Amen. I've been trying to get everyone to focus on what this oil price will do to the airline industry topic. Instead, we are getting these bozos who are making personal attacks just because we do not agree with their opinions.

 

Ok well that one really put me in my place. Bottom line is that your theory of the evil oil company CEO is flawed as to the reason we are all paying $3+ per gallon.

 

This is why I do not like to engage in long discussions on formats such as this. People jump in the middle of discussions and jump to conclusions without finding out what my real position is.

Look, I have not called oil corporation CEOs "evil." Nor do I think the current rise in oil price has a direct correlation to the rise in oil corp CEOs' salaries and benefits. However, we do feel the phenomenal rise in oil price and hence oil corp net cash flow are reasons for exhorbitant oil corp CEO payoffs.

But the real issue is I, among many others on this forum want to find out why the oil price keeps going up at the rate it is going up, when there is no shortage of oil supply and the demand for oil has been dropping in the US, according to many experts. I've heard all kinds of explanations from the rise in the cost of oil refineries to inflation, and weak US Dollar. What people like Papacharlie, myself and many others on here feel is that these explanations just do not cut it. Not when we read financial reports that indicate 3 digit increases for the oil corps in the first quarter.

 

It's immoral? Last I checked, it's a free country. If I start a business, my goal is going to be to succeed, and if I do, good for me. Warren Buffet made some smart decisions, and he has a lot of money. Good for him. Bill Gates and Paul Allen started Microsoft at a timely time, and they made a lot of money. Good for them. Same for the Google guys, or anyone else. Some people get lucky, and some people just work the system better than others. Good for them. But I'm pretty sure success is not immoral.

And no, their salaries are not the reason we pay so much for gas. The reason is that their raw material, which is crude oil, is expensive. And it's expensive because we're competing with the rest of the world for the same resource, and we're beholden to foreign control of the supply. I'm not saying all of OPEC is deliberately trying to screw anyone (though they could be), but if I'm not mistaken Venezuela, for example, has a little bit of sway there and they're not exactly our friends.

And don't take this personally, but you seriously sound like a communist. Seriously.

well sharkair I dont want to think that every time you fill up your gas tank you're jumping up and down thinking...man Im so happy for LEE RAYMOND. I dont know how much money you make a year but Im sure make a little bit less than Mr Raymond
I mean don't take this personally but you sound pretty naive.Seriously

 

I almost locked the other oil thread early yesterday because of the sniping. But it seems to have turned around. Now I read this one and I'm thinking the same thing.

There are certain players here than need to think twice before they hit send button. This isn't flightinfo and the mods won't let this site ebb in that direction.

 

Ok so without "sniping" I'll explain again what keeps the price of oil up so high. The demand for oil has slightly decreased but the demand for distillate fuel has increased, along with the demand for oil in China and India. That demand is expected to increase over the next 10 years and I'd like to read your source on the idea that the supply isn't short. Now, couple this with the fact that the majority of oil is coming from very volatile areas of the world. This equals much greater risk which leaves a small buffer margin in case a supply interuption occurs. The increased risk is baked into the price per barrel. But by far one of the biggest influences on the cost of oil are the futures traders that speculate on price at the NY Mercantile Exchange. This has a trickle effect all the way down to the station owners for setting the price per gallon. Future prices go up, traders make millions and have been for years now. The more the economy stagnates the more money the large financial institutions pour into commodities (crude oil) to hedge against losses. Now I agree that the CEO's are making way too much but like others said, its a free market economy so "so be it." Last but not least like it or not you have to take into consideration the weakened US dollar. It makes a difference. We can thank Nixon for taking us off the gold standard and putting the dollar in a precarious position.

The outlook on air travel looks grim. The pinch will get tighter and tighter and consolidation, for better or worse, is imminent. Bearish is the only fair term to describe the future for airlines if the current trend remains.
If these expalination don't cut it as you say thats your perogative but facts are facts.

 

It was only a matter of time before the US went to a fiat money system. But that's another discussion for another time.

Today, I would attribute inflation and the weakened dollar largely to the current administration's policy of deficit spending. This, of course, is in addition to the rising price of oil. Kind of a chicken-egg conundrum, wouldn't you say?

 

Yes unfortunately it may have been only a matter of time but looking at flat money system vs. basis gold, its not the smartest move. I mean the definition of flat money is money that is intrinsically uselss, used only as a medium of exchange.

 

WW- Please enlighten me how the traders can push oil prices to extreme levels and influence prices at the pump if there isn't some fundamental reason already in place for the price action?

IOW, do the futures drive the market, or does the market drive the futures?

I know they bid on "contracts for future delivery", and that it's really a "bet" on the future price action when they bid prices up or down, but how could the upward trend go on for so long if it didn't reflect a "reality" in the marketplace. I understand about the dollar, but that can't be all of it.

Also, if I may, what caused the price to "correct" so strongly in January (down to $87/bbl), but then rebound 25% since then back to this $107/bbl it's currently at. That even out paced the price of gold, but perhaps gold wasn't as oversold.

JP

 

Well I think a thorough explaination of the futures markets is way beyond appropriate for this site but basically the futures traders create an artificial price market by influencing the prices by emotion. As you state, the upward trend goes on for so long based on fear and speculation........just like the dot com bubble, just like the housing bubble. People have the perception of realistic prices based on what market makers (large futures traders) decide. Its happens in the stock market as well. As we all know the dot com companies were hugely overvalued based on opinion rather than cash value. The real estate market, again, was valued based on emotion, not reality. SO, the futures market overvalues the price per barrel of oil, this trickles down ultimately to the pump in that owners are forced to raise price per gallon to afford delivery of new gas for their tanks. Throw in crude oil supply, devalued dollar, volatile oil nations and a panicked public and you have your recipe.

Your dip in January was due to a much lower demand in fuel oil stemming from much higher winter temps thus no matter the will of the futures market, demand became the glaringly obvious influence dictating the result. As I've stated before, there's no one "smoking gun" as to why oil is so high. Futures markets are just one large facet of the whole equation.