Oil prices: what if it is caused by speculation?

[Polerius]

@Voyager

Because if they increase production to lower prices, they don’t run the risk of having consumer nations structurally lower demand. Say people respond to higher prices by reducing their driving. They’ll start driving again as soon as prices go down. However, if the prices are high for long enough to drive lots of people into hybrids or other high MPG cars, the demand is decreased permanently.

Good point.

[Kevbo]

@Voyager

Because if they increase production to lower prices, they don’t run the risk of having consumer nations structurally lower demand. Say people respond to higher prices by reducing their driving. They’ll start driving again as soon as prices go down. However, if the prices are high for long enough to drive lots of people into hybrids or other high MPG cars, the demand is decreased permanently.

Which is the best argument for higher fuel taxation.

[Voyager]

@Kevbo

Which is the best argument for higher fuel taxation.

Damn right. Imagine if we had slapped a tax on when gas was gasp $2 / gallon? it would have both reduced consumption and made money available for some decent work to improve fuel efficiency.

But paying it to our government is awful, paying it to OPEC is just fine.

[Ludovic]

@Voyager

Because if they increase production to lower prices, they don’t run the risk of having consumer nations structurally lower demand. Say people respond to higher prices by reducing their driving. They’ll start driving again as soon as prices go down. However, if the prices are high for long enough to drive lots of people into hybrids or other high MPG cars, the demand is decreased permanently.

It’s a bit too late for that, in the medium-term that is. SUV plants are closing, and no one is going more than 7 mph over the speed limit (even in Florida!) (You may say that the lastie is only short term, but I don’t want to be the first to resume my normal 12-over with traffic cops with nothing to do watching me … more seriously, the longer people drive closer to the speed limit the more they will watch the bottom line and see how much money it saves them, so the longer gas prices stay relatively high the more of a social change driving habits will register.)

[silenus]

Is there any informed speculation as to how high oil prices will have to get before it collapses China’s subsidies? How far along will India be at that time? Which will collapse first? What effect will said ending of subsidies have on Wal-Mart?

[Voyager]

@Ludovic

It’s a bit too late for that, in the medium-term that is. SUV plants are closing, and no one is going more than 7 mph over the speed limit (even in Florida!) (You may say that the lastie is only short term, but I don’t want to be the first to resume my normal 12-over with traffic cops with nothing to do watching me … more seriously, the longer people drive closer to the speed limit the more they will watch the bottom line and see how much money it saves them, so the longer gas prices stay relatively high the more of a social change driving habits will register.)

I thought about that, and I decided that the reason they haven’t increased production is that world consumption is picking up the slack for the reduction here. It’s also possible that we are reacting more quickly than they thought once we hit the $4 / gallon tipping point. I agree that closing the SUV plants is an even more long lasting change than either a change in behavior or even a short term change in car buying habits.

Maybe OPEC is doing us a favor in the long run. Hummers may be dead - that’s worth a lot in my book.

[Throatwarbler_Mangrove]

Is there any informed speculation as to how high oil prices will have to get before it collapses China’s subsidies? How far along will India be at that time? Which will collapse first? What effect will said ending of subsidies have on Wal-Mart?

India’s state-owned oil companies face mounting losses, as they are forced to sell fuel at fixed prices below cost. Petrol prices are actually slightly higher in India than in the United States, because Indian motorists pay much higher fuel taxes, but diesel is about 40% cheaper than in America. The oil firms are partly compensated by bonds which the government issues to them—a trick which allows the government to keep the subsidy off its books. At today’s prices, the total subsidy (including the full losses of oil companies) could be as much as 2-3% of GDP this year. Morgan Stanley estimates that the government’s total budget deficit (central and state governments and all off-budget items) is running at 9% of GDP in this fiscal year. The government must hold an election by May next year, so it is reluctant to raise fuel prices by much. It is thought to be considering a modest rise combined with a cut in excise duty.

In early 2008 Chinese motorists paid roughly the same for their petrol as Americans did. Whereas the pump price in America has since jumped by 33%, Chinese prices have remained fixed, swelling the losses of state-owned refiners. According to Dragonomics, a Beijing-based economic research firm, the retail price for diesel is about 40% below that in America. To cut their losses, oil firms have reduced supply, causing shortages at some petrol stations. However, China is less likely than other countries to lift prices soon. Oil subsidies are estimated at less than 1% of GDP, and its budget surplus and small public debt mean that the government can afford to keep prices down for some time. Most likely, it will delay increasing fuel prices until food-price inflation has eased.

Crude measures

[Precambrianmollusc]

@Voyager

Maybe OPEC is doing us a favor in the long run. Hummers may be dead - that’s worth a lot in my book.

You probably have a debate right there, are the current high prices a medium / long term (say 1 to 5 years) benefit to OECD economies or a detriment? Economy cratering against upside of weening the economy off of petroleum

[E-Sabbath]

Heard on the news today:
China is refusing to let oil stations raise their prices.
A gentleman in England, I believe a BP economist, said that the math used to estimate amount of oil left was ‘surprisingly crude’, and that he felt it was rather underestimating the oil left in individual fields.

Take it as you want it.

[Ludovic]

@E-Sabbath

the math used to estimate amount of oil left was ‘surprisingly crude’

Ba dump BAH!

[LonghornDave]

@E-Sabbath

A gentleman in England, I believe a BP economist, said that the math used to estimate amount of oil left was ‘surprisingly crude’, and that he felt it was rather underestimating the oil left in individual fields.

I don’t see how an economist would be qualified to make that type of statement. Seems more like a job for a geologist or reservoir engineer.

[E-Sabbath]

I got nothing. Been trying to find a source for the comment all day.

[gonzomax]

Senate Testimony of Michael W. Masters, hedge-fund manager. Food & energy...

Here is the gist of of Michael Masters in front of a Senate Committee. He is a big time hedge fund manager who says speculation is largely responsible for the oil price jump. Another guy with no understanding of the facts I suppose.