Who's getting fat on higher oil prices?
The price of oil hit $133 a barrel today. What we want to know is who's pocketing the extra money we're all paying to fill our tanks? Bob Moon tried to find the answer.
Traders work in the energy options pit on the floor of the New York Mercantile Exchange as oil prices jumped past $130 per barrel on a government report of a drop in inventory. (Spencer Platt / Getty Images)
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KAI RYSSDAL: It's the 21st of May, Wednesday, great to have you with us. The same welcoming sentiments did not hold true on Capitol Hill today. The Senate Judiciary Committee brought Big Oil to its long, green witness table to talk about rising prices and their corporate profits.
The questions and answers were pretty much along the lines of what we've heard before. Senators wanted to know whether the industry's doing all it can to keep prices low. The words windfall profits tax were uttered. Oil executives defended themselves by saying, in essence, "Hey! It's expensive to go out there and drill for this stuff."
What wasn't really discussed was what seems to be a pretty basic question. Who's on the receiving end of the $130-whatever a barrel it is that we're paying. Our senior business correspondent Bob Moon tried to find the answer.
BOB MOON: OK, so we're all grumbling that they've got us over a $133 barrel of oil. But do you wonder who "they" are? Who's pocketing that $133?
Economist Philip Verleger watches the oil industry. He says the ultimate price is decided by traders in New York, London and other global markets. There are no wellheads that read out in dollar signs. Instead, producers write contracts based the prevailing price at a future date -- when a Saudi shipment arrives in Houston, for example. The producer gets almost everything.
PHILIP VERLEGER: Saudi Arabia would be getting $126 today, the Canadians would be getting something like $125. The intermediaries might be getting a dollar or two, depending on their management of it. But most of the money is going back into the producer's pocket.
Verleger says that might leave a few dollars for the speculators, but the price is mainly determined by supply and demand.
And, oil industry analyst Stephen Schork says, by the quality of the oil. Not every barrel sells for $133.
STEPHEN SCHORK: A sweeter, lower sulfer will yield a greater premium relative to other streams of a heavier blend.
It's the sweeter variety that's in high demand right now, because it makes more of the more profitable diesel fuel. Verleger argues that $133-a-barrel oil won't sell if there's no buyer.
VERLEGER: It has nothing to do with speculators. It has everything to do with the inability to make enough diesel fuel to meet the European, Chinese, Asian and U.S. demand.
He says as long as that's the case, the producers can pocket what the market will bear.
In Los Angeles, I'm Bob Moon for Marketplace.
Comments
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From CA, 05/24/2008
SUDDENLY within a year or two,
car gasoline prices have more than
doubled around the world.
the key is SUDDENLY.
SUDDENLY the demand went double ?
so many people got their car licenses
in past 1-2 yrs ?
dig deeper for truths, as shattered
and skewed as they may be.
too many hands are getting into
the oil monies...
k
From CA, 05/23/2008
Have you ever noticed how much of the pricing is determined by the "existing supplies" report? A few yrs ago there was a story of how a tanker was diverted to another market (in latin america) presumably to raise prices on the nymex. We know the u.s. tracks all kinds of ships (N korean cargo, suspect containers of arms to zimbabwe etc). Just how difficult do you think it is to keep a "war room" tracking vlcc's? With do-all multinational oil companies running exploration, extraction, SHIPPING, refining, and retailing, there seems ample opportunity to influence the "existing supply" number. This wouldn't be the first time the system were gamed (enron's ricochet, get shorty, or dynergy/ca's natural gas pipeline inavailabilty squeeze). With rebate check in hand, it's funny how store retailers are offering discounts for one to spend the money there, but the must-haves (food and fuel) rise in prices instead.
Ok, I've taken off my tin foil hat now :)
From MA, 05/23/2008
If the 500,000 people convert to solar hot water heating we can save approx 150 million gallons of heating oil. Assuming a house consumes 1500 gallons of oil for heating . 30% of the heat consumed is for hot water.Heating oil is the same as diesel with some additives.
If the people go even futher and use solar for heating the houses. The savings of diesel will be greater.
Why does the government give a solar rebate cheque to public of 10,000$ each. The 2000 is nothing. Then you will notice the supply for the diesel will increase, alot since heating oil demand will fall.
05/22/2008
Please do an honest report on this topic, as opposed to this shallow, seemingly industry-scripted one. Define who the "producer" is. That $126 isn't dropping into the coffers of the Kingdom of Saudi Arabia. The host countries are paid a royalty, which for decades was often so ludicrously small that it's no wonder Hugo Chavez decided to rewrite the rules in Venezuela. I recently read in the NY Times that production costs at some extremely productive sites in Saudi Arabia still hover in the range of $1/barrel. Exxon-Mobil and the rest end up paying the lion's share of that $126/barrel to themselves, as reflected in their earnings. Less vertically integrated players in the industry, say those that only control refining, are hurting as a result of the current price of crude.
From HOUSTON, TX, 05/21/2008
Please do a story about the non-fuel related uses for petroleum.
We all know how the price of oil affects the price of gasoline and heating oil. What most consumers don't understand is the high percentage of petroleum that goes into making plastics and other synthetic materials.
The reason I want to bring this up is to discourage the excess waste we ignore in plastics like the billions of water bottles and grocery bags we throw away but also the longer picture... We have solutions for energy when oil runs out (that need further development) but there are few viable substitutions for other petroleum products when the oil dries up. In my view, one of the biggest industial challenges of the next 50 years will be how to replace these.
In fact, here is one place that conservation (re-use and recycling) is woefully overlooked. If we didn't waste so much petroleum on non-fuel related uses, gas and diesel would not have to compete on the demand side and prices would be relieved of considerable stress.
Regards,
Chris Lynn
Technical Superintendent
Seadrill Americas
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