Oil prices

Gordon

Sorry if this is in the wrong forum.

I was watching CCN a couple of days ago with a top guy from BP being interviewed. He was stating very plainly that BP's profits were up by quite a bit since the oil prices had risen to such record highs. I was kinda shocked until today when I saw that Shell has announced profits in the BILLIONS!

Now that's all very nice for them but I was under the impression that oil prices were at such record highs because they had to be so, because supply has fallen therefore the prise has risen. I didn't think that these oil companies would be increasing the price over the increase already.

Or do I just not have a clue about how multinationals work and should I not be really angry at the fact that oil prices are going up, oil companies are getting richer and my winter heating bill is going to be increased by 25%-40%?

fintan

One way to look at it is BP's fixed costs havent risen as much as the increase in oil prices, therefore they can sell oil with a greater profit margin. Its swings and roundabouts though as the price increases are coming from historical lows.

madramor

if it costs an oil company $5 to get a barrell of oil to buyer and cost is $40
then profit is $35
if oil prices got up (supply/demand issue) to $55 then profit goes to $50

oil companies don't control the price of oil, so if their production costs went up they would be unable to pass extra cost on to buyers

Gordon

That makes no sense to me, sorry!

OK in children speak terms...
The oil companies own the oil right?
How does the price inflate to such high prices? Supply drops off so people outbid each other to get the oil they need? Is this how the stock exchange works or am I barking up the wrong tree?

Or is crude oil owned by someone else that sells it at such high prices and then Shell, BP come along and buy it from them to change it into petrol and heating fuel? Hence they have this set fixed cost you mention. Madramor - in this case would the production costs be oil price + fixed costs?

Gah, anyone got any links like howstuffworks.com, I'm a no brainer when it comes to this type of business!

madramor

a house costs roughly the same to build in the country and in a upmarket area of dublin, yet the price can be 1000% difference, because more people want
to live in the upmarket area.

demand is greater for upmarket area, and supply is low, therefore price is high


http://money.howstuffworks.com/gas-price.htm/printable

Gordon

Oops it was on howstuffworks

Thanks, will digest that link!

mike65

The curent price of oil is largely down to a weak dollar and FUD The tosers in red braces are exploiting the political context and have effectively added a 10 dollar premium. Last week it hit a new high cos of a brief shipping labour dispute in Norway fer petes sake. If the president of Venezuela sneezes it'll hit 60. Meanwhile the cost of extractring a typical barrel has hardly changed since you could buy a barrel for 10 bucks 3 years ago!

Of course oil is in real terms cheaper now than in most of the last 30 years. And we have a strong euro/weak dollar to help with the pain.

Another thought - I remember (just) when petrol hit 1 pound per gallon, the price of a barrel was 30 dollars. Now petrol costs 4.50 pounds per gallon and the price of oil is 50 dollars....hmmmmmmm.

Mike.

Victor

mike65 wrote:

Another thought - I remember (just) when petrol hit 1 pound per gallon,

Showing your age?

/me remembers the queues in 1979.

/me get coat