Gasoline / Market

[MomsR/T]

I guess alot of you watched the market hit 12,000. This is due to alot of different things. One of the stats to add to our strong market is the price of gas.

I just listened to a "specialist" talk on CNN explain what I tried to explain to this FORUM when oil was at $76.00 a barrel.

One of the major factors that led to that price spike was the hedge funds and how that effected future contracts. If most don't understand how that works I'll take a layman's stab.

There are multi-billion dollar FUNDS that bet a commodity will go up or down. It is a BET; no more or less.

These funds buy the RIGHT to buy oil at a given rate in the future.......its a contract. If they have predicted the FUTURE and they are UNDER the market price as their contract comes due........they now own oil UNDER THE MARKET PRICE and can release it and make money.

If these people are wrong, they are stuck with over inflated oil (commodity).

As these funds looked ahead, they saw Hamas moving into Isreal, war in Iraq, and maybe a bad hurricain year in the gulf.......

Instead, Hamas was defeated, Iraq doesn't really matter due to our little to no imports from the country, and we had a very very mild hurricain season........

THEY GOT DUPED!

These hedge funds were betting oil to go from $80 a barrel to $100 in a year..........

As the future didn't pan out like they thought, they sold early to get out from HUGE future losses........kinda like "cut and run".

The more that cut, it lead to a stampede and all the others did too.........as they cut and ran, the futures market FELL!

Price fell from $76 to todays $56 a barrel..........

Today, OPEC is trying to gather to cut production ........rofl......I guess they aren't too happy considering the largest oil reserve find happened 2 months ago, plans for more refining are up, meth and ethy are being used more by Americans, and US production is at full tilt.

All of this is making the market folks BET on the oil to stay low........contract #'s stay low, and therefor prices stay low..........

Its almost a self fulfilling prophicy.......

Because oil is low, gas prices get better. This means truck shipping is cheaper.........helps EVERY PRODUCT; airlines can make money; stell companies don't spend as much on fuel to make steel; and so on and so on and so on........

All of this means other companies can make profit when before they were spending that profit money on fuel...........

With so many companies showing profits, their stock looks do-able........the fund managers pick up stocks and the prices soar........

All winter this should be the case.......401K's are smiling!

[JESUSFREAK]

Nice info thanks...

[brewman]

It goes to show my theory... We do not need all of the "expert" economists making predictions because all we really need to look at is energy costs. As energy prices go so does our economy.

[desquirrel]

I guess they aren't too happy considering the largest oil reserve find happened 2 months ago, plans for more refining are up, meth and ethy are being used more by Americans, and US production is at full tilt.

All of which COMBINED have a miniscule affect on the quadrillions of tons of US energy demand. Check the last few issues of Car & Driver for a column on oil reserves, supplies, and demand.

[jimmybamslam]

Thanks MOMS/RT, I am a layman, and now I understand it a little better. Kind of pisses me off though! It sounds to me we all got screwed because some "people" wanted to make money and drove the price up. But the value never really increased, did it? And now Opec who was washing it's hands of the price spike by saying it was the demand/supply issue not them, is cutting production to keep prices high.

Hopefully gas prices stay as low or lower than where they are at today. If I knew prices were going to come back down, maybe I would have bought a SRT instead of a 5.7 with fuel saving MDS!

[jimmybamslam]

Oh, one more thing. I must have been on mars or something but what is this about a new oil reserve discovery and where can I find out more about it.

[desquirrel]

Kind of pisses me off though! It sounds to me we all got screwed because some "people" wanted to make money and drove the price up. But the value never really increased, did it?

It's called commodity trading, investing, etc. Nothing out of the ordinary for the last few hundred years.

[Husker]

LOL..ask the airlines how this works...alot of them are going to get screwed by the "bet"

[MomsR/T]

It sounds to me we all got screwed because some "people" wanted to make money and drove the price up. But the value never really increased, did it? And now Opec who was washing it's hands of the price spike by saying it was the demand/supply issue not them, is cutting production to keep prices high.

#1. Some of these people made money........those that were at the front end of this spike and hedge for short term gain WON........

Those that were hedging for the $80 - $100 a barrel lost BILLIONS!

As Husker said, Airlines are just now starting to hedge with contracts. The difference is the airlines are trying to set contracts to STOP themselves from getting nailed.

One airline thats done well with its hedging is SOUTHWEST AIRLINES........as reported on TV the other night, they were buying at $40 a barrel during the $75 a barrel spike. Because of this they were able to keep their prices down and thus KILLING their competition.

#2. Supply and Demand DOES have alot to do with it........I was only explaining one part of it........but the part I shared with ya'll is a major part. Oil really is about a $50 - $55 a barrel commodity.............but a far cry from the $75 mark it hit.

But think of this..........."What's a rookie Micky Mannal (sp?) baseball card worth?"

Answer: About $0.05

BUT because people see value in it, one guy is willing to pay $XXX.XX while another now wants it more.........

SO the technical answer is, "As much as people are willing to pay"

What we felt at the pump was more in line with "Feeding frenzy with contracts"

I can tell you all that refinery money has been allocated and we will see some go up in the next decade. Pipelines are becoming more efficient, and yes we hit the largest find of crude EVER in North America......

Google "Jack II" I believe...........

Lemme explain this........I know how an entire drilling rig works and I can do ALOT of the math of the drilling process.......

I was on the phone with a BP - Marine Eng. the other day as we were resolving one of his issues........just out of curiosity I wanted to know the spec.s of the hole we were working with..........

He made my jaw DROP!

This rig had 8,000 ft. of stand pipe..........pipe that is the barrier between the sea and the drill pipe........this means it was in 8,000 ft of water.

The TVD was 22,000...........TVD - Total Vertical Depth means if we stood the pipe completely vertical, this is how tall it is.

Thats 30,000 ft. of pipe!!!!!!

I was astonished.........and it made me start to think......

About 20% of the Earth is land and we have only researched maybe 50% of it for fossil fuels.......Alot of Russia, China, Africa, South America, Australia, and North Amercia that have no core samples nor sysmic tests done.....

80% of the Earth is ocean..........I will guess and say only 5% of it has been tested....

Thats roughly 15% of the entire planet has been drilled / explorered; there are finds still out there..............and at depths we never thought possible.

We are also now making diesle out of coal............low sulpher coal at that!

We are able to now seperate heavy oil (tar-sands) into sweet crude - crude able to use...........

Don't belive ALL the hype about "The sky is falling, the sky is falling!"

While I belive we need to find as many different sources for fuel as possible, I don't belive we are ANYWHERE near the end of fossil fuels......I just believe the shallow wells are becoming depleted.

I also belive the days of just poking a hole and allowing it to spew are over as well........we now must motivate these wells.

I know everyone hates the oil companies but they are working on the future and its inspiring to hear of everything we are doing as an industry!

[nick_danger]

MomsR/T, thanks for bringing much needed clarity to an otherwise ignorant and often abused understanding of how the system works. If I could give all my beans to you at once, I would. Oil is so massively market-driven that whenever I hear any sort of political commentaries about the market/industry, I giggle to myself. Sadly, many people buy into the fear surrounding oil: "peak" hypotheses, conspiracies, wars, etc.

There was a book written on the very topic of energy consumption VS production that I wanted to read. It's called The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy. Catchy title, eh? From what I've heard, it offers a great many realistically (and sometimes not-so-realistically) optimistic outlooks on the future of energy. One of my best friends is a peak-oil disciple and believes the world economy will implode by 2012, so we get into it every so often.

[formerice]

Oh, one more thing. I must have been on mars or something but what is this about a new oil reserve discovery and where can I find out more about it.

I believe a gigantic new oilfield was discovered in the Gulf of MEXICO by an American co. Some estimates , big enough to supply all our needs for 15 years. He He. Bring on the SRT8's

[desquirrel]

There is no shortage of oil. The "shortage" is cheap oil. And the "gigantic" find is maybe the size of the Mideast or maybe slightly larger IF it pans out. We get 16% or so of our oil from the Mideast, so the "gigantic" find will not come close to supplying all our needs.

[MomsR/T]

I only bring this up so some of you can understand whats going on......if prices of oil stay low, expect Wall Street to continue to climb.

I don't have any grip on how big this new field is......I just know its huge.

But this makes you ponder......how many more fields are there right under our noses?

Cali doesn't allow exploration off their coast, our government hasn't allowed exploration of much of Alaska and we know its there, much of Canada has gone un-explorered and only about a decade ago did we realize some of the biggest diamond mines were there!

My point was, how do we know its going scarce when we haven't even fully looked for it?

The statement, "all the cheap oil is gone" is very true. The old days of shallow wells is over, but I can also say as we in the industry exploit technology, we are making expensive holes cheaper.

Five years ago, a 22,000' well was unheard of and today is fairly common.

I almost hope China and India strike "oil-rich" so their draw on the world's supply lessons.........this also will keep prices low.

We should also see a slow change over the next 10 years where much of the "heating oil" is converted to "natural gas"........this alone would be a big deal.

Natural gas, as we utilize it, can help stabalize the crude prices........propane and methane are clean buring and very efficiant means of fuel.

BigIke can tell you that in the pipeline industry, we HAD been using diesle to pump natural gas down the lines while today we are using natural gas in the lines to feed our turbins........cheaper, cleaner, and more efficient.

I hope people understand that we in the industry really do care about prices (we are consumers too), the environment, safety, and public perception.

[Husker]

We as a free country NEED the oil companies to make these profits, otherwise they don't have the money required to make these new finds..ask MOM....looking for oil is very expensive!!!!!!!!!!!!!!! Those billions go very fast folks.. and no I am not kidding

[MomsR/T]

lol....I hear from people all the time, "Big oil makes too much money...."

So I ask them, "If you want I can get you a job in the industry........its hot, dangerous, and we work AT LEAST 12 on and 12 off or you have to travel ALOT......but it pays good!"

They always say......."no thanks!"

ROFL!

Its too hard or too dangerous for most people and requires a hard-core commitment but a person willing to do it should do it for free don't ya know?!?!