< HOME  Thursday, April 20, 2006

Gas Prices Too High? Blame The Middleman, NOT Iran

If you think Iran is to blame for the increase in oil prices, think again.
"The global oil price has not reached its real value yet. The products derived from crude oil are sold at prices dozens of times higher than those charged by oil-producing countries," state-run Tehran radio quoted Ahmadinejad as saying.

"The developed nations are the biggest beneficiary of the added value of oil products," he said. . . .

Oil prices leapt above $72 a barrel Wednesday, settling at a record high for the third straight day.

"The products derived from crude oil cost over 10 times the price of oil sold by producing states. Developed and powerful countries benefit more from its value-added than any party," Ahmadinejad said.

Oil prices should be determined on the basis of market supply and demand, the Iranian leader said.

"Oil is the major asset of nations possessing it. Its price should not be lowered on the pretext that it will prove harmful to developing states, thus permitting the world powers to benefit the most from it," he said.

George Orwel, an analyst at the New York-based Petroleum Intelligence Weekly said he thought Ahmadinejad was playing the oil card to resist pressure over Iran's nuclear program.

"They are using the oil as a political football. Every time there's an issue with Iran, the oil market freaks out"[.]

* * *

Ahmadinejad urged oil-producing countries - within and outside [OPEC] - to establish a fund to help alleviate the pressure resulting from high oil prices on Third World nations.

Oppenheimer & Co. oil analyst Fadel Gheit said he considered it unlikely that Iran had any intention of cutting off its oil, the lifeline of its economy.

Gheit noted, however, that there was some truth in Ahmadinejad's comment on developed countries benefiting most from increased oil prices, though the statement would likely be seen as an attempt at "fanning the flames" of a red-hot oil market.
He says "some truth" because there are those who contend that "supply" would not support a higher price.
[Nevertheless] "What he's saying makes a lot of sense. Unfortunately, the source of the comment is going to send jitters in the market" [.]

"The street value (of oil) is triple what OPEC is making," Gheit added, referring to the value of a barrel of gasoline versus the value of a barrel of oil.

[I]n London, where the retail price of gasoline is about $6 a gallon, about $150 worth of gasoline can be made and sold from every $50 barrel of oil.

"That is why Exxon Mobil and all the rest make so much money" [.]
But, that margin reflects the cost of taking it to market, you say.

Assuming arguendo that that's true (which I'm sure it's not), how does the price get to $72, to begin with?

Here's an excerpt from Guambat Stew that puts it a bit differently than I did, though it's essentially the same theory.

It's all about the money AND the middleman.
Oil hit a series of new price peaks yesterday in all global markets except crude oil futures for May delivery traded on the New York Mercantile Exchange. . . .

And the market does not see the oil price falling anytime soon. Crude oil for delivery in 2013 was priced near $US70 a barrel.

Few analysts are prepared to call a top to these markets. The momentum is just too strong. . . .

But some are warning that the markets are becoming increasingly dangerous as more and more speculative money floods into commodities. There is a rising disconnection between fundamentals and price. . . .

While the fundamentals for other commodities are much stronger [than for gold], analysts are still asking whether these commodity markets have now rallied too far, too fast as well. Billions of dollars of speculative money is now flowing into commodity markets from investment funds.
. . . So, what I think we are seeing is the effects of [hedge funds] using their incredible financial muscle to push markets up until they just won't go any more, and then push them back down until they won't go any lower.

They don't need to ask about fundamentals. It is an irrelevant consideration to try to assess if whatever it is they are pushing at the moment (these guys are absolute sluts and will do any market, anywhere) is overvalued or undervalued. They ride the dance pole of momentum and survive on averages and quick entry and exit.
My sentiments, exactly.

23 Comments:

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At Thursday, April 20, 2006, Anonymous Anonymous said...

I wonder when Americans will become americans again? What will it take to wake the sleeping giant. My guess $100.00 a barrel!

We should (drill, drill, and drill). Open up every where for drilling. It's 2006, we know how to drill for oil and not make a big mess.

Hummmm, I wonder what would happen to the price of Iranian oil then?
How many jobs would open up to Americans. What would happen to the auto industry? You think it would pick up?

Why blame? We should be good Americans and produce again.

 
At Thursday, April 20, 2006, Blogger Akber said...

I have been saying for 2 years now that the real market price of oil is $200/barrel.

And the US military is distorting the market by having half its military based in the Persian Gulf.

The area between the two curves (real vs. suppressed price) is the additional 'asset' of the US - i.e. its ability to buy oil lower - that it uses to exact tribute from Japan and Korea and China for lowered oil prices. And this 'asset' is used to back up the 'faith' behind the dollar.

'petrodollars' have more dimensions than one.

 
At Thursday, April 20, 2006, Blogger Citisucks said...

While gas prices are crazy, there is one advantage to increasing gas prices-less small dicked loosers driving around gas guzzlers as putting gas in one gets more and more expensive.

 
At Friday, April 21, 2006, Anonymous Anonymous said...

How much of this has to do with refining capability? From the various news articles I’ve read over time, the US has not really increased its refining assets over the past 20 years or so creating the demand to raise prices.

The damage in the Gulf by Hurricane Katrina affected refining assets not crude oil producing platforms (as a whole).

I’m not an expert but could refining be considered “the middle man” setting market pricing for the US?

The following paragraph from the article above says it all:

“The street value (of oil) is triple what OPEC is making, “ Gheit added, referring to the value of a barrel of gasoline versus the value of a barrel of oil”

 
At Friday, April 21, 2006, Blogger qrswave said...

Anon, Fri Apr 21, 01:16:35 AM:

Speaking of refining capacity . . .

We're being had!

 
At Wednesday, April 26, 2006, Anonymous Anonymous said...

Truth is The powers that be ,ie oil cartel&bankers, in conjunction with the media have been taking advantage of us American peoples for decades, there have been multiple oil shortages with massive price gouging and profits for big oil. Truth is there is no shortage of oil anywhere. In fact people start to drill for water and find huge oil deposits. Oil does not come from fossils, thats a myth as the russians have found out that is why they have more oil than the middle east, but the Media is forced to not report this. There is enough known and "unknown" oil deposits to last over 200 years with supply that is greater than demand. The price of gas at the pump should be no more than $1.00 for super, and the oil companies will still make billions in profit..Wake up people and do some research.

http://www.stansberryonline.com/OIL/20060405-OIL-COL.asp?pcode=EOILG430&alias=200604OIL&o=356246&u=13120015&l=787098

 
At Friday, April 28, 2006, Anonymous Anonymous said...

The answer is not to drill, drill, drill. Dick Cheney killed the answer in 1974 - alternative energy. After the 1973 Oil Embargo there was a short lived initiative to develop alt. engery. Dick Cheney was instramental in getting that line of thought killed (while he was Nixon's Chief of Staff). Oil is finite and we can drill the planet to pieces for a few more years. I'd like to know my grandchildren have more than a big hole to live on.

As pressing as the need for oil is, people should begin to look more closely at the need for fresh water. We are in more jeopardy from the loss of fresh water than from not driving an SUV. Africa is already experiencing famines and death and the cattlemen of the western US are not able to support their herds due to drought.

Reality is the US is bankrupt and the corrupt banking system will not be able to hide it for too much longer. Our "petrodollar" is already worthless.

 
At Friday, April 28, 2006, Blogger qrswave said...

Anons, Thanks for drawing attention to the underlying problem - monopolies and greed.

Follow the money monopoly and it will lead you not only to the source of all our problems, but to the only solution.

 
At Friday, April 28, 2006, Blogger beervolcano said...

I say let oil go through the roof.
I say let gas go through the roof.

Then alternative energy sources won't look so bad.

But what will cars run on? Hydrogen? gimme a break. I'm in that game it it won't work. It's a pie in the sky thing and DOE knows it. The H2 initiative is to prolong the use of high gas mileage cars, not to replace them.

Should we have electric cars that run off the grid? What will power the grid?

Nuclear? Solar? Right now, it's mostly coal.

The answer for most cities is mass transit running on electricity from a grid that is run by hydroelectric or solar somehow. Then there could be cars that run off the grid, or even air compressed by the grid (look up compressed air cars).

It's harder than you think. The reason we still use gas an oil is because they are the cheapest and easiest to use and provide the most power.

 
At Saturday, April 29, 2006, Anonymous Anonymous said...

This is just the beginning of what we will see at the pump and everything else we buy that has anything to do with oil which is just about everything. Petroleum is used to produce and transport just about everything. To the individual who replied that oil is abiotic and that there is an unlimited supply of it and this is all a conspiracy, you are WRONG. We have entered the era of peak oil and I would advise YOU to do research on these issues. I have spent the last three years educating myself on these issues because our government certainly has no plans to educate the public. Sure Big Oil is screwing us now and so is the government for subsidizing them with tax breaks while they reap excess profit. I say let our government take control of all the US oil companies and have one large state run oil company. No longer let oil be traded by the market. That would never happen of course because too many rich people would stand to lose money. Bottom line is that oil is not the future of our country. Cheap, plentiful oil got us to where we are at, and unless we as a country get serious about conservation and alternative energy and demand more from our government leaders we stand to lose a lot.

 
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