Let’s Explain Oil Prices so we all understand
It’s fascinating, the amount of erroneous information that is circulated out in the real world that just isn’t true. Whether it’s Senators, Congressmen, or even Presidents of the United States just shooting their mouths off and decent people falling for what they say regardless of what it is. So let’s discuss a couple of crucial things that we are sure maybe one of a hundred people know, perhaps it’s one out of a thousand, so here goes.
A great myth is that the vast oil companies in the world which include Exxon Mobil, Shell Oil, British Petroleum BP, and others set the price of oil. Maybe you have heard that OPEC (Organization of Petroleum Exporting Countries) sets the price of oil, or maybe the Russians? All of this is simply untrue. The oil companies have absolutely zero to say about the price of oil. They have no control whatsoever.
The price of oil is set every day on the commodities markets of the world. That’s right, it’s financial speculators who set the price and how they do that. They set the price by the last barrel of oil that comes out of the ground that day. It is that simple. Buyers and sellers meeting in the commodities pits of the major markets determine the price. The big companies have nothing to do with it. Countries have nothing to do with it.
Companies do set the price at the pump in the gas station that you go to. They handle that in a very interesting way that is really beneficial to them. If the price of oil on the world market goes up today in the commodities pits, the oil companies will immediately respond by raising the price of gasoline at the pump when you buy literally within hours. If the price declines however on the world markets, the companies will not lower the price at the pump until the oil that they just bought throughout the world works its way through the distribution system from the point of embarkation in the various countries to the pump in the United States. It’s like the old heads I win, tails you lose routine.
Now it is true that every player out there like Saudi Arabia can influence prices very easily by increasing the supply or decreasing it as well, which means they turn on the spigots in the pipelines for a longer period of time and pump more oil or less oil if they choose. They can only do this so much, and they can’t influence it for long because, in the end, oil is going to do what it is going to do.
And in the end, it always comes down to SUPPLY and DEMAND. As we write this, the world is producing about 100 million barrels per day, and the supply is also about 100 million barrels per day and the price is about $108 down from about $120 in a few weeks.
Since the beginning of the Ukrainian war, the United States and other Western countries have started to turn away from the purchase of Russian Oil and even put an embargo on the purchase of that oil. This doesn’t mean that the Russians aren’t producing. They are producing as much as they have even produced. It is simply not sold through the normal channels throughout the world. It is sold on the Black Markets at a reduced price from the world price so that nobody is supposedly the wiser. India and China are taking everything off the hands of the Russians at these reduced prices.
The United States is producing about 11.91 million barrels per day with Saudi Arabia and Russia slightly behind us. Our production is up big over the last few years completely because of fracking technology which 20 years ago did not really exist as a practical method for extracting oil. The Democratic Party by the way completely opposed this technique and if it were up to them there would be no fracking in this country. We would be reliant on wind, solar, hydro, and other renewables, no nuclear by the way.
We would be behind the eight ball and at the mercy of dictatorships and unstable Middle Eastern countries for our energy needs. You want a good laugh. We spend about $700 billion per year on defense in this country. About $60 billion of that is spent in the shipping lanes of the Gulf where the Arab states are in order to ensure that the shipping lanes remain open for worldwide trade. We as a country derive next to zero of that oil that flows from the Arab countries.
The primary beneficiaries of the Arab oil supply are China and its neighbors. So let me see if I got this right. We spend $60 billion to keep those sea lanes open so China can get an unimpeded flow of Saudi light as they call it from the Arab world. Makes no sense to me.
Wind and solar are notoriously UN – reliable. Is the sun out every day? Is there wind every day? No, the percentage of time you can use wind and solar is very low, totally inefficient, but yet the intellectual elite in this country keep pushing it unless it interferes with their own personal pleasure. An example of the primary locations to put a massive wind farm in the United States would be off the coast of Cape Cod and Massachusetts. This is where the wonderful intellectuals at Harvard and so forth keep their boats and have their homes in Nantucket and so forth. The government wanted to install thousands of wind turbines but it would have obstructed their views of the ocean. No chance, forget it, not going to happen.
California is moving rapidly to renewables check out the cost of electricity in California vs the rest of the country and you will see why it’s a failure, just like Germany, twice the rates of other European countries. In addition, California has constant brownouts because of the inherent unreliability of wind and solar.
You put all of this together and you get a daily price for what oil sells for a barrel on the world market. At some point, politicians in the US will have to temporarily give up their hatred of oil and deal with the instability of the political entities we buy our oil from, namely the Arab world and Russia. We must continue to build up our internal oil production until sometime in the future when the efficiencies of solar, and wind make more sense. It’s probably 10 to 20 years out. However to build the vast infrastructure necessary to convert from a fossil fuel society to solar / wind, takes about 40 years throughout history. This time will be no different. Someone should reconsider nuclear energy which is the cleanest energy produced and one of the cheapest.
Our nuclear Navy has shown the reliability of atomic energy since the 1950’s. Problems at 3-mile island and Chornobyl have frightened off millions of people. Russia has added fuel to the fire buy spending tens of millions of dollars to publish stories about the evils of nuclear energy. They want to continue to push for the maintenance of their own fossil fuel production which is the source of most of Russia’s wealth. Nobody buys anything else from Russia than its energy. Their weapons of war certainly don’t work as everyone thought they did as proven in Ukraine.
So we as a country better get our act together, or else we will all be in bed with the wrong kind of people and the wrong countries. Mores next time.
Your Friends at
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