Help me understand: I wasn't able to get a very good answer to this scenario posed to 3 GREAT traders:?

THIS IS NOT HOMEWORK OR AN ASSIGNMENT.
This scenario & Q need to be addressed & answered in a satisfactory manner.

My mind has been wrestling with this ALL day. I'm aggravated paying $3+ for 1 gal. of gasoline.

Just to buy the oil, the U.S. pays over $100 per barrel.

OPEC & other oil exporters are probably laughing at us & the rest of the world - while they are taking that easily-earned money to the bank. That $100+/bbl is only to pump it out of the ground. It STILL has to be transported & processed into usable petroleum products.

THEN its distributed to various facilities & folks using it & selling it to us, the consumers.

To have a more even trade balance, why doesn't the U.S. use the commodities - corn, wheat, etc., we ship to those folks - over their heads? Wouldn't this cut oil's cost for the U.S.?

My reasoning: Its MORE than supply & demand. ALL people MUST eat, THEN many drive. Thanks!

VTY,
Ron Berue
Yes, that's my real last last name!
Additional Details
In my original Q, I didn't have enough room for "supply & demand and/or politics". So I went with s&d.

This is what REALLY gets my blood boiling:

30 years after-the-fact: Instead of reviewing and revising "the same old same old", we're STILL subjected to those antiquated thoughts and procedures. AND IT STILL comes down to politics?!

What's wrong with that picture? EVERYTHING!

What's right with that picture? NOTHING!

We're being held hostage for those who had only one thing on their minds: Getting re-elected for another term - at EVERYONE'S expense!

Thanks!

Ron Berue

Ron,
I share your aggrevation & hope this helps--

OPEC nations charge companies like Exxon-Mobil and BP-Amoco for drilling & extraction rights; they do not set the market price of oil. When we hear about $100/barrel, that refers to a futures contract, not a tangible barrel. Speculators bid up the price when they expect demand to increase or supply to tighten. In our supply chain today, the primary issue is not supply of crude--but insufficient refining capacity.

Unfortunately, it is all about supply and demand. The problem is that over-regulation in the US & abroad prevents construction of new refineries.

As for food commodities the US exports--these also are traded on a futures market. If the market prices of these futures increase, everyone, including Americans, will pay more.
Assuming the US Government put a large fee on food exports (which would never happen; imagine how happy the farmers would be), other countries could buy these grains from Russia, the Ukraine, Turkey, or any number of other countries with large agricultural outputs.

See the editorial below from UK paper The Guardian. It explains our oil problem pretty well.

Jacking up the price of corn and wheat would sure help out the folks in my neighborhood, the farmers. That's why the Corn Growers Assoc is hot onto speeding up the production of ethanol now. And let me tell you they are in high gear on it.

Ron,
Great question...

First off the fact that we are subject to the same old same old has to do with the fact that those who put the pollicy in place 30 years ago are still in place themselves... Ted Kennedy and the likes. These people control policy that prevents the USA from persuing what is best for the USA which is to build refineries here (1972 was the date we built our last one...) as well as tapping into our own reserves, (Annwar Oil Field, Alaska) or drill off the cost line in places like the Gulf of Mexico (BTW China is drilling 50 miles off the cost of Cuba, but we can't drill 50 miles off our own coast???). So to change the policy that prevents us from doing what we all know we need to do, we must first change the leaders who make the policy. But lets face it, it is much easer to use smoke and mirrors like "Green energy" or "Hybrid Energy" rather than addressing the real issue. Please don't misunderstand me, I am all for a reallistic alternative energy source, but it needs to be just that.

To address the comodity issue. OPEC is an oil cartel. The price of oil is not based on a supply and demand economic scale. It is based on the control of supply to demand which is a big difference. For the USA to use our source of comodities in a similar fassion would be devistaing to the economic stability of such markets. Thats not to say that it would not work as I think it would. Doing such would have a drastic impact on trade world wide.

That's my two cents worth...

Please forgive my spelling...

i dont know wat going on but something needs to be done and now its getting crazy here its 3.17 a gallon for regular

A couple simple facts. In the rest of the world, gas/oil is more of a luxury than here in the US. Many of the worlds counties are self sufficient on energy. We use more than half the worlds supply of oil! It is also against the liberal policies of the US to withhold food from any country not on sanctions. The liberals don't want to hurt anyone else's feelings. We also are sitting on one of the largest oil reserves ever discovered in Alaska, but the fields are home to a bunch of trees, birds, and wildlife that the environmentalist have a fit every time someone even thinks of producing a barrel or two. We don't have any refineries less than 30 years old, so we aren't very efficient with the crude either. Most of our energy (gas/oil) issues are political not supply and demand. Most of that political policy has come over the last 25 - 30 years from the democratically controlled congress and the house and senate energy committes chaired during that time by the democrats. I don't think the republicans would do much better, so there you go!

Hi Ron,

I finally get to answer a a question for you :)

I think you're so right. Gas is $3.41 gal here in Chi-town!

Nader '08!

Hi Ron: It mostly comes down to the value of the dollar vs.other currencies. As the US increases its trade deficit at an enormous rate (mostly due to trade policies that encourage manufacturing of goods outside USA to be imported without tariffs that are exempted by the trade agreement. Think NAFTA and Chinese Trade agreements.

In addition to that deficit , the cost of the Iraq war and the war in Afghanistan amounts to at least 500 billion to an estimated total cost of a few trillion dollars. most of that money has had to be borrowed (some from foreign governments) and must be paid back.

The cumulative result is that the value of the US dollar (U$D) has dropped as much as 35% vs. the new standard, the EURO. Since oil prices are quoted in U$D, it is apparent that the projected price per barrel will go up as the value goes down, logically.

There is no doubt that OPEC (Iran, Venezuela, Russia, Saudi Arabia et.al) are controlling the raw oil prices and no doubt are a main force in the speculation that occurs daily.

The price that major companies pay for oil today is not the quoted price since those are future projected prices for future delivery. however there is no doubt that Exxon and others have taken advantage of their less expensive supplies to match the higher price and achieving record profits.

What can we do as a nation? For beginnings, we need a strong national leader that will break allegiances with industry alliances and act for the American public and defend our economy. In other words. &%@* the lobbyists. Dump a huge supply of our reserves onto the free market. Force the oil companies to buy that first before going to the OPEC market unless they match the price. To strengthen the dollar, reduce our military expenditures overseas (Iraq, Afghanistan, etc) by bring home our military, including many thousands of troops stationed in S. Korea and Germany and making those countries pay for their own protection if they are not already doing so. Strive toward reducing the trade deficit by enforcing reasonable fair trade laws. Eliminate tax benefits for US corporations that manufacture overseas but sell most of their goods in USA.

Gold and Metals: The Chinese and Indian economies are the driving force in the rapid increase of these metals. Most scrap and steel is being bought by them and simple supply and demand rules that if there is a scarcity then the price of copper, silver, platinum, aluminum will increase. We may not be able to do much about scrap but we can affect the supply of gold on the open market by releasing enough of our deposits to force a dumping of gold on the market. This will strengthen the dollar and perhaps stabilize the currency markets for awhile.

Agriculture- Yes we have excesses of production that are controlled by reimbursing farmers to not grow any more. Because grain is in short supply due to diversion for ethanol manufacture, prices rise for our consumers and any exported costs less for foreign users because of the dollar devaluation. We all know that the ethanol production can be cheaper using other materials such as sugar and/or pulp but these lobbys are not nearly as strong or influential as the grain lobby is in Washington, D.C. In an ideal world, it would boost the opinion of America if we were to give away (free less cost) our excess production to directly feed those less fortunate areas of the world.

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