The Price of Oil and the price of Petrol

[chooch]

But . . . you're using Urbans and we (the people buying your widgets) aren't using Urbans we're using the much better "chickens"

Doesn't matter. I'll still charge as many chickens (or kittens over the border) as I can without denting demand significantly because I know it's difficult for you to get an equivalent service from elsewhere, apart from my brother widget-marketers, and we have a tacit agreement not to have price wars.

Surely, it's the same for Oil. I now can buy oil in the US cheaper because the US$ is "worth" Less

Of course you can, though you might have some legal and technical problems. But you won't, because it's not convenient. And it'd be hard to set up the kind of personal distribution network that you'd need to have a range beyond a tank of petrol.
It's also perfectly possible for you to replace most of your fuel with your own waste-fat-derived biodiesel, but you probably won't because of entry costs, problems with distribution and convenience.

 

[High Voltage]

Doesn't matter. I'll still charge as many chickens (or kittens over the border)

But, you only use Dollars. That's the currency used for trading in Oil throughout the world. Nothing you can do about that. YOU USE DOLLARS.

Where as I use Sterling. Nothing I can do about that.

So. I take my lovely Sterling and buy US dollars at 2 for 1. You get your $100 dollars a barrel (now worth 50 of my English Pounds)

The Price of your oil in US Dollars to Me has gone down in price.

Now, If you wanted to be paid in English Sterling that's a different ball game. But you don't want to be paid in Sterling you want to be paid in US Dollars.

 

[chooch]

But, you only use Dollars. That's the currency used for trading in Oil throughout the world. Nothing you can do about that. YOU USE DOLLARS.

Yes but the decision of setting the widget/petrol price at the hopper/pump depends only on me a) avoiding an unsustainable loss and b) me working out what I think you'll be prepared to pay, given that competition is extremely limited and your widget-wadger/car, in which you've invested a fair amount, doesn't run on carrots/carrots, so you can't easily substitute.

You get your oil for $100 dollars a barrel

I/they do. But why would I/they sell it to you for £51 when I/they could sell it to you for £73?
Regardless of exchange rate, within a particular market, why would oil companies choose to sell to you for less when they could sell to you for more and be fairly confident that you'll pay it?

 

[High Voltage]

I/they do. But why would I/they sell it to you for £51 when I/they could sell it to you for £73?

"You" are not selling it to me for £51.

"You" are selling it to me for $100. This is the cost that
"I" am paying you for it at the Stock Exchange.

"I" go to the little corner shop and buy my dollars at 2 for 1. So "I" Give the little corner shop £50 get $100 and pay you.

You get $100. I pay £50.

Later on that day. I buy some more Oil from you. It is still $100 but the corner shop now charges me £75 for my $100.

You get $100. I pay £75.

Next morning I do the same. You still charge me $100 but the corner shop doesn't want my £s now, so as a fuck off measure only gives me $100 for £100.

You get $100. I pay £100.

Now, it's not my fault you want paying in dollars when it is 2 4 1.

And It's not your fault when you want paying in dollars when its 1 for 1.

You want paying in dollars.

 

[chooch]

"You" are not selling it to me for £51.
"You" are selling it to me for $100.

No. Aaargh. You don't buy from the commodity exchange (because you can't, because nobody would sell in the small amounts you want, and nobody has any reason to trust you to pay your bills for larger quantities, and because it's hellish inconvenient), you buy from a retailer.

Now, whether they are entirely integrated with a major oil company doesn't actually matter (though it's a little simpler to think about if they are), but in no way is it in the interests of a retailer seeking profit to 'pass on the saving' from an improved exchange rate or cheaper oil price to you, unless they're very sure that by doing so they can manipulate you into buying more now, or at a later date (and they'll work this out using knowledge of price elasticities and a discount rate). On the other hand, it's almost always in their interest to 'pass on the extra cost' to you if anything increases the price, to maintain their profit margin, and hence their profits.

And this is because it's a very imperfect market - a small number of companies control most of the supply, entry costs for new companies are incredibly high, demand is fairly predictable and there's very limited competition.

 

[mauvais]

And on another, there was a linky on Urban 2-3 months ago to You-Tube for some comedian doing a highly entertaining musical hall style stand up routine about American Oil - The Dollar - and Stuff and I think that his name was Mark "Someone", can any one help on that one too please.

Rob Newman's History of Oil? http://video.google.co.uk/videoplay?docid=-8957268309327954402

 

[High Voltage]

Rob Newman's History of Oil? http://video.google.co.uk/videoplay?docid=-8957268309327954402

THAT's the kiddy. Thank you thank you thank you.

 

[mauvais]

Cool. All his stuff's good - Apocalypso Now is a similar audio CD, and I'm slowly reading his novel 'Fountain at the Centre of the World' - will let you know how I get on.

 

[High Voltage]

No. Aaargh.

Ooooooo Kkkkkkkk. cheeky little smile. I think we're getting somewhere.

I'm starting to see where YOU are getting confused.

Mr. Oil producing company gets the oil out of the ground for nothing.

Mr. Oil producing company then sells the oil on the Stock Exchange to a Mr Oil Buying Company (not me, but a large oil buying company)

Mr Oil selling company wants to sell his oil for Dollars. Mr Oil buying company has to buy the oil for dollars but uses pounds.

So he pops off to the Money selling shop and buys his dollars for pounds.

Hence the price of oil various due to exchange rates surely.

 

[High Voltage]

No. Aaargh. You don't buy from the commodity exchange (because you can't, because nobody would sell in the small amounts you want, and nobody has any reason to trust you to pay your bills for larger quantities, and because it's hellish inconvenient), you buy from a retailer.

Now, whether they are entirely integrated with a major oil company doesn't actually matter (though it's a little simpler to think about if they are), but in no way is it in the interests of a retailer seeking profit to 'pass on the saving' from an improved exchange rate or cheaper oil price to you, unless they're very sure that by doing so they can manipulate you into buying more now, or at a later date (and they'll work this out using knowledge of price elasticities and a discount rate). On the other hand, it's almost always in their interest to 'pass on the extra cost' to you if anything increases the price, to maintain their profit margin, and hence their profits.

And this is because it's a very imperfect market - a small number of companies control most of the supply, entry costs for new companies are incredibly high, demand is fairly predictable and there's very limited competition.

Clink. Clink. Clink. Clink. (That's a penny dropping farthing by farthing BTW)



















































bastards!!!

 

[chooch]

Mr. Oil producing company...Hence the price of oil various due to exchange rates surely.

Most of the big oil companies are very integrated, so it's a much shorter chain - they're effectively selling from the well/rig to the retailer (if it's a franchise operation), or directly to you (if it's a managed operation).
If there are more links in the chain, the price of oil varies at all stages but, with limited supply, is set by what the seller at any stage thinks the buyer's prepared to pay.

bastards

capitalists. they're in an advantageous position and take advantage of it.