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No. of Recommendations: 100
I was talking last night with an old boss at Exxon – he was the best boss I ever had. Unfortunately, for me, he retired. He had called to tell me about his trip to Spain and the wonderful time He and his wife had had on their vacation. He also wanted to share some vacation pointers. My husband and I are preparing a trip there for next October.

My boss wanted to share also his immense surprise at the construction boom he saw in every town and city he visited, as well as the significant amount of traffic he experienced both in the highways and in the cities. He was truly amazed at how people drove there even when gasoline prices were high --$4.50+/gallon. And we think we have a problem?

His point to me was that he thought energy prices were going to stay high for a while and had room to grow more given that Spain and most of Europe have learned to live with higher prices —food for thought for the whiners.

My boss also wanted to know what was causing the steep increases in gasoline prices recently. I told him that a combination of turnaround at major refineries, and a few fires here and a few other operational disruptions here and in Europe, combined with increases in gasoline demand, had all collective conspired to push prices up.

In addition, we agreed that the cost push effect of higher crude prices may have also contributed to gasoline increases.

I also told him that the new gasoline and diesel regulations that are taking effect this year combined with past tightening of quality requirements were making storage and distribution of gasoline and diesel, very expensive. These regulations have increased tremendously the number of segregations that are required as compared to a decade ago --and this is costly. And the specs for both gasolines and diesel will continue to tighten until I believe 2010. So forget lower prices.

I told him that I expected some price relief at the pump soon, when all of this capacity and operational issues are over and done with. But I added that I thought the temporary relief in prices was going to be short-lived if summer driving demand were to increase significantly once again. And of course, who knows what's going to happen with hurricanes.

As we spoke, my old boss pulled out of his computer files a 2003 document he had prepared on the supply/demand balance outlook, and with it the list of key assumptions regarding the future environment.

Looking back at old predictions is something ingrained in us xom folks—it allows us to calibrate our thinking as we examine key elements of our assumptions. It is a means to learn some insights from the comparisons and deviations from actual. In 2003 my boss saw little possibility for supply demand relief until past 2008. I think he is on track on this one.

As he was relating to me his basic 2003 assumptions of the future environment as it looked from the perspective of 2003, I was saying quietly to myself – it looks to me like the future supply/demand environment today looks a lot, but a lot worse than what he thought it would be.

As we discussed the issues he asked me to jot down the reasons why prices are likely to stay high -- he came up with 9, which I emailed to him, and asked him for permision to share it with this board. After I had emailed to him the 9 reason, I added a 10th one.

Here are 10 reasond, and not necessarily in order of importance. If any of you can think of more, let us have it.

1.- China is consuming more than anyone thought would be sustainable for so long. And their economy has yet to slow down as "experts" had been predicting. And India is not far behind.

2.- High prices have not had the assumed impact on reducing world wide demand as was expected. Consider that for the first 5 months of this year, gasoline demand growth in the U.S. has been close to 2% despite the higher prices. Crude prices have essentially doubled since the beginning of 2002, and demand still has kept growing, at a not insignificant pace.

In fact, this year, worldwide demand is expected to add another 1.5 million barrels per day to the consumption base of 2006, and it is scary to think that new net non-Opec production will once again fall short of meeting this world wide demand increase.

3.- Back in 2003, everyone was assuming that Russia, Venezuela, Iraq and Iran were going to become the primary provinces for future oil production increases for an energy-hungry world. No such luck. And there is little medium term prospects that it will happen.

You all read the news. Russia, has now turned supra-nationalist -- so forget accelerated development of oil resources there. Besides, their port and export infrastructure are so deficient that even if production increases were put on-stream, the additional oil would not be able to be exported.

Venezuela's Chavez is a nut case -- and He is in the process of nationalizing or taking over big chunks of oil investments the International Oil companies have made over the past decade -- So to me the future production increases seem bleak in that country.

And in Iraq?

Well we all know the mess that country is, and the little prospect I see that it will see experience stability in the near term to attract big oil exploration and production investments.

And what about Iran?

The President is a loose canon ball. With a potential military crisis looming, who will invest there, soon? And aside from the potential military confrontation issue, Iran is not making the necessary investment in the base case to even maintain production for exports. So, that alone will continue to put pressure on future prices. It is a deteriorating base case, worst than Venezuela.

4.-We now know that the assumed declined rates from old oil producing provinces have proven to be much steeper than expected, so less oil is being produced than we had anticipated 4 or 5 years ago. And the prospects in some places such as Mexico, do not look good.

5.- Delays implementing and bringing new projects onstream have been widespread mostly on account of runaway costs and the severe shortages of personnel and equipment that the industry is experiencing. The skill set is not there; and quite a number of projects have been delayed or dropped for the time being. This has not been helpful to the supply environment.

6.- Our U.S. government continues to demonstrate supine incompetence, and politicians are still unable to have the courage to open up areas for exploration and production, and ease the regulatory burden for refineries.

And wait!!! If the Democrats have their way, and "windfall profit taxes" are enacted, watch prices climb, and climb into the future. I cringe when I read what is being discussed under the guise of "energy independence." The mood of politicians is, "let's kick the oil companies, lest they discover that our policies and politics are the real cause of the difficult supply and high price environment we have today." Talk about a political wild card?

7.-The Saudis have said they will not expand their production capacity to the level that was assumed (15 MBD) they would do by 2012-2015. It now looks it will fall short of that assumption by 3 MBD. Ouch!!!

8.- Supply disruption in Nigeria, and other smaller operational disruptions elsewhere, have cumulative reduced potential oil production that could have been onstream today, accentuating the effects of the supply tightness.

9.- Opec has been more effective at managing supplies that anyone had assumed. Part of the reason is that the only one that has any major oil producing capacity to spare are the Saudis. So imposing supply discipline on OPEC is very simple ... it is a one man show. The rest of the countries are essentially producing flat out.

10.- Hurricanes are a crap shoot -- who knows how they will affect prices. But, prices will move up when one is seen swirling in the Atlantic potentially threatening the Gulf Coast.

If any of you can think of other reasons, pile them on.

I think I can safely conclude that there is only one way to balance supply with desired demand, and the flywheel is called higher prices -- and that is precisely what we have been seeing in the last 5 years, non-stop.

Does this suggest that oil company stocks have peaked as some analyst are now saying? … well, maybe, but I don't think that the fundamentals outline above suggest that lower prices are anywhere in sight in the next few years and any dip in oil stocks is an opportunity to jump.

In fact, my belief is that oil company stocks will continue their climb for a somewhat longer period. Their P/E's are ridiculously low compared with the rest of the market, esepcially tech. So if you want to sell, sell it to me. I'll take it off your hands.

Madame Butterfly
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Very nice piece, Madame Butterfly. Good information supporting a logical story as far as it goes. The story line, though, is subject to abrupt change if one moves away from the thesis of monotonic economic growth.

Your conclusion,

I think I can safely conclude that there is only one way to balance supply with desired demand, and the flywheel is called higher prices --

is likely valid if uninterrupted economic growth continues for a few more years. But, it is worthwhile to keep in mind that income elasticity of petroleum demand swamps price elasticity of petroleum demand six ways to Sunday. And, significantly higher petroleum product prices sustained over a protracted period imposes measurable negative income effects on end users.

Also, European/Japanese demand response to the equivalent of $1 gal. increase in gasoline/diesel prices will likely not track with the U.S. response to the same price increase. Much higher taxes on consumer petroleum products in those areas mean that a $1 gal. price increase constitutes a much lower percentage increase in the price of the product.

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And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Make that two.

Sebb
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No. of Recommendations: 7
Windfall profit taxes are a very stupid idea.

Better to tax at the pump -- it's true that demand has shown resilience, so why not capture some of that value and reduce dependence at the same time?
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11. The loosest canon of all sits in the White House. Bush's foreign policy is causing the Middle East to destabilize even further. As you pointed out, Iraq is a mess and will remain so for the next decade probably. The northern pipeline from the Kurdish fields, which was operational 6 years ago is unlikely to become functional anytime soon.

Do you really mean that you want Hillary care in the energy realm?
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I offer Matt Simmons latest slide show as more food for thought.

http://www.321energy.com/editorials/simmons/simmons052207.html
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Do you really mean that you want Hillary care in the energy realm?


She CANNOT do possibly worse than Chimpy McFlightsuit. By a LONG shot. Even with her husband Bill McHappypants locked in a sealed vault for eight years.


Duck
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And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Make that two.


Three.


Duck
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Make that two.

Three.


Four.
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Make that two.
Three.
Four.


36,624

(from 2004, I think)

http://ga4.org/campaign/boxer_anwr/d7b86brfjk7b8k

and an interesting historical note:
I urge you to sign my new petition to Senate Republican Leader Bill Frist -- tell him that any Republicans who vote to open up the Alaska wilderness to oil drilling will pay a price in the next election. The Budget bill with this terrible ANWR provision will be up for a vote in the Senate by the end of the week. Let the Republican leadership know that we won't forget the votes they cast.

Sebb
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No. of Recommendations: 13
Ahote said:

"The loosest canon of all sits in the White House. Bush's foreign policy is causing the Middle East to destabilize even further. As you pointed out, Iraq is a mess and will remain so for the next decade probably. The northern pipeline from the Kurdish fields, which was operational 6 years ago is unlikely to become functional anytime soon.

He has just authorized a 'secret' (not anymore cause everyone knows about it now) covert operation to destabilize Iran's government and its currency.

Afghanistan, once touted as the key to piping Turkmenistan's vast oil and gas reserves to Karachi during the time of the Taliban is now effectively a defunct state at war with itself, so the Turkmenistan government, which cannot deal through Russia anymore and which the US will not allow to operate through Iran is f*****.

Syria is being increasingly alienated by the Bush government as well causing more tension in the region. Even if Iraq's pipeline were fixed, there would be repercussive issues with Syria.

In contrast to yourself, I don't think Chavez is a nutcase - but only time will tell if his strategy pays off.

I believe your overall synopsis to be accurate and correct although you left out Brazil as an exporter of oil. Petrobras [PBR] is doing nicely and has plenty of reserves in a country that the US can still buy from and which is not likely to go up in flames anytime soon.

Lastly, I take umbrage at your statement:
Our U.S. government continues to demonstrate supine incompetence, and politicians are still unable to have the courage to open up areas for exploration and production

Well, not in the first part - you are quite correct in saying that they are the embodiment of the word "incapable" but not for the reasons you mention if, what you mean is drilling in Alaska's ANWR. Oil supply in the ANWR is not sufficient enough to justify the potential environmental damage that could be caused. It just isn't.

And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Some things are more precious than a tank of gas and more valuable than money."

Where to start with this baloney? Since Ahote did not care who he offended I do not care if I offend him. You assume we agree that Bush is a loose canon. I do not agree with that statement. You seem to oppose covert action against Iran. How would you solve the problem? Send Jimmy Carter over there to help out? I personally find your use of "f....." expression offensive. People without word skills frequently resort to the f word to express their views. You don't think Chavez is a nutcase. Yes I suppose one who entertains the Iranian President and is patterning his goverment after Fidel Castro should engender our admiration. Finally I do not accept that drilling in ANWR would trash the region as you seem to. There is ample data to show otherwise. So there we have it with Ahote. Not a single cogent thought and the use of the f word to get his ideas across. What a disgrace! And now into the P box you go. We need intelligent dialogue here, not polemics.

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And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

I'm a little different. I would prefer it stay in the ground because it is probably the last great reserve on American territory, and everybody should have an emergency stash someplace. Great noise is made on these boards about having "a 6 month emergency fund" in case of the unexpected.

Why should "a country" be any different? After air and water, probably the single most strategic commodity to the future health of the nation is energy, and at the moment that means oil. Maybe someday it won't be oil, but for now it is, and I hate to see us dangling at the end of someone else's noose.

The tiniest bit of history shows what can happen when a nation's energy supply is blocked: We cut off oil imports to Japan in 1941, they decided their only option was to enlarge their sphere of influence to the entire Pacific, including the oil fields in the Dutch East Indies. Hitler lost the Russian campaign because he split his forces and sent half of them to get Russia's southern oil fields. He had to do that, since he didn't have, enough domestic oil to run the campaign any other way. And I'm pretty sure George Bush I didn't go into Iraq the first time just because he wanted to restore the monarchy in Kuwait.

Now it's possible that this "reserve" will never be called upon, in which case it's a minor shame that we haven't dug it up (environmentalist objections noted), but then it's also possible that my personal cash reserve will never be called upon, and it's a minor shame that I didn't use it to buy myself a Lamborghini. But that's the way it goes.

In the meantime I'm not sure I see the point of bringing some finite amount of domestic oil online merely so we can lower the price on the world market for a few years, allowing China and India to reap the benefits of "cheap oil"; I would rather have higher prices and hope we use other people's cheap oil, while the price signals to the market start developing alternate energy sources to wean us off the drug which is provided to us by instable and hostile regimes around the globe.

And in the meantime, keep our "emergency stash" under the pillow, for use - you know, in an emergency.
 
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The Europeans have been high gas prices
ever since I can remember and that goes
back to 1960. When gas was selling .18cents
a gallon in USA, the price in Paris, France
was about .60cents and they never stopped
driving. With 4.50 a gallon in 2007 they are
still driving. I paid that much last year and
I expect to pay the same and more this year
when I go to Europe.

It is not only gas that Europeans are paying
more, they pay a lot more for almost everything
and yet they manage and they manage well.

If there is anything wrong it is not with high
gas prices but with our mental screws.


PHOINIX20
The Eternal Bird


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Europeans also don't have to pay for national defense, because we cover them.

They also don't pay their fair share of prescription drug costs, which leaves US citizens subsidizing Europeans.

With those two huge savings they can afford a few higher dollars per gallon.
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Madame Butterfly,

I am surprised you did not bash alternatives as not having any major impact, especially ethanol, of the corn based variety.

I suppose you conclude as many others do that ethanol is a non factor but I would be interested in what XOM folks have to say.

Vegasjoe57
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There are a lot of political considerations tied up with this discussion. I am a European, but I don't propose to comment on all of them.

However, one reason Europeans can live with high petrol/ gas prices is that public transportation is very good and quite cheap in many European countries (not unfortunately in Ireland where I live).

One other comment I would make is that oil companies, like the much praised (by insinuation, in the original mail) Exxon, make COLOSSAL profits. Could that be possible be a contributor? Duh!!!
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<<<And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Make that two.

Three.>>>>

Can any among you site an instance of anyone who is proposing to trash ANWR? I suspect that you have never been to ANWR's barren coastal plain and likely never will be. Consider this thought from the villagers of Kaktovik whose history, future, and very survival are directly impacted:

"Just as there is financial gain in war, for some there is financial gain in the ongoing battle over ANWR. Consequently, the war that goes on between these two groups do not involve us and will continue to elude us."

No one will be allowed to trash our land just as no one should be allowed to forestall use of our resources. Resolution of resource development issues, like war, does not lend itself to sound bites designed to raise money out of fear.

Ak
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I've often heard that Euro gas prices are much higher than U.S. due to higher taxes included in the Euro price. My question is....HOW MUCH more is in the Euro price (on average...or maybe an example of what a country like Spain, Italy, or France pays...)
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No one will be allowed to trash our land just as no one should be allowed to forestall use of our resources.

Considering that there has NOT been a stellar track record with what is already going on in Prudhoe Bay, there's no guarantee that they can eliminate all the risks:

http://www.guardian.co.uk/oil/story/0,11319,1440750,00.html

But major oil developments at Prudhoe Bay, to the west of the arctic refuge, suggest damage is inevitable. The coastal oil belt there is marked by industrial sprawl, the building of thousands of miles of roads and pipelines, as well as air strips, drilling platforms and gravel mines.

Because of the very short summer growing season, extreme cold and nutrient-poor soils, any physical disturbance such as bulldozer tracks, seismic oil exploration or spills of oil and other toxic sub stances can scar the land for centuries. The gravest concern is for wildlife. Opponents say the area which has been opened up for oil exploration is the biological heart of the refuge and the impact will be devastating. The arctic refuge is home to 45 species of land and marine mammals, including polar bears, grizzly bears, black bear, musk ox and caribou, arctic foxes, wolverinesand snow geese. Millions of migratory birds use its coastal plain.

Although oil developments will initially be limited to a small part of the coastal plain, the US Fish and Wildlife Service has said oil activity there risks "irreversible" population drops for migratory geese, which rely on lakes there.



If previous drilling in Alaska had been performed with any history of little environmental damage, then this debate would not be occurring. Unfortunately, with what is already going on, there's little proof that we'd be any better at NOT disturbing ANWR.

What's even worse, and the bigger part of the debate, is that there is so LITTLE oil for the potential amount of damage that could occur. The total amount could only provide enough oil for about six months of use in the U.S.. That paltry amount isn't worth the damage.

What's even worse is that we should be developing renewable energy sources, not further building up our dependence on oil.



Duck
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Once again the far left roars. What triggers these guys/gals? I suggest that their deep seated anger over social issues seeps into their financial decision making. How many investors in XOM would want these light weights running the store?

Socialism is dead, dead, dead. Get a life. Chavez is a nut. Castro ruined Cuba; Peron sank Argentina; the Soviets, Red Chinese and that pot bellied screwball in North Korea all exemplify what the far left wants for us.

Their arguments are shallow and nonproductive. I take capitalism, XOM, CAT, MO and any other solid U.S.A. blue chip over Ben and Jerry's any time.

Getting rich in America, even with the occasional stock/equity gyrations.

Znaki
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Thanks Madame Butterfly. Interesting post.

All of your reasons are external to oil companies. What is the oil companies role in high prices? It would be interesting to hear your perspective on what could the oil companies could be doing to address the points you raise.

Granted, oil companies have little reason to endeavor to reduce energy prices, and perhaps it's beyond what we should expect from them. World demand for oil remains inelastic at current prices and, as investors, we don't want them searching for ways to lower prices or margins.

It's worth noting that in an era when the company you work for reports a 9.9 billion dollar quarterly net profit, you are suggesting that talent and equipment and political solutions can't be found. That rings a bit hollow to me. I'm not in favor of the "windfall profit taxes" either, but I can understand the motivation.
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Dear Ms Butterfly:

You give some of the many reasons supply will remain constrained. They are all accurate. There is also another side to that equation that you fail to address. Demand can be reduced signficantly by consumers choosing smaller, lighter vehicles, using public transit, or walking or biking or simply driving less. I don't see any of that happening yet.

As long as consumers feel free to use 4-ton trucks to haul themselves to and from the mall, gasoline remains too cheap. If government here wants to make a difference, pass a twenty-five cent tax per gallon to be collected at the pump and increase it twenty-five cents every year for the next twenty years. That will give predictability and allow us time to change our usage patterns as the prices goes up.

If government does not tax us, the oil-producing countries will. Like Hugo, they recognize the power they now have and they are going to use that power more and more. We are in a 'pay me now or pay me much more later' situation and I see no action on the part of consumers, business, or goverment to prevent the coming crisis after crisis.

Al
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Excellent post, M. Butterfly. Thank you for sharing all of that information, much of which comes from an insider with technical savvy.

But you left out one. In fact, it would be #1 on MY list:

Exxon-Mobil made a policy decision a while ago to ignore research in alternative energy. Apparently, they are sticking by this strategy, as shown in this recent report, which makes no mention of solar, etc:

http://tinyurl.com/32fomx

Of course that is their right. They are an OIL company and have decided that they will "dance with the one that brung them".

Is it good for their outlook in the long run? Well, we'll all be dead in the long run, so who cares, right?

Is it good for the planet and its 6 billion plus inhabitants? Hmmmm...

Let's just say that I sleep a lot better since I sold my shares in XOM.

Jack
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Once again the far left roars. What triggers these guys/gals? I suggest that their deep seated anger over social issues seeps into their financial decision making. How many investors in XOM would want these light weights running the store?

You assume too much, Znaki.

I DO own XOM stock.

And E and TOT and MRO and two coal companies as well.

While I would like to push for renewable energy and all kids of idealistic pursuits towards a "utopia", I'm also realistic. I'm making money the old fashioned way: By whatever works.


Duck
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> And wait!!! If the Democrats have their way, and "windfall profit taxes" are enacted, watch prices climb, and climb into the future. I cringe when I read what is being discussed under the guise of "energy independence." The mood of politicians is, "let's kick the oil companies, lest they discover that our policies and politics are the real cause of the difficult supply and high price environment we have today." Talk about a political wild card?


Windfall profit taxes are a good idea - as I recall, Exxon had record profits less than a year after getting a fair amount of welfare from the feds. The perception here is that the executive branch is run by oil men for the benefit of big oil and something needs to be done to counter that.

The real reasons for the spike in gas prices in the face of flat crude prices? Big oil is restricting refining capacity and futures traders are driving up the prices again.
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> Do you really mean that you want Hillary care in the energy realm?

Do you really think our only choices are some big oil tool or a carpetbagger with no defined platform?
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Sorry, but you are expressing a LOT of underlying Anger
with your "attack" on that Post. Who's the Nut Case here?
Doesn't matter what "words" you use if you borderline the
Personal Box you are thinking in... Not all folks are you !

Stay Civil ... I found YOUR tone very Offensive !
"Politics" surely do seem to get out of hand !

Regards, otherwise !

First01
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I was under the impression that the oil in Anwar would beexported for income not used domestically.

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> You assume we agree that Bush is a loose canon.

That's what the evidence shows: he's stuffed his cabinet and several appointed poistions with people based on political allegience with no thought to competence (like the DOJ), invaded Iraq for no reason, knocked off Saddam and destabilized the whole region.

> You seem to oppose covert action against Iran. How would you solve the problem?

Make nice with the large middle class and get them to toss the graybeards currently in power. They actually _like_ us.

> People without word skills frequently resort to the f word to express their views.

yeah, well it was appropriate there. Quite succinct and accurate.

> Yes I suppose one who entertains the Iranian President and is patterning his goverment after Fidel Castro should engender our admiration.

Fidel has survived 40 years of us trying to kill him. Seeing as how our gov't is launching a propaganda campaign against them, Venezuela could do worse.

> Finally I do not accept that drilling in ANWR would trash the region as you seem to.

Do you at least agree that the oil supply amounts to about 6 months of consumption? We'd do better adding a $2/gal tax to gas. If we used that to forcibly buy and operate closed refineries, it might work out to a $1 increase.

> We need intelligent dialogue here, not polemics.

True, but you can post anyway.
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Too bad that the page tends to get "Political" so rapidly.
Can there Not simply be a discussion of the Page as it was,
which is of interest to some for the "somewhat-inside look"
at a Corporate Disussion of Oil ? The average "public joe"
seems to think that the High Price of Oil is directly due
to the Big Oil Folks !

FIRST01
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"Considering that there has NOT been a stellar track record with what is already going on in Prudhoe Bay, there's no guarantee that they can eliminate all the risks"

Amazing, Duck. I assume you don't breath, eat, walk, hike, drink, drive, ride, go out in the sun, stay indoors, take a shower, open your eyes, talk, lift anything, stand up or sit down. None of these things can be done if you insist on a guarantee that all risks have been eliminated. I assume you will not respond as to do so will risk carpal tunnel syndrome. And then where would the world be?


"The arctic refuge is home to 45 species of land and marine mammals, including polar bears, grizzly bears, black bear, musk ox and caribou, arctic foxes, wolverinesand snow geese. Millions of migratory birds use its coastal plain."

You must be factually in error here. According to you, development at Prudhoe Bay (a place where I highly doubt you have ever visited to learn first hand about environmental protections that are in place such as getting arrested if you walk directly on the tundra and off the paths) should have made the entire North Slope uninhabitable by man or beast or flower. Why don't you make plans to visit for Valentine's Day. The weather should be great.

"It is much better to put the risk on other peoples in other lands who really don't give a darn about the environment." I don't agree.

It's too bad you can't risk a reply here, because I would like to know which renewable energy source(s) you have in mind where risks all kinds associated with creation, development, transport, implementation, and use are guaranteed to be eliminated. Unless you can site at least one, I assume you agree you are more swayed by sound bites than rationality.

Amazing....

Ak
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You may be interested to find that the Windfall Profits
for this Commodity, as traded on the NYMEX since 1982,
are somewhere between 5 cents per gal.,at the Low which
could be back around 1.50 to 1.68 gal , and recently 10
to 13 cents per gal. (that's all) when the price per Bbl
of Oil Climbs on the NYMEX, The Fed. Gov't. makes ever
more in the way of "Windfall-profit-Taxes" Who can even
begin to understand the recent Rhetoric the Senators
are once again beginning to Formulate? Who is Guilty?

FIRST01
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Just wanted to post some general responses. We had gas prices this high about a year ago and similar discussions including windfall profits when Exxon announced profits then.

The real problem in the U.S. is our lack of a coherent energy policy. When you did the math about a year ago on Exxon's profit per gallon, it was quickly revealed that the Federal government was taking in the range of 4-5 times that per gallon in taxes and in some localities is as high as 50-60 cents per gallon.

Thirty years ago, the stated goal of government was to become energy independent. Jimmy Carter's response was to create the Department of Energy which now cost taxpayers in excess of $17 billion per year. This department has failed, thirty years ago we imported less than a third of our oil. Now 60% of our oil is imported.

I have seen estimates that 0.01% of the ANWR can produce 876,000 barrels a day (about $60 million per day and adding about 2.2 million jobs) and a U.S Geological Survey estimate that tapping the ANWR would increase the U.S. oil reserves by about 50%. In 1995 a bill was passed to open up the ANWR and was subsequently vetoed by Bill Clinton because "it would take 5-10 years to produce the oil."

I have also seen estimates that there is more oil in the Outer Continental Shelf than in all of Saudi Arabia.

Personally I am in favor of legislation that both encourages development of existing natural oil resources (exploration and refineries) and the development of viable alternative resources.

Let's get rid of governmental waste and encourage capitalism. Reduce foreign and then domestic dependence on petroleum and have a more diverse supply of energy.

In the interest of disclosure I do own shares in my 401(k) of OII which is up 28.57% over the last year.
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I think there are two other reasons that we should be concerned about oil prices:

1. Agreed that China is a problem, but India and the Pacific Rim represent another case of economies growing and requiring oil products and their derivatives. India is just in its beginnings stages of development as opposed to China. So let's beward that there are economies that will drive up both the cost and need for oil.

2. Since the US is the biggest user of foreign oil, we should be looking to dampen the demand in at least two ways: a. Add a $.50 to $1.00 tax over the next 2 -3 years to price at the pump and use these monies to fund development of alternate sources of fuel. Secondly, tax oil entering the country to make it more unprofitable to our suppliers and force us to take action to decrease our dependency on oil. This will not happen voluntarily. We need to make the people of the US realize that they need to sacrifice if we are to move in a better direction. Finally, these steps would force us to create the environment we need to innovate our way out this problem and create the next step after the Industrial Revolution called the Green Revolution. If we don't do it someone else will and reap the benefits
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Too bad that the page tends to get "Political" so rapidly.
________________________________________________________________________

'It's all about paying attention to politics, stupid!' - parahrase of another quote, no offense intended

It's true, ..

These days, politics has sort of sunk into a soggy bottom ground where it is just about stewardship of the economy and nothing else matters. It is an undisputable fact that all major corporations maintain power (... profits!<ggg>), through politics, ... political contributions and a subsequent black mail (... of politicos) for return of a favor. Halliburton, Chevron, Exxon-Mobil, et al., roll off the lips perhaps most easily whenever one is even suggesting this. It is special interest groups that influence political policy.

The most influential groups around are capitalists, ... plain and simple! But I don't mind that. I really don't. As long as I understand what are the capitalists wishes, I'm ahead of a game. How do I determine what are the capitalists whishes? Well, ... I just watch the frenzy politicos subject themselves to. It's very tellin', ...

Anyway, ... germane to XOM: ... If you no longer feel secure exploring and developing... If geopolitical risks start presenting a challenge to customary business model - growth option... In such kind of environs, it is increasingly important to alter business model:

... start Pumping Cash, Not Oil
http://www.businessweek.com/magazine/content/07_22/b4036057.htm?chan=top+news_top+news+index_businessweek+exclusives

I believe profits for XOM peaked in 2006: ... Peak XOM?

C., ... still holding, but...



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> Let's get rid of governmental waste and encourage capitalism. Reduce foreign and then domestic dependence on petroleum and have a more diverse supply of energy.

The actual amount of oil in ANWR is heavily debated - nobody really knows.

As for letting capitalism do its thing, we need to address the problem with refining capacity: the current refineries are owned by the various large oil companies, who benefit by restricting the supply. Perhaps its time to regulate the refining step of the pipeline in a similar way to electric utilities.
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Amazing, Duck. I assume you don't breath, eat, walk, hike, drink, drive, ride, go out in the sun, stay indoors, take a shower, open your eyes, talk, lift anything, stand up or sit down. None of these things can be done if you insist on a guarantee that all risks have been eliminated. I assume you will not respond as to do so will risk carpal tunnel syndrome. And then where would the world be?....
It's too bad you can't risk a reply here, because I would like to know which renewable energy source(s) you have in mind where risks all kinds associated with creation, development, transport, implementation, and use are guaranteed to be eliminated. Unless you can site at least one, I assume you agree you are more swayed by sound bites than rationality.


I'm not taking up your strawman argument, assuming everything has a risk, therefore all risks are equal, in your mind.

We've had years of seeing exactly how oil has been extracted all this time and we're to believe, "This time it will be different (or safer)"? I don't think so.

But back to your rant, I only agree that everything has risk. But I would like to say ANWR is an avoidable risk compared to other sources. However, in light of Peak Oil, it is probable that ANWR will get drilled anyway, if not by Chimpy McFlightsuit and Darth Cheney, then someone else.


Duck

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Too bad that the page tends to get "Political" so rapidly.
Can there Not simply be a discussion of the Page as it was,
which is of interest to some for the "somewhat-inside look"
at a Corporate Disussion of Oil ? The average "public joe"
seems to think that the High Price of Oil is directly due
to the Big Oil Folks !


How you NOT avoid the politics? Considering the Oilmen in the government, Senator "The Oil companies should be paying me MORE to shill for them" Inhofe, XOM's funding of conservative think-tanks, Chevron having an oil-tanker named after the current Secretary of State and so on?

How could you not think politics are involved?


Duck

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Goofyhoofy writes:

"I'm a little different. I would prefer it stay in the ground because it is probably the last great reserve on American territory, and everybody should have an emergency stash someplace. Great noise is made on these boards about having "a 6 month emergency fund" in case of the unexpected."

Sorry Goofy, but once one decides to go after the "emergency stash" it will take upwards to ten years to put oil in the pipeline. ANWR is suitable for development and immediate use but not as an emergency supply.
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"Europeans also don't have to pay for national defense, because we cover them.

They also don't pay their fair share of prescription drug costs, which leaves US citizens subsidizing Europeans.

With those two huge savings they can afford a few higher dollars per gallon".


I take exception to your comments, Britain has always done its fair share in national defense, I spent 12 years in the Royal Air Force doing my bit as we quirky Brits say! Remember who held off Germany during WW II until you chaps decided to join in! Of cause with out the assistance of the US the outcome would have been very different & we are very grateful for your late assistance.

I was brought up just after the war & I know what it cost my country in life & destruction to our country.

With reference to prescriptions, they are not FREE every working person pays towards this cost in deductions from their pay & then there is a prescription charge unless you are retired or pregnant.

Average fuel cost in the UK is 5 times what we pay in the USA. If you ever visit though you will find there are very few gas guzzeling monsters, most people drive vehicles the size of a Focus or Honda civic. Generally rental vehicles are diesel.

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What's th big deal here?? Gas is cheap, cheap as it has ever been, it's only expensive when you're filling up, just look at what and how people drive if you need any proof at all. Go back to your SUV, by yourself of course, drive 80 and be HAPPY!!
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Vegasjoe57 wrote:

"I am surprised you did not bash alternatives as not having any major impact, especially ethanol, of the corn based variety.

I suppose you conclude as many others do that ethanol is a non factor but I would be interested in what XOM folks have to say."

Well, y'all, there was an article about ethanol's impact in the New York Times today:

http://www.nytimes.com/2007/05/24/business/24refinery.html?th&emc=th

Oil industry says biofuel push may keep gas prices up.

The oil execs' excuse is that pressure from Bush and Congress to increase the supply of ethanol discourages investment in improving and building refineries.

Quote from article: “If the national policy of the country is to push for dramatic increases in the biofuels industry, this is a disincentive for those making investment decisions on expanding capacity in oil products and refining,” said John D. Hofmeister, the president of the Shell Oil Company. “Industrywide, this will have an impact.”

At first blush, their logic makes sense: Why dump a huge chunk of their billions and billions and billions of dollars of profit accrued from U.S. petroleum users into improved production infrastructure while some non-petroleum interests want a little -- maybe even insignificant -- piece of the oil barons' energy-supply pie?

To me, even as an owner of energy stocks, that reeks of pure greed and treasonous, callous disinterest in the long-term good of the country and the customers who made those obscene profits possible. It amounts to blackmail: Don't get serious about alternatives to gasoline or we'll make sure you're gonna be sorry.

Isn't turning a portion of profits back into infrastructure often what a business will do in order to produce more profit for itself and its stockholders in the long run? Didn't the once-mighty American steel industry undermine its world standing by failing to modernize to meet global competition? (Yeah, yeah, I know, global competitors were heavily subsidized. Let's remind all the steelworkers who are out of jobs and lost pensions while the execs floated down on golden parachutes.) I look at the empty and the now-foreign-owned steel operations stretched along a highway near me and wonder if that's what's going to happen to our oil industry someday.

What would be so wrong about Exxon et al pumping profits into new, modern refineries -- or improving existing refineries so there aren't accidental fires just before peak driving season?

Article says: "Experts point to many short-term reasons the United States is running low on gasoline, causing prices to rise: many oil companies are doing maintenance work on refineries; new federal rules make fuels cleaner but costlier; and a string of delays, fires and accidents in the industry have reduced supplies just when drivers are starting to hit the road for summer vacations. Many analysts predict prices will keep rising, then soften later in the summer as demand trails off."

Heck, even ethanol-industry developers, proponents and analysts admit the goals set by Bush and Congress are impractical for a number of reasons, and that ethanol is no threat to the oil industry in near- or mid-term.

Even so, why can't the oil companies take the lead by using some of their billions of dollars of profits -- not just relatively token amounts -- for other meaningful alternative-energy research so they will have something to fall back on when our finite oil reserves become insufficient -- and so that our country can realize more independence from foreign oil?
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"The real reasons for the spike in gas prices in the face of flat crude prices? Big oil is restricting refining capacity and futures traders are driving up the prices again."

Have decided to forego this board for a few weeks, not worth the increase in blood pressure.
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Madame Butterfly,

I am surprised you did not bash alternatives as not having any major impact, especially ethanol, of the corn based variety.

I suppose you conclude as many others do that ethanol is a non factor but I would be interested in what XOM folks have to say.

Vegasjoe57


When Chairman Tillerson was asked why ExxonMobil would not invest in ethanol, he said --- and I am paraphrasing somewhat... "because ExxonMobil likes to invests in projects were we have a competitive advantage and can add value to the activity." He then added, "I don't think ExxonMobil can add much to the technology of making moonshine".

I think that says it all.

Madame Butterfly

p.s. On a more serious venue, what do you think would be easier for ExxonMobil, to buy some land and plant corn and make ethanol and get the subsidy, or butt heads and negotiate with the Arabs to bring oil from afar thousands of miles?

The "rational"answer would seem to be that it would be easier to buy land and plant corn, and from that make alcohol and pump it at the Exxon and Mobil service stations, no?.

However, this is not happening. So you've got to wonder why ExxonMobil does not do it?

My take is that Exxon does not like to invest ventures which require gov't subsidy. How long do you think Exxon would retain gov't subsidies in ethanol when the likes of Chuck Shummer et. al. are agitating publicly about a conspiracy to raise prices by the industry.

Then you have to consider the recent track record of our Congress. If Congress took away the tax breaks it gave the industry during the Clinton years so that they would make investments in deepwater plays -- and now that the investments have been made they had take it away. How can any investor be sure that his or her subsidies are not going to be taken away because the political mood at a time in Congress may deem this or that company to be making too much money -- and thus not needing the subsidies?

If you believe some of the studies that have been put out by professor Pimentel from Cornell, and another professor from the University of Southern Cal, showing that ethanol production yields a negative energy balance, in other words that it gives back less energy when used as fuel than the total energy that was consumed in its production, one has to wonder what the hell are we doing with our energy policy.

Ethanol in my book is a big loser. It cannot be piped long distances. It is very higroscopic so in Florida, Texas, Louisiana and most Southern humid states is a no-no, and the cost of transporting it by truck exacerbates the cost of gasoline. Yet we subsidize the stupid thing.

Alcohol is good for drinking, but not for fuel. Land should be reserve for the production of food and not fuel. We are reaping today higher prices for food and meat on account of the ethanol stupidity.

I guess that should tell you pretty much what Exxon things about ethanol.

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Thanks Madame Butterfly. Interesting post.

All of your reasons are external to oil companies. What is the oil companies role in high prices? It would be interesting to hear your perspective on what could the oil companies could be doing to address the points you raise.

Granted, oil companies have little reason to endeavor to reduce energy prices, and perhaps it's beyond what we should expect from them. World demand for oil remains inelastic at current prices and, as investors, we don't want them searching for ways to lower prices or margins.

It's worth noting that in an era when the company you work for reports a 9.9 billion dollar quarterly net profit, you are suggesting that talent and equipment and political solutions can't be found. That rings a bit hollow to me. I'm not in favor of the "windfall profit taxes" either, but I can understand the motivation


Sir -- I never said that "talent and equipment and political solutions can't be found". What I said was that talent and equipment were in short supplied and thus some projects have been postponed and cancelled.

As for the high prices that we see today, don't blame the oil companies for that. There is nothing that Exxon would love the most than to be able to invest some of the billions of dollars of cash it is making in more projects ... but "access" to resources is being denied by our government as well as other governments.

We are not allowed to build new refineries -- To build a refinery today, would require a $350 milllion up front investment in a design of a plant that would then have to be submitted with an environmental impact statement so that 7 years down the road, if you are lucky you will get a permit. If you are lucky enough to get a permit, that is when the environmental wackos get off their couch and take you to court with an injunction and tie you there for years.

Look at what is happening with Arizona Clean Fuels Refinery. For 15 years these good folks have been trying to build a refinery in Arizona, and the environmental red tape has tied them up in knots.

So don't look or blame the oil companies for high prices...the solution is strictly political. So go take your plackards and protest in front of your local representative and tell him or her to cut the bull, and speed up the permitting process, and you will see gasoline and diesel prices go down in a few years when enough capacity is built.

In the meantime, the likes of Exxon Mobil, Valero and the like are forced to build capacity overseas, add jobs there, and bring the gasoline back home through expensive shipping, some time from Europe, other times from far away places like Korea.

Madame Butterfly
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Reason No.11 - significantly higher profits of oil companies

Reason No.12 - low investment of oil companies in new refining capacity
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"The actual amount of oil in ANWR is heavily debated - nobody really knows."

Ugh. Is this apathy and ignorance. Simply said: I don't know and I don't care.

Love to hear people criticize lobbyists (e.g. big oil proponents). Each special interest group needs to have their views presented or they may get boarked. My lobbyist is your villain (and visa versa).

The way I see it, a billion dollars profit divided among a billion share holders' results in each one receiving $1, or something like that.

Politics raises the adrenalin level of the individual, but only government intervention will affect the market value of big oil, for better or worse.

P.S. the financials of XOM look great. In my experience it has been ideal for DRIP investing.

Znaki


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"But back to your rant, I only agree that everything has risk. But I would like to say ANWR is an avoidable risk compared to other sources."

Now that we have established that you don't actually demand risk-free action, why do you think that responsible ANWR development, overseen by those who live there and, unlike you, whose physical lives depend on care for the environment, has greater risk than, for example, continuing to import oil from Nigeria? Whose lives are you willing to put at risk to minimize the risk to exposing your sound bite? What exactly are you afraid of?

Ak
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simo9 | Date: 5/24/07 8:52 AM | Number: 6790
Europeans also don't have to pay for national defense, because we cover them.

They also don't pay their fair share of prescription drug costs, which leaves US citizens subsidizing Europeans.

With those two huge savings they can afford a few higher dollars per gallon.

If you think that Europeans do not spend money
for defense you are very much mistaken.
They do and pay plenty. It is the United States
that objects to Eupope been armed to the teeth,
besides Europe by not producing its own weapons
arsenal it buys them from USA,(case in point the big
discussion about the Eurofighter)that means work for
those who work for General Dynanics, Martin-Marieta,
Raytheon, Teledyne, et cetera, et cetera, et cetera.

When it comes to drugs, they also pay their fair
share they just do not let the drug companies
exploite them.

PHOINIX20
The Eternal Bird

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I find it amazing (but maybe it shouldn't be) that no one on this board has addressed the problem of global warming, much of which is caused by burning fossil fuels. You know that one or perhaps one's children may not be able to enjoy profits as much (or at all) in a warmer world. What would help some is immediately raising CAFE standards in the U.S., but OH NO that might hurt oil consumption and oil company profits. Also, govt. investment in R&D for alternative fuels is important. The market can't handle global warming.
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"global warming, much of which is caused by burning fossil fuels"

A consensus is not a scientific certainty. Most (a plurality) people believe that global warming is caused by changes in the environment. Like global cooling of the 70/s or over-population of the 60's, globval warming will not even warrant a historic asteric.

XOM, big as it is, has less than 4% of the total world energy industry. I believe is a guide for responsible business practices.

Znaki

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Now that we have established that you don't actually demand risk-free action, why do you think that responsible ANWR development, overseen by those who live there and, unlike you, whose physical lives depend on care for the environment, has greater risk than, for example, continuing to import oil from Nigeria? Whose lives are you willing to put at risk to minimize the risk to exposing your sound bite? What exactly are you afraid of?

Never said that, Steve. We should be getting away from as many risky oil ventures as is possible. ANWR is another risky venture. Nigerian oil is a dangerous and risky venture. So is Iraqi oil. A lot of oil comes from environmentally and/or politically risky places in the world.

Just saying for the limited amount of oil that ANWR has, there's too much likely damage to occur to the environment there for such little oil. And it's not helping matters any that we aren't embracing better alternatives. Darth Cheney simply rules out conservation. Not that I am for conservation only, I am for more diverse sources of energy, as well as conserving or making better and efficient use of existing energy sources.


Duck
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Znaki, oh no you didn't! Read the IPCC report on global warming. The vast majority of mainstream scientists believe warming is caused by human activity (such as burning fossil fuels).
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Five
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I'd sure like to leave our children and grandchildren with a way out of the energy and ecological crises that are developing. There is way too much greed going around to take whatever we can now. Investing without moral restraint is greed, and its good to hear so many here with such strong moral fiber.

You may find this video interesting: "A Crude Awakening" (2006). It is incredibly informative about our oil situation. I got the DVD from Netflix, but you can probably get it from your local DVD rental place. Or it can be viewed or downloaded in small format at:

http://www.archive.org/details/acrudeawakening

The DVD has longer interviews in the extras section that are worth viewing as well.

Enjoy!
--Brian
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> Ugh. Is this apathy and ignorance. Simply said: I don't know and I don't care.

No, I don't know and neither do you.

> P.S. the financials of XOM look great. In my experience it has been ideal for DRIP investing.

Reminds me of dogbert's mutual fund: cigarettes, oil, and gambling. The returns are great, but you'll burn in hell for investing :)
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> Too bad that the page tends to get "Political" so rapidly.

It's oil - the center of most politics for my lifetime. It can't be anything but political.
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> He then added, "I don't think ExxonMobil can add much to the technology of making moonshine".

Well said. The ethanol thing is a handout to the Corn Lobby, not an energy policy.

[ethanol]

> However, this is not happening. So you've got to wonder why ExxonMobil does not do it?

Because we have no chance in hell of supplying the current energy demands of the USA with ethanol. Period.

> My take is that Exxon does not like to invest ventures which require gov't subsidy.
Somehow, I think they'd like that just fine.

> If Congress took away the tax breaks it gave the industry during the Clinton years so that they would make investments in deepwater plays -- and now that the investments have been made they had take it away.

Was the money for subsidizing the initial costs? If so, then go right ahead and pull the money if it's up and running. Why would you ever invest in something that requires subsidies to be profitable (aside from wheat, which is a different sort of thing).

> Ethanol in my book is a big loser. It cannot be piped long distances

It's also at best breakeven or +20% from an energy standpoint and not very dense in terms of W/acre. We'd be better off growing vast fields of Pot and reaping that (no, really).
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"...for the limited amount of oil that ANWR has, there's too much likely damage to occur to the environment there for such little oil."

5-10 Billion Barrels of oil economically recoverable according to USGS. How many drills, trucks, resources need to be displaced in the Lower 48 to produce 5 - 10 Billion barrels of oil? What kind of environmental damage needs to occur? And I can guarantee you that the environmental protections in Arctic Alaska are orders of magnitude more stringent than those in place at wherever you think you can get 5-10 Billion barrels of oil. Again: what are you afraid of? What environmental damage are you so worried about that cannot and would not be mitigated?

We have soldiers coming home in body bags (43 this month from an army base 5 miles from my home). More domestic energy, from whatever source, means fewer lives lost. In my book, that is good. But the basic question remains, Duck - what exactly are you afraid of?

The villagers of Kaktovik have it right: the sound bite specialists on both sides of the political dialogue are leveraging fear to generate cash for their coffers. We need facts instead of fear, not a fear factory.

Ak
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Again: what are you afraid of? What environmental damage are you so worried about that cannot and would not be mitigated?

Just Google "ANWR damage" and you'll have plenty of reading to keep you busy and well informed for the next few years.


We have soldiers coming home in body bags (43 this month from an army base 5 miles from my home). More domestic energy, from whatever source, means fewer lives lost. In my book, that is good.

Agreed. Even more important that we continue to pursue renewables and cleaner sources, not just militarily safe dirty sources.


Duck
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is likely valid if uninterrupted economic growth continues for a few more years. But, it is worthwhile to keep in mind that income elasticity of petroleum demand swamps price elasticity of petroleum demand six ways to Sunday. And, significantly higher petroleum product prices sustained over a protracted period imposes measurable negative income effects on end users.

Also, European/Japanese demand response to the equivalent of $1 gal. increase in gasoline/diesel prices will likely not track with the U.S. response to the same price increase. Much higher taxes on consumer petroleum products in those areas mean that a $1 gal. price increase constitutes a much lower percentage increase in the price of the product. MFoutlier


I fully agree with your observations. If there is a recession soon, there is no question that it could affect the price level.

However, even if the U.S. economy slows down further, world wide economic growth for this year is being projected at 4.8%.

China, India and the Middle East countries are growing at such sharp rates that it is difficult to see a sharp slow down in energy demand growth.

And while I've seen some numbers projecting sharp increases in producing crude capacity in the next 2 or 3 years, most of it is concentrated in one or two countries of the Middle East.

And as long as Iran and Iraq geopolitical situation remains unstable, all the spare capacity in the World in places like Saudi Arabia and Kuwait are not going to help ease the "fear factor" that is one of the underlying factors propelling prices to where they are today.

M.B.
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It is not only gas that Europeans are paying
more, they pay a lot more for almost everything
and yet they manage and they manage well. PHOINIX20


I am not sure what you mean when you say that despite the fact that the Europeans pay a lot more for almost everything ... "they manage well".

I don't know what the object of your "manage well"refers to.

If it is the economy, I would say they have done a relatively poor job at innovation and creating new jobs. The unemployment rate in Europe is significantly higher than it is in our country. And the newly elected President of France has said that taxes are too high there, and the French work too little -- and he got elected.

So perhaps you can qualify the meaning of "well".
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There are a lot of political considerations tied up with this discussion. I am a European, but I don't propose to comment on all of them.

However, one reason Europeans can live with high petrol/ gas prices is that public transportation is very good and quite cheap in many European countries (not unfortunately in Ireland where I live).

One other comment I would make is that oil companies, like the much praised (by insinuation, in the original mail) Exxon, make COLOSSAL profits. Could that be possible be a contributor? Duh!!! pmagnier


90% of oil reserves in the World are controlled by Government oil companies or equivalent entities. It boggles my mind to think that anyone could suppose that a company like Exxon, which hardly supplies 2% of the world demand, can have such vast influence on the price level as your sarcastic statement seems to imply.

Yes, they have made very high profit from the high oil prices, but so what? They could have as easily suffered had the environment been more similar to the one that existed in 1998/1999 when the price of crude had collapsed to less than $10/B.

I wonder if you have pose yourself the question as to why was it that then (1998/1999) the oil companies could not prevent prices from collapsing, and now they have managed to do the reverse? What have they done since then that gives you the idea that they could keep prices high? Perhaps you can enlighten all of us.

Madame Butterfly
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Once again the far left roars. What triggers these guys/gals? I suggest that their deep seated anger over social issues seeps into their financial decision making. How many investors in XOM would want these light weights running the store?

Socialism is dead, dead, dead. Get a life. Chavez is a nut. Castro ruined Cuba; Peron sank Argentina; the Soviets, Red Chinese and that pot bellied screwball in North Korea all exemplify what the far left wants for us.

Their arguments are shallow and nonproductive. I take capitalism, XOM, CAT, MO and any other solid U.S.A. blue chip over Ben and Jerry's any time.

Getting rich in America, even with the occasional stock/equity gyrations.

Znaki


As some of the old timers on this board know, because I have mention it before, my Dad escaped from the communist take over of Central Europe a few years after the second world war was over. He came to the states and worked as pipefitter, and now retired, from Exxon's refinery in Baton Rouge (although he strated at Bayway in N.J.). Baton Rouge refinery is were I work today, happily.

My Dad used to say -- when you are young if you are not a socialist, you have no heart. But if you are older and are still a socialist, you are a fool (actually my Dad calls them "useful idiots"). From some of the statements that have been posted on this subject matter, it certainly looks to me like in my book we are surrounded by lots of fools.

Madame Butterfly
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No. of Recommendations: 2
Granted, oil companies have little reason to endeavor to reduce energy prices, and perhaps it's beyond what we should expect from them. World demand for oil remains inelastic at current prices and, as investors, we don't want them searching for ways to lower prices or margins. mikenreg

Actually, Mike, it doesn't quite work the way you describe it in a free market. When margins are high enough to make investments profitable, each individual oil company makes a decision to invest or not depending on the ease or difficulty of where the oil is located. And in fact, oil companies don't look so much at prices as they do at the long term outlook for the supply demand balance. If there is a surplus of supplies longer term, they cut back on investment, and are very selective.

But if supplies are short, as today, they are looking for oil like gangbusters. The problem, unfortunately, is that years of downsizing have created a lot of shortage in equipment and personnel that make it very difficult to accelerate the pace of oil searching and producing beyond what we are experiencing today. It is going to take years to bring the industry capability back to snuff.

It is quite true that there is a high degree of inelasticity for oil demand in the short term, but as has been proven in the past, there is quite a bit of price elasticity over the medium to longer term because you have the ability to downsize from an SUV to a toyota.

One of my brother in laws said to me last night that he was thinking of trading in his lexus and buying a hybrid. I encourage him to do so, and told him I hope he could find 100,000 people like him so that it would not cost me so much to fill the SUV. Unfortunately, I don't see lower prices happening soon.

The higher the price level, the higher the incentive to search for oil or other alternative energies.

Alternate energies are not cheap -- so if we want to break our dependence from the oil sheiks, better pray that oil stays high for years to come, otherwise, if prices come down, those that are investing in alternate energies are going to go belly up.

So if I were an oil company, and assuming that I had the power to manipulate prices, I would bring prices down to the point where every project in alternate energy would go bankrupt. So from the perspective of an oil company that wants its oil infrastructure to last them for years to come, these high prices are really not good for them. So those of you who think that the oil companies want high prices to go even higher ...think again.

M.B.
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No. of Recommendations: 6
But you left out one. In fact, it would be #1 on MY list:

Exxon-Mobil made a policy decision a while ago to ignore research in alternative energy. Apparently, they are sticking by this strategy, as shown in this recent report, which makes no mention of solar, etc:

http://tinyurl.com/32fomx ...JohnEBgood



Actually John, you seem to speak more as an insider of Exxon than I do, because I know absolutely nothing about the policy on alternate energies.

First of all the reference you give about what Exxon's says about future energy development, actually contradicts what you say ... and I quote Exxon's statement ... "All energy sources, including alternatives to oil & gas, play a role in meeting the world's energy needs". It would seem to me that they are NOT dismissive of alternate sources of energy.

I am also not aware that as a policy decision they have decided to "ignore research in alternative energy, or in solar energy or in any other legitimate research venue for energy". They give millions upon millions of dollars to universities to look for breakthroughs in energy, that have no strings attached.

Exxon is an energy company. It has today the preponderance of its business activity in oil because right now oil is the cheapest form of energy. But if in the future, there were to be something else that is cheaper than oil, they would be in it...be solar, ethanol, or whatever ails you.

I frankly, don't know of any public statement made to that effect by a company spokeman. That someone may have made that claim about Exxon is possible, and I am speculating because I have not even seen that statement either -- who knows why that person or entity made such a statement about Exxon's policy position -- but I have seen no statement to suggest that Exxon has abandon anything in energy.

Let us not forget that back in the 1980's as I was entering the company as a young engineer, Exxon had already a solar power subsidiary. Exxon got rid of the damn thing because it did not make money for the shareholders.

Now, I can tell you that Exxon will not invest in any alternate energies today (which is different than doing investigative research), not because it has some intrinsic repugnancy for those forms of energy, but rather because it knows that they make absolutely no money unless they are subsidized. And Exxon does not believe it is a good idea to invest shareholder's monies in sectors that need subsidies from the government to survive.

Now the beauty of our free enterprise system is that there are companies like Shell, and BP that invest in those forms of energies (solar, hydrogen, wind, etc) because they want to be perceived as "green" and "responsible". While in my book, these are phoney corporate moves -- God bless their souls if they can get away with it, and they can make "peace"with Greenpeace and all the loonies in the environmental left. But if I were a shareholder, I would be pretty upset at the performance of their stock when I look and compare it to ExxonMobil.

So I will say to you the following -- Exxon's policy the way I interpret it is to maximize long term shareholder value. As long as alternate energies are not economic and need enormous government subsidiez, I would hope Exxon does not touch them with a 10-foot pool. It did back in the early 80's and they lost hundreds of millions of dollars of shareholder value because of that. I think that they have learned their lesson.

What most people don't realize is that society would be better off, and it would be cheaper for everyone if we would downsize, save energy, and consume less on the margin than it is to invest in alternate energies. We make ourselves and our nation more competitive.

When you look at what Exxon is doing in energy efficiency, and what it is investing in, you will be pleasantly surprised. And in the process, those of you who are so, so worried about CO2 emissions, when you become more energy efficient in your refinery and chemical processes, you also as a result reduce your CO2 footprint.

Read the corporate citizenship report that Exxon recently put out, and you will see all the things the corporation is doing. The mainstream media, unfortunately gives it zero profile -- as if it were a non event, because they like to keep the corporation with the greedy, environmentally unfriendly profile ... because it serves their ideological ends.

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So perhaps you can qualify the meaning of "well".


The Europeans, are Eating well, Drinking well,
Dress well, Go Vacation every year and save
a lot more than we do.
If you are insinuating that Europeans are starving,
well, think again. Better yet take a trip around
the world.


PHOINIX20
The Eternal Bird


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My Dad used to say -- when you are young if you are not a socialist, you have no heart. But if you are older and are still a socialist, you are a fool

No offense to your daddy, but this comes from old
Winnie Churchill!


PHOINIX20
The Eternal Bird
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No. of Recommendations: 5
Big oil is restricting refining capacity and futures traders are driving up the prices again. Abfacken

That is your interpretation. But if you are really interested in the facts instead of the propaganda, I suggest you look at the history of how refinery capacity has been "constraint"in this country, and you will discover that the "constrainees" of capacities are not the oil companies, but rather the myriad of government regulations that have been added to the books for years. So excuse me, for disagreeing with you.

"Traders are driving up prices again." Do you think that if there were a surplus of crude producing capacity, I mean a real surplus of capacity trader could drive prices up? Not a fat chance.

The real reason traders are "driving prices up" is because people fear that any disruption could cut supplies. With spare capacity barely a 2 million, and some say 1 million barrels per day only, any of 21 countries in the world that produce more than 1 million barrels of oil could cause a disruption sending prices up, and up.

Therefore utility companies -- which usually have to struggle through goverment boards to increase their tariffs don't want to see their price of fuel go up substantially. Likewise airlines, and other big user of oil. So what do they do when they perceive "fear"of disruptions ... they go into the market and buy futures to ensure that they will not pay more than x into some define future -- be it months or years, and to be sure than when the time comes, they will have access to some oil in case one of the morons in Iran decides to block the straight of hormus. That is called "hedging" and it is perfectly rational to do so.

Now if in your ignorance-- like most of the other politicians, you want to call this "speculation" ... go ahead, there is not much I can do to convince you otherwise.

What I suggest you do is to think of an analogous situation of "fear".

If you were going out to a play on broadway, and you see on the Weather forecast that there is a 50% chance probability of rain, you can do one of several things. You can get yourself an umbrella, and be satisfied, and then compete at the end of the show with others for a taxi. Or you can be prudent, if you have enough money to spare, to say ... the hell with the umbrella, it is too bulky. I would rather pay $50 dollars for a limousine to come pick me up after the show, than struggle with other theater goers for a limited supplies of taxis.

By paying $50 for a limousine-- instead of $15 or 20 for a taxi, you are hedging to ensure availability of transportation -- likewise, when you buy futures you are hedging because you are trying to protect yourself against an event that you perceive will have a negative impact on you or your company.

Don't let yourself be swayed by Politicians who make such claims about speculation and price gouging. They are trying to deflect the blame away from themselves and from all the cumulative restrictive laws they have passed making it almost impossible for the industry to build refineries.

The politicans are the real culprits of the policy stupidity that has been permeating the thinking in Washington for decades. Don't get polluted by it. Read more of the fools message board ... you will be enlightened and you will hear debate from many sides ...and you can make up your mind and do a little research to decide whom do you think has the more factual arguments.

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No. of Recommendations: 11
Since the US is the biggest user of foreign oil, we should be looking to dampen the demand in at least two ways: a. Add a $.50 to $1.00 tax over the next 2 -3 years to price at the pump and use these monies to fund development of alternate sources of fuel. Secondly, tax oil entering the country to make it more unprofitable to our suppliers and force us to take action to decrease our dependency on oil. This will not happen voluntarily. We need to make the people of the US realize that they need to sacrifice if we are to move in a better direction. Finally, these steps would force us to create the environment we need to innovate our way out this problem and create the next step after the Industrial Revolution called the Green Revolution. If we don't do it someone else will and reap the benefits. BENJIBOB

These are the comments that drive my Dad up a wall.

Are we a free country or are we not? Are we a free people or are we not?

When a bunch of "intelligent" people want to impose their "superior" knowledge and will on us "dummies" through the use of government power and coercion and "mandates", my antenna worries go up.

Government, my dear sir is not the solution -- it is the problem.

Just look at the mess that is Washington DC on both sides of the aisle. Why would I want to send 50 or 100 cents per gallon more to the government to decide for me how to invest it in alternate energies -- what kind of fussy thinking is that?

This reminds me of all the failed industrial policies of such country as France, and Japan, especially Japan, who also wanted to direct monies to certain industrial sectors -- high speed computers for example, that it supported for years thinking they were going to do the nation good, and two decades later, those areas where billions upon billions of yens were poured into, have been wasted. Nothing came out of that effort.

We have spent close to $500 billion over the last 30 years in our Energy Department, for what? What has been the favorable outcome of all these expenditures? And we want to send them more money? An institutions with such dismal record of performance? Is this idea of sending more money to Washington, rational?

When are we going to learn that it is "free people" who decide and not government.

Apple computers, Microsoft, google, did not start with gov't subsidies. The private sector spends money more efficiently than does the gov't. So why do we want to let gov't pick winners -- why don't we let investors do so. Balmer, Jobs and other of these big techno big shots are investing in alternate energy activities. Why do we want to undermine them?

The best way to reduce dependence is to diversify, and you diversify by unleashing the private sector not by subsidizing or putting all kinds of regulatory burden on them.

When will we learn that a big Nanny state directing everything and taking care of everything we are supposed to know or need will eventually lead to the loss of personal freedoms?

At one point in time we had these thinkers and intellectual utopians in the early 20th Century who wanted to build a better world for the workers -- a workers paradise. And the paradise became a gulag.

Then we had others who wanted to develop a maste race, and another race suffered, and we had the holocoust. And now we want Washington to collect more of our hard earn monies through higher taxes on gasoline to direct where to spend the monies? Excuse me for loudly disagreeing with you.

I find it incredible on the one side that such proposals are being made -- more monies sent to Washington, while at the same time some of you have been complaining about the oil companies with an 8 to 10% profit margin as being excessively greedy and the cause of the high prices. Do you want high prices, or not? If you want high prices imposed of you by gov't, then why do you complain?

M.B

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No. of Recommendations: 1
... start Pumping Cash, Not Oil
http://www.businessweek.com/magazine/content/07_22/b4036057.htm?chan=top+news_top+news+index_businessweek+exclusives

I believe profits for XOM peaked in 2006: ... Peak XOM?

C., ... still holding, but...


I found the article in many aspects pretty factual. The problem however, was the spin and the context in which some of the facts were placed. So when the author makes that statement that in the past Exxon was willing to take the risk to invest in Alaska and in the North Sea,.... and now it is not. It sort of leaves the reader with the impression that they have either lost their nerves or they are terrible businesspeople.

The reason xom has to buyback the stock is because there are not sufficient number of available acreages of prospecting out there --many potentially producing provinces are "verboden." There is nothing more than Exxon and the rest of the industry would love than to have access to more potential areas of production. For example, the continental shelf and ANWR. Then they can invest the billions they have generated instead of having to buyback stock, which is such a boring activity.

Obviously, it is cheaper to add reserves per share by buying back the stock than it is to find it -- because governments have set up a no trespassing sign in most areas where there is oil, or potential for oil. So buyback will continue.

And by the way, during the 1980's and early 1990's Exxon profits in absolute terms, were flat, but its earning per share over time grew, and so did the stock price.

M.B.
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Chevron having an oil-tanker named after the current Secretary of State and so on?

No kidding...why don't you give us a reference where we can see the picture?
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No. of Recommendations: 5
"Just Google "ANWR damage" and you'll have plenty of reading to keep you busy and well informed for the next few years."

Below is what I found, Duck. I agree. It did keep me well informed. Rather than "trashing ANWR", the proposal is to allow responsible development in an area relatively the size of a postage stamp on an 11X17 sheet of paper. What did you find that is factually supported instead of a sound bite designed to raise money? Once again, what exactly you are afraid of?

"Sen. Jeff Bingaman, D-N.M., chairman of the Energy and Natural Resources Committee, says Democrats have suspended discussion on an energy bill to "avoid quarrelsome, divisive votes in committee." For the sake of national unity, he says, they're pulling the plug on debate. It's for the war effort, you see -- and totally unrelated to the fact that ANWR has the votes to pass in the Senate.

And they've hauled out the president himself to condemn the idea. No, not President Bush. He knows America needs to reduce its dependence on foreign oil, that the oil can be extracted with little or no damage to ANWR, and that jobs -- as many as 735,000 of them -- hang in the balance.

No, they turned to President Josiah Bartlett. Or rather, to Martin Sheen, the actor who plays President Bartlett on the TV series "West Wing." Then they foisted on Sheen a script both mystifying and misleading.

"The Arctic refuge," intones Sheen. "Is it worth destroying forever for six months of oil? This is Martin Sheen. Please act now. Together, we can save what's left."

Where to start? "We can save what's left."

What would be "left?" Alaska includes about 192 million acres of parks, refuges, preserves and conservation units -- more than the rest of the United States combined. Of that area, 19 million acres -- an area the size of South Carolina -- is located above the Arctic Circle in the area known as ANWR. Of that area, President Bush proposes opening about 1.5 million acres to exploration (roughly 6 percent of ANWR). Of those 1.5 million acres, only 2,000 -- an area the size of Washington's Dulles International Airport -- would be devoted to drilling.

That means that even if oil workers ruin every inch of that 2,000 acres, 99.99 percent of ANWR and 99.9999 percent of Alaska's parks would be "left."

And what would we be "saving" this land from? Destruction of the native caribou herds? At nearby Prudhoe Bay, they've increased fivefold in the 26 years oil has been produced there.

Damage to the environment? The people who live there know better. A recent poll found 78 percent support exploring for oil in ANWR.

From spills? Prudhoe remains one of the cleanest oil fields on earth. The Alaska Department of Environmental Conservation, which keeps watch on Prudhoe, has found no evidence of environmental degradation. In fact, "there's probably more oil spilled in a Wal-Mart parking lot on a daily basis from oil seeping out of cars than is spilled on the North Slope," says Dave Dittman, an Anchorage pollster.

Then there's the matter of the six-months' supply of oil. Why, critics ask, risk polluting this pristine land for a drop in the bucket of America's energy needs?

But they're assuming all the oil would be delivered at once, which is neither physically possible nor strategically practical. It would, however, provide as much oil over the next 30 years as we expect to purchase from Saudi Arabia in that time. It wouldn't end our need for foreign oil, but it would make us less dependent on it."
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So perhaps you can qualify the meaning of "well".


The Europeans, are Eating well, Drinking well,
Dress well, Go Vacation every year and save
a lot more than we do.
If you are insinuating that Europeans are starving,
well, think again. Better yet take a trip around
the world.


PHOINIX20
The Eternal Bird


When did I say or imply that the Europeans are starving or poor?

All I wanted to know is what you meant by "well". You told me. The rest of your implications about what I think of Europeans , are yours only.
M.B.
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My Dad used to say -- when you are young if you are not a socialist, you have no heart. But if you are older and are still a socialist, you are a fool. Madame Butterfly

No offense to your daddy, but this comes from old
Winnie Churchill!


PHOINIX20
The Eternal Bird


I know. And my Dad loved Churchill. But it was from my Dad that I first heard the phrase, and not from Churchil --no ofense.

M.B.
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I think I'll fire up a big capitalist cigar tonight in honor of fine rhetoric...

Ak
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> But if you are really interested in the facts instead of the propaganda, I suggest you look at the history of how refinery capacity has been "constraint"in this country, and you will discover that the "constrainees" of capacities are not the oil companies, but rather the myriad of government regulations that have been added to the books for years. So excuse me, for disagreeing with you.

Yeah, that's why the oil companies are closing refineries, uh huh.

http://www.huffingtonpost.com/jamie-court/memos-show-oil-companies-_b_6980.html

> Now if in your ignorance-- like most of the other politicians, you want to call this "speculation" ... go ahead, there is not much I can do to convince you otherwise.


Since we're doing ad hominems, you're a credulous fool who believes everything is the result of legitimate fears and not market manipulation.

> Don't let yourself be swayed by Politicians who make such claims about speculation and price gouging.

The fun part is that oil companies can ignore their record of supply manipulation and claim that 'it's the market'. And you believe them.
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Hi, Mme I have been following this thread closely and your comments on the difficulty in starting refinery or energy plants hits home. Locally a proposed coal-to-oil plant is facing strong opposition from the citizens of the town. Initially their reps were very positive about this development but since their constituents are yelling, they are now backing away and withdrawing their support. I have yet to see a politician take a long view of things and risk unpopularity (except for maybe Bush--depending on your perspective-- but that is a mixed and cacaphanous debate I'd like to skip).

We do have an ethanol plant being built now. There are 2 nuclear plants that are pretty old, some windmill farms up North and now the downstate pols want us to put some big energy line/corridor through some of our towns and farms to deliver energy to them. Meanwhile we are trying to figure out a way to cut out National Grid and provide our own energy on a local level. Gasoline is over $3.20/gallon here.

I find it ironic that the same people who bemoan the loss of industry here NIMBY the proposals of new energy plants; open a plastics factory and they are lining up.

Disclosure: I bemoan the loss of industry.
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Then there's the matter of the six-months' supply of oil. Why, critics ask, risk polluting this pristine land for a drop in the bucket of America's energy needs?

But they're assuming all the oil would be delivered at once, which is neither physically possible nor strategically practical. It would, however, provide as much oil over the next 30 years as we expect to purchase from Saudi Arabia in that time. It wouldn't end our need for foreign oil, but it would make us less dependent on it." AlaskaSteve100


You are right on. These people make the phoney argument as if the oil were all going to be delivered at once. What is sad is that most of the public is not discerning enough to see through this phoney argument.

What these environmentalist wont tell you, because they do not want to be blamed for the high oil prices -- and it sits squarely at their feet, is that if the industry had been allowed to explore there, we would have been producing by now more than 1 million barrels per day of extra oil. That 1 million barrels alone is the difference between having a credible spare capacity, and having little or none. It is the difference between a $30 oil environment, and a $65/B environment of today.

I also blame industry for the poor job at communicating and explaining the issues to the American public. This is a free country, and I take my hat out to the radical environmentalists who are pushing their agenda -- and why not? I don't blame them for going and pursuing their ideas and their goals with a vengence, if that is their belief.

But it is up to the Industry and people who can see through their mistatements, spins and radical views to expose their falacies and the cost to society of accepting their extremists world view. However, by Industry failing to comfront the issues head on, we cede them the upper hand of public opinion by default.

One would ask, and what is the big deal about 1 million barrels per day extra of oil production in a U.S. market of 20 million barrels we consume daily or for that matter in a world that consumes about 85 million barrels per day? The 1 MBD would seem on the surface hardly worth the effort, no?

Yet, the real perspective is that in a supply environment of today, where spare capacity is barely 1 million barrels per day, or perhaps slightly higher, that additional 1 million barrels per day from ANWR or the continental shelf would have made a big difference. It would have been the difference between a market price of $30/B and today's $65/B.

So, 1 million barrels per day -- is a big, big deal.

M.B.


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<<<Yet, the real perspective is that in a supply environment of today, where spare capacity is barely 1 million barrels per day, or perhaps slightly higher, that additional 1 million barrels per day from ANWR or the continental shelf would have made a big difference. It would have been the difference between a market price of $30/B and today's $65/B.>>> M.B.

Which is exactly why the large oil conglomerates, who operate and make decisions on a world-wide scale, aren't spending political capital any longer advocating for ANWR. Why keep beating your brains out with the truth if letting your opponents "win" and believe they are sticking it to you on some kind of holy moral imperative actually allows you to make more money at the margin?

The trick is to not actually come out and say "we agree - we can't allow exploration and drilling there." That would allow the environmentalist groups to redeploy their resources somewhere where they could actually protect the environment and harm the bottom line. No. Better to keep the monkeys swaying on the bars in the playground where you can keep an eye on them.

Go XOM! Keep it coming!

Ak
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Yeah, that's why the oil companies are closing refineries, uh huh.

http://www.huffingtonpost.com/jamie-court/memos-show-oil-companies-_b_6980.html


Ah, yes the conspiracy theorists again.

"The oil companies are purposely closing refineries to create shortages" -- of course, why did this brilliant thought not occurred to a "credulous fool" like, me?


Mr, Facken, have you looked at the companies that have closed refineries? Have you taken the time to investigate or know why these refineries have been closed and for what reason? Has it occurred to you that perhaps there are legitimate reasons other than the headline conspiracy assumption of the article you refer to, that is accusatory and pre-judges the answer without a thread of evidence to support the headline conclusions?

Do you know how many refineries Exxon has closed in the last 30 years? ... how about none!!! Do you know that Exxon has been expanding its capacity through de-bottlenecking steps in a way that it adds the equivalent of one new refinery every two years, and so has most of the industry?

It is just so illogical to think that a Chevron or a Tesoro or a Valero would close a refinery or refineries purposely to create shortages so that an Exxon or a Shell or a Conoco refinery could make more money, while they themselves sacrifice for the rest of the industry,today?

Yes, there were many refineries closed in the late 80's and early 90's. They were closed because they were small, they were losing money hands over fist, and they could not make the investments to meet the increasingly stricter environmental rules.


THE STORY OF HOW A TON OF UNECONOMICAL SMALL REFINERIES WERE BUILT WITH GOVERNMENT SUBSIDIES

There were a lot of small tea-kettle refineries built in the late 70's, because in one of the most moronic moves in energy policy, Richard Nixon created the so called "small refinery bias." The most recent moronic move supported by morons on both sides of the aisle, is of course the "ethanol" program with its "mandate."

Don't you love it when government tries to do something they deem "good" to correct a problem it believes "it knows better" how to handle it than private enterprise, and contrary to the announced outcome, proceeds to screw things up royally?

The "small refinery bias" of the 1970's arose out of a broder system of pricing oil whereby smaller refineries (I believe less than 40 kBD) received huge government subsidies through a complicated pricing system established under a system of prices that monitored what was called "new" and "old" oil production. This system allowed for the transfer of several dollars per barrel subsidy to the "small" refinery owner.

It was a great way for a few hundred owners to get rich, while processing crude inefficiently and wasting a lot of energy in the process -- and this was happening when we were in the midst of an "energy crisis".

Did it not occur to anyone to see that these refineries that were boiling this crude and producing often times offspec products, that were later resold to the bigger refineries for re-blend, were wasting precious energy in the process? Precious energy we were suppose to conserve and save.


And here we are on this board with people wanting government to do "something"; to "force" other people and companies to do this, or to force the car producers to do that, ... a government bureaucracy that has proven over and over to be incompetent (look at the execution of the Iraqi war for crying out loud)...and some want the government, this very government that over and over my lifetime has proven to be incompetent under both parties, to do the bidding for us in the energy area ?--- and then, you call me a "credulous fool"? ... look who is calling the kettle black

So imagine, in an environment where refineries in the 1970's and 1980's would be lucky to make the equivalent of 1 penny a gallon --and those were the real efficient ones, government developed a system that would transfer 10 times the then prevailing profit margin of about 1 penny to a smaller, inefficient operator.

Of course the political justification for all of this policiy stupidity is somewhat similar to the political hysteria that exists today, .. "the big oil companies". They were accused of having colluded and withheld supplies in the 1970's in combination with the Arabs. And predictably, the macho politicians were claiming and thumping their chests like orangutans, and halloring ... "we need to break the back of their monopolistic refining hold on the market".

And these are the same kind of political imbecils that we want to trust to help us correct the so called "energy dependency problem" -- the root cause of which they have incorrectly diagnosed.

And unfortuantely, we have two problems. One is supply reliability. The other is lack of domestic refining capacity resulting from all the regulations that have made it impossible to economically build new, grass roots refineries. When was the last time CNN, or PBS, or Fox said it that simple?

So just imagine the proposed solutions that are and will be emmanating from the wisdom halls of Washinton, D.C. especially now that the Democrats have taken over the asylum, and from every looney left and self-proclaimed consumer protection advocate, and left wing enviromental wackos? !!!


Instead of a small refinery bias, we have instead a brilliantly conceived ethanol program that uses more energy in the process of making a gallon of ethanol than it yields back when consumed as fuel, and a windfall profitS tax proposal to be imposed on those companies that can find oil cheaper so that monies could be transferred to those that can produce "alternate energies" at equivalent costs of $100 to 500 dollars per barrels "to force the oil companies to reduce prices" ---WHAT? ... this is what I call, SMART LOGIC!!!

Talk about "entitlements" ... the oil entitlement program made many, many people millionaires at the expense of taxpayers, without solving the pricing/shortage problem.

I don't have the exact figures with me handy, but I believe it was well over 100 of these tea-kettle refineries that were built. They operated for years inefficiently and wastefully until the system began being dismantled in the early 1980's.

The result was that these tea kettle-refineries , after a phase out period, could not survive and had to be closed down . They should have never been built in the base case, but as is usually the case with government programs that try to "solve" problems, they create unintended consequences.

Since the early 1990's, refinery capacity in the U.S. has been growing despite closure of smaller refineries. Most of these closures were strictly economic, and in most cases they were linked to the inability to meet ever stricter environmental rules. It is that simple. It was a classic combination of stricter environmental rules versus economics -- and not conspiracy as you suggest.



Since we're doing ad hominems, you're a credulous fool who believes everything is the result of legitimate fears and not market manipulation.

The fun part is that oil companies can ignore their record of supply manipulation and claim that 'it's the market'. And you believe them.


Perhaps I am a "credulous fool" -- I can accept that. But from where I sit in the 25 odd years that I have worked with Exxon, mostly in supply and refinery -- so I know this business well and intimately familiar with the market mechanics, there has never been but the highest ethical standards in our refining and trading group about everything we produce and sell.

In fact, as a corporate policy, Exxon is one of the few companies that as a policy forbids its supply people from either hedging, or buying derivatives -- all of it financially legitimate instruments in the market today -- simply because it can lead to someone creating a situation that could be interpreted as market manipulation.

In fact, as an employee of the corporation, I am forbidden to buy puts or calls, or buy ExxonMobil stock on the margin. I am forbidden to buy crude futures, even if it is for my own account. Or engage in anything that has to do with hedging or derivatives.

Any employee doing such thing even if its for its private account, will be ipso facto, fired. The reason is not legality, the reason is the perception -- and Exxon does not want people accusing the company that it is manipulating, or its employees, the market because of this or that hedge -- it is a P.R. nightmare. Even though every body knows these are legitimate financial instruments and perfectly legal transaction vehicles that can be used by others.

Now, I would not be as naive to think that there are not people or companies out there that may try to "play"the market. But there are rules and there are laws, and if a company or group is found violating the law -- you throw the book at them --for example, Enron... and you wipe them out.

But there is a big difference between the action of one or two rotten apples - and industry as a whole. And it straps my credulity to think that if the conspiracy theories that you propose were credible that many more people would be in jail by now.

As I said in one of my postings, a "hedger" may be able to pull a market stunt that may last a minute or two, or a half a day in the market -- that is it. Butthis idea than any one individual or group, no matter how big it is can influence the fundamentals of pricing in markets like New York or the U.S. Gulf spot market, or Rotterdam, or Singapur, does not really know how the industry and markets work.

You cannot keep prices high (or low) artificially for a long time on any commodity just base on market manipulation, and not know who the culprit or culprits are -- it just not possible. There are too many checks and balances, too many market actors, and a lot of monitoring for market manipulation to go on without the government knowing about it. If not, I suggest you go talk to an economics professor at one of the universities if you don't want to believe me.

The oil business is one of the most transparent and competitive businesses in the world -- if not, would you think its margin would be lower than the average of all the margin of all industrial businesses in the U.S.

Does an average profit margin of a little over 8% seem to you as "excessive"? In other words, with crude at $60/B, Industry gets to keep about 12-15 cents per gallon give or take a penny or two. That is it.

What do you propose, that we give half of it back? To give back to the consumer 6 cents per gallon? ... wooopy!!! ... and then what?

If you do that for the oil industry, would you propose the same for those that have made a ton of money in real estate with the appreciation of their assets?

Or should we also ask those that have invested in the stock market to give back half their capital gains? (wait till the democrats control the White House and Congress after 2008, and you will see what I am talking about)

The market pricing mechanisms that exists today for trading and hedging of futures are pretty transparent for all world commodities. If they were not, people and companies would not be so stupid as to do transaction through them.


When you go buy a shirt at Macy's or Ross or Wall-Mart, do they have their prices posted outside for everyone to see -- fat chance. And yet, prices at refinery gates and prices at service station are out there for eveyone to see and compare, and in addition they are published daily for those that are subscribed to pricing services that monitor prices at every major terminal/refinery in the U.S. and at major refining centers throughout the world.

Do you believe all of these hundreds and thousands of terminals and refineries talk to each other and coordinate and collude daily to post their prices ? That would be quite a job? ...and who would coordinate this collusion -- Exxon, Chevron, BP, Shell, Tesoro, Valero, Conoco Phillips... who?

How come there have been more than 30 investigations on topics of industry price collusion, price manipulation, price gouging, and the government has never found evidence of any industry conspiracy?

Markets are too complex today, with hundreds upon hundreds of actors for anyone individual or company to manipulate. If the major oil companies were as powerful and with capability to manipulate markets and prices as you seem to think, how come there are so many independent gas station operators, operating with a logo of a non-major oil company?

How come prices collapsed but 6 years ago?

Were the manipulators all on vacation?


I am a mother of 4 children and I like for them to learn (I recently had a baby --thank God for Grandparents!!!), and I tell my three older ones --I can explain something to you, now it is up to you to decide to accept what I say, and understand it, or find me factual evidence as to where I am wrong.

Madame Butterfly
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My take is that Exxon does not like to invest ventures which require gov't subsidy. How long do you think Exxon would retain gov't subsidies in ethanol when the likes of Chuck Shummer et. al. are agitating publicly about a conspiracy to raise prices by the industry.

Schumer's position on gas prices is idiotic. In fact, the entire political apparatus is clueless as to what's going on.

http://www.env-econ.net/2007/05/all_politicians.html

That said, I completely disagree with your assessment on XOM. I think they're mighty satisfied with investing in areas that are subsidized by the government (i.e tax breaks granted for drilling on public lands).

In many ways you're right about corn-based ethanol. It is corrosive to existing infrastructure, less energy-dense than gas (you don't go as far per gallon), and is net energy-negative.

But mostly, I think that it's small potatoes. If we devoted the entire American corn crop to ethanol production, it would replace only about 13% of what we use each year. It requires huge capital investment and a lot of uncertainty. I don't think Tillerson doesn't like subsidies, I think XOM just knows that ethanol's a bad idea.
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"We are not allowed to build new refineries -- To build a refinery today, would require a $350 milllion up front investment in a design of a plant that would then have to be submitted with an environmental impact statement so that 7 years down the road, if you are lucky you will get a permit. "

(sorry don't know how to quote on this board properly)

Now I don't really want to go into extreme details but, what you are saying here is some what misleading. A 'big' refinery will never be built from scratch in America due to the cost. This has very little to do with the government or environmental laws.

The refinery you mention 'Arizona Clean Fuels facility' is very small. It is planned to only run 150,000 barrels of oil per day. There are units that run more oil than that in the big refineries. A refinery of this size (or 10 refineries of this size) would not lower the price of gasoline for the nation.

It simply does not make financial sense to build a large scale refinery from scratch. Infrastructure costs for a project like this are hard to imagine. So, most likely all new refinery production increases will come in the form of current refinery expansions. This makes much more sense for the oil companies. A prime example is the current expansions taking place at the Valero and Motiva refineries in Port Arthur, Texas.

Also 'expansions' make more sense because it is much easier to get the needed permits. It is not taking 7years for the expansions in Port Arthur to happen.

I am not sure if it was your intention but you made it seem that the reason that refinery production has not increased in this country is due to environmental laws. While these laws certainly play into the decisions made they are not the reason refinery production has not gone up. Oil companies have not increased refinery production during the past few decades because the margins did not justify the expenses. Now that the price of gasoline has gone up (so have the refining margins) and stayed up the big oil companies are once again looking at expanding their refining capabilities.

Right now the biggest problem the oil companies are facing in in regards to increasing refinery production is finding the skilled man power needed to build the new units. The cost of labor has shot up the last 2yrs and is the reason some planned expansions are being put on hold.
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Now I don't really want to go into extreme details but, what you are saying here is some what misleading. A 'big' refinery will never be built from scratch in America due to the cost. This has very little to do with the government or environmental laws.

The refinery you mention 'Arizona Clean Fuels facility' is very small. It is planned to only run 150,000 barrels of oil per day. There are units that run more oil than that in the big refineries. A refinery of this size (or 10 refineries of this size) would not lower the price of gasoline for the nation.

It simply does not make financial sense to build a large scale refinery from scratch. Infrastructure costs for a project like this are hard to imagine. So, most likely all new refinery production increases will come in the form of current refinery expansions. This makes much more sense for the oil companies. A prime example is the current expansions taking place at the Valero and Motiva refineries in Port Arthur, Texas.

Also 'expansions' make more sense because it is much easier to get the needed permits. It is not taking 7years for the expansions in Port Arthur to happen.

I am not sure if it was your intention but you made it seem that the reason that refinery production has not increased in this country is due to environmental laws. While these laws certainly play into the decisions made they are not the reason refinery production has not gone up. Oil companies have not increased refinery production during the past few decades because the margins did not justify the expenses. Now that the price of gasoline has gone up (so have the refining margins) and stayed up the big oil companies are once again looking at expanding their refining capabilities. jadallen


Allen: I would not disagree that "economics" at the end of the day is what prevented more refineries being built.

You and I agree on that point.

Economics during the 80's and 90's were lousy. The key question is why were the econmics so lousy?

You seem to de-couple refining economics from the high cost of environmental regulatory burden, and that is where you and I depart on the issue of new refining capacity.

When you look around the world, capacity addition was added during the 80's and 90's despite lousy economics in the U.S.

The reason economics were lousy here were because the environmental regulations placed such a burden on refining economics that it was not justifiable to add capacity in the U.S. It was cheaper on the margin to import. I know that, I worked in the supply group, and we imported to balance.

Instead, what happened especially in the 90's?

Refining capacity was added overseas because it most cases it was economic to do so. And thus, the product shortfall between refining capacity here in the U.S. and demand was balanced by imports, on the margin.

You and I also disagree -- but that is o.k., on the issue of what is a "big" refinery. You don't seem to think that 150 kBD Arizona refinery should be classified as big. In my book it is pretty big.

Now, I know that there are bigger refineries, but these refineries today are "big" because over the years more units were added--they did not start with a 400 kBD capacity.

A 150 kBD refinery is considered a pretty good size refinery to achieve economics of scale.

Our former Benecia refinery in California, which is now owned by Valero (because the gov;t forced us to sell it during the merger), is not even 150 kBD in capacity, and while it could not be called humongous, it was a pretty decent size-- about 120 KBD, nameplate.

But let's not quible about qualifiers on the definition of big.

I do agree with you, that it is cheaper to debottleneck than to build something grass roots. But I submit to you that part of the reason it is "cheaper" is because you don't have to go through all the difficulty that would be involved in getting a permit for a pure grass roots refinery.

In summary, refining capacity was built outside the U.S. when it was not economic to do so here despite the fact that there was a shortage of capacity in the U.S.

And while not all of the justification for the lack of new capacity is to be placed at the door step of environmental rules, certainly the cumbersome and expensive process to get permits and to develop environmental impact statements places such an upfront burden on the investment that it practically kills it.

As you may know, Valero recently acquired the refinery in Aruba from El Paso (which was previously owned by Coatal, who bought from Exxon).

What is interesting to me is that they have announced a long term plan to increase the capacity of that refinery from the current 300 KBD to 800 KBD. One has to wonder why they are doing this overseas instead of doing it in our home front?

I am going to tell you, since Exxon owned the refinery in Aruba up to the Mid-eighties and I know a little about what is going on there today.

In Aruba, you tell the gov't what you want to do and 99% of the time the gov't won't object, and you do it.

A refinery expansion or processe invest in Aruba will meet environmental standards, but Valero won't have to put up with the B.S. of lengthy environmental rules, impact statements and the rest of the regulatory process you have to put up here in the U.S.

In Aruba, you have the certainty that the local gov't welcomes the investment since it would mean more jobs. In the U.S., if you are lucky you don't get tied up in court by greenpeace or friends of the earth.

What do you think is happening to Arizona Clean Fuels Corporation investors? Why do you think that they have been trying to build a refinery there for the last 15 years? ... It has been the regulatory and all the legal B.S.



M.B.
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Sure the price of gas is on American's minds right now and they'd like to know why and for how much longer, etc. MB does a good job explaining
some of the reasons that are unknown to some here but with the caveat of an industry bias towards increasing supply rather than reducing demand.
Why is that important? Well the largest reason is because in the long term increasing supply will not solve much while reducing demand will do
much more for us and the future us's. No mention is made of the subsidies that the fossil fuel industry gets and the damage done to our selves and our environment by using them in such large quantities. My point is that the whole picture must be looked at fairly and honestly over the long term rather than just the short term. I say that gas is very cheap at todays prices and we need to switch away from them ASAP for some very good reasons. Will an industry insider give us an acurate picture to view on that? They might but only after they left the industry like Dr. Jeremy Leggett has already done. You can listen to him in part 3 of the online video below. Governor Bill Richardson has a energy plan that needs execution ASAP too while our current president is asleep at the wheel and trying to get 35 year PSA's in Iraq for the major oils at our expense.

Crude: 90-minute Australian documentary online
Australian Broadcasting Corporation (ABC)
ABC TV is proud to present the world television premiere of Crude, a superbly crafted, 90 minute documentary spanning 160 million years of the Earth's history to reveal the story of oil.


From the food on our tables to the fuel in our cars, crude oil seeps invisibly into almost every part of our modern lives. It is the energy source and raw material that drives transport and the economy. Yet many of us have little idea of the incredible journey it has made to reach our petrol tanks and plastic bags.

Coming in the wake of rising global concerns about the continued supply of oil, and increasingly weird weather patterns, award-winning Australian filmmaker, Dr Richard Smith takes us through time: from the birth of oil deep in the dinosaur-inhabited past, to its ascendancy as the indispensable ingredient of modern life. Filmed on location in 11 countries across five continents, Smith consults the leading international scientific experts to join the dots between geology and economy and provide the big-picture view of oil.

Smith says: "When I first started getting interested in oil, I was amazed to find that not only did most people not really have a good idea what this stuff was, but it was hard to find a really definitive explanation from the experts on how it formed. Clearly, the science of oil was lagging behind the exploitation. The deeper I dug into the latest research on the subject, the more incredible links in the story began to drop into place."

Crude takes a step back from the day to day news to illuminate the Earth's extraordinary carbon cycle and the role of oil in our impending climate crisis. Nearly seven billion people have come to depend on this resource, yet the Oil Age, that began less than a century and a half ago, could be over in our lifetimes.
The video is viewable online.
http://www.abc.net.au/science/crude/


Governor Bill Richardson Will Be America's Energy President, Calls for Fast, Comprehensive Energy Revolution
Proposals Dramatically Reduce Oil Consumption, Incentivize Alternative Vehicle Market, and Save Consumers Thousands in Fueling Costs



WASHINGTON, DC - Governor Bill Richardson today unveiled a bold new Energy and Climate Policy Plan at a speech to the New America Foundation.

"Gasoline is back up over $3 a gallon and people are hurting," stated Governor Richardson. "Retail sales are down, as many American households do not have income to spread across high gasoline costs and other life expenses. Consumers are hurting because US energy markets are not diverse and competitive, and because we have fed our addiction to oil instead of ending it."

"We need an aggressive national energy and climate policy that helps Americans who are struggling to heat their homes, fill their gas tanks and that moves us to safe, available alternatives as quickly as possible. We also need a policy that will help the US meet the two great challenges of our era: energy security and global warming."

Today, I'm going to stake my claim to being the next President, the Energy President, on the concept of a fast, comprehensive energy revolution in the United States," stated Governor Bill Richardson. "We need a man on the moon program to end our oil addiction, but we need it faster and bolder than others have suggested."

Governor Richardson's five point framework breaks our oil addiction, creates competition and value for consumers, strengthens our national security, creates American jobs and will the lead the world toward effective climate protection.
http://campaignsandelections.com/nh/releases/index.cfm?ID=631
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As long as consumers feel free to use 4-ton trucks to haul themselves to and from the mall...

Feel free? Heck, the government even bribes some of us to do so. As a self employed person, I can write off up to $25,000 on a new vehicle purchase, but only one of a certain large size. The government won't give me the write off if I buy a Prius, even though that vehicle would service my needs just as well.

IP
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If any of you can think of other reasons, pile them on.

My original post was pulled apparently for "masked profanity." To avoid disturbing the more sensitive amongst us, here it is again, with the masked profanity removed.


11. The loosest canon of all sits in the White House. Bush's foreign policy is causing the Middle East to destabilize even further. As you pointed out, Iraq is a mess and will remain so for the next decade probably. The northern pipeline from the Kurdish fields, which was operational 6 years ago is unlikely to become functional anytime soon.

He has just authorized a 'secret' (not anymore cause everyone knows about it now) covert operation to destabilize Iran's government and its currency.

Afghanistan, once touted as the key to piping Turkmenistan's vast oil and gas reserves to Karachi during the time of the Taliban is now effectively a defunct state at war with itself, so the Turkmenistan government, which cannot deal through Russia anymore and which the US will not allow to operate through Iran is finished with regards to its oil reserves.

Syria is being increasingly alienated by the Bush government as well causing more tension in the region. Even if Iraq's pipeline were fixed, there would be repercussive issues with Syria.

In contrast to yourself, I don't think Chavez is a nutcase - but only time will tell if his strategy pays off.

I believe your overall synopsis to be accurate and correct although you left out Brazil as an exporter of oil. Petrobras [PBR] is doing nicely and has plenty of reserves in a country that the US can still buy from and which is not likely to go up in flames anytime soon.

Lastly, I take umbrage at your statement:
Our U.S. government continues to demonstrate supine incompetence, and politicians are still unable to have the courage to open up areas for exploration and production

Well, not in the first part - you are quite correct in saying that they are the embodiment of the word "incapable" but not for the reasons you mention if, what you mean is drilling in Alaska's ANWR. Oil supply in the ANWR is not sufficient enough to justify the potential environmental damage that could be caused. It just isn't.

And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Some things are more precious than a tank of gas and more valuable than money.

Best regards,

A.

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And here's the bottom line: before you stands at least one person [me], who would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.

Some things are more precious than a tank of gas and more valuable than money.

Best regards,

A.


Dear A.hote...

You are not the only one who is willing to pay more
for gas than see the environment being destroyed,
but here is something that goes way back more than
30 years ago, something that I hope will shed some
light to our woes.

In the late 60s good old Ari Onassis, under various
names (assumed) and disguises, embarked upon a spree
of purchasing large tracts of land in New Hampshire,
a state that was ridden with poverty due to high
unemployment.

Someone/somebody, somehow got wind who was buying
the land and for what purpose. The purpose was to
build a refinery. It was very convenient, Onassis,
would get his refinery and the residents of New
Hampshire, would gain employment.

Oh! boy, I can still hear the screaming of the
residents of New Hampshire,the adverse publicity
of news media and how proud the people of
New Hampshire are, their slogan, "Live Free or Die".
And all the demagoguery and propaganda that went
with it. They had rather "die" from poverty than
have Onassis, build a refinery. Yes indeed very
proud people, as if Californians or Kentuckians
were less pround.

To be frank about it I do not know if the opposition
to refinery came from the people themselves out of
a genuine desire to save the environment or it was
instigated by the oil companies to stifle competetion,
but the refinery was never built!


PHOINIX20
The Eternal Bird












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<<<Oil supply in the ANWR is not sufficient enough to justify the potential environmental damage that could be caused. It just isn't....

...would gladly pay more for gas than see a region like the ANWR trashed for the sake of oil.
>>>

A - Once again, who, except for you, proposes a development program that will "trash ANWR" if drilling is allowed? If drilling is allowed, why would you not want environmental safeguards put in place? What do you have against the villagers of the area who depend on the environment for subsistence? Who is proposing this except for the environmental orgs that use fear, rather than facts, to raise money?

"It just isn't" is the only potential environmental damage associated with drilling on .01% of ANWR that cannot be mitigated (read "fear, not facts). "It just isn't" is the rationale used to go to war in Iraq (read "fear, not facts"). "It just isn't" the time to pull our troops out of Iraq (read "fear, not facts). "It just isn't" the time to remove earmarks from legislative appropriations (read "fear, not facts). "It just isn't" the time to look at global warming holistically, considering both natural and man-made causes so we can actually do something about the impacts (read "fear, not facts). "It just isn't" the time to implement rationale prescription medicine policies (read "fear, not facts").

Sorry, pal. "It just isn't", while useful in garnering money and power, doesn't really cut it with me anymore. We need to shut down the fear factory and focus on facts.

Ak
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Sure the price of gas is on American's minds right now and they'd like to know why and for how much longer, etc. MB does a good job explaining some of the reasons that are unknown to some here but with the caveat of an industry bias towards increasing supply rather than reducing demand. dwenergyman

Industry's job is to provide the product consumer wants.

Now conservation is good for everyone. Exxon has reduced its energy use per unit of processing by about 40% in the last 30 years.

Each one of us can do our part. We can conserve today if we wanted to. But why don't we? Because Gasoline prices are still not hurting enough.


Why is that important? Well the largest reason is because in the long term increasing supply will not solve much while reducing demand will do much more for us and the future us's.

Increasing supplies will solve a lot. It will bring prices down and will lead to higher economic growth.

No mention is made of the subsidies that the fossil fuel industry gets and the damage done to our selves and our environment by using them in such large quantities. My point is that the whole picture must be looked at fairly and honestly over the long term rather than just the short term.

If you look at the taxes the industry pays, you would be surprised-- and you talk about subsidies?

Exxon pay's not only on an absolute basis but also on a relative basis very high taxes. It was the company that gave more taxes to the federal government than any other company. Last year Exxon paid 40% of its profit in taxes. There were other companies like GE that paid much line. I think the average of the industrial companies is close to 30%. So I am not sure what subsidies you are talking about, but the gov't is surely getting more than its fair share of revenues, that is for sure.

Now regarding the "damage" done to ourselves and the environment because of the large usage of fossil fuels, let me say the following.

First of all, we would be using much less fossil fuel today had the environmental wackos allowed the nuclear industry to expand and provide us with plenty of energy to feed a growing economy, as has been done in other industrialized country. And had that happened we would not have the screaming maniacs blaming CO2 for all the global warming they say we are experiencing.

Secondly, water and air today are much cleaner and have significantly lower pollutants that we had back in 1980. And it is getting cleaner everyday even with all the fuel we have burned. You see, technology and the fact that we are richer today than we were 25 years ago, helps us to get rid of identified pollutants.

I say that gas is very cheap at todays prices and we need to switch away from them ASAP for some very good reasons. .

Gasoline is "cheap"? Go tell that to those screaming at the industry. As for the non sequitor statement that follows-- from cheap gasoline to expensive alternatives -- does that make sense?

Will an industry insider give us an acurate picture to view on that?

I am not sure what the "that"refers to, but I believe I pretty well commented on most of what you have said.

Now if it were left up to me, I would not be burning fossil fuel at all, and it is has nothing to do with the Carbon Dioxide global warming baloney, but as a source of chemicals that would be difficult to synthesize if all the oil were burnt away.

Unfortunately, the only way out of this is to turn fully Nuclear and move into a hydrogen economy by making hydrogen by the electrolysis of water. Otherwise, we will continue burning fossil fuel because it is cheap. And cheap energy is what allows many economies to grow, especially those newly developing countries that have lots of poor people.

They might but only after they left the industry like Dr. Jeremy Leggett has already done. You can listen to him in part 3 of the online video below. Governor Bill Richardson has a energy plan that needs execution ASAP too while our current president is asleep at the wheel and trying to get 35 year PSA's in Iraq for the major oils at our expense.

I really don't know who Jeremy Legget is -- and what point you want to make. When I have some time I will listen to the man.

One final thought. To Exxon it is immaterial whether we sell gasoline from fossil fuels or from ethanol. It is a liquid that goes into a fuel tank of a vehicle. For years to come, liquid fuels will be required by most of the transportation infrastructure.

Perhaps in 50 years we will be using electric cars with a way of storing energy that we cannot imagine now. In the meantime, our mandate as a company is to provide as inexpensive energy as the law and regulations allow.

If as a society we collectively decide we are willing to pay $6/gallon of gasoline, downsize to honda civics, and cut our standard of living -- fine.

But energy is still going to be needed for years to come. And whether the energy is fossil fuel, or solar or wind, or nuclear, Exxon will participate when it becomes economic or when the regulations would require the company to do so.

But it is rather naive to think that a corporation whose fiduciary responsibility is to invest in sectors which produce the shareholder the greater returns, to be expected to invest in sectors that are money losers. Exxon already got burnt, no pun intended, with solar power in the 80's. It was a money loser because the price of crude eventually collapse.

Why should the corporation once again follow the same path and risk losing millions of dollars when it can't make money in that sector? Who says that Exxon shareholders are supposed to subsidized uneconomic activities?

Now if BP and Shell want to do that to look "green" -- God bless their souls. That is the beauty of a free market and a free society.

And by the way, there are many shareholders that are unhappy with Exxon's policies. It is their right to express, as they are doing, their disapproval. But overall, the overwhelming majority of the shareholders are happy to see Exxon do what they have been doing to this time.

And you as a consumer are free to express your anger at Exxon, if that is the way you fell, by not buying its product and certainly not its stock.

M.B.
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We need to shut down the fear factory and focus on facts.

Ak


Agree -- but go tell that to Al Gore-- he is the number one fearmonger.

Fearmongering is what politicians and other pressure groups use to move public opinion. If we would but give the public only the facts, they would be either too bored or would not pay attention to the fearmongers.

If Gore had mentioned the fact that Glacials have been melting for over a century, would it had made as much impact to viewers as the contrast of his movie showing a photograph of Mount Kilamanjaro 30 years ago, and one most recently, to give the impression that this melting is only a recent phenomena?

If Gore had mentioned the fact that even if global warming were proven to be man made, the rise in ocean levels would be limited to no more than 17 inches, and not the 23 feet or more feet he showed in his movie, do you think that people would have cared?

So fearmongering is part of the bag of tricks of the environmentalists and the left wing looney left ... it is the only way they can gain access to the masses... by lieing and exaggeration -- facts would sink them.

Besides, if there was no fear of a catastrophe or a "crisis", how would some professors be able to attract funding to do research on climate change? Even Exxon has fallen for it. They have given $100 million dollars to Stanford.

M.B
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Here are the highest European gas prices as of April 2007, in US$/gallon:

Norway:       $7.59
Netherlands:  $7.49
Denmark:      $7.23
UK:           $7.03

Source:
http://www.aaroadwatch.ie/eupetrolprices/
Exchange rate: 1Euro = $1.3437
1 US Gal = 3.79 liters

What comes to mind, that the 2 oil-producing European countries (UK, Norway) also have some of the highest gas prices.  Go figure...

WD
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With 4.50 a gallon in 2007 they are
still driving. I paid that much last year and
I expect to pay the same and more this year
when I go to Europe.


They also have alternatives to driving: most cities offer good mass transit and when you're traveling long distances, buses and trains are far more convenient than they are here. Those choices protect consumers and the economy from the unpredictability of volatile oil prices.

Meanwhile, every year we subsidize the most inefficient means of transportation with trillions in highway construction while cities put mass transit on the back burner and Amtrak is expected to stay in the black on its own.

Forget about the environment. From a purely economic, dollars-and-cents standpoint, wouldn't it make sense to invest in modes of transportation that get more people from place to place while burning less gasoline per individual? We'll always have our cars, but it would be wise to have more than just cars.
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I think I can safely conclude that there is only one way to balance supply with desired demand, and the flywheel is called higher prices

This strikes me as stating the obvious... isn't supply and demand always balanced by the prices of goods and services? Oil just happens to be one good where prices have to rise drastically (since we can't change our habits quickly) in order to cut consumption. Frankly, I'm glad to see higher prices. It's going to happen sooner or later, and the sooner it happens the better off the economy and our environment will be.
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I think I can safely conclude that there is only one way to balance supply with desired demand, and the flywheel is called higher prices. M.Butterly

This strikes me as stating the obvious... isn't supply and demand always balanced by the prices of goods and services? Oil just happens to be one good where prices have to rise drastically (since we can't change our habits quickly) in order to cut consumption. Frankly, I'm glad to see higher prices. It's going to happen sooner or later, and the sooner it happens the better off the economy and our environment will be. Haise


I know I was stating the obvious. But you would be surprised how many people on this and other boards believe that the prices are set today by collusion and dream up of all kinds of conspiracies in support of their assertions.

Madame Butterfly
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I know I was stating the obvious. But you would be surprised how
many people on this and other boards believe that the prices are set
today by collusion and dream up of all kinds of conspiracies in support
of their assertions.

Yeah, one of my good friends, who majored in Economics and just
finished his MBA, is convinced that the oil companies are colluding to
raise their profits. I really haven't looked into the data very much,
but he says, if higher gas prices really are mostly due to higher oil
prices, profits shouldn't be rising like they are. So I just quickly
checked the operating margins on ExxonMobil, Chevron, and
ConocoPhillips and the first two have actually seen declines between
2004 and 2006: 

     2004   2006
XOM  45.0%  43.4%
CVX  32.5%  31.4%
COP  28.2%  30.9%

So that doesn't lend much evidence to the collusion theory, does it? 
What the media doesn't report is that growth in revenues...
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Yeah, one of my good friends, who majored in Economics and just
finished his MBA, is convinced that the oil companies are colluding to
raise their profits. I really haven't looked into the data very much,
but he says, if higher gas prices really are mostly due to higher oil
prices, profits shouldn't be rising like they are. So I just quickly
checked the operating margins on ExxonMobil, Chevron, and
ConocoPhillips and the first two have actually seen declines between
2004 and 2006:

2004 2006
XOM 45.0% 43.4%
CVX 32.5% 31.4%
COP 28.2% 30.9%

So that doesn't lend much evidence to the collusion theory, does it?
What the media doesn't report is that growth in revenues...


A while back I made a relatively simple posting ( but as Madame Butterfly said merely two posts ago, difficult to grasp - especially if you don't want to ) that stated.

If you make X% profit on the 'cost'an item ( being simple here OK?? ) and the cost of the item doubles over say a year or two then if you make the same % your profit is much higher in absolute $$. Or, as you suggest, the profit can even be much higher than before @ a lower %!!!

But there is the " NO WAY!!! I AM PAYING TOO MUCH!!! THAT CAN ONLY MEAN THEY ARE SCREWING ME!!!" mentality, which is fed by the BSing media.

Your friend has an MBA & majored in Econ???? Still believes this??

Amazing, absolutely amazing.....
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...which is fed by the BSing media.

...and the BSing congress. Anything that they can point at as an injustice, to remove the spotlight from their own activities (or inactivity).

-$$$
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If you make X% profit on the 'cost'an item ( being simple here OK?? ) and the cost of the item doubles over say a year or two then if you make the same % your profit is much higher in absolute $$. Or, as you suggest, the profit can even be much higher than before @ a lower %!!!

But there is the " NO WAY!!! I AM PAYING TOO MUCH!!! THAT CAN ONLY MEAN THEY ARE SCREWING ME!!!" mentality, which is fed by the BSing media.

Your friend has an MBA & majored in Econ???? Still believes this??

Amazing, absolutely amazing.....

And we all know that liars (Congress) can figure

And figures can lie

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First of all, as long as the US government makes three times as much from gasoline taxes as oil companies do in profits, not only does it have no motivation for helping to reduce gas costs (as if it could), it has every motivation for impeding the development of non-gas powered automobiles. As usual the US government (regardless of which major party is in charge) is part of the problem, not the solution.

The ONLY good alternative to gas powered automobiles is electric. Ethanol would have a devastating economic and environmental impact. It would result in more land clearing and more intensive farming (and hence more damage to freshwater aquatic environments). It would also make corn and corn products (such as corn syrup) too expensive to eat. As people looked for alternative foods, other food prices would rise. I would take higher gas prices over higher food prices any day (and so would the numerous poor people around the world). The only good thing I could say about it is that it would level the playing field in the beer market as the large breweries would be forced to quit substituting some corn in their malt and use all barley and wheat (like what most microbreweries already do for quality reasons). Ethanol is not worth it just for this, though :). As for biofuel, there are currently rainforests being cleared in Thailand and Malaysia to grow the types of trees that are used for this. Lastly, the necessary infrastructure changes changes for ethanol, biofuel, and hydrogen would be extremely costly and take decades to implement. With electric, the infrastructure is already there. While electric powered autos would initially cause electric prices to rise, this would eventually be offset by increased use of solar power (both in homes and cars). Even in the short term, we have much more coal available than oil domestically and coal burning technology is much cleaner than it used to be. Also, oil will continue to be valuable even after electric takes over. It is used for other things besides fuel (such as in plastics and medicine). This is all the more reason to reduce our use of it now.

The thing that makes me really mad about the high gas prices is that while everyone contributes to the high demand, all the idiots in this country and everywhere else who choose to drive SUVs and trucks to work everyday make a much larger impact on the demand than someone such as myself who drives a Toyota Echo. The increased demand that they cause causes me and all other responsible people to pay more. I guess they have insecurities that they need to take care of, egos to feed, and arrogance to display and everyone must suffer for it. Note that I am not encouraging government involvement on this issue as it usually messed up everything it touches. Rather, I am encouraging individual responsibility. To some people, individual responsibility is very foreign - just look at the people whom they elect to government.
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NikasiMBP: I was enjoying your post and agreeing with a lot of the sensible things you were saying until this paragraph you wrote hit me in the face.

The thing that makes me really mad about the high gas prices is that while everyone contributes to the high demand, all the idiots in this country and everywhere else who choose to drive SUVs and trucks to work everyday make a much larger impact on the demand than someone such as myself who drives a Toyota Echo. The increased demand that they cause causes me and all other responsible people to pay more. I guess they have insecurities that they need to take care of, egos to feed, and arrogance to display and everyone must suffer for it.

Well, I drive an SUV and I am neither an "idiot" or have "insecurities", "egos to feed", "arrongance to display" or other such nonsense.

I am a mother of 4 children (3 older ones, and my new baby). And here in Louisiana we love to go camping and go boating. And while I applaud your use of a Toyota Echo, not everyone can afford to do so.

People who have big families need bigger cars. Besides my parents, live with my hubby and I, now that they are retired. So when we go out often times, they also come with us. Where do you fit a family of 7 and now 8 with the baby?

Many individuals buy light trucks because that is all they can afford. I bet you that a light truck and some SUV's are cheaper than a Toyota Echo, and certainly cheaper than most hybrids, no?

Unfortunately, electric cars are too expensive. And I would agree that mandating higher mileage will only make it more difficult for those that can least afford to buy transporation. I agree with your negative assessment of both the ethanol and biodiesel programs.

If you examine the improvement in car mileage of the recent models, are quite impressive. High energy prices have signal the car companies to do so.

Our planners recently gave a presentation confirming that car mileage improvements are going to be quite substantial in years to come. So don't despair -- over time there will be a cumulative effect of all these efficiency efforts, but I am afraid we will need to see even higher prices.

For example, the Chevrolet Tahoe gasoline mileage has improved by ~20% in the last 3 years and more is expected. Improvements in car drag coefficient, braking design, internal combustion efficiencies, weight, and transmissions have been impressive. These improvements have added about $1,000 to the cost of a car, but that is way more cost efficient than the $6 to $8 thousand dollar premium one has to pay for a hybrid vehicle. Gasoline at $3 per gallon does not justify the extra expenditure for a hybrid. Those are the crude facts.

Unfortunately, car mileage improvements are not enough.

GM told our people that by the year 2020 the world fleet is expected to grow from about 550 million vehicles to over 1.1 billion. That is equivalent to having a line of cars circling the globe 126 times.

The increase in the number of vehicles is about 100% in 13 years --that is brutal. That is an expansion rate of approximately 5.5% per year for the vehicle fleet.

Refineries are not being built fast enough to satisfy the expected world wide demand increase to fuel this increase in vehicle population, so hang on to your hat in the years to come, unless some refineries are fast-tracked in other countries, prices will go up much more.

The biggest projected expansion of the vehicle fleet is in China, India, and developing Asia, as well as in the Middle East -- but don't discount the countries of Eastern Europe. They are also rapidly catching up with decades of neglect in their economic development due to their underperforming socialists policies.

People are dropping their bikes and their camels for the convenience automobiles offer. A convenience our modern societies have been enjoying for decades. When 400 million Chinese today have enough money to own a car, that is a lot of pent-up demand.

My point is that even if you get rid of all the SUV's in the U.S., the real cause of increased world wide demand can be squarely placed on the generalized industrialization phenomena we observe in a sector of the world that had been held back by stupid socialist policies, graft, and incompetence, and is now discovering and enjoying the benefits of free markets.

This "new industrialization", like our own over 100 years ago uses a lot, but a lot of energy. And that is "good". So if we blame something, lets blame the "good" that is happening to these poorer societies that are coming out of backwardness and not the SUV's. Nothing short of significantly higher energy prices is going to arrest this growth and development.

So the SUV's are not the only things that are to blame. That is the fascile mantra that politicians like to use and point their fingers to, to detract from their 30 plus years of their bening neglect of energy policy and the many restrictions placed on the oil companies'ability to explore for oil and produce more gasoline.

In summary then, robust world economic growth primarily in the mega countries of China and India --but not neglecting other parts of Asia and other developing countries, combined with the inability of the oil companies to access sufficient number of potential production plays, and complicated by short-sighted government policies, have all combined to create the difficult supply situation we are in, with a wafer-thin supply cushion that can disappear at an instance --and which creates so much instability even when small supply interruptions occur or are threatened to occurr. This difficult supply/demand situation is going to take a while for us to resolve, unfortunately.

Madame Butterfly
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Your friend has an MBA & majored in Econ???? Still believes this??

Well, shouldn't be too surprising... just look at all the Ivy League MBAs on Wall Street who demonstrate an amazing aptitude for crowd-following :)
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Madame Butterfly,
First of all, I was mainly targeting people who use SUVs and trucks for their work commute - not for family transportation. Just yesterday, in fact, I had a <fill in the word> tailgating me in a Cadillac Escalade on the way home from work (he was driving by himself). However, even with this said, there are numerous alternatives to SUVs and trucks for large families such as stationwagons (what my parents used when I was younger), vans, and minivans. The four wheel drive aspect of SUVs and trucks is what make them so inefficient. Unless a person lives in a place like Wyoming or Montana, they probably do not need four wheel drive to commute to work. Here in Pittsburgh, PA, where I live, we have rather hilly terrain and receive a decent amount of snow and ice in the winter but numerous people including myself are able to get by just fine with two wheel drive. I have driven my Echo up steep hills with two to three inches of unplowed and unsalted snow. I don't consider it irresponsible, however, to have an SUV or truck for situations where they are necessary such as for hauling things like boats. This type of use has a minimal impact on the demand for gas (mainly because there are so few people who need to).

Also, electric may be expensive now but this will change in the future - possibly even near future. Lastly, my Toyota Echo cost about $12000 new (I paid it off in a year). I would be surprised if one could buy a new truck for less than that and absolutely shocked in the case of an SUV. I remember SUVs costing about $25000 back in the mid 90's and I bought my car in 2001.
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June 7 (Reuters) - Lehman Brothers said it raised its crude oil price assumption for 2007 and 2008 to reflect the continuing crises in Nigeria where more than 900 million barrels per day of crude is now shut in.

The brokerage raised its crude oil assumption for 2007 by $1.90 per barrel to $62 and by $5 per barrel to $55 for 2008.

Meanwhile, it raised its 2007 earnings per share estimates for integrated oil companies by 9 percent and for refiners by 17 percent.



Lehman raised its 2008 earnings forecast for integrated oil companies by 13 percent and refiners by 4 percent.

Following are the price target changes made by the brokerage on the following integrated oil companies and refiners: Company name Price target Rating

Current Prior Exxon Mobil Corp.(XOM.N: Quote, Profile , Research) $90 $88

I THINK LEHAM MADE A ERROR or THE PUBLISHER OF THIS NEWS RELEASE - It can't be 900 Million Bbls a Day?
Nevertheless, $90.00 will be sweet !!!!!
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"Your friend has an MBA & majored in Econ"........

Yea----so what? I've know many well educated folks over the years that couldn't think their way out of a paper bag!

crpurdum
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June 7 (Reuters) - Lehman Brothers said it raised its crude oil price assumption for 2007 and 2008 to reflect the continuing crises in Nigeria where more than 900 million barrels per day of crude is now shut in.

The brokerage raised its crude oil assumption for 2007 by $1.90 per barrel to $62 and by $5 per barrel to $55 for 2008.

Meanwhile, it raised its 2007 earnings per share estimates for integrated oil companies by 9 percent and for refiners by 17 percent.



Lehman raised its 2008 earnings forecast for integrated oil companies by 13 percent and refiners by 4 percent.

Following are the price target changes made by the brokerage on the following integrated oil companies and refiners: Company name Price target Rating

Current Prior Exxon Mobil Corp.(XOM.N: Quote, Profile , Research) $90 $88

I THINK LEHAM MADE A ERROR or THE PUBLISHER OF THIS NEWS RELEASE - It can't be 900 Million Bbls a Day?
Nevertheless, $90.00 will be sweet !!!!!


Space: I believe that what is important about Lehman's new estimate is not so much the absolute number of $62/B average they are predicting --which I think is going to be somewhat short of the mark, but rather the realization that they now have expectation of higher average prices.

This should finally settle the debate that was raging early in the year among some analysts who were predicting sharply lower prices.

This upward adjustment is a recognition that supplies are very tight. Let's pray that hurricanes don't do damage to any of our facilities this year, because if they do, prices will escalate to even higher levels.

Whether prices will come down to the $50s next year will depend on the strength of the world economic expansion. If the world economy continues expanding at the rate we are seeing today, I predict that prices will remain as high as they are today, and who know if they will go even higher.

Oh, by the way, I agree with you, it is not 900 million barrels, but 900 thousand barrels per day production loss in Nigeria due to the political instability.

The key question we need to ask ourselves is, what is happening today that may give us a hint that supply increases may improve in the future?

Nigeria, while screwed up today, may be one bright spot in the supply equation if things settle there now that the new President has taken power. So that may provide a significant increase in capacity.

However, the picture in Iran and Iraq, both relatively big producers, is looking uglier every day. And have some of you seen the images of protesters coming out of Venezuela? Do we believe that things are going to be more stable there next year?

And how about Putin? Russia is doing a superb job of kicking the oil companies in the teeth. Shell is bleeding, and BP I am afraid is next. Exxon for now has been spared, but who knows what this ex-KGB man is going to do next.

Where are the new areas of exploration that are being opened to the oil companies today that are going to be sufficient to both offset the increase in demand of an expanding world economy as well as to compensate for ever declining mature oil field production?

Every year since the beginning of 2002, analyst have consistently under predicted next year's price outlook. My guess is that 2008 could be the same.

But one year is not important for an investor, the long term trend is. And nothing out there, as I had said earlier, convinces me that the supply/demand balance is in an improving trend to restore sufficient surplus capacity. Therefore, every spare penny I have, I have invested and will continue to invest in Exxon.

Madame Butterfly
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Ditto at 20% and have never faltered or looked back nor regretted it...Espec after 30 yrs
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But one year is not important for an investor, the long term trend is. And nothing out there, as I had said earlier, convinces me that the supply/demand balance is in an improving trend to restore sufficient surplus capacity. Therefore, every spare penny I have, I have invested and will continue to invest in Exxon.

I must have done a Rip Van Winkle thing at some point. Last time, a long time ago, that I heard, XOM was still incorporating a mid $30s price in their business model, making alternative energy development unattractive. If the expectation is much higher and permanently so, doesn't that change the alternative energy investment picture by bringing alternatives into the range of profitability?
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Yea----so what? I've know many well educated folks over the years that couldn't think their way out of a paper bag!

crpurdum

Ain't that the truth!

In the meantime according XOM, oil and gas will
be in vogue until 2030!

PHOINIX20
The Eternal Bird
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Last time, a long time ago, that I heard, XOM was still incorporating a mid $30s price in their business model, making alternative energy development unattractive. If the expectation is much higher and permanently so, doesn't that change the alternative energy investment picture by bringing alternatives into the range of profitability? Katinga

I don't know how solidly convinced senior management is about the long term floor price of energy past 2010. My guess is that there are some believers still that think prices may see the $40s/B again in the next decade.

Yergin, of CERA, has been the great promoter of a supply surge coming in the near term-- supposedly hitting the markets in the next couple of years.

CERA has made a credible argument in various forums since last year suggesting that the supply surge is coming starting in 2007 through 2011.

Some have argued that the beginning evidence of this supply surge is being manifested in the (slight) increase in spare crude production capacity that OPEC has been reported in the last few months to have.

Some may say, hey, how come prices are still high if there has been an increase in spare capacity?

Well, actually, a sort of "price collapse" did occur at the beginning of the year. We saw prices dropped to $50/B early in the year, and Steve Forbes was predicting that crude prices were going to drop into the $40s before year-end. So what's going on?

Indeed there is higher spare capacity now than what existed a year ago. However, prices in my view still went up for two reasons.

One has been the worsening geopolitical situation.

Instability leading to the Nigerian elections, Chavez saber rattling follow by confiscation of major oil companies heavy oil investment assets, Iran's aggressive pursuit of nuclear enrichement that could lead to major confrontation, the worsening chaos in Iraq, and last but not least, Russia's bullying of the international majors, killing the notion that this was going to becoming a booming oil source for a thirsty world years into the future.

All of these factors have conspired to scare the hell out of the market. And hedgers have been having a field day, partly pushing up prices.

The second reason is that the reduction of gasoline production capacity as a result of a number of mechanical turnarounds, combined with some unfortunate accidents, reduced the capacity of the industry to produce sufficient gasoline to keep up with surprisingly strong gasoline demand. So as gasoline prices moved up to reflect the shortage of gasoline, it affected the price of crude by pulling it up further.

So while prices are up now, it could be argued that the forces causing these higher prices are only of a temporary nature and that in time, perhaps in a few years, prices will ease up again.

So why invest in expensive, low return alternative investments when you may believe that lower prices are around the corner?

Let's face it, companies never get hurt because they miss the upside of the energy market especially when they are already well positioned to make more money should the upside in prices materialize because their base-investments are supported by much lower price assumptions.

The real problem comes when a company channels substantial commitments of resources (money and technical talent) into new sector (alternate energy) that are dependent on government subsidies. Or, alternatively investing expecting the current higher price environment to remain or even grow into the longer term, to see instead the project turning sour a few years later because the reverse of a high price scenario occurred.

What's the rush for Exxon? Have you not examined their energy outlook out to 2030? What do you see? Oil and Gas still having a significant portion of the energy pie, with renewables at best, despite double digit growth having a measly 2%.

So why should Exxon, no.1 --risk investing in these alternate sources, when the industry is currently resourced constraint in material and manpower, and No. 2 -- why take an investment risk that require higher sustainable prices to make such investments profitable, when some very credible experts are predicting that prices will come down in the next two or three years?

There is a free market out there. No one is preventing Shell or BP or Chevron or ConocoPhillip from investing in these "alternate energy" projects. Exxon supplies only 2% of the total energy demand of the world So why not let the other companies do the investing now in alt energies to satisfy the 2% projected demand for alternative energies, and let's leave Exxon in peace to work at providing more supplies for the other 98% of the energy pie --which will have no doubt a much higher return?

If I were a green, and I believed Exxon was missing the boat, I would certainly not encouraged or insist that it invest in alternate energies. To the contrary, I would hope it would not invest, and it would continue to invest in these "anticuated oil and gas" businesses and be left behind, and crash, by its "enlightened competitors".

And if as an investor, you don't like what Exxon is doing or not doing with alternate energies, there is the option for anyone to switch investment into the other 98% of the market that may be investing in alternate energies to grab a 2% share.

Madame Butterfly

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ANY COMMENT ON THIS YAHOO MESSAGE BOARD QUESTION AND COMMENT:

Can anyone convince me to buy XOM? (Not rated) 21-Jun-07 05:30 pm With a PEG of 2.49, I'm trying to see the possibilities of this stock going much higher from here. Their growth seems non existent. At a PE of higher than 12, that would suggest that there has to be a guarantee in achieving current record earnings for years to come. And the dividend is not that great, making a money market rate much more attractive. Tech companies look much more attractive now than XOM. INTC in particular has 25% growth for next 2 years with much higher dividend and less than 1/3 the market cap. With no competition at all and no need to charge more to increase profits which may end up scaring away consumers like XOM does.


Sentiment : Strong Buy

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ANY COMMENT ON THIS YAHOO MESSAGE BOARD QUESTION AND COMMENT:

Can anyone convince me to buy XOM? (Not rated) 21-Jun-07 05:30 pm With a PEG of 2.49, I'm trying to see the possibilities of this stock going much higher from here. Their growth seems non existent. At a PE of higher than 12, that would suggest that there has to be a guarantee in achieving current record earnings for years to come. And the dividend is not that great, making a money market rate much more attractive. Tech companies look much more attractive now than XOM. INTC in particular has 25% growth for next 2 years with much higher dividend and less than 1/3 the market cap. With no competition at all and no need to charge more to increase profits which may end up scaring away consumers like XOM does.


Sentiment : Strong Buy


Space2004: I don't know what your time-horizon is, and what your investment philosophy is either. Do you want a combination of reasonable growth combined with security and safety, or you just want growth even if it means higher risk?

INTC is a very good company that like Exxon is the leader of its industry. It has suffered through a very dry spell as has all the techs. Whether it is ready for a take off or not, is not for me to say because I don't know enough about what tickles the tech investors.

One could definitely argue that with world economic growth being robust, and China and India modernizing and growing at a very fast clip of 10% and 8.4% respectively, one could argue that information and computer demand for the development of a modern infrastructure should spur demand for chips. So my guess is that INTC profits should grow over time.

Having said that I also know that according to today's Wall Street Journal's article in page A2, "world oil demand is risign twice as fast as a year ago
.

One can ask -- how is it possible that there continues to be such robust growth in demand for oil in the face of a doubling of oil prices over the past 3 years? And the answer is because we are wealthier, and the world has learned to adapt to these higher prices.

The journal in the article I refer to says that this adaptation to higher prices is "paving the way" for (even) higher prices in the coming years.

Unlike the increases in prices of the decade of the 80's and 90's, this current price increase is caused not by the massive artificial supply interruptions that were politically driven by Middle East conflicts, but rather today we are witnessing higher prices as a result of a demand pull (China, India, developing Asia, Middle East, Russia, Eastern Europe, etc). This demand pull effect has conspired to create a perfect supply-shortage storm with slow growing replacement of net new crude production capacity as a result of a combination of diminished access to new plays coupled with accelerated drop in mature fields at a faster rate than expected.

Even with Industry today trying to ramp up production, the task is draconian, and spare sustainable capacity is less than 2 million barrels per day. Hardly enough to supply any significant shortfall resulting from interruptions in Venezuela, or Iran, or Nigeria.

Let's face it. Over the past 25 years industry employment and equipment had been shrinking as if someone had been pouring preparation-H over it. Not until about 3 years ago did a slight reversal of these fortunes were observed.

But it takes time to build up the knowledge and experience base. Even more difficult is to build the expensive and sophisticated equipment needed to increase drilling activity in quantities sufficient to satisfy what is needed because companies have long memories of past history of price collapses.

So unless growth slows down, expect prices to keep climbing through the end of the year because new production is not coming onstream fast enough to satisfy demand.

Now during the 80's, there was a massive transfer of wealth to the oil companies as reflected by the relative growth of the oil industry stocks relative to the market. Exxon stock price grew substantially during that period.

During the 90's this transfer of wealth ceased and in fact it was reversed by some companies. Because xom is such a well managed company this did not occur to them. Xom was able to offset the falling oil price environment through incredible capital discipline that in combination with buybacks allowed the corporation to grow earnings per share as well as its stock price.

Current environment is more favorable than the one that existed in the 80's. The reason? There is not a chance of a violent price collapse. Because unlike the 80's when spare capacity was greater than 5 million barrels per day, and at times it approached 8 million barrels per day, today it is about 1.5 million barrels per day. Therefore, if economies continue to grow there is still more room for prices to grow relative to where they were as a percent of GDP back in the 80's.

So I expect an even larger transfer of wealth that occurred back then in this decade -- which means xom stock will continue to grow --with all its ups and down.

Now if you look at the way xom has been managed over the past 5 years you will notice that despite huge price increases, xom has maintained on an absolute basis a relatively flat working capital base. That is quite a feat, and suggests incredible working capital discipline and good management.

Therefore, I believe no one better than Exxon to collect more wealth for shareholders in a pricing environment which should remain favorable to higher earnigs per share, and is the result of robust world economic grwwth and not of artificial boycotts.

It will take years to restore spare capacity, and thus as long as spare capacity remains low, Exxon will do well ...very well indeed.

Madame Butterfly
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I've read lots of your posts over time, Madame Butterfly, and I appreciate the insights (and common sense) that you have shared.

I believe the analysis you made in your post makes a lot of sense and I have a question for you. While your *industry* knowledge is extensive, you'll have to judge for yourself whether your *investor* knowledge of the industry and it's elements can answer. (No offense intended, I hope you see the distinction I'm drawing).

In a situation such as you describe, there will be a lot of winners. I'm wondering what group (or groups) would be best to invest in.

Major oil companies (subject to the whims of governmental punishment/excess profit taxes)
Smaller exploring companies in the U.S. (perhaps PTEN)
Support companies like Dawson or others
Refiners like Valero

Now, it sems like majors are going to have an increasingly difficult time finding enough new oil due to exploration/production restrictions in the U.S. and in countries with national oil companies. That limits the area, but there are also opportunities for coaxing more oil out of existing fields. There's also all the potential with oil shale/sands perhaps.

Smaller exploration companies seem to do well exploiting the little stuff.

There should be a massive increase in exploration support required.

Valero done well with exploiting the widening spread in sweet and sour crude.

Lots of opportunities, money to be made in lots of them. Is XOM the ultimate company to place my chips? Should I spread it around? If so, where would you recommend...and why?

This is a mega-question, but I'd like your opinion as well as those of other informed individuals. Thanks for your thoughts....

Rob
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An interesting and positive post today:

Heavy Crude:
Imperial Oil Ltd. (IMO) has received approval to buy back up to five percent of its outstanding common shares in the next year, while parent Exxon Mobil Crop. (XOM) will participate in order to keep its ownership stake at 69.6%.

The Toronto Stock Exchange has granted Imperial permission to repurchase a maximum of 46,459,967 of its 929,199,351 shares outstanding in the new program.

Under the previous program, share buybacks reached 47.1 million shares on a post share split basis at a total cost of about C$2.0-billion, Imperial said in a statement. This represents an average cost of C$42.67 per share.

Imperial's existing share repurchase program expires on Friday, June 22, while the new one begins on Monday

Shale Oil:
Can't wait till this becomes the hot play here in the US when the cost of oil rises towards the sky of 70 - 80 dollar range due to the unsettled world. ie. Nigeria, Iran,Ven, and OPEC
And it will happen - only a matter of time.....

When this happens XOM will then unfold the shale technology bottled up since the 1980s in CO when we pickled the Battlement Mesa shale oil

The Colony Shale Oil Project of Exxon Corporation (60%) and The Oil Shale Corporation, a wholly-owned subsidiary of Tosco Corporation (40%) is the most advanced full commercial-scale shale oil project in the United States.^Field construction of the 48,300 BPD facility in Western Colorado has commenced and mechanical completion is scheduled for October 1985.^The advanced status of the Project is the result of more than sixteen years planning and development, with special emphasis on such institutional matters as environmental and socioeconomic impacts and mitigation.


Anybody remember this $5 Billion dollar pickled project?
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But with an estimated reserve of 500 billion barrels of oil -- more than the crude flowing from the Middle East -- an energy-starved world someday could come back for the shale rock that burns
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Is XOM the ultimate company to place my chips? Should I spread it around? If so, where would you recommend...and why? TMFBreakerRob

I wish I had the know-how and talent to answer such a question. I unfortunately, don't.

I do think there are potential plays out there such as Anadarko and similar type companies that are highly leveraged to the upstream, and as long as prices remain robust, which I think they would, these smaller oil companies are likely to do better than the mega cap like xom, cvx, BP, cop, etc.

I also think that the field support companies are going to be also a good bet. They have already gone up quite a bit, but I think they also have a lot of upward play. Schlumberger and hated Halliburton are my favorites.

I also like Valero a lot, but then again, you better not go to sleep on some of these because they have quite violent swings.

As to my philosophy ... it is very simple. Sure, I know that if you comb the world of stocks out there, you are going to find all kinds of potentially good plays, And if you do, more power to you, but in my case I like to simplify my life.

If someone were to sell you a bond that you know is going to return to you on a compounded basis as a minumum about 10%, and over a long period of time about 14-16%, would you not take it?

That is the way I view my investment in xom. It is secure. The company is well managed. Markets will go up and down, but overall xom has managed to outperform the market by a significant margin over the longer term, and it gives me a very good return that is going to permit me to retire probably at 50, likely at 55. Why do I want to sweat trying to find something better? The amount of time I would need to devote to that activity is too much for a mother of 4, a full time worker in xom, and a wife to boot.

I know xom's management, its philosophy, its care in investing. I know what is happening in the industry. I know what is happening to the supply demand balance, and I am keeping my ears tune to what congress is doing. I am watching the elections for 2008 ... If a democrat gets elected president, I may decide to bail out of oil for a while and park my money somewhere else until the storm passes. Exxon will adapt.

I am hoping the american people are a little smarter than electing people who want to tax and get elected through class warfare ... but we shall see in Nov of 2008.

M.B.


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Thanks for feedback, MB.

I appreciate your honesty. I suspected that I was asking a qustion that would be just too complex to answer here. As I wrote it, I was thinking that a suitable answer would be more like a book or, more likely, a long running subscription service.

That being said, probably the best answer is that there are numerous good selections in each field, each requiring analysis, but that the long term shows that XOM is a steady, reliable performer. I guess I'll continue to study things.

Hmmmm.....I think I'll hold off on XOM too. As you mention:

"I am hoping the american people are a little smarter than electing people who want to tax and get elected through class warfare ... but we shall see in Nov of 2008."

In the current "Energy" legislation working it's way through Congress, it appears that certain industries are targeted to be punished and others will be rewarded. So far, the auto industry is being punished (lumping car & truck fuel economy together for a fleet average). I expect the oil industry will be punished eventually for their "excess profits" and perhaps that will present a more attractive buying opportunity. I note that XOM currently is trading a bit above their long term CAGR (using the BMW board for supporting data), so a drop wouldn't be terribly out of line.

My other hand tells me that there are a lot of forces that will "conspire" to drive much higher oil prices....maybe before that XOM price drop happens that I'm looking for. I guess that's up to the politicians to a great degree. I have little respect for the incumbents there, but that topic is roaming too far off the path I want to follow.

Anyway...I think I'll study to see the past effects of "windfall profits taxes" on oil company stock prices to see if my expectations are reasonable.

Rob
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Anyway...I think I'll study to see the past effects of "windfall profits taxes" on oil company stock prices to see if my expectations are reasonable.

Rob


If you are going to devote time to this issue I suggest you spend some time analyzing xom's performance vs the market indeces.

I think you are going to discover a few interesting things about xom.

You will also discover that the growth was greater in the 80's than in the 90's. The reason is that in the 80's we had a significant transfer of wealth to the oil companies. In the 90's as prices were going down that did not occur. However, xom held its own and thrive.

Now we are seeing again a significant transfer of wealth to the oil industry that has not ended. I don't expect it to end in 2007 nor 2008.

If Congress press it too hard on the windfall profit idiocy one thing for certain is going to happen --- many projects will not get done, and monies will be shifted away from the U.S. and prices will go up.

The second thing that may happen is that xom may revive something I heard they considered back when all of the prior windfall profit tax environment was imposed on the oil companies doing business in the U.S. ... Exxon may move its headquarters offshore and spin off its USA affiliate.

Between the "global warming" scare and the "energy independence" mantra Congress has found to powerful excuses to "direct" monies and earmark to new pet projects and political allies ... so watch the the waste in the next few years.

M.B.

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"The second thing that may happen is that xom may revive something I heard they considered back when all of the prior windfall profit tax environment was imposed on the oil companies doing business in the U.S. ... Exxon may move its headquarters offshore and spin off its USA affiliate."

I would never have thought that, but it wouldn't be the first oil related company to leave, eh?

Rob
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For most of the items mentioned these issues would create a rise in supply prices (price per barrel) which is basically determined by the oil market. But the prices per barrel have dropped significantly over the last months with no relief at the pump.

So here are my reasons for continued high prices...

1. The only gouging being done is by the tax collector... as pump prices increase the tax collector always gets more money....so there is little motive on the part of Uncle Sam to reduce prices.

2. Prices probably should be kept on the high side for no other reason than to temper the demands at the pumps and this does affect our envirement and air quality, etc.

3.
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Most of the reasons stated here would affect the supply side pricing, price per barrel because they would limit the supply of raw product…oil. But none of that is happening. In fact the price of oil per barrel has come down significantly over the last months with no comparable reduction of our pump prices. So, most of the reasons stated in your article just aren't the cause of any of our problems today.

The US only imports about 20% of its oil from the mid-east. This is a higher priced light crude which is primarily used to blend with or “thin” down the heavy (thick) cheaper crude oil we produce and buy from other places. This allows the refineries to process the resulting raw products more efficiently than trying to refine the heavy crude. This actually keeps our prices down.

So here are my reasons for continued high prices at the pumps….

1. The biggest price gouger is the tax man. Between fixed and price based taxes the taxman always comes out ahead whenever pump prices increase. There is little government incentive to lower pump prices (even if they could) because it would lower their tax revenues.
2. There may be a legitimate argument for keeping prices relatively higher to temper the demand at the pump. This may actually be a good thing because if it really reduces usage then we all benefit from the environmental impact of the reduced usage. To date the pump prices have had little real affect on demand or usage.
3. No new refineries have been built in the USA for about 30 years and the number of refineries has significantly dropped during that time. This has severely limited our internal supply (production) capacity which increases pump prices.
4. With limited refining capacity it makes no difference how much oil we produce or import. We can only refine so much and not a barrel more. Any outages or downtime at any refinery for maintenance, recalibration for a different blend, or due to some disaster, etc. will have a major affect on our gas prices and product availability.
5. We, the people, have allowed many of our communities, counties and local regions to set customized gasoline standards meaning that our limited number of refineries are now having to produce over 150 different gas “blends”. Each time the refinery switches production between blends they have to shut down for hours or more to reset their systems to produce the different gas blend and reducing production capacity by up to 15% or more. (When President G. W. Bush temporarily banned these local fuel mix requirements after Hurricane Katrina and basically put the whole country on a single fuel blend our pump prices dropped by almost a buck a gallon and it did so very quickly across the country.)
6. These blends all have to be stored and transported separately which also significantly increases the costs passed on to the consumer at the pump.
7. We, the people, still can't seem to get it through our heads that buying all these gas-guzzling SUV's and over sized trucks only increases the demand for gas at the pumps and forces the prices up.
8. We, the people, need to learn that we are the primary cause for the increasing demand for gasoline which will almost always cause increasing prices.

And if anyone out there really believes that the oil companies are making too much money than they should quit their belly-aching and go buy a piece of the company so they, too, can share in the wealth.

And for those of you with a 401K's or other investment accounts that include just about any funds you should also quit your belly-aching because you probably already own a piece of many of these oil companies that are doing exactly what you, as a share holder, expect them to do…maximize profits.
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Most of the reasons stated here would affect the supply side pricing, price per barrel because they would limit the supply of raw product…oil. But none of that is happening. In fact the price of oil per barrel has come down significantly over the last months with no comparable reduction of our pump prices. So, most of the reasons stated in your article just aren't the cause of any of our problems today. jnanning

I am not sure I would agree with your statement that "in fact the price of oil per barrel has come down significantly over the last months with no comparable reduction of our pump prices" .

When I wrote my original note on this topic on May 22, the price of crude oil (WTI) closed a shy under $65/B. When you wrote your note on June 25th the price of WTI closed a shy off $69/B. That certainly is no decrease. And yesterday, Friday, it closed above $70/B. So I am not sure why you say that prices have been falling "significantly".

On the contrary prices have been holding significantly above $60/B, and have actually increased a bit for several of the many reasons I gave in my earlier write-up.

Having said that, I do think that you are very correct with some of your reasons why gasoline prices remain high, a few of which I posted below.

...

So here are my reasons for continued high prices at the pumps….

...
3. No new refineries have been built in the USA for about 30 years and the number of refineries has significantly dropped during that time. This has severely limited our internal supply (production) capacity which increases pump prices.

4. With limited refining capacity it makes no difference how much oil we produce or import. We can only refine so much and not a barrel more. Any outages or downtime at any refinery for maintenance, recalibration for a different blend, or due to some disaster, etc. will have a major affect on our gas prices and product availability.

5. We, the people, have allowed many of our communities, counties and local regions to set customized gasoline standards meaning that our limited number of refineries are now having to produce over 150 different gas “blends”. Each time the refinery switches production between blends they have to shut down for hours or more to reset their systems to produce the different gas blend and reducing production capacity by up to 15% or more. (When President G. W. Bush temporarily banned these local fuel mix requirements after Hurricane Katrina and basically put the whole country on a single fuel blend our pump prices dropped by almost a buck a gallon and it did so very quickly across the country.)

6. These blends all have to be stored and transported separately which also significantly increases the costs passed on to the consumer at the pump.

7. We, the people, still can't seem to get it through our heads that buying all these gas-guzzling SUV's and over sized trucks only increases the demand for gas at the pumps and forces the prices up.

8. We, the people, need to learn that we are the primary cause for the increasing demand for gasoline which will almost always cause increasing prices.

And if anyone out there really believes that the oil companies are making too much money than they should quit their belly-aching and go buy a piece of the company so they, too, can share in the wealth.

And for those of you with a 401K's or other investment accounts that include just about any funds you should also quit your belly-aching because you probably already own a piece of many of these oil companies that are doing exactly what you, as a share holder, expect them to do…maximize profits. jnanning


I believe your analysis is bang on with respect to gasoline. I work in supply so I know what your are saying. Unfortunately, our bureaucrats have set up a system with a multiplicity of gasoline blends that is pretty dumb. While I usually don't look at Europe for solutions, I would have to admit that the European Union bureaucrats have certainly been smarter than ours when it comes to setting gasoline specs for the European Union.

They have set a simple, yet strict standard, for gasolines that is used all across the European Union. My understanding is that there are just one or two, maybe three blend specs, as it was explained to me. But maybe someone out there can add more light on this issue. But, no questions that gasoline specs are very few unlike our 150 or so.

As for the weekly reports of invetory data, when analysts look today at gasoline inventory data, they are really looking at a meaningless set of numbers --the statistics are incomplete for anyone to gain an in-depth understanding of the current supply situation.

The data system does not provide enough information to decide whether we have enough components to meet the qualities in a particular part of the country or not, for example.

The gasoline storage/blending/distribution system has become so inflexible because of the multiplicity of blends that need to be made, that it has added substantial logistics/distribution cost to the current price of gasoline at the pump. And precisely for the reasons you have stated.

Gasoline blending/storage has become so fractured that we don't have enough finished product capacity to reliably maintain our stations supplied when there are a major disruptions due to refinery maintenance shutdowns, accidents, and/or weather disruptions.

To compound our current supply problem, a number of foreign providers are finding it increasingly difficult to bring in finished gasoline and diesel due to our very stringent specs.

So this is another element in a series of why prices are also high.

Our historical balancing flywheel, which were regional are no longer available, at least not in the quantity of the past. We are having now to rely on European imports that costs more and have a longer supply pipeline that makes it even more difficult to react to temporary events. In the past we used to import gasoline from Venezuela, Brazil, Argentina, Colombia and other places in the region with a much shorter supply line.

If we would but simplify the manifold of the 150 blends to maybe 10 or 15, the price of gasoline would fall anywhere between 25 to 50 CPG.

But of course which politicians would propose a relaxation of some of the gasoline specs to make it less costly to supply certain parts of the country? Envrionmentalists would go ballistic. They don't want prices to fall, they want pries to keep climbing to discourage consumption and make the day when alternate energies are a reality, the sooner.

In the meantime, their friendly propagandist stoke the recentment and hate against the " mean oil" companies for keeping prices high. They are convincing the usually uniformed public that the oil companies are to blame for our current state of afairs --that they are gounging them -- and thus they claim that the way to break the stranglehold of these oil companies for ever is to go alternate fuels -- ethanol, biofuel.

No matter if it costs more now, they tell the public, over the long haul it would cost less because we would forever break the back of these " mean oil companies".

Getting back to the subject at hand, crude prices recently moved higher for two primary reasons. One obviously has been the political instability and threats of strikes and the like we read or hear almost daily in the news. But there is another element which is gasoline's price-pull effect on crude prices.

For example, when gasoline prices move up because of the tight refining/blending system that exists today, the crude suppliers are not dumb. They want to maximize what the market can bear. They reason ... now wait a minute, those refiners are making too much money--the crack spread is way high, why should I let them keep all that extra money. I want some of that. Ao the price of crude gets bumped up, especially the lighter (naptha laden crudes) beyond the level prices would have been had we not had the crack-spreads shoot up sky high because of bottlenecks in our refining/gasoline distribution system.

Except for the observation I made on crude I made earlier, your other point, are in my book, excellent.

Madame Butterfly
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I decide to revisit what I had said almost 4 months ago regarding the trajectory of future oil prices (http://boards.fool.com/Message.asp?mid=25519092) to see whether I had made the right assessment at the time or not and if I had not made the right assessment, what was the key item I had missed or not visualized.

When I wrote the 10 reasons why crude price will stay high, the price of crude averaged that week about $65/B. I must admit I never expected that the price of crude was going to hit close to $80/B in 4 month.

What is disappointing is that the stock price was $82.77 on that day, and it has only gone up about $5/share while the price of crude has gone up $15/B.

What that says to me is that the market expects, once again, prices to collapse .... which I am not sure they will. They will go down, maybe, but collapse, they wont

madame butterfly
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Record oil prices still below 1979 peak valued in today's dollars

Midland Reporter-Telegram
09/23/2007


Last week, crude oil jumped to record intraday levels, reaching above $80 per barrel.

However, in today's dollars, the price peak of 1979 remains even higher than the current prices. When adjusted for inflation, prices in 1979 reached $109 per barrel.

Obviously, today's oil market has a great deal of momentum behind it. Over the past 10 weeks, domestic crude inventories have declined about 30 million barrels.

We note OPEC has done well in asserting its influence. The cartel has depleted global stockpiles to the point where prices are now trading "backward", a market condition wherein nearby prices trade at a premium to deferred contracts.

This likely has accelerated recent stockpile declines because it makes more sense to sell inventory today rather than next month since, all things being equal, the strip suggests your oil will likely be worth less in the coming weeks.

So, where do we go from here? While inventories have declined, we continue to think they do not justify current prices. We note we are heading into the heart of the autumn maintenance season and typically stockpiles have increased during this time. We think prices at these levels remain susceptible to a pullback.
http://tinyurl.com/29z22t
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