic powers) wouldn't just act in concert to close some less efficient refineries and be even more profitable. It could be that by closing the highest cost refinery, the remaining refineries could be MORE profitable

Kid -- you have studied economics so I know you know there are very few absolutes. Yes -- if you sell more products or services at a given profit margin , you will make more money. The problem is that costs and price can vary a lot depending on how much you want to produce so the profit margin is rarely static. There are OFTEN situations where producing LESS is the most profitable option

[Kidlicious]

Did you notice that I said profit levels, not profit rates?

[Flubber]

Originally posted by Kidicious


Excuse me, but total profit is the ultimate goal. Things like return on investment, cash flows, balance sheet comparisons only help you predict what total profit will be and understand why it is what it is. Anyone who thinks return on investment is the ultimate goal is just plain silly.

You do know that a return on investment is a profit right ??


Kid you are just being silly here-- believe me or not but in the room where the decisions are made, the key numbers are the ROR numbers. Every project has to provide the projected returns at various levels of confidence. It might look something like (made up numbers)

Probability--------Return
1% -------------- 53.7%
10%------------- 29.2%
90%------------ 8.8%
99%------------ -8.2%

p-mean 22.8%

In this example there is a 1% chance of achieving an overall project return thats in the bonanza range and also a 1% chance of a loss of 8.2% or more.

Projects can be rejected immediately with a bad p-mean. Also that 99% number is key since they want to know the chance of a disaster.

Numbers like "total profit" in dollars are pretty much meaningless.

Kid I don't know where you get your ideas

Oh I just talked to my new boss -- He informed me " we have a mandate to sell every project with an ROR less than x"

But you keep on thinking it doesn't matter .

[Flubber]

Originally posted by Kidicious
Did you notice that I said profit levels, not profit rates?

Well then you are either wordsmithing or being irrelevant. Why would anyone WANT 10 bucks more profit if you have to invest an additional million to get it.

Are you trying to get me to say that every profitable sale or transaction will increase profits. Is that what you are looking for ?? Because thats so self-evident to be unworthy of note.

[Kidlicious]

Originally posted by Flubber
You do know that a return on investment is a profit right ??

It's profit divided by book value of assets.

[GhengisFarbâ„¢]

Originally posted by Kidicious
Excuse me, but total profit is the ultimate goal. Things like return on investment, cash flows, balance sheet comparisons only help you predict what total profit will be and understand why it is what it is. Anyone who thinks return on investment is the ultimate goal is just plain silly.

What are you smoking?

Total profit by your definition would be the Maximized Return on Investment. Which is what everyone is trying to do, maximize the total Return on Investment. You may ignore all those stats and your estimated return on investment and just throw your money to the wind hoping it makes a profit, but the return on investment is still there.