• Please take a moment and update your account profile. If you have an updated account profile with basic information on why you are on Air Warriors it will help other people respond to your posts. How do you update your profile you ask?

    Go here:

    Edit Account Details and Profile

Two oil tankers hit in Gulf of Oman

Flash

SEVAL/ECMO
None
Super Moderator
Contributor
I was just commenting about you’re saying they were illegal. Besides Nixon’s price controls, there were price controls during WW1 & WW2.

While they may not be a good move, there is certainly a precedent and they are legal.
I am not aware of an existing law allowing for price controls, the one Nixon used is no longer law. As I said above, I wouldn't guarantee passage of a new law or it passing constitutional muster now.
 

Randy Daytona

Cold War Relic
pilot
Super Moderator
Um, no. How on earth would the price of oil at home become 'decoupled'? What is there to prevent the oil companies from charging the same price as the rest of the world? It's a free country after all! And it isn't like the government could force them to sell at a set price, because we are...a free country. Unless you want to impose price controls, which is stepping pretty far into socialist territory and probably illegal.

Seriously, I have no idea how any of what you suggest would work in the real world.
I foresee something different. In the event of a game changing event: the historical precedent is the crude oil export ban which was law from 1975 to 2015, in other words, I am discussing import / export controls, not price controls. If the Gulf shuts down, you would see this law reinstated. As North America has enough hydrocarbons to be self-sufficient, you would see a bifurcated market with prices for North America and prices for the rest of the world.

For example (using ballpark numbers), world oil consumption and world production is 100M BPD. North America consumption and production is 20M BPD. The Gulf shuts down, 20M BPD comes off the market and prices skyrocket - gas goes to $8-$10 per gallon. If what you are saying is correct, the American political system does nothing. What I am saying is that the historical precedent from the Arab Oil Embargo of the 1970's is that Congress makes it illegal to ship oil abroad - all crude must be used domestically. The difference between 1975 and now is that we have the capability to produce enough crude to not need imports.

You now have a situation where North America is still at the same 20M BPD - it just stays within the Western Hemisphere. Exxon, Chevron, BP, Anadarko, Devon, Chesapeake, etc - there are more than enough oil companies pumping to provide price competition and although it could possible rise somewhat, the nature of shale production is that it can be turned on very fast. The bigger problems might be financing and/or refinery capacity matching up the different grades of crude.

That said, the rest of the world will have a problem. You now have every other country bidding for the remaining 60M BPD and prices will skyrocket. The interesting thing is that if we are paying $70 per barrel for transportation and raw materials and the remainder of the world is paying $170 per barrel, we have a competitive advantage.
 

HAL Pilot

Well-Known Member
None
Contributor
I am not aware of an existing law allowing for price controls, the one Nixon used is no longer law. As I said above, I wouldn't guarantee passage of a new law or it passing constitutional muster now.
Nixon used an executive order.
 

Brett327

Well-Known Member
None
Super Moderator
Contributor
If the Gulf shuts down
It's difficult to imagine a scenario where this happens.

bifurcated [commodities] market
Curious as to whether there are any examples of this happening in other modern, international commodities markets.

Even if it came to pass, it would still be extremely harmful to the US and international economies, which begs the question...

Why in the world would the US allow this to happen in the first place? See previous post on the proper use of US naval power WRT global commerce.
 

Flash

SEVAL/ECMO
None
Super Moderator
Contributor
I foresee something different. In the event of a game changing event: the historical precedent is the crude oil export ban which was law from 1975 to 2015, in other words, I am discussing import / export controls, not price controls. If the Gulf shuts down, you would see this law reinstated....What I am saying is that the historical precedent from the Arab Oil Embargo of the 1970's is that Congress makes it illegal to ship oil abroad - all crude must be used domestically.
The export ban had no effect on prices in the US or the rest of North America. So why on earth would you think this ↓ ?

As North America has enough hydrocarbons to be self-sufficient, you would see a bifurcated market with prices for North America and prices for the rest of the world.
You keep saying there would be a bifurcated market but how would that work? And how would it make prices cheaper for the US? It's baffling to me how you think that supposed market would work in the real world.

You now have a situation where North America is still at the same 20M BPD - it just stays within the Western Hemisphere. Exxon, Chevron, BP, Anadarko, Devon, Chesapeake, etc...That said, the rest of the world will have a problem. You now have every other country bidding for the remaining 60M BPD and prices will skyrocket. The interesting thing is that if we are paying $70 per barrel for transportation and raw materials and the remainder of the world is paying $170 per barrel, we have a competitive advantage.
The utter fantasy of the scenario you outline above might as well be made up of unicorn farts and pixie dust. Among the legal, from the WTO to domestic laws, and practical, with an international logistics and supply chain that isn't based on national border, problems of your fantasy scenario there remains a very basic and fundamental flaw in your plan, that the oil companies would willingly go along with it.

There is nothing in your scenario that says the international oil companies you list, to include the foreign-owned BP, wouldn't just slow down or stop their production here in the US to make a killing from their overseas production on the international market. Again, profit, the reason companies exist. It would make far more sense to wind down their US operations making your theoretical $70 a barrel and shift their resources to their overseas operations at $170 a barrel. Unless the US government directly intervened in production and pricing, which is literally socialism and you guess it, price controls!

And if you think that other countries, from the Europe to Asia, would sit idly by while we had an unfair advantage you might as well start trying to sell some of whatever you are smoking.

Finally, Brett is right that the scenario of the SOH being closed for any length of time is extremely unlikely to happen.
 

ABMD

Pork Chop
Curious as to whether there are any examples of this happening in other modern, international commodities markets.
I work in the Natural Gas world, North East Trader, I don't see this happening without significantly disrupting the global markets...all commodity markets.

Naturally, if the price of crude rises producers will drill more wells, or turn on their mothballed wells, to take advantage of the increased margins.

Exxon, Chevron, BP, Anadarko, Devon, Chesapeake, etc - there are more than enough oil companies pumping to provide price competition and although it could possible rise somewhat, the nature of shale production is that it can be turned on very fast. The bigger problems might be financing and/or refinery capacity matching up the different grades of crude.
Article discussing this exact thing.
 

Angry

NFO in Jax
None
There is nothing in your scenario that says the international oil companies you list, to include the foreign-owned BP, wouldn't just slow down or stop their production here in the US to make a killing from their overseas production on the international market. Again, profit, the reason companies exist. It would make far more sense to wind down their US operations making your theoretical $70 a barrel and shift their resources to their overseas operations at $170 a barrel. Unless the US government directly intervened in production and pricing, which is literally socialism and you guess it, price controls!
No, it wouldn't. While domestic producers could shut down production in the near-term, the fixed costs (i.e. the interest payments on debt financing they utilized to build wells) won't go away if they stop pumping. There have been plenty of situations in the last decade where domestic producers have actively lost money while continuing to operate because they would lose MORE money if they just shut down completely. You don't just shutter oil wells, especially if they are profitable.

Also, you can't just shift resources to overseas operations. Oil field development takes years to get right, and any dramatic spike in oil prices isn't likely to be long-lived. Not to mention getting oil out of the ground is just the beginning, you have to have the infrastructure to transport it where it needs to go. Sure, oil is fungible (relatively) - but some of it is moved via pipeline, some of it by rail, and some of it by ship. If you stop production in an area serviced by a pipeline and attempt to re-direct towards an area serviced by ship, where are you going to get the additional ships required to transport the oil? Are you still going to transport the raw crude to the US to be refined, or are you going to overtax international refineries with additional throughput?
 

Flash

SEVAL/ECMO
None
Super Moderator
Contributor
No, it wouldn't. While domestic producers could shut down production in the near-term, the fixed costs (i.e. the interest payments on debt financing they utilized to build wells) won't go away if they stop pumping. There have been plenty of situations in the last decade where domestic producers have actively lost money while continuing to operate because they would lose MORE money if they just shut down completely. You don't just shutter oil wells, especially if they are profitable.

Also, you can't just shift resources to overseas operations. Oil field development takes years to get right, and any dramatic spike in oil prices isn't likely to be long-lived....
If the supposed bifurcated/decoupled fantasy happens, which it won’t, I seriously doubt the oil companies would not shift resources overseas to make more money in the long term.

All of this is hypothetical though and very unrealistic, but a lot more realistic than the split oil market that Randy seems to think would happen.
 

Randy Daytona

Cold War Relic
pilot
Super Moderator
We should all be comfortable with the strategic concept that freedom of the seas and open markets is a universal good and that American naval power can and should be used to ensure that it continues.
Not seeing either party embracing free trade as it pertains to China right now. Once the Democratic Party has a nominee, I look forward to seeing how the two parties compare.

Could you repost the link?
 

Brett327

Well-Known Member
None
Super Moderator
Contributor
Not seeing either party embracing free trade as it pertains to China right now. Once the Democratic Party has a nominee, I look forward to seeing how the two parties compare.
Not what I’m talking about. There’s a difference between free trade and freedom to trade.
 
Top