Update #3: Keeping up with Demand
One Year Comes to an End, and Another Begins...

Two Cents on $100 Oil

298458476_526583afb3_m The price of crude oil briefly touched $100 (US) a barrel yesterday before dipping back down and settling just below that mark.  Today's news reports are filled with the usual stories on how this might impact you at the pump, but there is also some worthwhile reading in the Wall Street Journal, the Toronto Star and here which helps explain how oil prices rose ten-fold in the last 10 years.  To help round out the perspective, I will turn to the great Jimmy Buffet.

In the lead-up to one of his more colourful hits on the live album "Feeding Frenzy", Jimmy Buffet takes on the persona of "Reverend Jim".  In full gospel swagger, he explains to the enthusiastic Atlanta audience how the world has changed by pointing out that "today a pair of tennis shoes costs more than a lot of your first automobiles did," capping it off with "can I get an A-men for a hundred dollar pickup truck!"   Big applause.

While that album was recorded in 1990, Jimmy's message still holds true.  The price of virtually everything has gone up over the years. And ironically, the price of a barrel of oil is almost equal to the cost of JImmy's first pickup truck.   Growing up in a northern town, I've been in my share of $100 pickup trucks...not pretty, but they get the job done.

Yet despite the evidence all around us, when it comes to oil, there are still some who believe there are other factors at play.  CityNews in Toronto asked a "motorist" who gave this opinion: "I'm not suprised.  It's not going down with all the profits they're raking in. They say it's because of the oil. I don't believe it is.  I think it's just profits."   

While crude oil is the raw product used to produce the gasoline we purchase, the actual price of oil is set in the global marketplace - which is bigger than any one company or country.  There are also other gas price-influencers, including provincial and federal taxes.

As a "motorist" myself, I understand the frustration.  But I also understand that oil companies must manage rising costs and other external pressures while trying to bring the oil to market that you and I will consume - hopefully responsibly.  For that, an oil company needs to be profitable.  And when you operate in a climate where you have little control over the price your product will sell for, you must be wise in your investments to ensure you can weather the good and the bad.   Talk to anyone who has lived in Calgary and they'll tell you what it's like to ride through a commodity market cycle.

I think Jimmy Buffet's "Reverend Jim" got me preachin' a bit, so I'll stop there.  If you own the album, you know what song Jimmy was leading into.  There's good perspective in that one too.

Photo Credit: arthaey

Comments

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miro

I am angry!
A year ago crude cost $60 per barrel
production output was comparable
US tactical reserves were higher
international unrest - not as ’speculative’
the weather was warmer (at least in the North East of NAmerica)

today we pay $100 per barrel - and are being told that it will only go higher in the spring/summer.

Call me stupid - but the numbers don’t seem to add up. I don’t understand why these conditions merit a $40/barrel premium - and if this is a free market system - how can they be predicting $125+ oil - who gave them the right impune that prices ratchet up - or are they simply laying out the stage direction the actors are to follow.

The ten year rise in the price of oil is immaterial to the price being asked for today. I have talked about it elsewhere and at other times - but the sector's ability to pass through oil price increases doesn't create the types of checks and balances we need in a properly functioning 'free' market.

Government takes as much money from taxes as the crude cost so where is there any incentive to change the status quo.http://www.opec.org/library/Annual%20Statistical%20Bulletin/ASB2006.htm


Maybe Amory Lovins - "Winning the Oil End Game"(see http://www.ted.com/talks/view/id/51) - has some simplified notions on how to change things - but at least he's thinking up some options.


A pox on all your houses.

Jon Hamilton

Miro.

Thanks for the link. Interesting stuff. I've read predictions both for higher and lower oil predictions in the last few days. Clearly there is plenty of disagreement as to where exactly it's going to go.

Higher input costs in any business usually lead to higher prices. And lower input costs usually benefit the end consumer. That's the free market. A bad orange crop means oranges, and in effect orange juice, go up in price. Mr. Buffet would say the same for limes and margaritas.


miro

Jon

the point of the rant is the endless ratcheting.
how are supplies and demand that radically different to warrant a jump in prices by 67% in one year!!!!

In this chart (http: http://miroslodki.wordpress.com/2008/01/03/100-dollars-a-barrel/)
(using $2006 dollars) crude hit $67/barrel at the height of the IRAN/IRAQ war- we aren't at war in the middle of the oil patch - are we?

Gasoline Retailers don't control the price of crude - I get that - you just pass it along.
But where are you in leading the charge to help your customers better manage their consumer energy expenditures and consumption.
Where and how have you pushed back against crude price escalations. Why did everyone's price go up in Ontario with the Imperial oil refinery fire in Nanticoke. Your supplies were unaffected.

I outlined a number of suggestions on my blog post (http://miroslodki.wordpress.com/2007/12/17/if-i-were-president-%e2%80%93-iiwp-4-%e2%80%93-retail-gasoline/)
and granted they are probably very naive - but they do point to new approaches and thinking that I haven't seen from any of the petro's.

Wake up and take the leadership role I know you can shoulder and change the sector from a transactional relationship to a share of life relationship.

This isn't a matter of fancy marketing - this is quite literally an opportunity to become a partner in a changing reality where new rules and perceptions will be established. Take up the challenge and be part of the solution or run the risk of being cast as part of the problem.

The choice is yours.
Choose wisely.
Miro

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