PDA

View Full Version : What would happen to our energy industry if we nationalized oil...


jAZ
06-18-2007, 09:28 AM
I read this idea in a comment on DU and while I don't see it as wise to Nationalize anything that is currently in the free market... I thought it might make for an interesting theoretical discussion.

The suggestion on DU was to nationalize only the oil industry and in doing so, set prices such that margins were minimal and suficient for operations. Basically run it like a non-profit.

I wonder if doing this would have an overall postive impact on our energy industry because it would incent investors to move their money to the other areas of production (renewables) by basically removing the huge profit opportunity that exists network effects of the oil industry.

L.A. Chieffan
06-18-2007, 09:40 AM
HAHA yeah I'm sure Big Oil would love that idea.

Amnorix
06-18-2007, 09:46 AM
A horrible idea for a million reasons. Mainly, however, governments just don't run businesses well. It's been proven over and over again.

BucEyedPea
06-18-2007, 09:53 AM
I think you know what I'm going say...but I'll say it anyway....it would be a disaster. With prices at no profit, and below real market value would encourage overuse and could lead to shortages and lines not to mention other inefficiencies. Look at Iran...they actually really do have a energy crisis and they export oil. They're a state-run apparatus.

banyon
06-18-2007, 10:10 AM
Even I am not for this. More regulation of this otherwise oligopolistic market is needed though.

Amnorix
06-18-2007, 10:15 AM
Oh yes -- let me point out a HUGE complicating factor.

The nationalized oil industries are the oil exporters -- Iran, Saudi, Venezuela, etc. We are although a sizeable producer, one of the world's biggest, if not THE biggest, importers of oil as well.

It's relatively easy to nationalize oil as an exporter. The ocmpanies that were nationalized are mostly domestic with limited operations internal to the country.

Are you really going to take over all of Exxon? It owns huge oil fields around the world. It has complicated and sensitive business relationships with alot of countries, some of whom aren't going to stay inb usiness, formally, with the ACTUAL government of the US of A.

There's 20 million logistical/practical problesm that are nearly impossible to solve without crucifying hte company that you nationalize.

Finally, there's an incredible naivete going on here. The price of oil at the pump is a result of quite a few things outside most of big oil's control, including not least importantly the mercantile exchanges determination of the value of a barrel of oil. Big Oil makes a killing not because it's gauging consumers by establishing prices that are 10x higher than it's pump costs. It makes a killing because when oil prices are high, it's making a profit across a massive industry that is vertically integrated.

Eh, it's hardly worth the effort. Read a few books on how the oil industry works and you'll be shocked at amazed at alot of things. Disgusted as well, but you'll learn that nationalizing isn't simple to do, even if we all wanted to do it, which we don't.

Logical
06-18-2007, 12:00 PM
I think you know what I'm going say...but I'll say it anyway....it would be a disaster. With prices at no profit, and below real market value would encourage overuse and could lead to shortages and lines not to mention other inefficiencies. Look at Iran...they actually really do have a energy crisis and they export oil. They're a state-run apparatus.

Although I agree with you in principle, Iran is a horrible example. They never devoloped a refining capacity so they actually import their refined gasoline.

StcChief
06-18-2007, 12:12 PM
Sounds great on paper (in theory)... But really a bad idea. The tree huggers ruined it when we really needed them. No with Bio, alt fuel, electric, etc on the rise.

If I ran an oil company. No way the cost and it would still take 5 years to be online. the cost/ risk HIGH.

Blame the developing world (India/China) etc for needing oil also.... and our lack of planning and fore thought to really go for alt fuel years ago.

kcfanintitanhell
06-18-2007, 04:46 PM
Isn't the big investment companies that do the speculating in oil futures that have a big impact on the price? I read that last summer those people lost billions because there was no hurricane-effected disruption of supply.

FAX
06-18-2007, 05:01 PM
We need to establish an "oil standard" like the old "gold standard" and no longer allow speculation on oil futures.

FAX

Logical
06-18-2007, 05:14 PM
We need to establish an "oil standard" like the old "gold standard" and no longer allow speculation on oil futures.

FAXInteresting idea

WoodDraw
06-18-2007, 05:23 PM
Has this ever worked before? Nationalization is one of the reasons our gas is so high today. So many of the reserves operate outside of the market economy. Nationalized oil industries are notoriously inefficient, corrupt, and unstable.

If you want the price to go down, drive less. If you are willing to pay it, you are to blame. No one has a right to oil. You can pay the fair market value for it, or you can not use it.

FAX
06-18-2007, 05:31 PM
Has this ever worked before? Nationalization is one of the reasons our gas is so high today. So many of the reserves operate outside of the market economy. Nationalized oil industries are notoriously inefficient, corrupt, and unstable.

If you want the price to go down, drive less. If you are willing to pay it, you are to blame. No one has a right to oil. You can pay the fair market value for it, or you can not use it.

I'm not suggesting that we nationalize, Mr. WoodDraw, just set a standard. The free market can continue to operate at will and generate additional profits through increased efficiencies and innovation as it should.

Speculation is a major contributor to the high price and, certainly, the volatility of oil and oil products. It is my humble opinion that, were one to remove oil from the commodities market and set a per-barrel standardized price based on the last 5 years average, for example, the cost of many other products would stabilize as well. That's because predictability is a major contributing factor in costing.

Just start a rumor that a tanker sank and watch what happens. It's absurd, in my view, to allow speculation on oil.

FAX

Donger
06-18-2007, 05:44 PM
Oh yes -- let me point out a HUGE complicating factor.

The nationalized oil industries are the oil exporters -- Iran, Saudi, Venezuela, etc. We are although a sizeable producer, one of the world's biggest, if not THE biggest, importers of oil as well.

It's relatively easy to nationalize oil as an exporter. The ocmpanies that were nationalized are mostly domestic with limited operations internal to the country.

Are you really going to take over all of Exxon? It owns huge oil fields around the world. It has complicated and sensitive business relationships with alot of countries, some of whom aren't going to stay inb usiness, formally, with the ACTUAL government of the US of A.

There's 20 million logistical/practical problesm that are nearly impossible to solve without crucifying hte company that you nationalize.

Finally, there's an incredible naivete going on here. The price of oil at the pump is a result of quite a few things outside most of big oil's control, including not least importantly the mercantile exchanges determination of the value of a barrel of oil. Big Oil makes a killing not because it's gauging consumers by establishing prices that are 10x higher than it's pump costs. It makes a killing because when oil prices are high, it's making a profit across a massive industry that is vertically integrated.

Eh, it's hardly worth the effort. Read a few books on how the oil industry works and you'll be shocked at amazed at alot of things. Disgusted as well, but you'll learn that nationalizing isn't simple to do, even if we all wanted to do it, which we don't.

Thanks, you saved me some time, Amno.

trndobrd
06-18-2007, 07:22 PM
I'm not suggesting that we nationalize, Mr. WoodDraw, just set a standard. The free market can continue to operate at will and generate additional profits through increased efficiencies and innovation as it should.

Speculation is a major contributor to the high price and, certainly, the volatility of oil and oil products. It is my humble opinion that, were one to remove oil from the commodities market and set a per-barrel standardized price based on the last 5 years average, for example, the cost of many other products would stabilize as well. That's because predictability is a major contributing factor in costing.

Just start a rumor that a tanker sank and watch what happens. It's absurd, in my view, to allow speculation on oil.

FAX


Ah "speculators" the old 19th Century boogey man. In reality they help stabilize the the market rather than cause increased volitility. By buying futures, producers can operate from a known price and adjust production, crude oil purchases, etc. accordingly.

Cochise
06-18-2007, 07:53 PM
I am not surprised to hear the denizens of DU advocating that the government confiscate the means of production and 'improving' things for everyone.

There's nothing more government won't fix, after all...

Cochise
06-18-2007, 07:54 PM
Ah "speculators" the old 19th Century boogey man. In reality they help stabilize the the market rather than cause increased volitility. By buying futures, producers can operate from a known price and adjust production, crude oil purchases, etc. accordingly.

If we're going to outlaw speculation, we could start with currency. Not that this is any less ridiculous of an idea, but at least we could prevent true malicious profiteering like was perpetrated by Soros and his cabal.

kcfanintitanhell
06-18-2007, 08:24 PM
Ah "speculators" the old 19th Century boogey man. In reality they help stabilize the the market rather than cause increased volitility. By buying futures, producers can operate from a known price and adjust production, crude oil purchases, etc. accordingly.

Help me out with this...how does this work? Does this mean that if Americans decided that one day out of every month, that 90% of us would simply not drive? Would that make these sharks uneasy enough to keep retail prices a little more stable?

FAX
06-19-2007, 12:47 PM
Ah "speculators" the old 19th Century boogey man. In reality they help stabilize the the market rather than cause increased volitility. By buying futures, producers can operate from a known price and adjust production, crude oil purchases, etc. accordingly.

ROFL

FAX

Baby Lee
06-19-2007, 01:06 PM
ROFL

FAX
OK, who's piping laughing gas into the intertubes?
First Taco, now Mr. FAX.

FAX
06-19-2007, 01:55 PM
OK, who's piping laughing gas into the intertubes?
First Taco, now Mr. FAX.

Okay, okay. I'm no expert like Mr. Donger or Mr. Amnorix, but here goes ...

First of all, keep in mind that the IMF has already issued warnings that the presence of hedge and pension funds, for example, in the oil futures market have already both destabilized and pushed global oil prices higher. Persons convinced that speculation is the boogie man may wish to argue that point of view with them.

For my part, I think that a reasonable person has to, at least, acknowledge the role of speculation in oil prices. Whether the trader is basing his decisions on already existing trends in oil futures or some type of derivative instrument, and regardless if they are purchasing or selling long positions or put options, they are merely guessing about the supposed, likely trend in oil prices. As the cycle continues and oil prices increase, more potential profit is derived from speculation and, eventually, the tail wags the dog.

Additionally, I think we can agree that fund managers like profits. That's why many hedge funds have invested in commodities including oil which has, in turn, contributed to higher prices as more players enter the game.

Supply/demand balances alone may simply not be appropriate when dealing with the life-blood of an industrialized world facing limited supply and little or no control over that supply. Nations like the US, which absorb the brunt of oil price increases, are particularly adversly affected throughout the supply chain of practically every product and service imaginable.

The fact is that the supply/demand balance in oil is amplified significantly by speculation. What we should be debating is the relative role these two factors (supply/demand balance and speculation) should play in governing the price of oil. Perhaps this would be a more fruitful conversation as compared to demeaning the messenger carrying the position that guesswork, fear, and rumor mongering is not the foundation on which great countries are constructed.

FAX

Baby Lee
06-19-2007, 02:02 PM
Okay, okay. I'm no expert like Mr. Donger or Mr. Amnorix, but here goes ...

First of all, keep in mind that the IMF has already issued warnings that the presence of hedge and pension funds, for example, in the oil futures market have already both destabilized and pushed global oil prices higher. Persons convinced that speculation is the boogie man may wish to argue that point of view with them.

For my part, I think that a reasonable person has to, at least, acknowledge the role of speculation in oil prices. Whether the trader is basing his decisions on already existing trends in oil futures or some type of derivative instrument, and regardless if they are purchasing or selling long positions or put options, they are merely guessing about the supposed, likely trend in oil prices. As the cycle continues and oil prices increase, more potential profit is derived from speculation and, eventually, the tail wags the dog.

Additionally, I think we can agree that fund managers like profits. That's why many hedge funds have invested in commodities including oil which has, in turn, contributed to higher prices as more players enter the game.

Supply/demand balances alone may simply not be appropriate when dealing with the life-blood of an industrialized world facing limited supply and little or no control over that supply. Nations like the US, which absorb the brunt of oil price increases, are particularly adversly affected throughout the supply chain of practically every product and service imaginable.

The fact is that the supply/demand balance in oil is amplified significantly by speculation. What we should be debating is the relative role these two factors (supply/demand balance and speculation) should play in governing the price of oil. Perhaps this would be a more fruitful conversation as compared to demeaning the messenger carrying the position that guesswork, fear, and rumor mongering is not the foundation on which great countries are constructed.

FAX
ROFL








Edit: OK seriously. It's not that you don't have an argument. I was just remarking on this increasing penchant to 'rebut' arguments with dismissive emoticons. 'That makes me laugh' is not a rebuttal. ;)

FAX
06-19-2007, 02:09 PM
You're right, Mr. Baby Lee. 100%. A smilie thing does not a conversation make.

Still, I rarely come into DC. Then, when I finally enter the dreaded place, one of my few posts is met with disdain and a demeaning tone. And, it isn't that my post didn't deserve it. It's just that this place has a tone that, to me, is very amusing.

FAX

Baby Lee
06-19-2007, 02:13 PM
You're right, Mr. Baby Lee. 100%. A smilie thing does not a conversation make.

Still, I rarely come into DC. Then, when I finally enter the dreaded place, one of my few posts is met with disdain and a demeaning tone. And, it isn't that my post didn't deserve it. It's just that this place has a tone that, to me, is very amusing.

FAX
I did not mean to convey 'disdain and demeaning.' Maybe I needed a smilie type thing.

FAX
06-19-2007, 02:20 PM
I did not mean to convey 'disdain and demeaning.' Maybe I needed a smilie type thing.

Dang. I didn't mean your post, Mr. Baby Lee. I was referring to Mr. trndobrd's, "Ah 'speculators' the old 19th Century boogey man" and Mr. Cochise's, "Not that this is any less ridiculous of an idea ..." responses to my original proposition that speculation in oil futures has an adverse effect on oil pricing.

Again, my post may have sucked the big Planet wienie, and I certainly have the highest regard for both Mr. trndobrd and Mr. Cochise - both of whom are excellent posters, men, and capitalists. Still, there's something about DC that makes me laugh.

FAX

BucEyedPea
06-19-2007, 02:24 PM
... Mr. trndobrd and Mr. Cochise - both of whom are ... men... FAX


Well! :harumph:

Baby Lee
06-19-2007, 02:25 PM
Dang. I didn't mean your post, Mr. Baby Lee. I was referring to Mr. trndobrd's, "Ah 'speculators' the old 19th Century boogey man" and Mr. Cochise's, "Not that this is any less ridiculous of an idea ..." responses to my original proposition that speculation in oil futures has an adverse effect on oil pricing.

Again, my post may have sucked the big Planet wienie, and I certainly have the highest regard for both Mr. trndobrd and Mr. Cochise - both of whom are excellent posters, men, and capitalists. Still, there's something about DC that makes me laugh.

FAX
I'd ask you to obtain a concensus on WHO the big planet wienie [sp] is, but I fear you'd eff up the poll. :p

trndobrd
06-19-2007, 04:24 PM
Okay, okay. I'm no expert like Mr. Donger or Mr. Amnorix, but here goes ...

First of all, keep in mind that the IMF has already issued warnings that the presence of hedge and pension funds, for example, in the oil futures market have already both destabilized and pushed global oil prices higher. Persons convinced that speculation is the boogie man may wish to argue that point of view with them.

For my part, I think that a reasonable person has to, at least, acknowledge the role of speculation in oil prices. Whether the trader is basing his decisions on already existing trends in oil futures or some type of derivative instrument, and regardless if they are purchasing or selling long positions or put options, they are merely guessing about the supposed, likely trend in oil prices. As the cycle continues and oil prices increase, more potential profit is derived from speculation and, eventually, the tail wags the dog.

Additionally, I think we can agree that fund managers like profits. That's why many hedge funds have invested in commodities including oil which has, in turn, contributed to higher prices as more players enter the game.

Supply/demand balances alone may simply not be appropriate when dealing with the life-blood of an industrialized world facing limited supply and little or no control over that supply. Nations like the US, which absorb the brunt of oil price increases, are particularly adversly affected throughout the supply chain of practically every product and service imaginable.

The fact is that the supply/demand balance in oil is amplified significantly by speculation. What we should be debating is the relative role these two factors (supply/demand balance and speculation) should play in governing the price of oil. Perhaps this would be a more fruitful conversation as compared to demeaning the messenger carrying the position that guesswork, fear, and rumor mongering is not the foundation on which great countries are constructed.

FAX

Although you have stated that hedge funds cause increased prices as if you were explaining that the sun will rise in the East tomorrow, it isn't quite so simple. The increased involvement from hedge funds is a realtively recent trend. There has certainly been significant volitility in the the oil market before the involvement of hedge funds.

This notion of hedge funds and 'speculators' are driving up oil prices stems from an OPEC statement from March 2004. The IMF (savior of many a Third-World economy) issued a statement later in 2004 suggesting that increased hedge fund investments in oil where causing an increase in prices. Approximately 6 months later, the hedge funds took a beating when the market dropped.

After the outpouring of public support, benefit concerts and bake sales for the poor investors that lost money, it's clear that hedge funds do not create price trends in the oil markets. They simply ride the trends.

What they do provide is liquidity in the market, reducing market turbulence and increasing trade.

Oh, and many of the biggest players are located outside of the United States.

FAX
06-19-2007, 08:51 PM
Although you have stated that hedge funds cause increased prices as if you were explaining that the sun will rise in the East tomorrow, it isn't quite so simple. The increased involvement from hedge funds is a realtively recent trend. There has certainly been significant volitility in the the oil market before the involvement of hedge funds.

This notion of hedge funds and 'speculators' are driving up oil prices stems from an OPEC statement from March 2004. The IMF (savior of many a Third-World economy) issued a statement later in 2004 suggesting that increased hedge fund investments in oil where causing an increase in prices. Approximately 6 months later, the hedge funds took a beating when the market dropped.

After the outpouring of public support, benefit concerts and bake sales for the poor investors that lost money, it's clear that hedge funds do not create price trends in the oil markets. They simply ride the trends.

What they do provide is liquidity in the market, reducing market turbulence and increasing trade.

Oh, and many of the biggest players are located outside of the United States.

You are, no doubt, correct in all you say, Mr. trndobrd. So, let's try a basic question and, perhaps, you can educate me further.

What do you suppose would happen to oil-product prices if the markets learned that OPEC was planning on cutting production by 1/4 in the fall? Also, would you expect more or fewer fixed income investment funds to move into commodities on the news?

FAX