|
|
Post by ShivaTD on Oct 9, 2013 12:01:02 GMT
Canada has vast amounts of bitumen (tar sand oil) that the Keystone Pipeline would funnel into the United States but how does that affect those of us living in the United States? While it would add several thousand short term construction jobs the long term employment would only be about 250 American workers to operate it.
In recent years the US oil production has also increased dramatically with "fracking" that has highly questionable environmental impact because of the highly toxic chemicals added to the water used in fracking. Still, the US oil and natural gas production has increased dramatically since 2011.
At the same time Americans been suppressing demand with more efficient automobiles, more renewable energy, and even less use of the automobile today.
Logically the Law of Supply and Demand would result in lower fuel prices but that hasn't happened and there's a simple reason why.
Why would the United States, an oil importing nation, be selling our domestic oil on the international markets? The answer can be summed up in one word, PROFIT.
OPEC controls the international price of oil. When it drops too low then OPEC countries like Saudi Araba (the world's largest exporter) simply turn off the taps reducing world supply. Under US law this would be illegal price fixing but it's not illegal under international law.
The oil traders are simply selling US oil overseas to earn $17 more a barrel as opposed to selling it here and then buy back the same oil so they can charge US customers more.
Even with the anticipated peak production in the future the US will still be an oil import nation requiring about 7 million barrels of more expensive imported oil. By exporting domestic oil that simply increases the amount of oil that must be imported and raises the prices for the American customers. As noted above if the US oil traders simply raised the cost of US oil it would be price-fixing and a violation of US antitrust laws but by "exporting" it and then "importing it back into the US they make a clear profit on the transaction. The oil traders are artificially increasing the cost of oil in the United States with the sole goal of evading US antitrust laws for a profit.
As for Keystone? That will merely provide more US oil to the international markets and won't benefit the US consumers at all.
I'm not necessarily opposed to the Keystone pipeline if it's used to supply the US market but as long as the oil traders are allowed to bypass US antitrust laws by selling US oil on the international markets where OPEC is engaged in price fixing then we accomplish nothing. If Americans don't benefit at all then let Canada sell it's oil on the international markets because there's no reason for American to support building a pipeline that merely results in more US domestic oil being shipped overseas which increases our dependence upon imported oil.
We need to close this loophole in our antitrust laws.
www.bloomberg.com/news/2013-09-17/the-american-myth-of-cheap-oil-and-gas.html?cmpid=yhoo
|
|
|
|
Post by pjohns1873 on Oct 24, 2013 5:20:13 GMT
I'm not necessarily opposed to the Keystone pipeline if it's used to supply the US market but as long as the oil traders are allowed to bypass US antitrust laws by selling US oil on the international markets where OPEC is engaged in price fixing then we accomplish nothing. If Americans don't benefit at all then let Canada sell it's oil on the international markets because there's no reason for American to support building a pipeline that merely results in more US domestic oil being shipped overseas which increases our dependence upon imported oil.
The problem with this line of reasoning, it seems to me, is this: If more oil is added to the total supply, thereby creating something of a glut on the world market, that will necessarily help to drive down prices... |
|
|
|
Post by ShivaTD on Oct 24, 2013 10:01:22 GMT
I'm not necessarily opposed to the Keystone pipeline if it's used to supply the US market but as long as the oil traders are allowed to bypass US antitrust laws by selling US oil on the international markets where OPEC is engaged in price fixing then we accomplish nothing. If Americans don't benefit at all then let Canada sell it's oil on the international markets because there's no reason for American to support building a pipeline that merely results in more US domestic oil being shipped overseas which increases our dependence upon imported oil.The problem with this line of reasoning, it seems to me, is this: If more oil is added to the total supply, thereby creating something of a glut on the world market, that will necessarily help to drive down prices...
There are some considerations but not many. The Saudi's can only push the price so high before it causes world economic downturns which would reduce demand but that price is very high. While they have a lot of oil their supply isn't infinite so they want to get every possible dollar they can for it though. It doesn't harm them financially to leave the oil in the ground over time so they can afford to reduce supply to keep the price of oil as high as it can be without causes a world economic downturn.
From the average "American" perspective it doesn't matter how much oil the US produces or doesn't produce price-wise at the pump because we're paying the price fundamentally set by Saudi Arabia because it's the largest producer. Oil traders make a lot of money though because they can sell less expensive US oil to the international market and then re-import the same oil at a higher price. The oil traders make a profit on both transactions. From a trade balance perspective we also lose because we could sell $800 million of oil to the international market and then buy back the same oil for $1 billion (numbers are just an example) and it results in a $200 million trade deficit for the US.
What Saudi Arabia and OPEC is doing would violate US anti-trust laws because they're engaged in price fixing because of their dominate supply position in international markets. OPEC controls about 50% of the world oil supply with Saudi Arabia producing far more oil than any other OPEC nation. Russia actually produces more oil than Saudi Arabia today but it doesn't export as much oil and is dwarfed by the entire OPEC oil supply. That placed OPEC and Saudi Arabia in a monopoly position but because it's on the international markets it's "legal" for them to engage in price control of the international market.
The only way to avoid the monopoly controlled price fixing would be to prohibit the export of US oil but that is tough position to argue because, on the surface, it appears to violation the principles of "capitalism" but I don't know that it does because even laissez-faire capitalism would prohibit price fixing and monopoly control of enterprise.
What we do know right now is that the Keystone Pipeline and increased US oil production is not going to lower prices at the pump for Americans. We fall into the trap of believing that increasing US supply will lower gasoline prices because normally increased supply would lead to lower prices but in truth it won't because the price at the pump is ultimately controlled by OPEC and Saudi Arabia that "price-fixes" international oil prices.
|
|
|
|
Post by pjohns1873 on Oct 24, 2013 13:57:58 GMT
The problem with this line of reasoning, it seems to me, is this: If more oil is added to the total supply, thereby creating something of a glut on the world market, that will necessarily help to drive down prices...
There are some considerations but not many. The Saudi's can only push the price so high before it causes world economic downturns which would reduce demand but that price is very high. While they have a lot of oil their supply isn't infinite so they want to get every possible dollar they can for it though. It doesn't harm them financially to leave the oil in the ground over time so they can afford to reduce supply to keep the price of oil as high as it can be without causes a world economic downturn.
From the average "American" perspective it doesn't matter how much oil the US produces or doesn't produce price-wise at the pump because we're paying the price fundamentally set by Saudi Arabia because it's the largest producer. Oil traders make a lot of money though because they can sell less expensive US oil to the international market and then re-import the same oil at a higher price. The oil traders make a profit on both transactions. From a trade balance perspective we also lose because we could sell $800 million of oil to the international market and then buy back the same oil for $1 billion (numbers are just an example) and it results in a $200 million trade deficit for the US.
What Saudi Arabia and OPEC is doing would violate US anti-trust laws because they're engaged in price fixing because of their dominate supply position in international markets. OPEC controls about 50% of the world oil supply with Saudi Arabia producing far more oil than any other OPEC nation. Russia actually produces more oil than Saudi Arabia today but it doesn't export as much oil and is dwarfed by the entire OPEC oil supply. That placed OPEC and Saudi Arabia in a monopoly position but because it's on the international markets it's "legal" for them to engage in price control of the international market.
The only way to avoid the monopoly controlled price fixing would be to prohibit the export of US oil but that is tough position to argue because, on the surface, it appears to violation the principles of "capitalism" but I don't know that it does because even laissez-faire capitalism would prohibit price fixing and monopoly control of enterprise.
What we do know right now is that the Keystone Pipeline and increased US oil production is not going to lower prices at the pump for Americans. We fall into the trap of believing that increasing US supply will lower gasoline prices because normally increased supply would lead to lower prices but in truth it won't because the price at the pump is ultimately controlled by OPEC and Saudi Arabia that "price-fixes" international oil prices.
A couple of observations: (1) Since the Saud Royal Family is so "immensely wealthy" that it does not "really need anymore money"--and I will certainly not argue with that proposition--it makes very little sense to me to conclude that it will reduce its oil output, in order to "keep prices high," in response to America's increased output, via the Keystone pipeline. (2) It is my understanding that the US is poised to overtake both Saudia Arabia and Russia as the Number One oil producer within a very few years; so it is probably a mistake to view Saudi Arabia as a behemoth that can do just about anything it wants, with regard to oil prices. |
|
|
|
Post by ShivaTD on Oct 24, 2013 14:48:02 GMT
A couple of observations: (1) Since the Saud Royal Family is so "immensely wealthy" that it does not "really need anymore money"--and I will certainly not argue with that proposition--it makes very little sense to me to conclude that it will reduce its oil output, in order to "keep prices high," in response to America's increased output, via the Keystone pipeline. (2) It is my understanding that the US is poised to overtake both Saudia Arabia and Russia as the Number One oil producer within a very few years; so it is probably a mistake to view Saudi Arabia as a behemoth that can do just about anything it wants, with regard to oil prices.
1) The very purpose of OPEC is to generate the maximum revenue from oil production by the member states. That has always been the express purpose of OPEC. By reducing supply they increase the international price of oil until it borders on causing an economic recession that would reduce demand and lower the costs. All of these countries, as well as all countries, have a limited reserve (although it can be very large) and that oil is worth just as much in the ground as it is on the open market. They don't "lose" money by reducing supply but can dramatically increase the revenue by reducing supply that increases demand. As noted though there is a limit because if they reduce supply too much it results in an economic recession that reduces demand and the price.
The truth is that the Keystone Pipeline and US oil supply probably doesn't adversely affect the international markets so long as it is fed into the international markets and the resulting profits are taken by the oil traders. Oil traders making huge profits is really no different than the Royal Family of Saud making huge profits. As I noted the oil traders sell US produce oil at a huge profit on the international market because of the price fixing and then take a smaller "commission" purchasing it back to sell to the American market. The oil traders are involved in the price fixing just like the OPEC nations because they reap huge financial rewards for "playing" the OPEC game and IT'S LEGAL for them to do this because it's happening internationally and not governed by US anti-trust laws.
2) Yes, Russia produces more oil that Saudi Arabia today but most is used domestically and the US can surpass Saudi Arabia in the near future but there's some caveats. The only reason the US can match or exceed Saudi production is because Saudi Arabia isn't producing nearly as much as it could. If Saudi Arabia opened up the oil valves they could flood the market driving the price down to $15/bbl overnight but they're not going to do that.
More important than even this is that the US, even with increased production, will still be an oil importing nations while Saudi Arabia is an oil exporting nation. We're on the "Demand" side of the equation while Saudi Arabia is on the "Supply" side of the equation. The demand side cannot dictate prices unless it's willing to reduce it's demand and the US, even with as much oil as we consume, is unlikely to do this. Even then, if we did reduce our demand the rest of the world is increasing demand so our reduction in demand would have to be greater than the increases in demand from the rest of the world combined. The final nail in the coffin is that even if we could reduce our demand that much Saudi Arabia would simply restrict production limiting the "supply" driving the price back up.
We're in a losing position here because virtually everything is stacked against us. OPEC still controls about 1/2 of all the oil production. Saudi Arabia can still dramatically reduce production whenever it feels the need to do so to reduce supply relative to demand to drive up costs. The oil traders love this arrangement because they're making tons of money (literally) both selling US oil on the international markets and then buying it back to supply the US market. Finally the US remains a "Demand" nation as opposed to being a "Supply" nation where we have no real influence in lowering the costs of international oil.
I hate being the bearer of bad news related to this because there is only one pragmatic solution I'm aware of and others condemn me for being pragmatic.
The US can reduce consumption significantly as well as increasing production to the point that we're relatively neutral with a balance between production and consumption and then prohibit the export of US oil. Force all oil produced in the US to be consumed in the US and allow domestic supply and demand to set the price. Basically we'd need to get out of the international markets where price fixing exists and we can do nothing about it.
Of course this proposal probably won't go over with "Republicans" because it's very much like the US budget where revenues need to be increased and spending reduced until the budget is balanced. |
|
