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Peerless Review uses news & information about North Georgia that is made available to us by
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b. By e-mails that we receive.
c. By news sources such as newspapers, newsletters, public meetings, and city council meetings.
Peerless Review can not guarantee the accuracy of any of these sources. Peerless Review will not accept responsibility for any
inaccuracies that we might post/publish from sources.
a thousand people in our data base. Curious about a class reunion? The Bulldog Newsletter publishes reunion information for
Rossville High School Alumni.
Ridgeland Panthers GA, Chattanooga High, Lakeview Fort Oglethorpe Warriors, Lafayette Ramblers, Chickamauga / Gordon
Lee Trojans, Ringgold Tigers, and Dalton alumni should check classmates.com or check the search box below.
This web site best viewed at a 1024 X 768 resolution using IE 6.0 or higher
For information on how you can advertise on this site visit the ad rate web page.
Copyright © All Rights Reserved
Beechwood Enterprises 2006 - 2008
No part of this publication may be reproduced except as permitted under section 107 and 108 of the United States Copyright Act.
Peerless Review uses news & information about North Georgia that is made available to us by
a. Word of mouth.
b. By e-mails that we receive.
c. By news sources such as newspapers, newsletters, public meetings, and city council meetings.
Peerless Review can not guarantee the accuracy of any of these sources. Peerless Review will not accept responsibility for any
inaccuracies that we might post/publish from sources.
article written
08/13/2006
08/13/2006
Ever been to an auction?
An elderly man, a middle aged lady and a young man went to an auction. An oil painting was on the
block. The elderly man gave a bid of $25. The middle aged lady chimed in with a $40 bid and the
young man chirped $70 dollars. The auctioneer yelled, "Sold to the elderly man in the back for $25
dollars."
"Wait", the young man protested, "My bid was $70."
"Sorry Sir" the auctioneer said. "I make the rules, the man in the back gets the painting for $25."
Is this crazy or what?
Not even believable.
No auctioneer would ever accept a lower bid. Never.
The auctioneer works on commission and the seller would be very upset if his or her merchandise
was not sold to the highest bidder.
Yet people are expecting this from an industry today. They expect this industry to sell to the lowest
bidder. Politicians have in the past even ran campaign commercials advocating that this industry
charge less for its product.
The Petroleum Industry.
Crude oil is always sold to the highest bidder no matter what!
Speculators are now bidding up the price. They believe they can turn a quick profit.
If it was your oil would you ignore those who have the highest bid?
Would you sale your oil to the lowest bidder?
Would you sell your house for half of what it is valued at?
Petroleum companies have shareholders and are required to be fiducially responsible or face
shareholder lawsuits for mismanagement.
Speculators.
Speculators are the driving force behind the price of oil at the moment. If the market turns against
them they will experience huge losses. Under normal market conditions speculators have a role of
smoothing the highs and lows of stocks and commodities. They tend to have a stabilizing effect on the
market. Under adverse market conditions speculators tend to exacerbate highs and lows. The Dutch
tulip mania in the 17th century was caused by speculators.
Huge Profits.
People grouse about how the oil companies are making billions of dollars.
Yes, they are making billions of dollars, and this is the reason why. Pumping oil out of the ground
costs a fixed amount of money. These costs change very little. Here is a illustration that will help you
understand. You own a rock quarry and it costs about $5 to mine a ton of rock. You sell a ton of rock
for $30. Your profit is $25 a ton.
A road building company shows up and begins paying you $55 for a ton of rock. They begin to buy all
the rock they can get. They think a new highway is coming to the area and begin to stockpile rock.
They plan to sell the rock to the state for $100 a ton. They are betting that your rock quarry will not be
able to keep up with the demand from the state when the road construction begins. They plan to take
advantage of your ability not to meet the states demands. If the road is not built they will lose a ton of
money. They are in effect speculating. Meanwhile your profits soar. Your costs remain relatively stable
at around $5 a ton. Your profits have doubled to $50 a ton. Is it your fault that the road construction
company is willing to speculate and pay $55 for a ton of your rock. Are you going to sell the rock for
less? Hopefully your friends are shareholders in your quarry company because you will be reporting
record profits.
None of us like paying higher prices.
The petroleum industry is beset with very complicated situations and problems.
Middle East output is rumored to have peaked. Saudi oil fields may now be in decline.
Surging demand from India, China and southeast Asia, have tightened supplies on a global scale.
Add to this,
The U.S. Petroleum industry has not built a new refinery in twenty years, yet domestic demand has
risen every year since. American refineries operate at 98% capacity leaving no room for errors or
supply disruptions. Credit our draconian environmental regulations to causing this problem. Refiners
know that it is not in their shareholders best interest to spend billions dollars building a new facility
when other investment vehicles will generate a larger rate of return to the shareholders.
Also,
On top of all of this, states have imposed a multitude of formulas for gasoline. This complicates the
refining process along with down time and distribution logistics.
And,
Congress declined to extend immunity from lawsuits to refineries because of a gasoline additive
called MTBE. This additive has been linked to ground water contamination. MTBE was one tenth of a
gallon of gasoline. Now refineries must either find a replacement for that one tenth of a gallon or
replace it with gasoline. Ethanol is a suitable replacement but an extensive manufacturing and
distribution network is not completely in place to provide the refineries with this product.
Another Aspect,
Domestically oil producers have been consolidating in what is called vertical integration. They can
bring the product to the consumer from well head to the gas pump. This can have an anti-competitive
effect, especially when the these vertical integrated companies become four or less in number.
Fortunately domestically not all refineries are owned by the producers.
Recently the value of the dollar has been weak.
Oil is traded globally in dollars. So every country must convert their currency into dollars to buy oil.
Producers who sell oil receive dollars as payment for their oil. They must exchange the dollars they
receive into their own currency, They get less of their own currency because of the dollars weakness.
The traders who trade oil are in the same boat. They get less of their own currency when exchanging
their profits. This drives the price of oil up in dollars because everyone is trying to get a better
exchange into their own currency. American's are stuck with having to come up with more dollars to
buy petroleum products. If the dollar continues to weaken, the price will continue to increase.
So what do we have?
A Perfect Storm.
Tight supplies.
Aged refineries with no new facilities in over twenty years.
Declining domestic production from the wellhead. *
Vulnerable infrastructure subject to weather, lack of maintenance, and terrorist attack.
Over zealous government environmental regulations.
Anti-competitive mergers.
Lack of investment in new technologies.
Reduce exploration.
Increased domestic consumption.
Upswing in global consumption.
Government instability in some producing countries.
And the icing on the whole deal, a weak dollar.
And we wondered why prices are so high. Don't blame the producers for their exorbitant profits. The
oil traders, refineries and speculators bid against each other for barrels of oil. The oil market is
global, and the prices are set on a global basis not by the producers but by the middle man bidding
for the product.
The next time you hear someone complaining about how the petroleum companies are ripping you
off, just remember a lot of things are happening that are not real apparent from our end of the supply
chain.
* Did you know that the U.S. has a proven reserve of oil greater than the entire known world. The
Piceance Basin in Colorado is estimated to have a half trillion barrels of oil. This reserve is in the
form of oil shale. Current technology limits the harvesting of this oil. But with time and improving
economics, oil shale could become a major source of fuel for our country.
http://www.petroprobe.com/index.php?sc=3
An elderly man, a middle aged lady and a young man went to an auction. An oil painting was on the
block. The elderly man gave a bid of $25. The middle aged lady chimed in with a $40 bid and the
young man chirped $70 dollars. The auctioneer yelled, "Sold to the elderly man in the back for $25
dollars."
"Wait", the young man protested, "My bid was $70."
"Sorry Sir" the auctioneer said. "I make the rules, the man in the back gets the painting for $25."
Is this crazy or what?
Not even believable.
No auctioneer would ever accept a lower bid. Never.
The auctioneer works on commission and the seller would be very upset if his or her merchandise
was not sold to the highest bidder.
Yet people are expecting this from an industry today. They expect this industry to sell to the lowest
bidder. Politicians have in the past even ran campaign commercials advocating that this industry
charge less for its product.
The Petroleum Industry.
Crude oil is always sold to the highest bidder no matter what!
Speculators are now bidding up the price. They believe they can turn a quick profit.
If it was your oil would you ignore those who have the highest bid?
Would you sale your oil to the lowest bidder?
Would you sell your house for half of what it is valued at?
Petroleum companies have shareholders and are required to be fiducially responsible or face
shareholder lawsuits for mismanagement.
Speculators.
Speculators are the driving force behind the price of oil at the moment. If the market turns against
them they will experience huge losses. Under normal market conditions speculators have a role of
smoothing the highs and lows of stocks and commodities. They tend to have a stabilizing effect on the
market. Under adverse market conditions speculators tend to exacerbate highs and lows. The Dutch
tulip mania in the 17th century was caused by speculators.
Huge Profits.
People grouse about how the oil companies are making billions of dollars.
Yes, they are making billions of dollars, and this is the reason why. Pumping oil out of the ground
costs a fixed amount of money. These costs change very little. Here is a illustration that will help you
understand. You own a rock quarry and it costs about $5 to mine a ton of rock. You sell a ton of rock
for $30. Your profit is $25 a ton.
A road building company shows up and begins paying you $55 for a ton of rock. They begin to buy all
the rock they can get. They think a new highway is coming to the area and begin to stockpile rock.
They plan to sell the rock to the state for $100 a ton. They are betting that your rock quarry will not be
able to keep up with the demand from the state when the road construction begins. They plan to take
advantage of your ability not to meet the states demands. If the road is not built they will lose a ton of
money. They are in effect speculating. Meanwhile your profits soar. Your costs remain relatively stable
at around $5 a ton. Your profits have doubled to $50 a ton. Is it your fault that the road construction
company is willing to speculate and pay $55 for a ton of your rock. Are you going to sell the rock for
less? Hopefully your friends are shareholders in your quarry company because you will be reporting
record profits.
None of us like paying higher prices.
The petroleum industry is beset with very complicated situations and problems.
Middle East output is rumored to have peaked. Saudi oil fields may now be in decline.
Surging demand from India, China and southeast Asia, have tightened supplies on a global scale.
Add to this,
The U.S. Petroleum industry has not built a new refinery in twenty years, yet domestic demand has
risen every year since. American refineries operate at 98% capacity leaving no room for errors or
supply disruptions. Credit our draconian environmental regulations to causing this problem. Refiners
know that it is not in their shareholders best interest to spend billions dollars building a new facility
when other investment vehicles will generate a larger rate of return to the shareholders.
Also,
On top of all of this, states have imposed a multitude of formulas for gasoline. This complicates the
refining process along with down time and distribution logistics.
And,
Congress declined to extend immunity from lawsuits to refineries because of a gasoline additive
called MTBE. This additive has been linked to ground water contamination. MTBE was one tenth of a
gallon of gasoline. Now refineries must either find a replacement for that one tenth of a gallon or
replace it with gasoline. Ethanol is a suitable replacement but an extensive manufacturing and
distribution network is not completely in place to provide the refineries with this product.
Another Aspect,
Domestically oil producers have been consolidating in what is called vertical integration. They can
bring the product to the consumer from well head to the gas pump. This can have an anti-competitive
effect, especially when the these vertical integrated companies become four or less in number.
Fortunately domestically not all refineries are owned by the producers.
Recently the value of the dollar has been weak.
Oil is traded globally in dollars. So every country must convert their currency into dollars to buy oil.
Producers who sell oil receive dollars as payment for their oil. They must exchange the dollars they
receive into their own currency, They get less of their own currency because of the dollars weakness.
The traders who trade oil are in the same boat. They get less of their own currency when exchanging
their profits. This drives the price of oil up in dollars because everyone is trying to get a better
exchange into their own currency. American's are stuck with having to come up with more dollars to
buy petroleum products. If the dollar continues to weaken, the price will continue to increase.
So what do we have?
A Perfect Storm.
Tight supplies.
Aged refineries with no new facilities in over twenty years.
Declining domestic production from the wellhead. *
Vulnerable infrastructure subject to weather, lack of maintenance, and terrorist attack.
Over zealous government environmental regulations.
Anti-competitive mergers.
Lack of investment in new technologies.
Reduce exploration.
Increased domestic consumption.
Upswing in global consumption.
Government instability in some producing countries.
And the icing on the whole deal, a weak dollar.
And we wondered why prices are so high. Don't blame the producers for their exorbitant profits. The
oil traders, refineries and speculators bid against each other for barrels of oil. The oil market is
global, and the prices are set on a global basis not by the producers but by the middle man bidding
for the product.
The next time you hear someone complaining about how the petroleum companies are ripping you
off, just remember a lot of things are happening that are not real apparent from our end of the supply
chain.
* Did you know that the U.S. has a proven reserve of oil greater than the entire known world. The
Piceance Basin in Colorado is estimated to have a half trillion barrels of oil. This reserve is in the
form of oil shale. Current technology limits the harvesting of this oil. But with time and improving
economics, oil shale could become a major source of fuel for our country.
http://www.petroprobe.com/index.php?sc=3
Teddy Harris
th@beechwoodnet.com
originally written 08/13/2006
revised 03/20/2008
th@beechwoodnet.com
originally written 08/13/2006
revised 03/20/2008
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04/20/2008
