farmerman wrote:
The "price" of petroleum is actually adaily response by futures traders. Oil doesnt cost anymore to produce today as it did 3 years ago . So, oil companies dont have any "dog in the fight" to bring prices down.
Good post. I hope you don't mind that I pick out the above paragraph. I agree to a point, but obviously oil companies are looking for the cheapest and best oil to produce, which means conventional oil, shallow as possible, and not offshore if possible, and with good reservoir and oil quality, and if possible, close to a refinery. No company wishes to spend money on a project that is economically marginal if they can avoid it. And oil shale is such a thing. Add to it the environmental hoops to jump through, with all the attending tree huggers opposing the projects, and the risk of negative publicity in regard to any venture. Yet, oil producters understand risk, as drilling for oil is a risk from day 1.
Although I can agree to a point, I disagree that the oil companies have no dog in the fight, I think they definitely do. Inasmuch as there is no good competition for oil, then they may feel fairly secure that the resource they have invested in so heavily and in which they stake much of their future, is going to return a profit, however at some point there are competitive forces coming from other energy sources. Why else would oil companies now consider themselves energy companies and invest in coal, uranium, geothermal, solar, and wind? When I worked for an oil company, they had a fairly decent effort in trying to develop all of the above, as well as tar sand and oil shale. I would amend that statement in that solar and wind has more recently become more important as commodities of interest to oil / energy companies.
I would liken your argument to that of auto manufacturers not fearing that something else will replace cars, and therefore they don't care what the price is. Perhaps they don't to a point, but obviously they must keep the cost of their cars competitive, compared to other companies, thus in the same way, an oil company does not want to throw alot of money into expensive oil while their competition is able to develop cheaper oil resources, so I think they definitely have a dog in the fight. To be accurate, they have little control over world oil price, no more than a single mining company has control over the price of copper for example. If they have enough control of copper resource, they can choose to bring a mine on line or not, and this may affect the price, but that is their privilege to do it in a free market. If I am a farmer, I can choose to pay the local elevator to store my wheat until the price goes up and that is my right as a free citizen in the free market.
Diamonds you mention, one company may have enough of the resource to control the price somewhat, but again, I see not alot wrong with that as it is supply and demand. If I own all the houses in town, I can sell as many as I wish to sell in order to keep the price at a point that secures me the profit I want. If I raise it too high, there is always the privilege of people to live in a different town. Diamonds may be similar, as there are competitive forces, such as artificially made diamonds and other gemstones and materials to compete. In the case of oil, high oil prices are necessary to bring other energy sources into fuller competition with it, which in the long run will be necessary and a good thing.
Last point, oil does cost more to produce I think, as the wells are deeper and more of them are in hostile environments, offshore, etc.
