Can anybody explain to me this economic "fact"?

[truhavoc]

There is so much in the news about gas prices increasing in the face of potential terrorist attacks targeting oil suppliers. I say, "so what?" it seems like a very shady practice in the least to raise prices on speculation. I can understand the risk, but is there such a thing as preemptive price hikes? If so why do we accept it for being the way things are and not fight it tooth and nail for what it actually is...price fixing.

[MAlibdem]

1. Because oil is traded on futures...

you have to buy it before it is ready. There is a possibility that you could buy something and then have no product ready at the agreed shipment date. This means it is harder to sell it to buyers and harder for those buyers to distribute it because there is less certainty that the product will exist.

[KG]

3. it boils down to this - we're being gouged

because they can get away with it.

[truhavoc]

4. What are the reserves of OPEC?

Is there any actual danger of them not being able to deliver? If the availability decreases then okay increase prices, simple supply and demand. Is there a reason in the first place why oil is traded on the futures market?

[kalian]

6. Here's a PDF that will answer your question....

http://www.simmonsco-intl.com/files/CSIS.pdf

But then again, the author of this presentation doesn't sound all
that convinced that the Saudis are being "truthful" with regards to
their "proven reserves".
Do some research on the Net with regards to the so-called "proven"
reserves and you will find out that its all a scam...and that nobody
really knows for sure how much oil is readily available AND
cheaply accessible.

[truhavoc]

8. Thanks for the site, I will perform some research

Do you know anything about the estimated price it costs to remove a barrel of oil from the ground? Otherwise known as the actual profit the oil divulgers make from a natural resource?

[ThomWV]

9. Sure, The Costs Are Known

I thought you understood this part. The marginal cost of production for all US wells is about $17 a barrel, so any price you see for oil above that amount is pure profit for even the least efficient producer in this country. In Saudi Arabia the marginal cost of production is closer to $3 a barrel. So on that $40 oil someone is making a ton of money. Of course the cost you see posted has very little to do with what the majors are actually paying for oil that arrives daily at our ports. All of that oil comes in on long term contracts and the price has absolutly nothing to do with day to day risk in the oil fields, attacks anywhere on earth, or even competitive demand from Asia. Welcome to the screwin' as the screwee.

[salin]

2. Remember the energy traders from Enron?

Apparently many have moved into the oil industry... as "traders"... meaning they do speculative trades (and across trades, etc.) which work to bump up the price. Also means they speculate on things like "scarcity due to disruptions due to the war"... and "scarcity due to a possible terrorist event."

Heard an item about this from an industry group based in Texas that was interviewed on MarketPlace a few weeks ago. The woman interviewed was disgusted - said these folks (the traders) have no other skills, and add no value to the process... and that their operational speculation "scarcities... scarcities... scarcities" are not based on any economic realities.

Now - after the price is driven up at one level... then we talk about how the price gets set, at such a similar level at the distribution/gas station levels (therein lies the price fixing aspect).

[truhavoc]

5. Its a shame!

I would assume that savings would be passed along to the consumer once fears subside from all the unfounded scarcity fears...but we all know better than that.

[salin]

7. they are doing the opposite

capitalizing on unfounded scarcity fears..thats the enron way! Remember those dudes used to trade on WEATHER speculation.