Yeah, but that's producing oil under the control of a government's authority. For example, Chevron develops oil fields in Saudi Arabia, but Saudi Aramco decides how much Chevron can take out and what the rent/tax is for pulling the oil.

But does Chevron still get to pocket at least some portion of the difference when the price goes up?

we try to buy domestically produced oil for the petroleum reserve and we give them incredibly cheap financing for exploration and development.

Which is why we shouldn't subsidize it, right? If it's profitable to make it, then the companies will do it. If it's not profitable to make it, why should we pay for them to do it?

And what public policy reason would justify buying more expensive domestic oil when cheaper foreign oil is available? And isn't all oil fungible anyway? If we needlessly buy more expensive domestic oil for the reserve, wouldn't that decrease demand for imported oil and cause the price to be even lower?

we give them incredibly cheap financing for exploration and development.


Don't forget about the accelerated depreciation schedules and generous tax loss carryover provisions.

that US residents won't allow new refineries?

China to the rescue! Chinese refineries can do it cheaper with little concern for environmental consequences. Let Americans have cleaner air and a yet greater deficit of payments.

Ah, but there you're wrong in detail, Mike. The payments made to Saudi Aramco, for example, are based on the spot price. So, yes, OPEC countries have a direct impact on the cost of deliverable crude. The costs born by the big five or six are variable. They are not flat. What do you think controlling production volume is if not price fixing?

Most Oil is purchase on a contractual bias independent of the day to day (or month to month) volatility of the spot market. OPEC and the Spot Market are not one and of the same. OPEC is an organization, Spot market refers to the open trading market on current oil (whether it be in a tanker ship, truck or storage facility)

http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/Price_transactions.htm

Since demand has risen to close to overall production OPEC has a ‘perceived control’ over pricing through raising and lowering production quotas, which no OPEC country adheres to since demand is currently high. So their effect is mostly of a political nature unless the supply is too great and they flood the market therefore causing a price reduction, which they can not achieve under current supply / demand factors.

But all the above is moot since to use Daniels term ‘collusion’ is what I perceive has developed somewhat giving 2 factors: the merging and consolidation of oil companies compounded by rising world market demand.

if all oil is fungible, wouldn't buying any petroleum for the reserve increase demand (in the global perspective)?

Yes. But I was referring to Cracker's assertion that we buy more expensive domestic oil for the reserve and questioning why we did that, not to Bush's directive to stop buying oil for the reserve in order to reduce overall demand.

By the way, Bush the candidate criticized the use of the strategic reserve to bring down high prices. Seems to me that with instability in the Middle East and other oil-producing nations, now is precisely the wrong time to stop adding to our reserves.

If anyone is interested in digging further into how Big Oil makes its money, earnings in quarterly statements generally are divided into "upstream" which is how much money the company makes by producing oil from its own fields, and "downstream" also called Refining and Marketing. The upstream is the cash cow for the big companies. R&M is often dissed as merely being a way to move all that product so they can pump more crude. Many refineries are not especially profitable*, but they are something of a necessary evil.

* in the US, that is. Pension and healthcare costs, aging facilities, existing environmental liability and cleanup obligations, high wages...these all drive up the cost of US refining. That's why refineries ARE being built overseas. BIG refineries; Modern, PROFITABLE refineries. Because they aren't encumbered with all the above. In the future, fewer tankers will be carrying crude and more will be carrying refined products. Case in point - the largest source of gasoline to the NY and New England?

Venezuela.

I’d also like to know how they “declare” these huge profits. I can only assume that before they published these world record corporate profits they did EVERYTHING legal(?) to bring that number down as much as possible to ease the obvious outrage the public would display. They gave on-the-way-out CEO Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks, such as a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes. In 2004 his bonus was over $3.6 million. His base pay was $51 million in '05. (about $141,000 a day, nearly $6,000 an hour). It's almost more than five times what the CEO of Chevron made. No person needs this kind of money (yeah I know... who am I to say that) but I guess my point is they were obviously dumping money on this guy (and many other "lower" execs) to bring down the bottom line… no?

I wonder if Mr. Raymond will get a $100 check.

Edited to add... holy crap! He got almost half a BILLION dollars as a parting gift. WOW!

Yea, but it's only a QUARTER BILLION after taxes...

And check your math. He made $24,000 per hour. My annual salary in 2 hours.