For the Petroleum Economist?

How about an oil and gas accountant -- the stuff you used to buy was much dirtier that the stuff you are buying now, it competes for refining formulations with home heating oil (so the price is about to rise now, cause the refineries are going to get ready for the folks up north to fill their basement tanks), there is relatively more demand for it than there was just a few years ago.

Refine a barrel of Saudi crude. Somewhat control the % gas, diesel, No. 2, Nat gas, lube oil, asphalt, propane, butane, etc.

During refining add a small % Venzeula Chavez Citgo sweet crude and change the above ratios or % outcome.

In bygone years, as the demand for gasoline forced diesel demand above diesel supply, the cost of diesel dropped. As people switched to the lower cost fuel, the refineries found the demand for diesel drove the supply of gasoline beyond demand and the price of gasoline dropped. The see-saw affect resulted in alternative fuel prices rising as other fuel prices dropped.

The only way for all fuel prices to simultaneously rise is the supply of each fuel exceeding demand simultaneously for all fuels. Refineries can juggle the output only so much but when demand for all fuels exceed supply, refineries can only respond within the limits of the total output capability. Remove the Venzeula sweet crude influence on refinery output ratios and the total output ratio is thereby limited.

Gasoline additive, MTBE was outlawed in 2006. Corn ethanol refineries will exceed 200 by 2007 from only 3 two years ago. Gasoline with 10% corn ethanol needs no MTBE. 90/10 gasoline is EPA clean. FFV's can run on 10/90 corn ethanol. The 10% gasoline negates Tennessee Tendency To Consumption (TTTC)

Soybean biodiesel 80/20 is likewise EPA clean.

Whole kernel shelled corn to heat all American homes would help the local farm float, decrease the dependence on death squad energy supply, decrease the need for new petro refineries. Tennesseecornstoves are readily available www.groups.yahoo.com/group/cornplace

Due to higher BTU content per gallon, diesel is desirable to users of large engines. Therefore some people are willing to pay a higher price for it. Additionally, it is similar to jet fuel and heating oil, so demand is higher now than 30 years ago.

I have a question. If crude oil is traded on the market (NYMEX), and oil companies are simply passing on the market cost increases to us, why are they making record profits? Shouldn't they be making the same profits as before? Exxon made 10 billion dollars in profit last quarter, how is that possible if the high prices we experience are just do to market conditions. I guess what I'm trying to say is, I'm not so sure that the costs are all market driven.

Isn't it normal to make more profits when supply cost rises and you calculate your margins as a ratio of that?

25% of $60 is larger than 25% of $40.

Is it right? Perhaps not, after all, it does not cost that much more to refine a $60 barrel instead of a $40 barrel.

After all, EXXON is not your friend.

Of course, that's not exactly just "passing along the costs" is it. If there are several oil companies, couldn't one sell oil for a cheaper price, cut margins and gain marketshare? Why doesn't that happen? They all can't be running at 100% capacity so some have room for more market share. So why are there no cost cuts like there is in every other business segment in the world (well almost every)?

well my friend to days ways of echonomy market is profitdriven and all the companeyes have come out with number of gimmicks like lke SIX SIGMA to cut costs and increase bottom line in terms of $s.ans spending 100 of millions to come out with ideas to achive saving targets ,New product intruduction is another concept of working to improve product quality and pass on the cost of supposed R&D involved in new product development which costs again 100s of millions of $.claiming that new product is echo friendly and adds value to the product this is a comman phenomena

with any product it may be diesel,your new car,or a new engine you are about buy and pass on the cost of running six sigma or New product intruduction cost to Dumb people like me &you .i know of a diesel engine manafacturer who was spending a million$ day for five years to produce EPA emission complaint engine who is yet to meet the EPA standards and passing on all the six sigma process cost,NPI cost along with cost of dumb set engineering managers to consumers.the same situation applys to oil refineries and you are forced to pay more cents per gallon to recover the all the above mentioned costs.

Hey Cornstoves, increased demand causes prices to rise, not fall. Basic economics.

wileycoyote

Your assessment about supply and demand is correct except when your commoditiy or product is at production capacity. At that point consumers must decide how badly they want the product.

You are correct if there is a limited supply. The supply of diamonds and petro is limited by the producers to hold the price high. There is limited competition amoungst limited producers.

Perfect competition between unlimited producers will drive prices down with increased demand.

Two million American farms are close enough to perfect competition as compared to one local utility company with a monoply.

If the price of corn increases 10 cents per bushel the corn farm doubles his anticipated profit of 10 c / bu. Rather than feeding the corn to a lot of cattle or swine, the farmer simply raises more corn to sell direct to market while the price is up. If the price of corn drops below profit, the farm will feed the corn to cattle in an attempt to delay the sale until corn prices rise. 10c on $2/bu corn is a small profit margin which required 1000 acres of corn to raise a family. In perfect competition, the price of corn has remained stable for the entire 200 years of recorded history. For a bar graph of corn prices compared to gasoline or milk or bread since year 1817 - visit www.groups.yahoo.com/group/cornplace

I guess that's why milk, bread, tomatoes, beef, etc. etc., is pretty much the same price everywhere you go.(insert sarcasm here) The competiton in the agriculture sector of the economy when it comes to biofuels will end up about as competitive as the fossil fuel economy. There's not a whole lot of difference between Archer Daniels Midland and Exxon.

How much pesticide will be derived from petroleum to keep your corn healthy? The nation neeeds clean water a lot more than it needs pie in the sky alternative fuels.

Here is my $0.02 on the above:

1) I was glad to see the Corn Stoves plug - I thought it was the perfect place for it.

2) Not all utilities have switched to natural gas-fired boilers or turbines - it's very expensive - great for emergencies and unforecasted peaks, but not great for the heavy lifting of the base load. You still can't beat coal for that. I know, I know - carbon dioxide, greenhouse gases, etc., but that's way above my level of policymaking.

3) Natural gas demand has risen drastically - it used to be so cheap everybody was saying "put in gas appliances - the fuel is cheap!". Everybody put in gas appliances and whamo! demand is through the roof.

4) Biodiesel has (a few) less BTU's than petro-diesel, hence the reluctance on many to switch.

5) Most markets are now mandating low-sulfur diesel, which means instead of pump and burn you now have to refine the crap (I mean sulfur) out of it - another product competing for space in the refining stream. Again, demand is growing exponentially.

6) Refineries have to changeover from summer fuels to winter fuels, which means decreased production (artificial increase in demand?).

7) If somebody stubs their toe, the price of oil goes up. Until we can reduce our dependence on oil, it's going to be that way.

8) No one alternative fuel is going to do it - I think solar, photovoltaic, wind, hydro, thermal, ethanol, and various forms of biodiesel will all have their place if we are going to make it.

Way to go Sled Driver. You got it right this time. We are on the slipperly slope to total dependence on the unknown. There is absolutely no reason not to have destiny in our hands.

EPA mandates low effluents. Utilities switch from coal to gas. Coal power plants are shut down routinely under the guise that gas is clean. Corn is 100 times cleaner than natural gas. Mix 10% corn with coal and the coal is clean. The US has an estimated 250-500 year supply of coal at the projected rate of use. Coal plants tuned with a spectrometer can be clean as gas. Coal power plants with 10% corn can be 50 times more clean than natural gas. So why the big fuss?

Foreign oil finances politics. Bottom line.

Reportedly this week a petro supply 7 miles below water surface is 50% the size of all previously known supplies. Colorado and Wy have shale oil larger than the Mid East. Why do politicians continue to finance foreign oil? Because foreign oil finances politics.

Clean renewable local corn is readily available at a small per cent of the petro options. Hydro is clean as water but a few politicians say they desire not to sacrafice the streams. Puh! They got they palms greased with foreign finances. It has nothing to do with effluents IMBY, mercy for streams, or the noisy destruction of birds by wind turbines. Foreign finances grease the palms of politicians.

Meanwhile the low cost clean local edible fuel is corn.

Ever been to LA? Atlanta? San Fran? NY? Chicago? Who feeds all those people in a cost effective manner every single day without delay? 2 million local US farms do. Farms never fail. US public eats until the US is fat with food. The only US citizwen starving is 2 million local farms. There are 2 million prisioners in the US that work less and eat better food every meal than the 2 million local farmers, his wife and his kids. If corn prices rise by 10 cents per bushel, the local farm will double his profit from the usual 10 cents per bushel profit. If you could heat your home on $100-$300 per year, double the local farm profit, and starve foreign oil - duh? The choice is available. Everybody talks. Nobody listens. Nobody goes hungry. Foreign oil tycoons get filthy rich while local farms are dirt poor.

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The demand for foreign petro energy would immediately drop If all homes, restaurants, small business cooked, heated water, and heated facilities with local renewal biomass, wood, wood pellets, corn, beans, waste, waste paper. Energy demand would be cut in half with local energy supplies.

Simple math: It takes a gallon of petro to deliver each gallon used. Local energy cuts energy demand in half by eliminating or reducing the energy required to deliver the energy used.

Local energy supply denies political gain to foreign suppliers - no matter where one resides on the globe. Foreign energy suppliers easily control local global politics by creating volatile energy prices. All blame others. Most blame local farmers because the local energy supply is the only solution to the energy threat. If the local farmer were the true threat, simply eliminate the $0.46/gallon tariff on Brazilian oil. Why make Brazil subsidize mid-east oil? Why not let Brazil compete with foreiign oil on a level playing field? Why did congress pass stringent environmental requirements for local new ethanol refineries and exempt existing 30 yr old high pollutant petroleum refineries from EPA rules?

If any of us owned big foreign oil, we would control global politics. Presently, Saudi and Kuwait own global politics and control local election results globally. Kuwait/Saudi are no longer threatened by Iraq and no longer need military protection. Both are free to exploit global political pursuits, finance local politicians, swing local fuel prices for political gain prior to and during elections. Why not? Anyone inclined to differ? Anyone personally perceived immune to taking candy from babies?

There is another aspect to this mystry pricing.

During distillation process, diesel oil comes out way before gasoline. In other words the processing or handling required to get diesel is cheaper than gasoline. Therefore, the cost of making diesel should always be lesser than gasoline. Somehow it is not practiced that way by the oil companies.

Why is diesel expensive?

Oil is a pure perfect monopoly. The only competition faced and practiced by oil refineries is the competition of each refinery within the refinery itself as to whether to revise the ratios of production. To maximize profit, each refinery must minimize the low cost production. As pointed out, diesel is the low cost production which must be minimized at the refinery. It took years for the idiots at the refinery to realize they were producing too much low cost diesel which resulted in too many diesel engines.

Why not raise diesel prices above the price of gasoline? Who is to prevent or interfere? The only referee is the refinery management. The only competition is internal.

But first, we must blame the local soybean refineries that make low cost diesel. Also discredit the local corn ethanol refineries for taking food out of the mouths of starving foreign babies. If any competitor refinery becomes profitable, purchase it at a fire sale price. It only takes one season to drive out the competition. The 30yr old refineries are making record profits. Congress blames the local corn farm.