Exxon CEO Admits that Oil Should Be $60-70 Dollars a Barrel Based on Supply and Demand

http://www.nakedcapitalism.com/2011/05/guest-post-exxon-ceo-admits-that-oil-should-be-60-70-dollars-a-barrel-based-on-supply-and-demand.html


Under probing questioning by Senator Cantwell, Exxon Mobil CEO Rex W. Tillerson admitted that oil should be $60-70 dollars a barrel based on supply and demand:

VIDEO of testimony at link

Some of the increase in price above this “supply and demand” level price is due to companies using futures contracts to lock in oil prices to ensure certainty (which is a valid business purpose).

Some of it is due to speculation. Indeed, using high frequency trading, it is relatively easy to manipulate the price of oil.

In other words, about 2.40 per gallon.

on the market among all companies it's anti-competitive, and not a valid business purpose.

It's price-fixing.

...for a fixed amount of crude oil. That is not price fixing in the sense that it is controlling the market price - the value of the contract floats until it is settled.

In order for it to be price fixing, you would need to have enough market participants agree to act in concert such that they are controlling the market price. There would have to be enough people involved to have market power and they would have to know what they were doing. Just because a large number of traders believe that prices are going to move a certain way and act accordingly does not make it price fixing. That is market sentiment and it can change on a dime (as a good example, we recently saw the price of crude drop $10 in one day.)

"I'll pay $120/barrel, but I don't want to buy any. What do you think Fred?"

"I agree, $120/barrel is the price I like, but I wont be placing an order."

Crude is now $120 for everyone on the planet, because Fred and Biff say so.

This is more than typical price fixing. It's hyper-price inflating and collusion. They simply do not respect any economic market-forces, supply and demand means nothing to them because they aren't regulated.

Most likely, one them will make money when the contract is settled and the other will lose. If the contract price equals the spot market price on the day of settlement they will break even. In any case, each contract is equal to 1,000 barrels of crude oil and they can settle the contract financially or physically.

Let's assume they settle financially. If the spot price is higher than the contract price, then the seller pays the buyer the difference between the spot price and the contract price. If the spot price is lower, then the buyer pays the seller the difference. Let's say Fred sold 10 contracts and Biff bought 10 contracts at $120 per barrel. If the spot price is $122 when the contract settles, Fred lost $2,000 on each contract or $20,000 and Biff made the same amount. If the contract settles at $118 per barrel then Fred made $20,000 and Biff lost $20,000. If they both took the same position, then they made or lost the same amount. This is quite a bit different than what you described - they're both on the hook for real money.

If they settle physically, then the seller has to deliver the actual oil to a designated location. For logistical reasons, physical settlements may not used because financial settlements can accomplish the same thing and provide more flexibility for traders that actually use the crude.

of every newspaper. Gas Prices effects us all.

But nope.... the media would rather blame the high prices on Obama not drilling enough.

it's also determined by speculators trying to figure out what supply and demand will be 3 months, 6 months and a year from now.

There are no rules.

There is a big difference between market sentiment and collusion. Market sentiment can change radically in a very short period of time - last week, the price dropped $10 in one day.

Same old shit, different year.

Obama Shifts to Speed Oil and Gas Drilling in U.S.

:cry:

PB

His reliance on the free market, the Chicago school of economics, and Wall Street robber barons for economic policy is an absolute travesty. This is his biggest weakness. I think he simply does not understand economics. He actually believes the lies of Wall Street.

But he's no idiot. President Obama may be many many things, but the very last thing he is, is an idiot.

PB

And that means he is a bad person.

:shrug:

PB

Just following the logic. I'm not saying he's a stupid person, just ideologically, rigid, and ignorant, when it comes to economics.
And yes, if he is in the pocket of big oil and Wall Street, that makes him a bad person.

For weeks we been hearing that the high cost of gasoline is not because of a shortage but instead created by Wall Street speculation. What does more production have to do with speculation? I fear we have a BP President who is afraid of reining in Wall Street.

For weeks we been hearing that the high cost of gasoline is not because of a shortage but instead created by Wall Street speculation. What does more production have to do with speculation? I fear we have a BP President who is afraid of reining in Wall Street.

Why wouldn't it be priced in relation to the barrell that gets someone to extract the first barrel in excess of needs?

At some price point wells aren't viable. I've been reading that the more recent finds have costs in the $79 and up range. Extremely high prices makes all wells viable where lower prices would make some not worth drilling.

How’s about we have a nation wide general strike where nothing moves... shut eh down! Those oil CEOs will be jumping out their windows and I speculate that the price will settle to a more affordable price. I am told that it’s not the impact that kill yeah ... but the fall!

in the price of oil, then he must have been dissembling or was as dumb as a rock! :patriot: