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banquo's_bumble_puppy
2008-Oct-16, 04:16 PM
never thought I'd see that again....funny how circumstances change

PraedSt
2008-Oct-16, 04:25 PM
You just waited until it hit that number, didn't you? :)

On-topic: oil's fairly cyclical.

Swift
2008-Oct-16, 04:33 PM
And I have no doubt we will see $100+ per barrel again too. This is just a reflection of the economic downturn.

If anyone is interested here is a graph (http://futures.tradingcharts.com/printchart/CO/M) of light crude oil prices, back to 2000. So, we are basically back to the price we were at in mid-2007.

peter eldergill
2008-Oct-16, 05:19 PM
I have noticed, however, that gas prices have not followed suit.

Remember when the excuse for high gas prices was the high price of oil? Well, well, well....I guess there's only one direction for that type of pricing...

Pete

weatherc
2008-Oct-16, 05:22 PM
Gas prices have gone down into the $2.75-ish range here in New Jersey (and falling quickly), where previously they had gone up to around $4.00, so the price is at least somewhat reflective of the change, if a bit delayed.

Swift
2008-Oct-16, 05:24 PM
I have noticed, however, that gas prices have not followed suit.

Remember when the excuse for high gas prices was the high price of oil? Well, well, well....I guess there's only one direction for that type of pricing...

Pete
They have around here. Within the last month gas was well over $3 (US) per gallon. I just paid $2.69 yesterday, and I've seen it around $2.55.

tdvance
2008-Oct-16, 05:25 PM
I have noticed, however, that gas prices have not followed suit.

Remember when the excuse for high gas prices was the high price of oil? Well, well, well....I guess there's only one direction for that type of pricing...

Pete


Gas prices sure are falling in the DC area!

peter eldergill
2008-Oct-16, 05:31 PM
Oil drops from $120 to $70, a drop of about 45%

Price in your area from 3.00 to 2.50, aabout 18 % drop in gas price...

We were told that the price of gas in Canada should be *roughly* 1 cent per dollar price of oil, so between $.75/litre and $0.80/litre . Our current price in Toronto (about 20 minutes ago) is $1.04/litre or over $4 a gallon...

I'm a little annoyed, because the excuse to go up was commodity prices/futures and now that it's going down....

Pete

Swift
2008-Oct-16, 05:41 PM
I certainly understand your annoyance and I'm not making excuses for the oil companies. Some of it also might be transport time - the $75/barrel oil sold in Kuwait today, doesn't make it to North America for another month, plus refining time, etc. And raw material cost is only part of the whole thing. But I have noticed for many years that prices go up much faster than the come down - imagine that. ;)

weatherc
2008-Oct-16, 05:43 PM
Price from $4.00 to $2.75 is about a 31% drop. And it could conceivably go lower.

I don't know why it would be different in your area, but there are a lot of factors that could be causing that, I suppose.

tdvance
2008-Oct-16, 06:14 PM
Also, 100% of the price of gas is not oil--there are also (practically) fixed components of the price--taxes (a huge bite in some places), cost of running a gas station, transportation, refining, etc.

I don't know the numbers, but if 50% of the cost of gas is from the price of oil, and oil goes down 50%, then the price of gas goes down about 25% (a little more, since transportation becomes a little cheaper, and those taxes at the sales end are dependent on the sale price).

Gillianren
2008-Oct-16, 06:23 PM
Our gas prices were well over $4 here--we pay a fair amount in gas taxes here in Washington--and the gas station down the street is now down to about $3.30 or so, last I looked. Recently, it was dropping as much as a nickel a day.

jfribrg
2008-Oct-16, 06:59 PM
I find it interesting that the stock markets ignore the price of crude. For the last few years , and especially a few months ago, the price of oil skyrocketed, which is a tremendous burden on the economy, and the stock market didn't seem to notice. More recently, when the oil prices are in freefall, which should help the economy, the market doesn't notice either. The explanation is supposedly that oil is a leading indicator, so if oil is going down, that means that the economy is going down in the near future. That may or may not be true in some markets, but I feel that in this market, the reduced energy costs will be a benefit to the economy. It probably won't prevent a recession, but every time I fill up my car, I have $20 more left over in my pocket than I did in July. In the course of a few months, that adds up to more than the economic stimulus check I got back in May. I think that the computer trading models are out of sync with the current world economy, and these programs are a large part of the volatility of the stock market (just as they were in 1987).

Lord Jubjub
2008-Oct-17, 02:37 AM
Think interest rates.

Think about whether or not the company you are lending to may declare bankruptcy within the year.

Why everyone in the financial world thought Mortgage-Backed Securities (MBS) were as reliable as gold is something I've never understood.

Ronald Brak
2008-Oct-17, 03:37 AM
U.S. fuel demand averaged about 18.6 million barrels a day during the past four weeks, the lowest since June 1999. Looks like people in the US are making substantial cutbacks.

Fortunately for those worried about peak oil, OPEC says it plans to cut back production by a million or so barrels which will prevent prices dropping too much lower and will push back the day when the world's easily extracted oil is exhausted.

Gillianren
2008-Oct-17, 03:49 AM
I must have missed a few days--we're at $2.99 a gallon now.

Tuckerfan
2008-Oct-17, 07:12 AM
U.S. fuel demand averaged about 18.6 million barrels a day during the past four weeks, the lowest since June 1999. Looks like people in the US are making substantial cutbacks.

Fortunately for those worried about peak oil, OPEC says it plans to cut back production by a million or so barrels which will prevent prices dropping too much lower and will push back the day when the world's easily extracted oil is exhausted.

They're meeting next month to decide how much to cut production. One hopes that they'll remember that cutting it too much will kill what's left of the global economy, but I wouldn't hold my breath on that.

Van Rijn
2008-Oct-17, 07:28 AM
It's nice to see how happy people are that oil prices are down after there was so much concern over the oil price bubble. :lol:

Van Rijn
2008-Oct-17, 07:31 AM
I must have missed a few days--we're at $2.99 a gallon now.

Around here premium is about $3.50 a gallon, but at the peak, it was well over $4.50 a gallon.

jfribrg
2008-Oct-17, 11:32 AM
They're meeting next month to decide how much to cut production. One hopes that they'll remember that cutting it too much will kill what's left of the global economy, but I wouldn't hold my breath on that.

OPEC falls apart when oil prices are low. Every member except Saudia Arabia cheats on the quotas and the result is no change in supply and lower oil prices. It all depends on the elasticity of demand for crude oil. Back in the 70's the deman was inelastic. Then starting around 1982, it became elastic and stayed that way till about 2000. Then it became elastic again until this past July. Hopefully it will stay elastic for a few more decades, but I have my doubts. The dynamics have changed with the increased demand from China and India, along with the uncertainty about the supply of oil in the Middle East. It should be interesting, but I doubt if we will see $100/bbl oil any time in the next year.

Doodler
2008-Oct-17, 11:39 AM
Gas prices sure are falling in the DC area!

They were lagging a bit, but they finally started freefalling. From where I am just north of you, its been about 9 cents every four days or so.

PraedSt
2008-Oct-17, 11:47 AM
This is the place for serious/boring oil stuff, if anyone's interested:

http://www.theoildrum.com/

Tinaa
2008-Oct-17, 11:53 AM
My stepson used to keep me waiting every morning and make me late for work. I finally told him to be ready at 6:55 or I was leaving him at home. He wasn't and I did. He's never been late since. I hate to be late.

weatherc
2008-Oct-17, 11:59 AM
My stepson used to keep me waiting every morning and make me late for work. I finally told him to be ready at 6:55 or I was leaving him at home. He wasn't and I did. He's never been late since. I hate to be late.Tinaa, I think you meant to post in another thread... :)

Nicolas
2008-Oct-17, 11:59 AM
I hope you don't hate to post in the wrong topic... ;)

Diesel prices are 1.07 at my local gas station. They were as high as 1.34 before, but the last 10 days they've dropped from 1.17 to 1.07, so it's not one single freefall. But at least we're getting close to the 1€/l mark again, and diesel is clearly the cheaper fuel again (a while ago, that difference somehow was gone...).

tdvance
2008-Oct-17, 05:33 PM
Well, I saw $2.89 gas this afternoon in DC area--that's got to be a multi-year low.

Daffy
2008-Oct-17, 05:46 PM
Without getting political...gas prices dropped dramatically before the last presidential election and starting rising again the very next day. And now here we go again...

Supply and demand. Right.

SeanF
2008-Oct-17, 06:11 PM
Without getting political...gas prices dropped dramatically before the last presidential election and starting rising again the very next day. And now here we go again...
How do you consider that not getting political? :)

Gas prices drop pretty much every autumn, whether there's a presidential election or not.


Supply and demand. Right.
Absolutely right.

Daffy
2008-Oct-17, 06:12 PM
How do you consider that not getting political? :)

Gas prices drop pretty much every autumn, whether there's a presidential election or not.


Absolutely right.

Fool me once, shame on you; fool me twice, shame on me.

Gas prices are determined by crude prices...no, wait, they are determined by speculation...no wait...they are determined by weather shutting down refineries...no, they are determined by time of year! That's it! And Fall ends the day after the election!

Got it.

Gillianren
2008-Oct-17, 06:26 PM
Around here premium is about $3.50 a gallon, but at the peak, it was well over $4.50 a gallon.

Premium's still at about $3.25 or so here.

Matherly
2008-Oct-17, 06:36 PM
My stepson used to keep me waiting every morning and make me late for work. I finally told him to be ready at 6:55 or I was leaving him at home. He wasn't and I did. He's never been late since. I hate to be late.

Dear Tinaa,

We have forwarded you a membership packet.

Sincerly,
The National Non-Sequiter Society
"We might not make much sense, but we sure love pizza"

(I know she just posted in the wrong thread. But, I gotta take the oppertunity to pick on her when it arrives ;) )

PraedSt
2008-Oct-17, 06:50 PM
Without getting political...gas prices dropped dramatically before the last presidential election and starting rising again the very next day. And now here we go again...

Without also getting too political, if your theory were true, then in this particular election, given the candidates and the party in charge in Congress, crude prices would be rising.

Seeing as they are not...


Gas prices are determined by crude prices...no, wait, they are determined by speculation...no wait...they are determined by weather shutting down refineries...no, they are determined by time of year! That's it! And Fall ends the day after the election!

You are also confusing cause and effect, as well as causal chains.

Prices are always determined by supply and demand. The other things you mention, do indeed effect prices. All those factors; but they do it via their effects on supply and demand. What you think of as demand, filling up the tank, is only the final link in the chain; and what you think of supply, oil pumped in the Middle East, is only the first link in the chain. Many other factors are involved in demand, and many other factors are involved in supply.

Daffy
2008-Oct-17, 06:59 PM
Without also getting too political, if your theory were true, then in this particular election, given the candidates and the party in charge in Congress, crude prices would be rising.

Seeing as they are not...

What theory? All I am doing is noting that gas prices are falling before a presidential election for the second time in a row. I find that very hard to justify by supply and demand arguments.

I do have a question: people who suggest that supply and demand are at all that is at work here are, by implication, suggesting that gas prices are as low as the oil companies can get them based on outside factors.

If that is true, why have their profits---profits, not gross---risen so sharply during this latest crisis?

You may feel they have the absolute right to charge as much as they possibly can---you may even be right---but don't waste my time suggesting the prices are determined merely by supply and demand.

PraedSt
2008-Oct-17, 07:00 PM
What theory? All I am doing is noting that gas prices are falling before a presidential election for the second time in a row. I find that very hard to justify by supply and demand arguments.

I do have a question: people who suggest that supply and demand are at all that is at work here are, by implication, suggesting that gas prices are as low as the oil companies can get them based on outside factors.

If that is true, why have their profits---profits, not gross---risen so sharply during this latest crisis?

You may feel they have the absolute right to charge as much as they possibly can---you may even be right---but don't waste my time suggesting the prices are determined merely by supply and demand.
.
Read the rest...sorry was in the middle of editing

Daffy
2008-Oct-17, 07:05 PM
.
Read the rest...sorry was in the middle of editing

Sorry, but when the commodity is something that we must have in order for our very civilization to exist---and when that commodity is sold by a handful of companies---talking about supply and demand is silly.

No conspiracy is needed...they can charge whatever they bloody well please, up to the point where they actually ruin the whole economy. Oh, wait...

Click Ticker
2008-Oct-17, 07:09 PM
I do have a question: people who suggest that supply and demand are at all that is at work here are, by implication, suggesting that gas prices are as low as the oil companies can get them based on outside factors.

If that is true, why have their profits---profits, not gross---risen so sharply during this latest crisis?


Two things. First allow me to change your first statement:


I do have a question: people who suggest that supply and demand are at all that is at work here are, by implication, suggesting that gas prices are as high as the public will allow them based on outside factors.

They simply are where they are based on all factors involved.

Second, their net profits have risen so sharply because they target profit margin goals, not profit dollar goals. When revenues increase dramatically based on charging twice as much for your end product and you're still shooting for the same 10% net profit margin, your profits will double in terms of absolute dollars while your margins remain consistent.

Daffy
2008-Oct-17, 07:13 PM
Second, their net profits have risen so sharply because they target profit margin goals, not profit dollar goals. When revenues increase dramatically based on charging twice as much for your end product and you're still shooting for the same 10% net profit margin, your profits will double in terms of absolute dollars while your margins remain consistent.

In other words, they can charge whatever they like. Exactly my point.

PraedSt
2008-Oct-17, 07:16 PM
What theory? All I am doing is noting that gas prices are falling before a presidential election for the second time in a row. I find that very hard to justify by supply and demand arguments.

I do have a question: people who suggest that supply and demand are at all that is at work here are, by implication, suggesting that gas prices are as low as the oil companies can get them based on outside factors.

If that is true, why have their profits---profits, not gross---risen so sharply during this latest crisis?

You may feel they have the absolute right to charge as much as they possibly can---you may even be right---but don't waste my time suggesting the prices are determined merely by supply and demand.

Anyway, this is all wrong.

1. Second time in a row is not a trend. We've had a century of oil, and ~20 presidential elections. Work that out.

2. You don't know what supply and demand mean. If your conspiracy theory is true, that would only be because the President increased supply prior to the elections...somehow.

3. No-one suggests gas is low now because of...what you said. They're low now because global economic activity is declining. Demand for crude is falling, or demand for crude is expected to fall further.

4. 'Gross profits' is still profit. Apart from that, I don't know what point you're trying to make here. Your knowledge of oil company profits probably comes from quarterly results. In that case a) the last ones were in Jun- almost 5 months ago; profits were high because cost of production was much lower than average crude prices over the quarter. b) Prices are much lower today than in Apr-Jun period. c) You also have to take into account refining margins, which I don't actually recommend, as they're stupidly complicated.

5. Right to charge what they can? Of course. For the last bit, please read the first chapter in any economics texbook before you make up CTs.

PraedSt
2008-Oct-17, 07:22 PM
Sorry, but when the commodity is something that we must have in order for our very civilization to exist---and when that commodity is sold by a handful of companies---talking about supply and demand is silly.

No conspiracy is needed...they can charge whatever they bloody well please, up to the point where they actually ruin the whole economy. Oh, wait...

You're changing your argument here. Now you are advocating manipulating the market :rolleyes:

This is also incorrect. Your civilisation needs energy, not oil. There's been huge progress in solar and wind and nuclear during the last 3 years, spurred on by the rising cost of oil.

You actually have to read an oil company's balance sheet at one point. Compare the margins you find there, to those of say, Google. And then ask your self who's charging an 'unfair' rate.

Also, oil companies actually don't have much control over the price of crude oil. If they did, it wouldn't have languished in the $30s for over 10 years. If you want to find manipulation, look at OPEC. But, again, that is still manipulating the supply of oil. They can't mandate oil prices directly.

Click Ticker
2008-Oct-17, 07:22 PM
In other words, they can charge whatever they like. Exactly my point.

If your point is correct, why aren't they charging $10.00 a gallon? Or $20.00? Why not $100.00 a gallon if they can charge whatever they want? Why did the price drop by 25% or better at the pump if they can charge whatever they want?

Daffy
2008-Oct-17, 07:28 PM
If your point is correct, why aren't they charging $10.00 a gallon? Or $20.00? Why not $100.00 a gallon if they can charge whatever they want? Why did the price drop by 25% or better at the pump if they can charge whatever they want?

There is a limit...when the economy starts to tank.

Look, in my business, if my expenses go up (and they are) I cannot raise prices to the same amount. Why? Supply and demand...I have competitors, and I provide a service that is helpful but not vital. So my profits go down.

With oil, we have a commodity for which the demand is effectively infinite. When costs go up, so do profits (you said so yourself). This is Supply and Demand?

The only real control on prices is the overall economy...and the whims of a handful of CEOs. I suppose you could make the argument that this is a watered down version of S&D, but it sure ain't the S&D I was taught in school.

Van Rijn
2008-Oct-17, 07:56 PM
Without also getting too political, if your theory were true, then in this particular election, given the candidates and the party in charge in Congress, crude prices would be rising.

Seeing as they are not...


Yes. Aside from the practical problem of dramatically affecting world oil supply without anyone noticing (I don't see how that would be possible), it isn't clear to me who this would help.

Van Rijn
2008-Oct-17, 07:57 PM
With oil, we have a commodity for which the demand is effectively infinite.


That's rather obviously not true. Increase prices too much, and people reduce use, find other sources, and substitute.

Daffy
2008-Oct-17, 08:04 PM
That's rather obviously not true. Increase prices too much, and people reduce use, find other sources, and substitute.

Or the economy tanks...I think I said that. :)

I'm sorry, but in a situation where costs go up, causing profits to go up, that is simply not supply and demand.

Click Ticker
2008-Oct-17, 08:43 PM
Or the economy tanks...I think I said that. :)

I'm sorry, but in a situation where costs go up, causing profits to go up, that is simply not supply and demand.

In can be if your in an industry where substitutions aren't as easy and barriers to entry are high.

It sounds like you might be in an industry with lower barriers to entry, meaning more competition, and possibly substitutes or an ability to go without your product or service.

It's all still supply and demand, it just impacts different industries in different ways. The corner gas station actually runs a very slim margin on fuel sales and they have been adversely impacted by the increase in cost. They make their margins on c-store products. It's farther up the supply chain where there are fewer competitors and higher barriers to entry.

cjl
2008-Oct-17, 10:17 PM
Or the economy tanks...I think I said that. :)

I'm sorry, but in a situation where costs go up, causing profits to go up, that is simply not supply and demand.

Actually, it is perfectly supply and demand, and in that situation, it simply means that the demand is inelastic.

Tinaa
2008-Oct-17, 11:54 PM
For the record, I LOVE posting in the wrong thread. I get all the attention that way. I was really just seeing if any one was paying attention.

Truthfully, this is an example of what happens to ones brain when one is in a house with five teenagers. My brain is mush. After I spend all day with middle schoolers, I rush home to to battle - I mean - spend quality family time cooking supper, getting homework done, washing a load or two of laundry, etc. Yeah, yeah they should help.

On topic, I paid 2.49 a gallon for gas today.

jrkeller
2008-Oct-18, 12:29 AM
Truthfully, this is an example of what happens to ones brain when one is in a house with five teenagers.


I hope some of those are friends of your kids.

Van Rijn
2008-Oct-18, 01:39 AM
Or the economy tanks...I think I said that. :)


The oil price bubble would have popped whether or not we had the mortgage mess.



I'm sorry, but in a situation where costs go up, causing profits to go up, that is simply not supply and demand.

Why not? That's a market signal: It's an incentive to produce more, including previously uneconomic sources. Of course, that assumes the price stays up. Which it isn't.

Daffy
2008-Oct-18, 03:15 PM
The oil price bubble would have popped whether or not we had the mortgage mess.



Why not? That's a market signal: It's an incentive to produce more, including previously uneconomic sources. Of course, that assumes the price stays up. Which it isn't.

It may be fine, it may be just the way things should be, but supply and demand it ain't. And the economy tanking is not solely the result of the mortgage mess...it is the direct result of a MASSIVE transfer of wealth occurring all across the board, in many, many areas. That rate of transfer simply cannot be sustained indefinitely, and that is what we are seeing.

However, I will concede your point if, after the election, prices do not immediately start to rise again the way they did last time. If they do, will you do the same?

PraedSt, I don't discuss things with people who put words in my mouth. Especially words that I have specifically said do not apply.

PraedSt
2008-Oct-18, 03:22 PM
PraedSt, I don't discuss things with people who put words in my mouth

Lol

tdvance
2008-Oct-18, 03:26 PM
What theory? All I am doing is noting that gas prices are falling before a presidential election for the second time in a row. I find that very hard to justify by supply and demand arguments.


I think you go against the grain of decades (centuries?) of economic theory here. Theory that can't predict at a very fine level what the stock market will do tomorrow, but in terms of generalities, works well in practice.

Also "twice in a row" isn't exactly a very large sample size.

Finally, strong are the politicians in the (economic) force, but not that strong.

Daffy
2008-Oct-18, 03:42 PM
I think you go against the grain of decades (centuries?) of economic theory here. Theory that can't predict at a very fine level what the stock market will do tomorrow, but in terms of generalities, works well in practice.

Also "twice in a row" isn't exactly a very large sample size.

Finally, strong are the politicians in the (economic) force, but not that strong.

I am not claiming a conspiracy. I am claiming that oil prices are not really controlled by supply and demand. How can they be?

a) With only a handful of producers of a commodity the entire world needs, there is little or no real competition. The original anti-trust laws in the U.S. (no longer enforced) were specifically enacted to control Standard Oil.

b) If Supply and Demand theory includes profits rising as costs rise, I was never taught it in school.

c) Corporate lobbyists work both sides of the aisle. Donations, as parties switch in power, are starting to flow the other way. There is no conspiracy; this is all a matter of public record, and is perfectly legal.

d) The reasons we are given for gas prices rising (or falling) keep changing. Am I the only one who notices that? Am I the only one who notices that prices are falling even though production is down?

As I say, you may think this is all good (what's good for Standard Oil is good for the country)---and you may even be right---but calling it supply and demand is ridiculous.

PraedSt
2008-Oct-18, 03:51 PM
supply and demand

You keep using those words. I do not think they mean what you think they mean.

tdvance
2008-Oct-18, 03:52 PM
The prices are *always* influenced (and usually outright controlled) by supply and demand. Even in a "command economy" (old USSR), where the government sets the prices, funny things happen as a result of supply and demand setting a different "natural" price: black markets, shortages, gray markets where people find nearly-legal loopholes, and so on, that only are corrected when the government sets the price to the supply-demand-mandated price.

Crude oil prices started coming down soon after gas hit the psychological $4.00 mark which was just the trigger to get large numbers of people thinking about ways to use less gas. That resulted in less demand (intensified by demand always going down after labor day). The drop in the stock market reduced demand even farther, lowering the price. The subsequent rise in the value of the dollar lowered it even more. What the politicians did--a few laws/executive orders regarding exploration, and releasing some of our reserves, increased the promise of supply, lowering it a small amount--so even supply/demand is king in this situation. Oil is now taking a slight upturn because OPEC, seeing their profits go out the window, are reducing supply to make up for lowered demand. People are also reversing some of the habit changes in the face of lower prices, increasing demand somewhat. I have little doubt gas prices will follow in a few weeks--and it might start on or around the election.

Daffy
2008-Oct-18, 04:15 PM
The prices are *always* influenced (and usually outright controlled) by supply and demand. Even in a "command economy" (old USSR), where the government sets the prices, funny things happen as a result of supply and demand setting a different "natural" price: black markets, shortages, gray markets where people find nearly-legal loopholes, and so on, that only are corrected when the government sets the price to the supply-demand-mandated price.

Crude oil prices started coming down soon after gas hit the psychological $4.00 mark which was just the trigger to get large numbers of people thinking about ways to use less gas. That resulted in less demand (intensified by demand always going down after labor day). The drop in the stock market reduced demand even farther, lowering the price. The subsequent rise in the value of the dollar lowered it even more. What the politicians did--a few laws/executive orders regarding exploration, and releasing some of our reserves, increased the promise of supply, lowering it a small amount--so even supply/demand is king in this situation. Oil is now taking a slight upturn because OPEC, seeing their profits go out the window, are reducing supply to make up for lowered demand. People are also reversing some of the habit changes in the face of lower prices, increasing demand somewhat. I have little doubt gas prices will follow in a few weeks--and it might start on or around the election.

Influenced by supply and demand I can agree with. Controlled by? The evidence strongly suggests otherwise. All the things you mentioned are no doubt factors. But how you can ignore the biggest factor of all...no real competition (which is crucial to supply and demand working) is beyond me.

tdvance
2008-Oct-18, 05:53 PM
"The evidence strongly suggests otherwise." what evidence? two observations?

Van Rijn
2008-Oct-18, 11:09 PM
You keep using those words. I do not think they mean what you think they mean.

I had the same thought. :)

SpaceShot
2008-Oct-19, 02:07 AM
With oil, we have a commodity for which the demand is effectively infinite. When costs go up, so do profits (you said so yourself). This is Supply and Demand?

Except it's not infinite. It's awfully inelastic because for many people, you must have a certain amount of oil-baser products, like gasoline. But it's not perfectly inelastic.

But recent reports have been that US demand and worldwide demand is falling. And then prices fall behind it, especially on concerns that demand will continue to fall.

Why is this? It can't be because demand is infinite. Certainly we will get to the day when oil production can't meet worldwide demand. I'm sure it will probably cause some major wars. How else would you decide who gets the limited goods but fight over it?

Ronald Brak
2008-Oct-19, 02:26 AM
Certainly we will get to the day when oil production can't meet worldwide demand. I'm sure it will probably cause some major wars. How else would you decide who gets the limited goods but fight over it?

Well, currently we let the price of oil rise and whoever wants it can pay for it.

Click Ticker
2008-Oct-20, 02:05 PM
The other thing that Daffy needs to look at is those years when there isn't a presidential election in the U.S. Tdvance said that prices always go down after labor day. Well, the presidential election is always two months after labor day - so if tdvance is correct, then Daffy just didn't notice other years when the price went down in the fall (confirmation bias).

http://www.gasbuddy.com/gb_retail_price_chart.aspx?time=24

In the above link, you can put together up to a six year chart for U.S. or Canadian gas prices. Every single year, the price peaked over the summer and fell after labor day. It also starts to climb again as December approaches (holiday travel, increase in demand). Daffy just happens to notice it more during a presidential election year. Even every other year could be justified by his theory due to congressional elections. But it wouldn't explain every single year.

Daffy
2008-Oct-20, 02:23 PM
I am keeping an open mind, guys. I would appreciate it, though, if someone would answer my questions:

a) How supply and demand operates with no competition.

b) How it can be supply and demand when higher costs equal higher profits.

Not being flip; those are serious questions.

We'll see if gas prices go back up immediately after this election. If they do, that's asking a LOT of coincidence.

Click Ticker
2008-Oct-20, 02:23 PM
However, I will concede your point if, after the election, prices do not immediately start to rise again the way they did last time. If they do, will you do the same?

Based on the above charts, they will start to climb after the election. Holiday travel demand. Happens every year with our without an election. Happens in both the U.S. and Canada. Holiday season immediately follows election season for those in the U.S. So no concession of point. Overlaying the U.S. and Canadian charts illustrates nicely how much more in gas taxes Canadians pay. Seems to be over $1.00 a gallon more in taxes alone than we pay in the U.S.


d) The reasons we are given for gas prices rising (or falling) keep changing. Am I the only one who notices that? Am I the only one who notices that prices are falling even though production is down?

The reasons keep changing because there exist many reasons along the supply chain than can impact prices. If a refinery goes down when demand is high - that will drive prices at the pump up in the face of falling crude prices. Production is down because demand is down. No sense in producing a bunch of crude that nobody is asking for right now. Prices are also falling because demand is down. They slowed production in order to slow the drop in price, but it wasn't enough to stop the decent, just to slow the rate down.

If my faucet is running and I turn it off, but don't turn it far enough, it will still drip.

Daffy
2008-Oct-20, 02:25 PM
Based on the above charts, they will start to climb after the election. Holiday travel demand. Happens every year with our without an election. Happens in both the U.S. and Canada. Holiday season immediately follows election season for those in the U.S. So no concession of point. Overlaying the U.S. and Canadian charts illustrates nicely how much more in gas taxes Canadians pay. Seems to be over $1.00 a gallon more in taxes alone than we pay in the U.S.



The reasons keep changing because there exist many reasons along the supply chain than can impact prices. If a refinery goes down when demand is high - that will drive prices at the pump up in the face of falling crude prices. Production is down because demand is down. No sense in producing a bunch of crude that nobody is asking for right now. Prices are also falling because demand is down. They slowed production in order to slow the drop in price, but it wasn't enough to stop the decent, just to slow the rate down.

If my faucet is running and I turn it off, but don't turn it far enough, it will still drip.

We posted at the same time.

Come on...holiday travel changes the day after the election? And affects the pump prices that quickly? In other words, instantly? Seems a bit of a stretch to me.

Click Ticker
2008-Oct-20, 02:35 PM
I am keeping an open mind, guys. I would appreciate it, though, if someone would answer my questions:

a) How supply and demand operates with no competition.

b) How it can be supply and demand when higher costs equal higher profits.

Not being flip; those are serious questions.

We'll see if gas prices go back up immediately after this election. If they do, that's asking a LOT of coincidence.

a) - You're the one saying there is no competition. There is competition, albeit limited. People can carpool and reduce demand. People can take public transportation and reduce demand. There exists ethonal and bio-diesel, which do not depend on crude. Some cars are converted to run on natural gas, which do not depend on crude. Eventually we will get an electric car acceptable for daily use.

b) - When you're operating on a mark up basis and your costs are limited to Cost of Goods Sold (COGS) - you don't have much else eating at your margins. Let's say you work selling widgets and you work for 5% commission. If you sell 100 widgets for $5 - your comission is $25. Next month widgets are going for $10 and you still manage to sell 100 of them. Your commission is $50. Your profit went up even though your cost did. You have no other overhead to eat at your margins. Let's say you only sold 75 of them because of the higher price, your commission still went up to $37.50. Even if you cut your commission to 4%, your profit still would go up to $30. This the really basic reason oil company profits hit record levels.
They're never going to pay you to take it off their hands.

Regarding you're last statement - why? The chart I linked to shows that the price always climbs in anticipation of or during the holiday season, which immediately follows the election. Now why did they put that nasty old election right before the holiday season anyway? Just a bit too coincidental for my taste.

Just because somethign comes after something, doesn't mean that it caused it.

Daffy
2008-Oct-20, 02:39 PM
Just because somethign comes after something, doesn't mean that it caused it.

Granted. If it happens again this time, it will be asking a LOT of coincidence, though.

Also, last year prices did not fall drastically at the same time...there was no presidential election. But you're right...that doesn't prove causality. It is pretty strong evidence, though.

I mean, really, the very next day?

Click Ticker
2008-Oct-20, 02:45 PM
Granted. If it happens again this time, it will be asking a LOT of coincidence, though.

Also, last year prices did not fall drastically at the same time...there was no presidential election. But you're right...that doesn't prove causality. It is pretty strong evidence, though.

I mean, really, the very next day?

Evidence please. You keep saying this.

What was the national average price at the pump on November 2nd, 2004 vs. November 3rd, 2004.

http://www.allbusiness.com/energy-utilities/oil-gas-industry-oil-processing/5548715-1.html

From November 16th, 2004:


ORLANDO, Fla. -- The national average price of self-serve regular gasoline is continuing to drop after nearing record highs shortly before the U.S. Presidential election, AAA's daily, online Fuel Gauge

Here it says the price was reaching records before the election and began to drop after it. Even the one example you keep citing disagrees with your memory.

Daffy
2008-Oct-20, 02:49 PM
Evidence please. You keep saying this.

What was the national average price at the pump on November 2nd, 2004 vs. November 3rd, 2004.

There you have me, sorta. I am basing it on a survey I did myself of gas stations within a 75 mile radius of where I live. Probably looked at about 25 stations. All of them climbed from .10 to .25 cents the very next day.

And prices nationally began to shoot up very quickly...I just can't say first hand that it was the very next day. But they rose amazingly fast. In any case, they have not followed that exact pattern in any year except the last presidential election year and (so far) this one.

Coincidence? Maybe. I don't believe it, but maybe.

tdvance
2008-Oct-20, 05:39 PM
"a) How supply and demand operates with no competition."

The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.


"How it can be supply and demand when higher costs equal higher profits."

That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear. Demand goes down as price goes up (as happend with oil recently), less so in a monopoly than with competition, but it still does. If the monopoly tries to maximize profits, it will set a price dependent on supply and demand--any higher, reduced demand reduces profits. Any lower, the increase in demand is not enough to make up for reduction in price. I think the curve is roughly quadratic (or it looks that way, those I've seen in textbooks) and there is a definite maximal-profit equilibrium point.

If you think about it, that has to be true--or else they'd either charge infinity (i.e. refuse to sell it) or give it away for free. The former does happen in cases of too-low supply. The latter happens if supply is very high or demand very low (e.g. you don't pay for the air you breathe). In anything that gets sold, the balance point is somewhere in between. And supply and demand determine that balance point.

Daffy
2008-Oct-20, 05:46 PM
"a) How supply and demand operates with no competition."

The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.


"How it can be supply and demand when higher costs equal higher profits."

That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear. Demand goes down as price goes up (as happend with oil recently), less so in a monopoly than with competition, but it still does. If the monopoly tries to maximize profits, it will set a price dependent on supply and demand--any higher, reduced demand reduces profits. Any lower, the increase in demand is not enough to make up for reduction in price. I think the curve is roughly quadratic (or it looks that way, those I've seen in textbooks) and there is a definite maximal-profit equilibrium point.

If you think about it, that has to be true--or else they'd either charge infinity (i.e. refuse to sell it) or give it away for free. The former does happen in cases of too-low supply. The latter happens if supply is very high or demand very low (e.g. you don't pay for the air you breathe). In anything that gets sold, the balance point is somewhere in between. And supply and demand determine that balance point.

Thank you for the reasoned answer. I am mulling it over.

So far, the only limit I see on what they can charge is if they go to high, they drive the economy into recession, or even depression. I don't consider that supply and demand, but maybe that's semantics. As I say, you gave me things to think about.

Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.

Click Ticker
2008-Oct-20, 05:52 PM
Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.

I stated earlier, margins at the pump are rather slim. With only a few actual suppliers, many stations are likely getting their gas from the same refineries. Gas stations make their margins on the c-store products inside. You're more likely these days to see price wars on slurpies and hot dogs then on gas.

Back in the days of $10 per barrel oil and minimal gas taxes, the stations themselves likely had more of a margin to work with when pricing gas.

tdvance
2008-Oct-20, 05:59 PM
The limit is what people will pay--if gas prices are so high that coal-burning cars are cheaper, that's what will be made and what people will drive instead. Smaller increases in price result in things like, driving less, using the smaller car more and the SUV less, etc. Raising prices lowers demand so prices seek the maximum profit level, which can't be infinite clearly.

You would expect prices to be similar between stations--as raising prices at one station without doing so at another means people will start moving from one station to the other.

The reason they are not exactly the same is not everyone moves from one station to another for various reasons: good location, other services/goods besides gasoline, etc. Also, a store that gets its profit mostly from goods and just has gas pumps as an afterthought might charge a lower profit margin on gas to get people to visit the store. These are typically slight differences.

Price wars might happen if gas stations are charging higher than the optimal price--that can happen temporarily--the farther from equilibrium a price is, the more economic pressure to move it back. One way that pressure is manifest is one station realizing it will make more profit if they drop the price a little, which reduces pressure on that station while increasing on the others. If the price they are charging is pretty close to optimal so cutting prices reduces profits, the station is not so likely to reduce prices.

Daffy
2008-Oct-20, 07:35 PM
The limit is what people will pay--if gas prices are so high that coal-burning cars are cheaper, that's what will be made and what people will drive instead. Smaller increases in price result in things like, driving less, using the smaller car more and the SUV less, etc. Raising prices lowers demand so prices seek the maximum profit level, which can't be infinite clearly.

You would expect prices to be similar between stations--as raising prices at one station without doing so at another means people will start moving from one station to the other.

The reason they are not exactly the same is not everyone moves from one station to another for various reasons: good location, other services/goods besides gasoline, etc. Also, a store that gets its profit mostly from goods and just has gas pumps as an afterthought might charge a lower profit margin on gas to get people to visit the store. These are typically slight differences.

Price wars might happen if gas stations are charging higher than the optimal price--that can happen temporarily--the farther from equilibrium a price is, the more economic pressure to move it back. One way that pressure is manifest is one station realizing it will make more profit if they drop the price a little, which reduces pressure on that station while increasing on the others. If the price they are charging is pretty close to optimal so cutting prices reduces profits, the station is not so likely to reduce prices.

In the case of oil (pun intended), it is NOT what people are willing to pay. It is a commodity that they MUST have (in most cases) to survive. Once again, Supply and Demand is not the controlling factor...they will pay as much as the CAN pay to survive.

This to me is one of the crucial differences, that makes me question Supply and Demand in this case. It's not what they WILL pay, it's the maximum they CAN pay.

The whole situation is becoming alarmingly like the old company stores in the 19th century. Workers had no choice but to buy from that store, and ended up in debt to the company. That was not supply and demand (although the owners tried to say it was), either. Although, based on what people here are saying, I guess you would probably say so too.

SeanF
2008-Oct-20, 07:57 PM
And prices nationally began to shoot up very quickly...I just can't say first hand that it was the very next day. But they rose amazingly fast. In any case, they have not followed that exact pattern in any year except the last presidential election year and (so far) this one.
Daffy, Spock's posted article was two weeks after the election and prices were still dropping.


Coincidence? Maybe. I don't believe it, but maybe.
No, it's not even coincidence.

Daffy
2008-Oct-20, 08:23 PM
Daffy, Spock's posted article was two weeks after the election and prices were still dropping.


No, it's not even coincidence.

Still paying $1.50, are we?

In any case, I only know what I checked out myself...and in California they started rising immediately. The very next day.

PraedSt
2008-Oct-20, 08:40 PM
Since Daffy stared posting on this thread, the price of crude oil has shot up 4%!!!!
Coincidence? I think not... :(

Daffy
2008-Oct-20, 09:29 PM
Since Daffy stared posting on this thread, the price of crude oil has shot up 4%!!!!
Coincidence? I think not... :(

You found me out. I control...everything. :)

SeanF
2008-Oct-21, 01:19 AM
Still paying $1.50, are we?
So now four years later is "amazingly fast."


In any case, I only know what I checked out myself...and in California they started rising immediately. The very next day.
I'm not denying your personal experience. What I'm denying is - first, that it was a nationwide occurance; and, second, that the election had anything to do with it.

Daffy
2008-Oct-21, 01:42 AM
So now four years later is "amazingly fast."

Didn't say that, didn't even imply it in that sentence. Was just making a flip remark. Sorry I didn't use a smilie for ya.



I'm not denying your personal experience. What I'm denying is - first, that it was a nationwide occurance; and, second, that the election had anything to do with it.

Hardly just a personal experience...it was state-wide. Nevertheless, I cannot prove it was nationwide (and am not going to take time to do the research), so I will concede your point that nationally, it did not start occurring the very next day.

That doesn't change much. After dropping dramatically just before the election, they rose even higher after.

The next October/November, and the one after that and the one after that, we did not see the same drop. This time, just before another presidential election, we do. So much for seasonal explanations. But you can believe whatever you like.

Look, I am not saying that there is a conspiracy. Why would there be? Nothing here is illegal. All I am saying is that to claim gas prices are a direct result of Supply and Demand, is, at best, leaving out some very crucial factors.

If you would like to know my only real suggestion: enforce the existing anti-trust laws. As I said before, they were originally enacted specifically to control Standard Oil.

Since I am starting to repeat myself, I will sign off on this topic. See you in December.

Click Ticker
2008-Oct-21, 01:42 PM
Hardly just a personal experience...it was state-wide. Nevertheless, I cannot prove it was nationwide (and am not going to take time to do the research), so I will concede your point that nationally, it did not start occurring the very next day.

By the way, you can customize that chart linked above to local areas. I pulled one for Orange County, CA for the past six years. It shows a pretty dramatic decrease in price at the pump that appears to have begun some time in October (prior to the election) and continued through year end. I'm just not finding anything to support your claim.

I'm really looking. Are you?

Hlite
2008-Oct-21, 02:42 PM
"a) How supply and demand operates with no competition."

The Laffer curve might be higher (or lower? I forget which axis is which) in a monopoly than in free competition, but it's still there, and the location of the equilibrium point is determined by supply and demand.

I think you mean the supply curve.


Thank you for the reasoned answer. I am mulling it over.

So far, the only limit I see on what they can charge is if they go to high, they drive the economy into recession, or even depression.

In the united state, gasoline consumption was lower during the period of very high prices than it was a year previously.


I don't consider that supply and demand,

I disagree with the premise that the only limit to prices is recession-induced drop in demand, but if it were, that's exactly the operation of supply and demand in a monopolistic market (again, I disagree that it is monopolistic). A monopoly provider sets prices to maximize profits. The slope of the supply curve is different in a monopolistic market than in a competitive market, but as tdvance says, it's still there.

If the price is whatever the suppliers decide it should be, why was oil $11 a barrel a few years ago? Were they feeling charitable?

Supply also responds to price changes - as prices increase, suppliers have incentive to explore and devlope new supplies of energy that were not economical to exploit before. THis is happening. Wind farms are being put up in places where they weren't economical before, new oil supplies that were too expensive to exploit before are being developed, and so on.


Perhaps you can explain for me (serious question) why, if supply and demand is controlling things, the prices at gas pumps are so close from station to station? Back in the days when we really did have competition (even to me), you saw "price wars" all the time. Not so now.

If one station charged a higher price than everyone else, very few people would buy their gas there, so the operator of that station has huge incentive to match the prevailing price. This is typical for commodity markets, in which the product produced by one supplier is pretty much the same as the product produced by another. (Maybe there can be some small differences due to things like location effect, a station alongside the highway could charge a slightly higher price because people don't want to take the trouble to drive off the highway to look for cheaper prices.) If products are differentiated, then we wouldn't expect to see the same prices - the Mercedes Benz dealer does not charge the same price for cars as the Volkswagen dealer, because their products are different. But gas is pretty much gas - if someone's price is too high, they lose all their business, if their price is too low, they will be oversubscribed and have an incentive to raise prices.

Regarding oil being a necessity for survival, how much do people need to survive? Per capita oil consumption in the united states is twice that in switzerland, five times that in chile, seven times that in turkey, and eleven times that in colombia. Per capita oil consumption is much higher than it was in the past. And yet, people in those other countries somehow survive, as did people from the past. There are many things people can do to reduce their oil consumption if they choose to do so. They can drive compact, fuel efficient cars instead of SUVs. They can drive their cars less. They can take public transportation. They can go on holiday close to home instead of travelling across the country or around the world. They can move closer to their workplaces. They can live in smaller houses or apartments, and they can do things to improve the energy efficiency of their homes.

Energy demand is relatively inelastic (at least short-term), meaning that demand is not very sensitive to changes in price. But to say that people cannot do anything to reduce their energy consumption if they want is simply not true. And even if energy demand is completely inelastic (doesn't change at all with prices), that doesn't mean supply and demand cease to operate.

Click Ticker
2008-Nov-07, 07:20 PM
For the benefit of tdvance.

How are the gas prices in your area, Daffy?

I've seen as low as $2.11 here recently.

Daffy
2008-Nov-07, 08:46 PM
For the benefit of tdvance.

How are the gas prices in your area, Daffy?

I've seen as low as $2.11 here recently.

Holding more or less steady. If they have not started rising dramatically by December I will readily concede that I was wrong. Believe it or not, that's what I actually hope for.

Click Ticker
2008-Nov-07, 09:50 PM
Holding more or less steady. If they have not started rising dramatically by December I will readily concede that I was wrong. Believe it or not, that's what I actually hope for.

I fully expect them to rise with the coming of the holiday season. That would be a perfectly normal response to an increase in demand. More shipping of goods, more travel to see relatives, rise in demand for heating oil due to colder temperatures.

I will be quite surprised if prices don't increase as that has been the historical norm around this time of year. Why one would attribute it to the election - I do not understand.

Daffy
2008-Nov-07, 10:08 PM
I fully expect them to rise with the coming of the holiday season. That would be a perfectly normal response to an increase in demand. More shipping of goods, more travel to see relatives, rise in demand for heating oil due to colder temperatures.

I will be quite surprised if prices don't increase as that has been the historical norm around this time of year. Why one would attribute it to the election - I do not understand.

We have already entered the "holiday Season" and prices have dropped dramatically. And they did NOT do so last year or the year before that. They did during the last presidential election, though.

Why?

But, whatever, change whatever parameters you like to cling to your viewpoint. As for me, though, if prices stay relatively constant for a while, I will admit I was wrong about the election being an influence.

Tuckerfan
2008-Nov-07, 10:11 PM
We have already entered the "holiday Season" and prices have dropped dramatically. And they did NOT do so last year or the year before that. They did during the last presidential election, though.

Why?

But, whatever, change whatever parameters you like to cling to your viewpoint. As for me, though, if prices stay relatively constant for a while, I will admit I was wrong about the election being an influence.

The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.

korjik
2008-Nov-07, 10:45 PM
The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.

You swiped my point! :)

This situation is more like 1985 than 2004. A drop in demand has caused the price drop. The cost of fuel finally got high enough to force conservation. Should the demand stay down, OPEC will have to seriously cut production to get the price to go back up to the maximums we saw this summer.

Daffy
2008-Nov-07, 11:41 PM
The reason why they've stayed low is pretty obvious: Demand has plummeted. Nobody's projecting a "good" holiday shopping season. Wal-Mart is about the only retailer to see an uptick in sales. Less demand for consumer goods means that there's fewer items being shipped around the world. Which means less demand for fuel.

So...demand has plummeted (true) and prices have dropped. That makes sense, of course.

But in years past, when demand dropped seasonally, prices went up anyway. That right there shows that supply and demand cannot be the only controlling factors.

Look, I am not saying supply and demand are not influences...of course they are; but to say they are the sole cause of prices being at any given level makes no sense.

As far as the presidential election being an influence...once again, I am prepared to admit I was wrong if prices stay relatively stable for the next few weeks.

Tuckerfan
2008-Nov-08, 12:24 AM
So...demand has plummeted (true) and prices have dropped. That makes sense, of course.

But in years past, when demand dropped seasonally, prices went up anyway. That right there shows that supply and demand cannot be the only controlling factors.There's two kinds of seasonal demands, however. Gasoline and home heating oil. Generally, when the demand for gasoline bottoms out, the demand for home heating oil spikes. A gallon of home heating oil requires more crude than does gasoline, so even though the demand for home heating oil is limited to primarily the northeastern US, it can have a disproportionate affect on energy prices.

This year, however, things have shifted dramatically. People have either switched to a less costly form of heat (or installed supplimental heat sources like wood stoves), made the mistake of buying early when it looked like energy prices were going to skyrocket (in hopes of beating the higher costs which were expected when winter rolled around), or they're not buying because they can't afford it.

sarongsong
2008-Nov-08, 12:43 AM
"a) How supply and demand operates with no competition."
...the location of the equilibrium point is determined by supply and demand.
"How it can be supply and demand when higher costs equal higher profits."
That's not uniformly true. When something gets priced out of the market, either the price comes down or profits disappear...So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:
October 30, 2008
...Exxon benefited from the high price of crude oil. Its profits amounted to $162m a day or $113,000 a minute...
The Guardian (http://www.guardian.co.uk/business/2008/oct/30/oil-shell-exxon-profits)Why don't their profits remain relatively flat if they are not gouging us?

Van Rijn
2008-Nov-08, 01:10 AM
There was an oil price bubble, with the demand, psychology and speculation helping feed it. The prices weren't sustainable, prices came down and profits are dropping.

tdvance
2008-Nov-08, 01:14 AM
We have already entered the "holiday Season" and prices have dropped dramatically. And they did NOT do so last year or the year before that. They did during the last presidential election, though.

Why?

But, whatever, change whatever parameters you like to cling to your viewpoint. As for me, though, if prices stay relatively constant for a while, I will admit I was wrong about the election being an influence.

"sort of entered the Holiday season", that is. The shopping mall parking lots still have plenty of space to park, currently, so demand has not increased enough to cause the usual Holiday gas price increase.

No, you said the election had to be an influence because after the election, prices rose the very next day. If you wait until there are other, known causes, you can't say it's the election. It's the same kind of fallacy as: "I can make the sun rise, but only if you wait till dawn".

Again, I say, it's supply and demand. Politicians have some influence, but much less than supply and demand does. Now if prices changed at the time a law was signed or an executive order passed, you might have a case.

tdvance
2008-Nov-08, 01:20 AM
So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:Why don't their profits remain relatively flat if they are not gouging us?

short answer: volume. The oil companies make about 9 cents on every gallon of gas sold. Even in a slump, there still are an awful lot of gallons. (I saw the same principle, on a smaller scale, when I was a grocery sacker--we made about 5 cents per bag of groceries. So, if you double bagged, using twice as many bags as needed, given that bags cost about 5 cents each, profit would be zero--that's why supermarkets double bag rarely, or only if asked to). You cannot really attribute more than 9 cents of the price per gallon on profits.

Why does Wal-mart operate in less-wealthy neighborhoods and still be near the top in earnings? volume. Volume rewards tiny margins--and that's good. That keeps prices from going up so high (before Wal-Mart, 45% markup was pretty common--Wal-Mart went from one store to what it is today with on the order of 5% markup, and the customers benefitted from the lower prices).

tdvance
2008-Nov-08, 01:24 AM
Actually, the jealousy of profits is not as reasonable as one might think--the profit incentive is a huge boost on the economy--we wouldn't even have Wal-Mart without the profit incentive. Profits also attract investors, who are needed for innovation. There is a reason the most fundamental inventions: telephone, electric light, automobile, sound recording, etc. were made by people in search of profit. Profit first, and then war, seem to be the biggest innovation boosters.

PraedSt
2008-Nov-08, 01:24 AM
So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:Why don't their profits remain relatively flat if they are not gouging us?

Do you actually want an explanation; or are you just making a point?

Ronald Brak
2008-Nov-08, 01:38 AM
So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:Why don't their profits remain relatively flat if they are not gouging us?

Step 1: Own a lot of oil.
Step 2: Oil triples in price.
Step 3: Profit!!!

Van Rijn
2008-Nov-08, 01:45 AM
short answer: volume.


Volume or not, their profits are dropping because the price is dropping. They aren't going to be nearly as impressive for the next few quarters (at least). Though, I expect that won't be reported as widely.

sarongsong
2008-Nov-08, 01:47 AM
Do you actually want an explanation; or are you just making a point?Here, let me re-phrase it for you:
So how to explain the major oil companies last quarter's RECORD PROFITS, led by Exxon:Why don't their profits remain relatively flat if they are not gouging us?:rolleyes:

Musashi
2008-Nov-08, 01:49 AM
IOW, no.

sarongsong
2008-Nov-08, 01:52 AM
(Wow! Where've you been, Musashi! :) )

PraedSt
2008-Nov-08, 01:53 AM
Here, let me re-phrase it for you::rolleyes:

Making a point then. :)

sarongsong
2008-Nov-08, 02:03 AM
No, it was a genuine question.

Daffy
2008-Nov-08, 02:11 AM
"sort of entered the Holiday season", that is. The shopping mall parking lots still have plenty of space to park, currently, so demand has not increased enough to cause the usual Holiday gas price increase.

No, you said the election had to be an influence because after the election, prices rose the very next day. If you wait until there are other, known causes, you can't say it's the election. It's the same kind of fallacy as: "I can make the sun rise, but only if you wait till dawn".

Again, I say, it's supply and demand. Politicians have some influence, but much less than supply and demand does. Now if prices changed at the time a law was signed or an executive order passed, you might have a case.

As I said a number of posts ago, if by December they haven't skyrocketed, I'll concede that I was wrong...happily. On the other hand, if they go back to $4.50 a gallon by then, there is no way you'll convince me demand went up that much. I mean, let's not be completely gullible.

See you in December.

Musashi
2008-Nov-08, 02:13 AM
(Wow! Where've you been, Musashi! :) )

Got married, went on a honeymoon, started a business, started house hunting, got a dog... :)

jrkeller
2008-Nov-08, 04:14 AM
I saw gas for 1.939 a gallon.

Van Rijn
2008-Nov-08, 04:18 AM
California prices tend to be a bit higher than much of the country, and I use premium, but today, I saw premium for $2.54 a gallon at my favorite station. That's more than a two dollar a gallon drop from the peak.

PraedSt
2008-Nov-08, 08:45 AM
No, it was a genuine question.

Excellent points above. One more way sarongsong:

Current situation

1. Let's assume that the oil companies are indeed gouging us.
2. This means that they are charging us an unfairly high price.
3. This means that oil market is a sellers market.
4. This means that we need them more than they need us.

Some possible ways to correct No 4.

1. Find more companies who have more oil to sell. Oil companies will become more desperate to sell what they have.

2. Find something we can use other than oil. Now, not only will they become more desperate as above, but we will also need less of their oil.

3. Fix the price of oil by law. This works by bypassing the problem.

4. Get the government to pay the oil companies an amount for each gallon they sell. This will make them more desperate to sell, in order to make the most amount of 'free money' that they can.

Murphy's Law (or in Economics: No such thing as a free lunch)

Solutions (3.) and (4.) are poor solutions, but they act fast.
Solutions (1.) and (2.) are better solutions, but they are slow.

Hope that helps.

Ronald Brak
2008-Nov-08, 10:16 AM
In related news, the sale of domestically produced US cars in October were down 27% from a year ago, while domestic light trucks and SUVs were down 40%.

Van Rijn
2008-Nov-08, 10:28 AM
Solutions (1.) and (2.) are better solutions, but they are slow.

Hope that helps.

And, because they are slow, if the price stays down around the current level there will be far less encouragement of new production or substitution than there would if the price had stayed up.

It wouldn't surprise me if this oil price bubble, after a little time for the worry to fade out (especially with the economic downturn to worry about) might be largely forgotten for a good number of years, aside from some limited increase in alternate production, substitution and use efficiency.

EricM407
2008-Nov-08, 10:49 AM
short answer: volume. The oil companies make about 9 cents on every gallon of gas sold. Even in a slump, there still are an awful lot of gallons. (I saw the same principle, on a smaller scale, when I was a grocery sacker--we made about 5 cents per bag of groceries. So, if you double bagged, using twice as many bags as needed, given that bags cost about 5 cents each, profit would be zero--that's why supermarkets double bag rarely, or only if asked to). You cannot really attribute more than 9 cents of the price per gallon on profits.

There is huge increase in profit for somebody when the price of a barrel of oil goes from $70 to $150. The costs of pumping and transporting that oil did not cause the price increase. It's profitable at $70 a barrel, and it's even more profitable at $150 a barrel.

Whatever subsidiary of X Brand Oil it is that does the final refining and retail sale of gasoline may be making 9 cents a gallon at that stage of the process, but I assume that's after figuring the price of oil as a "cost" to them. Is that what it really is? Or are they another arm of the company that pumped the oil out and sold it in the first place?

jrkeller
2008-Nov-08, 12:52 PM
I saw gas for 1.939 a gallon.

Make that for regular. Premiun was around $2.169

tdvance
2008-Nov-08, 03:15 PM
As I said a number of posts ago, if by December they haven't skyrocketed, I'll concede that I was wrong...happily. On the other hand, if they go back to $4.50 a gallon by then, there is no way you'll convince me demand went up that much. I mean, let's not be completely gullible.

See you in December.

Me either--demand won't go up enough to make it $4.50/gal when December gets here. I'd immediately look for another cause, and if none, perhaps even the election.

But it won't happen. December is only 23 days away, and even the Christmas shopping demand will just have gotten started (starting the day after Thanksgiving, traditionally, when so many stores have a sale to bring back people who left town for Thanksgiving--many like me, going from an urban area to a rural area).

tdvance
2008-Nov-08, 03:19 PM
And, because they are slow, if the price stays down around the current level there will be far less encouragement of new production or substitution than there would if the price had stayed up.

It wouldn't surprise me if this oil price bubble, after a little time for the worry to fade out (especially with the economic downturn to worry about) might be largely forgotten for a good number of years, aside from some limited increase in alternate production, substitution and use efficiency.



ha ha--I can't resist--the low prices are a conspiracy!!! They keep us from dumping oil completely! Just like the high prices were a conspiracy to get rich! When prices stay the same, its also a conspiracy to make us complacent! In fact, the first oil well was a conspiracy!!! And the invention of the automobile too!!!

tdvance
2008-Nov-08, 03:23 PM
Make that for regular. Premiun was around $2.169


Luckily, if you have a car made since, 2000 or even a bit before, premium is not all that helpful--it handles regular well enough.

To be sure, check your owner's manual, which gives the suggested Octane rating--most newer cars put it about where regular usually is.

If you want the detergents, get regular at Shell instead of premium at Joe's Gas.

Someone told me a tank of premium once in a while can help, but I don't know how true that is.

Van Rijn
2008-Nov-08, 10:20 PM
Most cars don't require premium, but it does depend on the car. Mine has a high compression turbocharged engine and specifically recommends premium. If I were to buy a car today, I might choose differently, but I like the car, and it does have good acceleration (I hate cars that can't move when I want them to).

Van Rijn
2008-Nov-08, 10:28 PM
ha ha--I can't resist--the low prices are a conspiracy!!! They keep us from dumping oil completely!


:) Not so much a conspiracy, but that isn't completely wrong. It doesn't help the major oil producing countries if the price of oil goes so high that a lot of the market goes away.

Tuckerfan
2008-Nov-08, 10:30 PM
Someone told me a tank of premium once in a while can help, but I don't know how true that is.

It might have been true back in the days before computerized emission controls, but its not any more. In fact, if your engine is designed for regular and you run premium in it at all times, you run the very real risk of screwing up the pollution controls. The occassional tank won't hurt, but it won't do you any good, either.

Ronald Brak
2008-Nov-09, 12:41 AM
A person once told me he bought premium in order to protect his engine, but I figured that if he wanted to protect his engine he should stop driving like a nut.

Daffy
2008-Nov-09, 11:21 PM
:) Not so much a conspiracy, but that isn't completely wrong. It doesn't help the major oil producing countries if the price of oil goes so high that a lot of the market goes away.

Are you suggesting they actually have some sort of control over how much they charge for oil and gasoline? Say it ain't so! ;)

Van Rijn
2008-Nov-09, 11:42 PM
Are you suggesting they actually have some sort of control over how much they charge for oil and gasoline? Say it ain't so! ;)

What they can do is reduce or increase the amount of oil they put on the market, but that has limits. There are different priorities, there are non-OPEC producers, and increasing or decreasing production too much are both bad for them. Increasing production too much means a glut on the market. Decreasing too much encourages alternate production, substitution, and more efficient use/lower demand, ultimately reducing their influence, and their income.

Daffy
2008-Nov-10, 05:07 AM
What they can do is reduce or increase the amount of oil they put on the market, but that has limits. There are different priorities, there are non-OPEC producers, and increasing or decreasing production too much are both bad for them. Increasing production too much means a glut on the market. Decreasing too much encourages alternate production, substitution, and more efficient use/lower demand, ultimately reducing their influence, and their income.

Dude...your sense of humor called: it wants you to come pick it up.

PraedSt
2008-Nov-10, 06:50 AM
I keep meaning to post this.

Weekly retail gas/petrol prices, for Europe and the US (http://www.eia.doe.gov/emeu/international/gas1.html).

Two words of caution when looking at the numbers :)

1. These numbers are in US dollars, but exchange rates are not accounted for. For example, if gas/petrol prices were unchanged, but the Euro suddenly strengthened, this table would show that gas/petrol prices in Europe had risen, which would be misleading.

2. These numbers don't take into account income levels in Europe and the US. The same gas/petrol price in both areas could mean very different levels of 'hardship/inconvenience' between the two sets of consumers.

Still. This is the latest set of data. In US dollars pre gallon.
Date: Nov 3rd 2008
Belgium: 5.92
France: 5.89
Germany: 6.00
Italy: 6.01
Holland: 6.51 (highest)
UK: 5.85
US: 2.68 (lowest)

closetgeek
2008-Nov-10, 05:07 PM
I can't help but wonder if the sudden explosion of gas stations all around here switching to digital signs has anything to do with the constant fluxuation in prices. Yesterday, when I left my house, the price of regular was $2.29. When I passed the same gas station on my way hom, it was $2.24...nice!

Tuckerfan
2008-Nov-10, 07:03 PM
I can't help but wonder if the sudden explosion of gas stations all around here switching to digital signs has anything to do with the constant fluxuation in prices. Yesterday, when I left my house, the price of regular was $2.29. When I passed the same gas station on my way hom, it was $2.24...nice!

Yes. They got tired of paying a guy to sit on a ladder and change the numbers every five minutes.

sarongsong
2008-Nov-11, 12:31 AM
Venezuela only charges 12/gal. :)

Ronald Brak
2008-Nov-11, 01:33 AM
Venezuela only charges 12/gal.

It's a pity that Venezuelans are getting ripped off like that.

Musashi
2008-Dec-02, 12:13 AM
December 1st. Saw gas for $1.83 here today. The lowest it has been in quite some time.

Tinaa
2008-Dec-02, 12:23 AM
1.68 here.

PetersCreek
2008-Dec-02, 12:51 AM
If only we enjoyed those prices. I saw a drop to $2.549 just this morning on the way to work.

Musashi
2008-Dec-02, 03:21 AM
Oh yeah, just to be clear, the $1.83 (USD)/gal was for regular. Add 10 cents for plus and 10 more for premium.

Ilya
2008-Dec-02, 03:25 AM
As I said a number of posts ago, if by December they haven't skyrocketed, I'll concede that I was wrong...happily. On the other hand, if they go back to $4.50 a gallon by then, there is no way you'll convince me demand went up that much. I mean, let's not be completely gullible.

See you in December.

It's December 1st. Just saw $1.79 per gallon. Gasoline prices in Massachusetts are lowest in four years.

Tuckerfan
2008-Dec-02, 04:32 AM
Its $1.49 around here.

Whirlpool
2008-Dec-02, 04:48 AM
Here it's $2.6 per gallon and I heard there is another adjustment tonight.

Click Ticker
2008-Dec-02, 04:08 PM
Between $1.67 and $1.75 a gallon here.

I did notice the day before Thanksgiving in the U.S. had it about $1.62. Then it jumped to $1.79 over the holiday. Sure - let them get where they are going before you charge them a premium to get home.

Musashi
2008-Dec-02, 04:37 PM
The U.S. is a pretty big place. Here there was no jump, just a steady decline since about June.

Daffy
2008-Dec-02, 05:49 PM
It's December 1st. Just saw $1.79 per gallon. Gasoline prices in Massachusetts are lowest in four years.

Yep...I was totally wrong about the presidential election.

However, this dramatic a drop is hardly the work of pure supply and demand, either. Still, I'll enjoy it while it lasts...it is saving me about $500 per month.

TheHalcyonYear
2008-Dec-02, 06:07 PM
Yep...I was totally wrong about the presidential election.

However, this dramatic a drop is hardly the work of pure supply and demand, either. Still, I'll enjoy it while it lasts...it is saving me about $500 per month.
Of course not, it must be it's an international conspiracy! :shifty:

:doh:

Larry Jacks
2008-Dec-02, 06:21 PM
It seems as if the same speculation that drove up the price to over $140 a barrel last summer is now driving down the price today. It seems to me that the price is dropping faster than the demand.

Local best price I've seen is $1.45 a gallon for regular. It has been dropping several cents almost daily for weeks. Not that I'm complaining but this hardly seems like a sustainable trend. At this rate, it'll be around $1 a gallon by the end of the year.

Daffy
2008-Dec-02, 06:57 PM
Of course not, it must be it's an international conspiracy! :shifty:

:doh:

I love it when people put words in my mouth that I have never said. Read through the entire thread for my reply...this kind of foolishness is way too boring to have to deal with yet again.

Cute smilie...applies more to you than me, though.

Daffy
2008-Dec-02, 06:59 PM
It seems as if the same speculation that drove up the price to over $140 a barrel last summer is now driving down the price today. It seems to me that the price is dropping faster than the demand.

Local best price I've seen is $1.45 a gallon for regular. It has been dropping several cents almost daily for weeks. Not that I'm complaining but this hardly seems like a sustainable trend. At this rate, it'll be around $1 a gallon by the end of the year.

I tend to agree, at least in part. Certainly demand has not dropped to 1/3 of what it was 2 months ago. I also wonder if the OPEC nations have realized that by artificially inflating prices they were about to tank their own economies as well as ours.

Click Ticker
2008-Dec-02, 07:15 PM
I tend to agree, at least in part. Certainly demand has not dropped to 1/3 of what it was 2 months ago. I also wonder if the OPEC nations have realized that by artificially inflating prices they were about to tank their own economies as well as ours.

Demand and prices don't move in lock step. Meaning demand doesn't have to change by 75% in order for the price to change by 75%. The curve can be quite dramatic.

If the market for X consists of 100 people and producers have been producing to meet that demand - 10 new buyers in the market could throw the price way up. It wouldn't just increase by 10%. It would increase by an amount sufficient to either incent the producers to make more, or to chase 10 buyers out of the market. Likely some combination of the two.

The only way OPEC "artificially" inflates prices is by controlling production. It's still Supply and Demand at work. They are simply impacting the supply side, which they have some control over. They do not set the price per barrel on oil. Notice that all of the articles about OPEC discuss changes in production. I've never seen one that says, "OPEC has decided that oil will cost $100 a barrel today".

You really need to take an ECON 101 course and better understand just what supply and demand is.

http://en.wikipedia.org/wiki/Supply_and_demand

Not too shabby a write up. Even talks about the curve for the oil market.

Daffy
2008-Dec-02, 07:44 PM
Demand and prices don't move in lock step. Meaning demand doesn't have to change by 75% in order for the price to change by 75%. The curve can be quite dramatic.

If the market for X consists of 100 people and producers have been producing to meet that demand - 10 new buyers in the market could throw the price way up. It wouldn't just increase by 10%. It would increase by an amount sufficient to either incent the producers to make more, or to chase 10 buyers out of the market. Likely some combination of the two.

The only way OPEC "artificially" inflates prices is by controlling production. It's still Supply and Demand at work. They are simply impacting the supply side, which they have some control over. They do not set the price per barrel on oil. Notice that all of the articles about OPEC discuss changes in production. I've never seen one that says, "OPEC has decided that oil will cost $100 a barrel today".

You really need to take an ECON 101 course and better understand just what supply and demand is.

http://en.wikipedia.org/wiki/Supply_and_demand

Not too shabby a write up. Even talks about the curve for the oil market.

So...by reducing production, they artificially inflate prices. I think that's what I just said, using different words. I did not say that is the only controlling factor, either. But if supply and demand were truly controlling prices, they wouldn't be able to do that.

The personal dig was unnecessary, but totally expected.

Click Ticker
2008-Dec-02, 07:59 PM
So...by reducing production, they artificially inflate prices. I think that's what I just said, using different words. I did not say that is the only controlling factor, either. But if supply and demand were truly controlling prices, they wouldn't be able to do that.

The personal dig was unnecessary, but totally expected.

I have a pretty long history on this forum without levying personal insults at people. It wasn't a dig at you, it was a recommendation. I think you have the capacity to understand the concept - I just don't think you've been taught it.

Perhaps I could have worded it more tactfully. For that, I apologize.

I could stand to take quite a few 101 courses myself. That's not a bad thing.

What do you think people mean when they say "supply and demand"?

Also - I need to add a point of clarification to something said earlier. It was indicated that OPEC was artificially inflating prices. This, to me, says that OPEC got together one day and decided Oil should be $140 a barrel. That's not what was happening. It was the speculators in the futures market bidding up contracts that was driving the price. When they decided to take their profits and run, the market for the futures contracts dried up and the prices came back to earth. OPEC was certainly happy about the high prices, but they weren't directly controlling them.

Daffy
2008-Dec-02, 08:02 PM
I have a pretty long history on this forum without levying personal insults at people. It wasn't a dig at you, it was a recommendation. I think you have the capacity to understand the concept - I just don't think you've been taught it.

Perhaps I could have worded it more tactfully. For that, I apologize.

I could stand to take quite a few 101 courses myself. That's not a bad thing.

What do you think people mean when they say "supply and demand"?

I'll answer that by posing a question to you: are you saying that if someone has control over supply with little or no competition, then the laws of supply and demand are at work?

Click Ticker
2008-Dec-02, 08:11 PM
I'll answer that by posing a question to you: are you saying that if someone has control over supply with little or no competition, then the laws of supply and demand are at work?

Yes it is.

Supply and demand is and explanation of how a final price was arrived at. One parties control of the supply really doesn't take away from the fact the equilibrium price is reached where supply and demand intersect. If they control the supply by cutting production to the point that the few buyers remaining in the market are willing to pay $1,000 a barrel for oil - this is still supply and demand.

Daffy
2008-Dec-02, 08:35 PM
Yes it is.

Supply and demand is and explanation of how a final price was arrived at. One parties control of the supply really doesn't take away from the fact the equilibrium price is reached where supply and demand intersect. If they control the supply by cutting production to the point that the few buyers remaining in the market are willing to pay $1,000 a barrel for oil - this is still supply and demand.

Well, the way I was taught (and, yes, I did have econ classes in college) competition was crucial for supply and demand to work. If you say that is no longer being taught, I have no argument.

Edited to add:
Of course, a simple google search turned this up (It would seem it is still being taught somewhere):

The laws of supply and demand are best evident in a competitive market. Competition causes businesses to try new ways to attract customers by lowering prices, improving quality and developing new products and services.
http://library.thinkquest.org/C008486F/iiid.htm

And this (Emphasis mine):

The crucial ideas are that supply and demand are determined separately. The sellers determine the supply. The buyers determine the demand. In a free competitive market, the price of whatever it is moves up or down until the amount supplied equals the amount demanded. When the price stops moving, you have what is called equilibrium.
http://hspm.sph.sc.edu/courses/Econ/SD/SD.html

Hmmm...maybe I did better in Econ 101 than you did?

Van Rijn
2008-Dec-02, 09:11 PM
Well, the way I was taught (and, yes, I did have econ classes in college) competition was crucial for supply and demand to work. If you say that is no longer being taught, I have no argument.


No, a monopoly or oligopoly can distort supply over that of a highly competitive market, but supply and demand still apply.




Hmmm...maybe I did better in Econ 101 than you did?

Or maybe you missed some important points.

mugaliens
2008-Dec-02, 09:28 PM
Venezuela only charges 12/gal. :)

Is that before, or after refining it?

Click Ticker
2008-Dec-02, 09:43 PM
Well, the way I was taught (and, yes, I did have econ classes in college) competition was crucial for supply and demand to work. If you say that is no longer being taught, I have no argument.

Hmmm...maybe I did better in Econ 101 than you did?

What you posted said that
The laws of supply and demand are best evident in a competitive market.

This is true. It doesn't mean they don't apply in other markets. It just means they are easiest to explain and understand in a competative market. In other markets where the supply is tightly controlled or inelastic - things can get a bit confusing - but it's still supply and demand.

It's been a while, but I think I got an 'A'. The demonstration that most stuck with me was the M & M's explanation for diminishing marginal utility. Eat a 1 lb. bag of M & M's and the concept will never be forgotten.

tdvance
2008-Dec-02, 09:49 PM
Yep...I was totally wrong about the presidential election.

However, this dramatic a drop is hardly the work of pure supply and demand, either. Still, I'll enjoy it while it lasts...it is saving me about $500 per month.

What is it a result of, then?

A story on the news today--DC metro ridership increased 5% last month. Sounds like a drop in demand for gasoline to me!

tdvance
2008-Dec-02, 09:51 PM
Well, the way I was taught (and, yes, I did have econ classes in college) competition was crucial for supply and demand to work. If you say that is no longer being taught, I have no argument.

The curves are not exactly the same in a monopoly versus full competition, but the price is still set by supply and demand. If it weren't, a monopoly would simply charge infinity and quit tomorrow to enjoy the wealth.

Daffy
2008-Dec-02, 10:40 PM
The curves are not exactly the same in a monopoly versus full competition, but the price is still set by supply and demand. If it weren't, a monopoly would simply charge infinity and quit tomorrow to enjoy the wealth.

Isn't that what they just did until the world economy started to break down (I am not suggesting that was the only cause...far from it)?

Daffy
2008-Dec-02, 10:41 PM
What you posted said that

This is true. It doesn't mean they don't apply in other markets. It just means they are easiest to explain and understand in a competative market. In other markets where the supply is tightly controlled or inelastic - things can get a bit confusing - but it's still supply and demand.

It's been a while, but I think I got an 'A'. The demonstration that most stuck with me was the M & M's explanation for diminishing marginal utility. Eat a 1 lb. bag of M & M's and the concept will never be forgotten.

Maybe we're not as far apart on this as we both seem to think.

I got a "C." How's that for honesty?

TheHalcyonYear
2008-Dec-02, 11:55 PM
I love it when people put words in my mouth that I have never said. Read through the entire thread for my reply...this kind of foolishness is way too boring to have to deal with yet again.

Cute smilie...applies more to you than me, though.
I could respond to this, but quite frankly you are not worth the candle.

Daffy
2008-Dec-03, 12:07 AM
I could respond to this, but quite frankly you are not worth the candle.

Very nice...if I ever decide to let someone else tell me what I actually think, I'll be sure and let you know.

Have a day.

Click Ticker
2008-Dec-03, 01:45 AM
Maybe we're not as far apart on this as we both seem to think.

I got a "C." How's that for honesty?

That's pretty honest. Much depends on the professor. The M & M demonstration I remember quite vividly almost 18 years later. The prof had a way of making things quite simple. I was fortunate.

I think the disconnect is that you are viewing "Supply and Demand" as a cause. Supply and demand is more of a measurement of causes and effects. The supply side measures factors impacting the supply - whether they be controllable or not. The demand side measures factors impacting the demand - whether they be controllable or not.

The curves are derived by estimating the impact of those factors. What would happen to the demand for oil if electric cars could travel 400 miles on a single charge and be recharged by simply exchanging battery cells at a station? It would drop. Supply would remain largely the same - so the price would drop. If the price fell far enough, people would stop producing and looking for new sources of oil - so the supply curve would move. Demand would remain the same (assuming no further changes) and the price would either remain steady or increase depending on how much supply was cut.

In today's market - even with a lack of substitutes - supply and demand is at work. If the OPEC nations decide to cut production - the supply curve moves the the left and the price increases, demand being the same. If a non-OPEC nation discovered immense reserves and chose to get into the game - the supply curve would move to the right and the price would drop. In the oil market, where futures trade actively - people speculating as to what might happen to the supply of oil in the future can impact the price of oil today.

Ronald Brak
2008-Dec-03, 02:36 AM
Crude oil is down to $48.88 a barrel today.

Daffy
2008-Dec-03, 04:28 AM
That's pretty honest. Much depends on the professor. The M & M demonstration I remember quite vividly almost 18 years later. The prof had a way of making things quite simple. I was fortunate.

I think the disconnect is that you are viewing "Supply and Demand" as a cause. Supply and demand is more of a measurement of causes and effects. The supply side measures factors impacting the supply - whether they be controllable or not. The demand side measures factors impacting the demand - whether they be controllable or not.

The curves are derived by estimating the impact of those factors. What would happen to the demand for oil if electric cars could travel 400 miles on a single charge and be recharged by simply exchanging battery cells at a station? It would drop. Supply would remain largely the same - so the price would drop. If the price fell far enough, people would stop producing and looking for new sources of oil - so the supply curve would move. Demand would remain the same (assuming no further changes) and the price would either remain steady or increase depending on how much supply was cut.

In today's market - even with a lack of substitutes - supply and demand is at work. If the OPEC nations decide to cut production - the supply curve moves the the left and the price increases, demand being the same. If a non-OPEC nation discovered immense reserves and chose to get into the game - the supply curve would move to the right and the price would drop. In the oil market, where futures trade actively - people speculating as to what might happen to the supply of oil in the future can impact the price of oil today.

I don't really disagree with anything you said...except that to be supply and demand as I was taught it (which, you are right, was as a cause), the model must include competition; and in the current situation, there really is none...or very little, anyway. The rest I understand and agree with.

mugaliens
2008-Dec-03, 07:23 AM
The main thing I took away from the supply and demand curves is that each were estimated in and of themselves. That is, the supply curve is not demand dependant, and vice-versa. The problem with this approach is that when one changes, it often changes the shape of the other curve.

A friend of mine was heavily into econometrics a few years back, and aside from making a killing, he really was able to beat the "expert's" predictions as to how markets would react given changing environments (socioeconomic, political, financial, etc.). He was an engineer, so the math didn't scare him nearly as much as it does many folks with a business background.

The multidimentional morphology was rather intense, far beyond the simple supply/demand curves.

Click Ticker
2008-Dec-03, 02:03 PM
I don't really disagree with anything you said...except that to be supply and demand as I was taught it (which, you are right, was as a cause), the model must include competition; and in the current situation, there really is none...or very little, anyway. The rest I understand and agree with.

Think of it this way (and it might be a terrible analogy) - Supply and Demand are like a speedometer. The speedometer does not cause you to speed up or slow down. It just provides you with information.

tdvance
2008-Dec-03, 06:22 PM
well, changes in prices do alter supply and demand, and supply and demand cause changes in prices (and stubborn companies that don't set the price right lose out as a result). It is a feedback system.

Actually, the speedometer is too--if you look down and the speedometer says 80 and you see a cop ahead, your speed magically goes down.