To the extent my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies) is invested in oil, it goes to .. me.
Super funds in Australia, Canada, the US, are now a massive component of capital investment both in the public market and in private equity. Australia's GDP is 2.5T and the super funds are up to 4T or 5T. Thats $trillion. The super funds are bigger than the GDP of the economy they reside in!
Some funds are just venal machines in the for profit sector. Some are run by boards aligned to union sectors, I am in the tertiary education union backed fund in Australia and it's been in the top 5 performing funds for my entire working lifetime, and given me a comfortable retirement. Most of the injection of funds was from me: I paid between 9 and 12% and on occasion up to 15% of my income into this fund over a 35 year working lifetime. Its accrual is all down to my fund manager, and if they invested in oil and have secured a windfall, at the cost of the future climate risk, thats on me, albiet indirectly. 35 years at the 150+ year 6-7% return in the market, (some say this trend is even older) is several doublings over my working lifetime. Those doublings were driven in .. the market.
Me here, is 75% or more of Australia. It's not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people. Oh, the article even points out that they pay out on insurance and capital costs rebuilding the exploded ships and production facilities. Guess who makes money? Thats right, the superannuation funds invested in the re-insurance market (Warren Buffett's favourite!) or in construction companies, public or private. So.. thats me again.
The money comes to us. Some of us may be in Saud. Sure. The Saudi state pays a huge stipend to its citizens. Some of us may be in Norway. That national investment fund is amazing. Why do you think Norway is now almost completely cut over to private EV drivers?
I'd love to ideate the hateful oil companies as the victors here but the thing is, they don't simply act like Smaug and sit on a pile of gold coins. Thats not held to be useful by them and their peers. They do shave off FAR TOO MUCH to swan about in those aforementioned sharp suits, but enough of the fat trickles into my hands, to keep me in the manner to which I am accustomed, as a retiree.
I'm as complicit, and so are "you" for many people reading this.
I wish I could downvote this, because what a bunch of baloney! Unless you have hundreds of thousands, and to be precise millions, invested in oil already, you're not going to see any significant changes to your portfolio. The rich will get richer playing the market, the regular folk are left out as always paying the price.
Big US oil companies like Exxon, Chevron, Conoco, et al are mostly owned by mutual funds and index funds. So it really is "regular folk", though of course not everyone has the same size 401k.
Superannuation in Australia is most typically a not-for-profit mutual fund. So .. yes. Most Australians invest in "industry super" which means the union backed nfp model.
> So it really is "regular folk", though of course not everyone has the same size 401k.
Depends on how you define "regular folk".
40% of American adults don't have any retirement savings account at all. And entirely unsurprisingly whether they do or not correlates extremely strongly with income/wealth.
So one could easily claim that the further from actual "regular folk" you are the more likely you are to benefit.
Thats a percentage, not statistics. Statistics would guide you that "regular folk" wouldn't describe the 60% most well-off, but rather the 60% in the middle. Also 'any retirement savings at all' ≠ mutual funds or stock market ownership.
What you said makes no sense. The fact is that most Americans have retirement accounts, and most of that money is invested in stocks. In particular, large cap stocks like Exxon and Chevron.
Any definition of "regular folk" that excludes more than half the population is nonsense.
Anyone can decide to put their spare cash or retirement funds into oil stocks, but I don't think that it's a recipe for getting rich. Renewable energy is rapidly replacing oil, and if the Strait of Hormuz opened and the Ukraine war ended, oil prices would sink and you would end up with huge losses.
Nobody really gets rich by playing the market. You get rich by working hard and/or starting your own business, and investing in a diversified portfolio of index funds and dividend paying blue chips.
the large in the "owning a large amount of..." is relative. you could think you're rich and i could think you're poor, or i could think you're rich and you could think you're poor.
Rich is just a word that is over-used to push political agendas. It is a relative term. I am rich compared to a huge segment of the world's population. I am poor compared to the top .1% of people.
'Tax the Rich' politicians will never give you a number when you ask just who they are talking about. It has to be fluid. Bernie Sanders used to rail on millionaires until he became one. Now he only says billionaires.
With regards to Senator Sanders, inflation is a thing. Also the massive increase in the cost of housing that increased the middle class net worth. He has been remarkably consistent about the segment of the population he wants to tax.
I'm also poor relative to the to 0.1% of people, but I still make a ridiculous amount of money compared to the minimum wage worker. If were better able to provide for everyone by taxing me more then I'd be all for it.
Let’s assume you work longer and harder and smarter than 99% of people in the USA at $450k a year.
Let’s also assume you save every penny, you don’t buy a single thing, from food to shelter.
Let’s assume that inflation is zero, and you work for 50 years at this level from 20 to 70.
You will have earned $22.5 million.
Not bad. Remember this is without spending a single cent.
Now how do you think you get to a net worth of $220m? Or $2200 million? By working ten or one hundred times harder
You don’t get rich from working hard. You get rich by being rich and letting it snowball. $40k a year in an 8% return for 50 years gets you about the same.
Don't get me wrong. I would love to have that kind of money. I would retire immediately if that was in my bank account.
But we're comparing to people who have 100x that. Or nowadays apparently literal trillionaires.
Like there's rich and then there's rich
Keep in mind that the situation that the OP suggested is a sort of spherical cow. Substantially more people earn <40k per year than earn 450k per year. It is extremely unlikely to earn that kind of money over that kind of timeframe, nevermind being able to save every single cent of it
I agree - they're measuring completely different properties of different populations of things, over completely different time horizons. Comparing them doesn't seem very useful.
Market caps are roughly expected future earnings, discounted back to give some net present value. They're expectations about the profitability of businesses, with expected profits accumulated over forecasts decades into the future. Market caps ignore privately held businesses, small businesses, state owned businesses & economic activity, economic output that might be happening at a household level, etc.
GDP is some peculiar measure of a country's economic output, over one year. It doesn't care if the economic activity is profitable or not & it doesn't care if the surplus of the economic activity is extracted by public companies or not. It's not forward-looking & based on expectations.
all that said, ggm has a fair point that individual investors & retirees with share portfolios directly benefit from the profits of companies whose economic activities may not be particularly pro-social & beneficial to the world. it's similar for climate change -- easy to point the finger at the energy producer, the big dirty brown coal plant. harder to point the finger at the demand side of the same equation - much of which is household demand. but both the individual end consumer households and the energy producer & everyone else involved in the value chain benefit out of the trade, even if the trade is net-negative for the world if we were to properly account for the externalities (e.g. polluting the atmosphere with CO_2 pushes the costs to everyone on the planet, current & future generations, not just the folks benefiting from the trade).
You can use interest rates and rates of return to convert between stocks and flows of money (or more generally, things we measure using money, like stakes in companies).
If you add that most people have some common sense notion of what reasonable or achievable rates of returns look like, then what you said was just a bit vague and implicit, not necessarily a sin of dimension.
For a similar example:
An CPU designer might tell you that one clock cycle is 'this long' (where she stretches out her arms in front of her). She's not committing a sin of dimension, more likely she's talking about how far electronic signals travel during one clock cycle.
In the book Catch-22 character Milo Minderbender helps the enemy conduct an aerial attack on his own base. He successfully defends his actions by pointing out how profitable his syndicate is. “Everyone gets a share.”
A few public servants in Australia, Norway and the kingdom of saud doesn't translate to all the people are benefiting. Nice try to shift the blame to 8.5 billion people instead of oil billionaires and corporations. Old people have set up systems to transfer wealth from future generations. The corporate profits are mirror images of debt: https://www.hussmanfunds.com/wp-content/uploads/comment/mc25...
US has $40T federal debt (+state, +municipal, +household) and probably 100T+ debt worldwide which the future generations have to pay.
> US has $40T federal debt (+state, +municipal, +household) and probably 100T+ debt worldwide which the future generations have to pay.
Future US citizens are clearly not going to repay the debt, simply because they can't feasibly pay that much back in real terms. They cannot achieve the impossible. The magnitude of the debt is far beyond what it makes sense for the US to make good on.
Future generations of the US won't be able to borrow on such favourable terms (ie, people will stop donating to the US cause) and all the capital investment that would have happened in the US to power their consumption happened in China instead - but the effects of the debt won't look like repaying anything.
You don't repay in real terms, you repay in nominal terms. That's priced in. The US isn't going to straight up default but it'll pay you back with inflated currency.
A few public servants in Australia? I'm not sure what you mean?
Superannuation may have been limited to a public servants and employees of large corporations in the 1970s, but was expanded to blue collar workers in the 1980s (see industry super funds), and mandatory for all employers in the 1990s. Almost every worker in Australia has a superannuation fund. Whether a given person's fund is invested in fossil fuels is another questio (mine has a radio button to choose green only investments or not).
> It's not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people.
That 'nasty' guy usually serves investors, instead of investing his own money. For all he cares, these investors might be widows and orphans.
Btw, Singapore's sovereign wealth funds are also big players in basically the same space. Their revenue contribution to the national budget is bigger than any single tax we levy.
that is fundamentally self-centered, the way it is put there. Capital is under the control of certain companies and their decisions are binding financially.. it starts there AFAIK. Upon that stable core is built layer upon layer of related business including things you mention. A framing that the business practices are 'on you' wears thin quickly while simultaneously taking up airspace from very difficult business topics
As an Australia, i agree with most of what you say, but you have skipped some important parts of the cycle. Firstly there are many hands along the way asking for their cut. This is why everything is going up so quickly, because there are so many hands, who dont add value but tax the process.
> they don't simply act like Smaug and sit on a pile of gold coins
That's because a pile of gold coins does not make money. One makes money by investing the coins, not investing in coins.
I always thought Smaug's hoard (as depicted in Jackson's movie) was beyond ridiculous. If it was unleashed on the economy, the price of gold would drop to the point you could pave the roads with it and make sewer pipes out of it.
Middle Earth was supposed to be huge, massive, so I wonder if spread evenly that would be so. And I wonder, comparatively, how that hoard would look compared to 10 year's output of any Dwarf gold mine.
Maybe gold was already cheap. Maybe a gold coin was as silver to you and I.
I think I'll have Claude do a deep dive and research into this report, then release a paper on it.
(This goes under the theory of 'the more capacity you have, the more capacity is used' concept, and so, within a few years, we'll have 100 page reports on musings like this, instead of a two or three line post)
> I'm as complicit, and so are "you" for many people reading this.
But rather than advocating, or even agitating, for a change in the system that perpetuates unacceptable -- and now unavoidable -- climate risk, you seem pretty sanguine about the whole thing.
With bespoke human-crafted em-dashes, not slop-dashes.
That's an oddly disconnected fantasy about modern capital ownership.
Capital, including shares in companies, is greatly concentratred in a few people - the highest concentration in ~ a century. The money is going to those people. You might say they are benefitting from the war.
A great many other people don't own shares or retirement accounts. Studies show that ~50% of Americans can't cover ~$500 for an emergency (yes, liquid cash is different than a retirement account, but you can borrow or withdraw from it in an emergency).
Your comment is now gray (struck a nerve I suppose) but it's right. I hate the tired "The stock market benefits common folks like you and me!" line. It goes unchallenged because it's almost "technically correct" but it ignores proportion. The stock market does not benefit all people uniformly, it benefits people in proportion to how already-rich and already-invested they are. And, at least in the USA, approximately 50% of people don't have any stocks at all, including indirectly through retirement accounts or pensions. So, invested capital benefits about half of us, and disproportionately those at the very top.
Nothing in my comment proposed that, but in general, I'd like to see more institutions that benefit people uniformly and equally, and fewer institutions that provide benefits inversely proportion to need.
> my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies)
In Canada, the comparable funds are: Canada Pension Plan (CPP, mandatory contribution for all employees), employer-managed pensions (not all companies have one; policies vary such as defined benefit vs. defined contribution), personal RRSP (you make the contribution and you select the investments).
I guess the comparable funds in the USA are: Social Security (mandatory contribution for all employees), employer-managed pensions (not all companies have one; policies vary such as DB vs. DC), personal IRA such as traditional/Roth.
Spoiler alert: "But ultimately, the bulk of the money heads in the direction of the source of the oil itself – the oil companies. [...] The money largely goes to company owners – meaning shareholders"
Thats why OPEC exists, no? To manipulate markets for biggest possible profit for oil owners. They are not even hiding it in any way. While everybody else is on the paying side.
OPEC are a bit of a dead letter. Two of the key members (Iran and Saudi) are at war with each other!
If anything prices are being kept artificially _low_ by the US withdrawing from the strategic petroleum reserve, and similar (unquantified) actions being taken by the Chinese government. We'll have to see how the situation changes after the US midterms.
Well if you are sitting at 40-50% and you actually still get oil from a lot of different countries it isn't a dire situation at all. Its not like all of a sudden we aren't getting oil from a variety of other countries. Its more like a slow drain on reserves while other sources start producing. I would also wager that its just price suppression before midterms.
OP's comment was that we are at 0 and nothing left. I pointed out that they were being hyperbolic or that they don't understand the strategic reserve (or both).
No one said global oil supply is going to 0; everyone understands it's a global market. It seems like you're unaware that the practical limit of what's available in the SPR is not 0%. That's why I asked where you thought the limit was, because the implication of your comment was 0%. I'm genuinely curious how much you think is safely available.
It's obvious that the whole point of the release is to reduce prices, but that's why it's telling that even as domestic gas prices have gone up by ~10% in the last month they've dropped the withdrawal to the lowest point since they started the drawdowns.
I was responding to the OPs comment that was needlessly hyperbolic. I don't think you are posting with good intentions or limited thought got put into it.
I doesn't matter where the operational band is - if at about 280 M barrels - they have a reasonable amount of runway before they start hitting hard technical barriers per OP comment especially with oil flowing into the country from other sources.
...and investors. Remember that many investment funds around the world will also be benefitting from this, meaning pensions, investment savings accounts etc
When oil prices spike, producers may choose to be even more benevolent (bribes / paybacks) to politicians / administration who created the means which caused the price hike.
Can anyone explain how to read that first graph? Like, there's a line for demand, say, but given the axes labels, it seems to say "for greater demand, the price goes down", so the exact opposite of what basic price theory predicts.
Same for the supply lines, just the other way around.
Also, the use of straight lines indicates a linear relationship. Is that really the case in practice?
So you're reading it as a "prerequisite chart"? That seems odd because the common way to read graphs is that what's reported on the y-axis is a function of the values of the x-axis.
I find it also hard to read it that way when I look at that "Price in February -> Price in April" annotation: if those two points on the y-axis mark points in time, then so do the correlating points on the x-axis. I can only read that as "from February to April, the demand went up while the prices went down".
I suppose one thing they're trying to express here is the idea of the equilibrium price of oil, by marking the intersection of the demand line with the two supply lines. However, why they are lines in this graph in the first place, or why they are located at these specific positions is unclear to me.
If you want to read it as one would normally, where the X axis is the input variable, you could read it as "For a given quantity of demand, what is the maximum price the market can sustain?" So if you want to sell higher quantities of oil, the price has to decrease. The supply side is the opposite direction since costs go up as quantities go up (ignoring efficiencies of scale).
Since the graph is without units, the only relevant of their positions are the signs of the slopes, and that you need a higher price to supply oil at any given quantity (hence the Straight closed" line being higher on the graph).
You're not crazy, economists really have a weird an IMO misleading way of drawing their diagrams.
I agree with you that price should be on the X axis, and drawing the two supply lines in the same diagram is at least somewhat problematic.
What economists posit[0] is that at any point in time, there are demand and supply curves. They answer the question of who is willing to sell or buy how much given a price? (Quantity is the dependent, so should be the Y axis!)
And they argue that the microarchitecture of the particular market causes price and quantity to converge to where these lines intersect.
And then factors external to the market can change the supply/demand curves. The February diagram looks different from the April diagram. They are conceptually separate diagrams. Combining them into a single diagram in a coherent way would lead to something 3D, which is hard to draw and think about, so economists have the convention of drawing it all in a single diagram anyway.
None of this is correct, by the way, but it's sometimes a useful model.
[0] Outside of literal markets with order books, supply and demand curves don't really exist. And in those markets, their dynamics are different.
If demand were to be greater, the entire demand line shifts to the right. But demand is generally stable because oil is a neccessity in the short term. This demand line is near vertical which means people/companies will buy a little less when the price spikes, but not drasticly less. People still need to drive to work, heat homes, etc.
The story back in the 1970s was that the global banking system was not so developed so the Saudis invested their profits from oil in the US so the money never really left the US which made the transition from domestic to imported oil much less painful for the US than it was for some other countries. The UK had it's bacon saved by
Price change and supply are not linear. I see the price of oil as largely a human decision, based on how much people are willing to pay for oil and its derivatives, or buy oil for thinking they can sell it for more later. It's linked to supply/demand but not directly controlled through a formula. You can look at the profit statements of oil companies around the world to verify that there is indeed much more money being made when supply is limited.
that doesn't negate my point: with the attacks in the middle east, Saudi Arabia can't export its oil, and therefore, they are not going to make any money. Norway, the US and others, may get a windfall because they can charge more, but does that compensate for the loss of profit in SA ?
It depends on the price elasticity of demand. When it's 1 - that is, when a 1% change in price results in a -1% change in demand - then any change in supply reduces the total amount of money spent on the good. If demand is more inelastic, then increasing price will increase total spending. Oil is a particularly inelastic good.
It's simpler: people who were long oil make money (on paper) and those who were short oil lose money (on paper).
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
Or, in another world, the official US CPI definition (https://www.bls.gov/cpi/) is 16.3% based on energy prices.
I strongly suspect this definition strongly correlates with what most people call inflation (my fuel bill went up! and strangely, not heading to work wasn't really an option).
If everything has an oil component to its price i.e. energy to produce it or transportation to move it, a (large) price increase in one commodity would produce a general price increase.
Almost as if currency should be backed by a rare commodity that requires the same stuff that causes inflation to increase supply.
If printing value-free money wasn't how we are ruled, we could even come up with a diversified scheme where an alchemist could discover a way of turning silicon into gold and it wouldn’t affect the economy much.
But not that 16% level. If the cost of a good is 10% oil then it will increase 1.6% from the oil price.
People seem to have very odd views on inflation. “Eggs have doubled in price therefore real inflation is 100%”
The basket of goods and different figures are all there, build your own basket if you want and come out with your own inflation level. Don’t just gut feeling it.
Now there are legitimate issues — if the cost of 1kg of pasta hasn’t changed, but it is no longer available int he shops near you, then that’s a problem.
> a (large) price increase in one commodity would produce a general price increase.
Nope. Because if you spend more on one commodity, you necessarily spend less on other items. Spending less means less demand, and corresponding price reductions.
This is the Law of Supply and Demand at work.
Which also explains inflation - more money dumped into the economy, without a corresponding increase in the goods & services in the economy, devalues the money (see Law of Supply and Demand), which we call "inflation".
Money is not "special", and is subject to the LoSaD just like everything else.
Look what happened to Beanie Babies' prices when Tyco flooded the market with them. What do you think would happen to the price of Ferraris if Ferrari quadrupled production?
Why do you think Argentina's inflation is way down? It's the reduction in deficit spending. Do you think the Weimar Republic's trillion-to-one was caused by oil prices?
> Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Though I agree that printing new money causes inflation (not all economists agree!), inflation does not have to be the result of new money creation. Shifts in behavior can lead to short term changes in price levels. All inflation is measured relative to a basket of goods. If prefs change for diff goods, then price levels (and thus inflation) can change.
> Oil prices do not cause inflation.
This is probably not true in the short term. If the input costs for everything go up, then price levels change, and the CPI basket likely changes (up).
If we more reasonably measured inflation as some notion of quality of life, then increases in energy prices (which factor into everything) would definitely reduce per capita material well-being.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
My point is that if you have a collection of people who can just barely afford something, and the price of that thing goes up just a little, those people will not be able to buy it. A person who gets priced out of participating in society (and, e.g., dies) contributes nothing to inflation. On the other hand, folks who have some capacity to adjust their consumption or who have a savings /capital buffer, may be able to reallocate funds to the purchase of oil (or other goods whose prices are increasing). This can lead to a further rise in the price of goods (hence, inflation).
If you print $100 trillion in dollar bills and buried it on a moon of the solar system, inflation won’t be affected at all.
Printing doesn’t cause inflation, releasing it into the economy does. Giving it all to one person in a Brewster millions challenge is unlikely to, as they aren’t going to be able to spend much.
Gold didn't cause inflation while it sat in the ground, either. But the US experienced significant inflation during the California gold rush and the Alaska gold rush, as the gold flooded into the economy.
People on HN really want to believe this because they tend to be hard-money weirdos of various kinds, but no: commodity price rises are inflation.
> Increases in the price of X cause the demand for X to drop
There has been a lot of "demand destruction", but because oil is an intermediate input to so many things, especially anything that requires transporting, what actually happens is it forces up the overall price level.
> The only way to get a general price increase is to increase the money supply.
Deficit spending isn't the only way to increase the money supply. Lowering interest rates and increasing loans is another.
People go into debt to pay for expenses and necessities.
In fact here's a simplified model: oil prices increase, oil stocks go up, shareholders borrow against them and pay for gasoline. No government deficits were created but the money supply increased due to oil prices going up.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
Elasticity of goods has entered the chat. If a significant amount of inelastic goods' price increase, cue inflation. Energy costs, especially fuel, are classic drivers of inflating prices.
> Energy costs, especially fuel, are classic drivers of inflating prices.
That's what politicians want you to believe ("Putin's price hike"), to divert attention from the real cause, massive deficits, which are the fault of the politicians.
BTW, Rockefeller dropped the price of kerosene by 70%. Why was there no deflation?
Many things can cause inflation. The definition of inflation is "when prices go up, on average." One thing that can cause inflation is bombing your own supply lines for an essential commodity that's an ingredient in almost all goods and services, so that there's a shortage of almost all goods and services, raising their prices until demand shrinks to meet the constricted supply.
Oil is an input cost to everything, if the price of oil goes up, so does everything else. Some forms of demand are inelastic, which means people will continue hitting the rising ask as prices go up. Commodity prices going up definitely causes inflation.
Producing oil is different from having a long position in oil itself, or oil futures. I'm not saying this to be pedantic, cause long is already a technical term.
It’s a good job you’re not saying it to be pedantic, because it is certainly incorrect. If you produce oil you are long spot oil (from your inventory available for delivery) and you are long future oil as well (from your proven reserves and inventory in transit and refining). It is different in that you long in the cash market and are long your specific grade of oil (which is not precisely identical to that on the futures contracts) but you’re still long.
Note that the amounts of money involved here are not equal, companies respond to price movements and expected price volatility with less efficient behavior, so the volatility itself causes economic losses.
Like, there's a trade you can do where you load up an actual tanker with oil, park it, and sell an option to buy that oil. The cost of using this tanker and holding this oil a pure waste compared to just having a market-clearing quantity available at a consistent price at all times, but if the market is scared enough it makes money.
Why? If anything we should stop making tax a separate item everywhere else (like most of Europe does, for instance).
Is there any indication the gas tax is being blamed on oil companies? It’s literally a fixed cost per gallon… so all the extra cost literally is from oil companies. There’s even some places trying to suspend or cut the gas tax temporarily to artificially suppress the cost at the pump.
Utter nonsense. I'm in Germany, and by law all displayed prices must include tax, groceries, gas, everything.
The gas station operators sometimes do put stickers like "this is how much tax is in the gas price you pay" on the actual pumps as if to blame the government for the greed of the large refineries. But here, after the strait of Hormuz debacle, we've actually had the government lower the gas tax for a while so that people who need their cars for work arent stuck with the higher bill so much. And what do you know, somehow the gas got a little cheaper, but not nearly by the amount of lowered tax. Guess who pocketed the difference.
Worse still, the government then enacted a rule that the gas price could only be raised once a day, but lowered any time. And in average, gas was even more expensive than before.
So yeah, I have trouble blaming the taxes for the high gas price.
The money goes around and around. Money ultimately is just a tool to allocate resources. Higher prices mean the resource is less available than the demand, so it needs to be allocated more carefully (higher prices tend to make people more careful with their choices).
Having not read the article yet: it goes to the people still able to provide you oil. Some of which were already providing you oil and they get it as almost pure margin, some of which couldn’t afford to provide you oil at a lower price point.
Try asking this about anything else. "When the cost of hairbrushes goes up, where does the money go?" "When the cost of RAM goes up, where does the money go?" or if that doesn't get you thinking outside the box, try to put yourself in the role of the commodity: "When the minimum salary I will accept goes up, where does the money go?" You'll quickly see that it's a really hard to answer question. Are you just a pass-through of rising costs? Do you need a raise because your gas went up? Because the cost of hot dogs went up? Why does this apply to you, but not companies?
> For a major exporter such as Saudi Arabia, the government owns and controls nearly all oil production, so high prices generally benefit the government’s finances
I mean, i guess, but i suspect Saudi Arabia would rather not be dragged into this war (incl. the proxy part with yemen). I doubt the higher oil profit compensates for the other consequences.
It's a very very basic tenet of economics. When you pay more someone earns more. Someone is always profiting. Many times it feels like the most important task of media is to obfuscate this fact.
I've always founds this curios, if I'm my company is going through a rough time, I don't call my boss and say I want 50% more money, I usually just help out until we get through it, occasionally I'll get a bonus for that but it's optional.
Oil companies are interesting because it seems like the first thing that happens if there is any kind of problem is put their prices up?
Does your company trade a global commodity like oil? The market prices it. Let’s say you had two buyers for your home with a market value of 300k. One buyer wanted to buy it for 240k and the other for 300k. Which offer would you take?
So basically, war starts, oil prices go up because war has started, and oil companies pocket the extra money for their oil which they've literally done nothing yet received a handsome bonus?
Do farmers triple or 5x the price of food during droughts?
> Do farmers triple or 5x the price of food during droughts?
Yes, actually. The price of 1 pint of real vanilla extract is currently $9.59 at Costco. I have seen it as high as $42.99. That is a nearly 5x spread, and it largely depends on the weather and politics in Madagascar.
Do those price differentials go the the vanilla farmers in Madagascar, or to the other farmers who are the sources for real vanilla; i.e. Uganda, Indonesia, PNG?
I always though that it basically was conditions reduced supply (weather and politics), purchasers of the raw products basically get all of the available production at pretty close to standard prices for what limited amount there is, farmers who dont have product get no income, farmers with product get some - maybe a little more per unit but fewer units overall, and then the raise global prices was due to the tier 1 buyers/distributors needing to cover fixed processing and distribution premiums which do not fluctuate much even when supplies are low.
So, Madagascar by virtue of overwhelming percentage of production pretty much set the availability curve, but i expect farmers pretty much get what they get for the beans they grow, within a range and that's probably not more than 2x at most. But I could be way off and the 5x price differential is perfectly proportional, 5x cost of raw bean == 5x cost of delivered extract.
If there's a shortage of labour, one company wants to pay you $60k, one company $90k and one company $150k. Where will you choose to work? Right, the last one. The first one will have to at least come close to $150k if it wants to keep you. The labour market has higher friction than the oil market so this probably won't happen for a few weeks until the manager realises he's bleeding employees.
This is intuitive on an individual level, but price discovery works differently in these two scenarios.
Wages are "sticky" and negotiated directly between two parties. Oil is a globally traded commodity. Oil companies don't just decide to "put their prices up", though large players can influence it.
When a shock happens, buyers immediately bid up the price to secure limited future supply. Producers largely aren't involved in that pricing.
I will also add that, depending on the situation, your company having hard times very well might be the time to renegotiate your pay. It also though may be the right time to sit quietly and not draw attention to yourself.
> the U.S. and Israeli attacks on Iran closed the Strait of Hormuz
Am I the only one who finds this disingenuous? It's like saying: "the police's arrival to the bank robbery took someone hostage." The police's arrival may have triggered the hostage taker's actions but it was still their actions. It's like the author let their dislike of Trump get in the way of accuracy.
It's easy enough to argue that the war is a disaster without being misleading about who did what.
I wasn't trying to talk about the morality of the US's actions (not that the police are inherently moral), only point how it seems purposefully misleading to remove the direct actor from the equation.
If you want, we can change the moral insinuations. "The bully hit himself in the face." No, the poor kid being teased hit the bully in the face.
And in fact, rhetorical tools like that make it easier for people who disagree with the authors stance to discard the author's argument on the whole. "This person either doesn't understand the situation well enough, or is willingly lying to me. Why would I listen to them."
In your example, the bank robbers started the situation.
Who started the war again? Was it Iran that started bombing the US unprovoked, or the US that started bombing Iran unprovoked?
Trump said he started the war because Iran was about to nuke the United States, despite months before saying their nuclear programs were totally obliterated, and his own DNI stating there was no evidence Iran had actually restarted their nuclear programs. Once again, who is the but-for cause of our current state of affairs?
It is absolutely not misleading to point the blame of the current state of affairs at Trump. We wouldn't be in this mess if it wasn't for his extreme incompetence. We didn't have to start this war, its his war of choice. If you stick your hand in a blender and turn it on you don't blame the blender for your mangled hand. The Straight being closed was an obvious out come of his actions, he was made aware of it, and he started the war anyway despite the US not needing to be involved. He himself campaigned on not getting involved in scenarios exactly like this.
It’s totally fair to point the first domino being his. In fact, most of your comment seems to be arguing against a position I don’t hold. However, unlike a blender, Iran has agency. You cannot rewrite history because you don’t like the actors.
You mentioned wanting to avoid moral insinuations and focus purely on the direct actors, but both of the analogies you used (police vs. robbers, bullied kid vs. bully) inherently rely on moral framing. They cast one side as a legitimate authority or innocent victim, and the other as the undisputed aggressor.
If the goal is truly to look at this without moral bias and just examine the causal chain of events, those analogies don't work. There is no geopolitical equivalent of your examples without bias. It's two competing states engaged in an escalating conflict. When you use analogies that bake in a "good guy/bad guy" dynamic, it introduces the exact moral framing you stated you were trying to avoid.
The first example was just the first that came to mind. The second was chosen in the opposite direction because that poster didn’t like the unintentional insinuation that the US was in the moral right; I chose something that has the opposite framing to show that it holds independently of who’s wrong.
yeah, I get your point - technically Iran closed the strait, not the US. But that's equally disingenuous. The closing of the strait was the result of a chain of events (a short chain at that) which originated with the US bombing Iran.
In your analogy, the crims performed the burglary. That lead to the police arriving. That lead to the police closing the street. You can argue that the crims "didn't close the street", and sure, they didn't. But the street is closed purely as a result of their actions.
This is a fairly shallow article and a long way of saying "oil producers make more money". But it's not really the interesting part because it doesn't mention refineries and they're a key part to what's going on.
Crude oil is essentially worthless. What makes it valuable is a refinery that turns it into any number of products, most notably the middle distillates such as gasoline, diesel and aviation fuel ("avgas", which is just kerosene basically). Oh and heating oil.
How refineries work is they buy crude oil on the open market and produce a mix of products. A refinery will be somewhat designed for a particular flavor of oil but they'll also mix these oils to produce a more profitable product mix. The only big issue here is if oil is sour or not, meaning it's high in sulfur. You need processes to extract the sulfur. Most US crude is sweet (meaning low sulfur).
The general mix that gets tracked to see how healthy the refining industry is is the 3-2-1 crack spread [1], meaning 3 barrels of oil to produce 2 barrels of gasoline and 1 of diesel (and heating oil). Since the start of this war of choice in Iran the crack spread has gone through the roof. Why? Because a certain portion of refining capacity is inaccessible (being in the Gulf) and a bunch of it has been damaged, particularly in Russia.
So oil prices aren't higher because there's simply a lack of refining capacity to produce useful goods. Saying oil is "only" $100-110 misses the real issue entirely. If the refineries were still online, the oil price would be much higher so, as a result, the middle distillates would still be near record highs.
I see some comments here writing off OPEC (and OPEC+). That's a mistake. If you want to see an example of how OPEC can still screw us, look no further than the pandemic inflation shock, which was almost entirely caused by the Trump 2020 OPEC deal, which cut global oil production by 10% (going down to 6% over 2 years).
In 1945, FDR made a deal with King Faisal of Saudi Arabia, which was basically oil for weapons. The Middle East keeps oil flowing and the US guarantees their security. That's why the strategic defeat of the US in the Gulf is so consequential because it's an end to the US security guarantees that have lasted over 80 years.
Oil exists to induce demand for weapons the US sells.
To the extent my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies) is invested in oil, it goes to .. me.
Super funds in Australia, Canada, the US, are now a massive component of capital investment both in the public market and in private equity. Australia's GDP is 2.5T and the super funds are up to 4T or 5T. Thats $trillion. The super funds are bigger than the GDP of the economy they reside in!
Some funds are just venal machines in the for profit sector. Some are run by boards aligned to union sectors, I am in the tertiary education union backed fund in Australia and it's been in the top 5 performing funds for my entire working lifetime, and given me a comfortable retirement. Most of the injection of funds was from me: I paid between 9 and 12% and on occasion up to 15% of my income into this fund over a 35 year working lifetime. Its accrual is all down to my fund manager, and if they invested in oil and have secured a windfall, at the cost of the future climate risk, thats on me, albiet indirectly. 35 years at the 150+ year 6-7% return in the market, (some say this trend is even older) is several doublings over my working lifetime. Those doublings were driven in .. the market.
Me here, is 75% or more of Australia. It's not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people. Oh, the article even points out that they pay out on insurance and capital costs rebuilding the exploded ships and production facilities. Guess who makes money? Thats right, the superannuation funds invested in the re-insurance market (Warren Buffett's favourite!) or in construction companies, public or private. So.. thats me again.
The money comes to us. Some of us may be in Saud. Sure. The Saudi state pays a huge stipend to its citizens. Some of us may be in Norway. That national investment fund is amazing. Why do you think Norway is now almost completely cut over to private EV drivers?
I'd love to ideate the hateful oil companies as the victors here but the thing is, they don't simply act like Smaug and sit on a pile of gold coins. Thats not held to be useful by them and their peers. They do shave off FAR TOO MUCH to swan about in those aforementioned sharp suits, but enough of the fat trickles into my hands, to keep me in the manner to which I am accustomed, as a retiree.
I'm as complicit, and so are "you" for many people reading this.
I wish I could downvote this, because what a bunch of baloney! Unless you have hundreds of thousands, and to be precise millions, invested in oil already, you're not going to see any significant changes to your portfolio. The rich will get richer playing the market, the regular folk are left out as always paying the price.
Big US oil companies like Exxon, Chevron, Conoco, et al are mostly owned by mutual funds and index funds. So it really is "regular folk", though of course not everyone has the same size 401k.
Superannuation in Australia is most typically a not-for-profit mutual fund. So .. yes. Most Australians invest in "industry super" which means the union backed nfp model.
> So it really is "regular folk", though of course not everyone has the same size 401k.
Depends on how you define "regular folk".
40% of American adults don't have any retirement savings account at all. And entirely unsurprisingly whether they do or not correlates extremely strongly with income/wealth.
So one could easily claim that the further from actual "regular folk" you are the more likely you are to benefit.
> Depends on how you define "regular folk".
> 40% of American adults don't have any retirement savings account at all.
So, 60% have, 60% is more than half, so it takes the value of "regular folk". Ah, statistics.
Thats a percentage, not statistics. Statistics would guide you that "regular folk" wouldn't describe the 60% most well-off, but rather the 60% in the middle. Also 'any retirement savings at all' ≠ mutual funds or stock market ownership.
What you said makes no sense. The fact is that most Americans have retirement accounts, and most of that money is invested in stocks. In particular, large cap stocks like Exxon and Chevron.
Any definition of "regular folk" that excludes more than half the population is nonsense.
Its not very helpful to win a few dollars, when your living expenses go up by much more every week.
Anyone can decide to put their spare cash or retirement funds into oil stocks, but I don't think that it's a recipe for getting rich. Renewable energy is rapidly replacing oil, and if the Strait of Hormuz opened and the Ukraine war ended, oil prices would sink and you would end up with huge losses.
Nobody really gets rich by playing the market. You get rich by working hard and/or starting your own business, and investing in a diversified portfolio of index funds and dividend paying blue chips.
Let's not put the horse before the cart.
Exxon is up 40% year-to-date (YTD), BP is up 20% YTD while SNP500 is up 12% YTD.
So I'm not even sure the premise of this tangent is correct; oil stocks aren't shown to be the recipient of the current price spike.
>Exxon is up 40% year-to-date (YTD), BP is up 20% YTD while SNP500 is up 12% YTD.
But it's not sustainable in the medium term.
> But it's not sustainable in the medium term.
You think this is the only basis of investment in a large fund? You think they don't make plays which respect this fact, in their risk profile?
That's the point I was making.
Horses go before carts though, not after. Can't pull a cart from behind it.
> You get rich by working hard
Come on now
Hard and smart, with good negotiating skills, in the right industry.
are you sure you understand what rich is?
“Having money: Owning a large amount of cash, property, or valuable items (wealthy)”
the large in the "owning a large amount of..." is relative. you could think you're rich and i could think you're poor, or i could think you're rich and you could think you're poor.
Rich is just a word that is over-used to push political agendas. It is a relative term. I am rich compared to a huge segment of the world's population. I am poor compared to the top .1% of people.
'Tax the Rich' politicians will never give you a number when you ask just who they are talking about. It has to be fluid. Bernie Sanders used to rail on millionaires until he became one. Now he only says billionaires.
With regards to Senator Sanders, inflation is a thing. Also the massive increase in the cost of housing that increased the middle class net worth. He has been remarkably consistent about the segment of the population he wants to tax.
I'm also poor relative to the to 0.1% of people, but I still make a ridiculous amount of money compared to the minimum wage worker. If were better able to provide for everyone by taxing me more then I'd be all for it.
Let’s assume you work longer and harder and smarter than 99% of people in the USA at $450k a year.
Let’s also assume you save every penny, you don’t buy a single thing, from food to shelter.
Let’s assume that inflation is zero, and you work for 50 years at this level from 20 to 70.
You will have earned $22.5 million.
Not bad. Remember this is without spending a single cent.
Now how do you think you get to a net worth of $220m? Or $2200 million? By working ten or one hundred times harder
You don’t get rich from working hard. You get rich by being rich and letting it snowball. $40k a year in an 8% return for 50 years gets you about the same.
>You will have earned $22.5 million
Which is rich.
It is kind of on the low end of rich though.
Don't get me wrong. I would love to have that kind of money. I would retire immediately if that was in my bank account.
But we're comparing to people who have 100x that. Or nowadays apparently literal trillionaires.
Like there's rich and then there's rich
Keep in mind that the situation that the OP suggested is a sort of spherical cow. Substantially more people earn <40k per year than earn 450k per year. It is extremely unlikely to earn that kind of money over that kind of timeframe, nevermind being able to save every single cent of it
Not compared to trillionaires. How much harder do you have to work to become a trillionaire?
That's a fun set of words to say instead of "just be born rich lmao" and yet they mean the exact same thing.
> You get rich by working hard
Yeah, right
> The super funds are bigger than the GDP of the economy they reside in!
You are comparing the absolute value of something versus yearly performance.
Market cap vs revenue.
I agree - they're measuring completely different properties of different populations of things, over completely different time horizons. Comparing them doesn't seem very useful.
Market caps are roughly expected future earnings, discounted back to give some net present value. They're expectations about the profitability of businesses, with expected profits accumulated over forecasts decades into the future. Market caps ignore privately held businesses, small businesses, state owned businesses & economic activity, economic output that might be happening at a household level, etc.
GDP is some peculiar measure of a country's economic output, over one year. It doesn't care if the economic activity is profitable or not & it doesn't care if the surplus of the economic activity is extracted by public companies or not. It's not forward-looking & based on expectations.
all that said, ggm has a fair point that individual investors & retirees with share portfolios directly benefit from the profits of companies whose economic activities may not be particularly pro-social & beneficial to the world. it's similar for climate change -- easy to point the finger at the energy producer, the big dirty brown coal plant. harder to point the finger at the demand side of the same equation - much of which is household demand. but both the individual end consumer households and the energy producer & everyone else involved in the value chain benefit out of the trade, even if the trade is net-negative for the world if we were to properly account for the externalities (e.g. polluting the atmosphere with CO_2 pushes the costs to everyone on the planet, current & future generations, not just the folks benefiting from the trade).
True and fair. I committed a dimension sin.
You can use interest rates and rates of return to convert between stocks and flows of money (or more generally, things we measure using money, like stakes in companies).
If you add that most people have some common sense notion of what reasonable or achievable rates of returns look like, then what you said was just a bit vague and implicit, not necessarily a sin of dimension.
For a similar example:
An CPU designer might tell you that one clock cycle is 'this long' (where she stretches out her arms in front of her). She's not committing a sin of dimension, more likely she's talking about how far electronic signals travel during one clock cycle.
Yes, but I think with bafflingly huge numbers, it's a useful reference point. ~the value of all the stuff and services made in Australia for the year!
What % of your funds are invested in oil?
no idea. I'm a hands-off investor. I don't ask. I didn't select ethicals either.
About 0.1% (Woodside)
https://www.unisuper.com.au/investments/our-investment-optio...
It's diversified, but the biggest holdings tend to be in Australian Banks, BHP and the "big" US tech stocks.
Energy is 3.7% of VTSAX. Oil is just a portion of that.
In the book Catch-22 character Milo Minderbender helps the enemy conduct an aerial attack on his own base. He successfully defends his actions by pointing out how profitable his syndicate is. “Everyone gets a share.”
A few public servants in Australia, Norway and the kingdom of saud doesn't translate to all the people are benefiting. Nice try to shift the blame to 8.5 billion people instead of oil billionaires and corporations. Old people have set up systems to transfer wealth from future generations. The corporate profits are mirror images of debt: https://www.hussmanfunds.com/wp-content/uploads/comment/mc25...
US has $40T federal debt (+state, +municipal, +household) and probably 100T+ debt worldwide which the future generations have to pay.
Fossil fuel is unsustainable without substantial subsidies from Govts. Global Fossil Fuel Subsidies Reached $7 Trillion in 2022, an All-Time High: https://e360.yale.edu/digest/fossil-fuel-subsidies-2022
More than a century of subsidies and yet not profitable on its own.
> US has $40T federal debt (+state, +municipal, +household) and probably 100T+ debt worldwide which the future generations have to pay.
Future US citizens are clearly not going to repay the debt, simply because they can't feasibly pay that much back in real terms. They cannot achieve the impossible. The magnitude of the debt is far beyond what it makes sense for the US to make good on.
Future generations of the US won't be able to borrow on such favourable terms (ie, people will stop donating to the US cause) and all the capital investment that would have happened in the US to power their consumption happened in China instead - but the effects of the debt won't look like repaying anything.
You don't repay in real terms, you repay in nominal terms. That's priced in. The US isn't going to straight up default but it'll pay you back with inflated currency.
Total US retirement saving is over $50b. Total residential equity is about the same
The Us population can afford to repay the money it owes.
> A few public servants in Australia
A few public servants in Australia? I'm not sure what you mean?
Superannuation may have been limited to a public servants and employees of large corporations in the 1970s, but was expanded to blue collar workers in the 1980s (see industry super funds), and mandatory for all employers in the 1990s. Almost every worker in Australia has a superannuation fund. Whether a given person's fund is invested in fossil fuels is another questio (mine has a radio button to choose green only investments or not).
Okay, assume 100% of people in Australia. 27 million people. The world has 8.5 billion people.
> It's not some amorphous unknown nasty corporate investor in a sharp suit, its ordinary people.
That 'nasty' guy usually serves investors, instead of investing his own money. For all he cares, these investors might be widows and orphans.
Btw, Singapore's sovereign wealth funds are also big players in basically the same space. Their revenue contribution to the national budget is bigger than any single tax we levy.
that is fundamentally self-centered, the way it is put there. Capital is under the control of certain companies and their decisions are binding financially.. it starts there AFAIK. Upon that stable core is built layer upon layer of related business including things you mention. A framing that the business practices are 'on you' wears thin quickly while simultaneously taking up airspace from very difficult business topics
As an Australia, i agree with most of what you say, but you have skipped some important parts of the cycle. Firstly there are many hands along the way asking for their cut. This is why everything is going up so quickly, because there are so many hands, who dont add value but tax the process.
Yeah, the people who didn’t set up the system and don’t control or understand it are responsible for it.
Let’s forget about the people who did set up the system, and do control and understand it.
Very reasonable. Very logical and sensible.
> they don't simply act like Smaug and sit on a pile of gold coins
That's because a pile of gold coins does not make money. One makes money by investing the coins, not investing in coins.
I always thought Smaug's hoard (as depicted in Jackson's movie) was beyond ridiculous. If it was unleashed on the economy, the price of gold would drop to the point you could pave the roads with it and make sewer pipes out of it.
Thankfully they invented another war soon after to ""iNvEsT"" all that good!
Middle Earth was supposed to be huge, massive, so I wonder if spread evenly that would be so. And I wonder, comparatively, how that hoard would look compared to 10 year's output of any Dwarf gold mine.
Maybe gold was already cheap. Maybe a gold coin was as silver to you and I.
I think I'll have Claude do a deep dive and research into this report, then release a paper on it.
(This goes under the theory of 'the more capacity you have, the more capacity is used' concept, and so, within a few years, we'll have 100 page reports on musings like this, instead of a two or three line post)
Not directly answering your question but the YouTube channel In Deep Geek has a video speculating on the wealth of Smaug. https://www.youtube.com/watch?v=wjASn2VJNbY
I doubt you would pay much for gold if everyone had a bushel of gold coins.
> I'm as complicit, and so are "you" for many people reading this.
But rather than advocating, or even agitating, for a change in the system that perpetuates unacceptable -- and now unavoidable -- climate risk, you seem pretty sanguine about the whole thing.
With bespoke human-crafted em-dashes, not slop-dashes.
That's an oddly disconnected fantasy about modern capital ownership.
Capital, including shares in companies, is greatly concentratred in a few people - the highest concentration in ~ a century. The money is going to those people. You might say they are benefitting from the war.
A great many other people don't own shares or retirement accounts. Studies show that ~50% of Americans can't cover ~$500 for an emergency (yes, liquid cash is different than a retirement account, but you can borrow or withdraw from it in an emergency).
Your comment is now gray (struck a nerve I suppose) but it's right. I hate the tired "The stock market benefits common folks like you and me!" line. It goes unchallenged because it's almost "technically correct" but it ignores proportion. The stock market does not benefit all people uniformly, it benefits people in proportion to how already-rich and already-invested they are. And, at least in the USA, approximately 50% of people don't have any stocks at all, including indirectly through retirement accounts or pensions. So, invested capital benefits about half of us, and disproportionately those at the very top.
> The stock market does not benefit all people uniformly
Do you prefer it benefit everyone uniformly?
Everyone gets the exact same $ dividend whether $100 invested or $100k invested?
Nothing in my comment proposed that, but in general, I'd like to see more institutions that benefit people uniformly and equally, and fewer institutions that provide benefits inversely proportion to need.
> my superannuation fund (401k, ROTH, IRA, hard to know what people call this in other economies)
In Canada, the comparable funds are: Canada Pension Plan (CPP, mandatory contribution for all employees), employer-managed pensions (not all companies have one; policies vary such as defined benefit vs. defined contribution), personal RRSP (you make the contribution and you select the investments).
I guess the comparable funds in the USA are: Social Security (mandatory contribution for all employees), employer-managed pensions (not all companies have one; policies vary such as DB vs. DC), personal IRA such as traditional/Roth.
Spoiler alert: "But ultimately, the bulk of the money heads in the direction of the source of the oil itself – the oil companies. [...] The money largely goes to company owners – meaning shareholders"
Thats why OPEC exists, no? To manipulate markets for biggest possible profit for oil owners. They are not even hiding it in any way. While everybody else is on the paying side.
OPEC are a bit of a dead letter. Two of the key members (Iran and Saudi) are at war with each other!
If anything prices are being kept artificially _low_ by the US withdrawing from the strategic petroleum reserve, and similar (unquantified) actions being taken by the Chinese government. We'll have to see how the situation changes after the US midterms.
The strategic petroleum reserve which is empty, and threatening to physically collapse as they withdraw the sludge below the 0% mark?
You mean at 50% drawdown? Easy on the hyperbole.
How much more do you think can be released before hitting the operational floor? Your comment implies you can go to 0%, which is not my understanding.
Well if you are sitting at 40-50% and you actually still get oil from a lot of different countries it isn't a dire situation at all. Its not like all of a sudden we aren't getting oil from a variety of other countries. Its more like a slow drain on reserves while other sources start producing. I would also wager that its just price suppression before midterms.
OP's comment was that we are at 0 and nothing left. I pointed out that they were being hyperbolic or that they don't understand the strategic reserve (or both).
No one said global oil supply is going to 0; everyone understands it's a global market. It seems like you're unaware that the practical limit of what's available in the SPR is not 0%. That's why I asked where you thought the limit was, because the implication of your comment was 0%. I'm genuinely curious how much you think is safely available. It's obvious that the whole point of the release is to reduce prices, but that's why it's telling that even as domestic gas prices have gone up by ~10% in the last month they've dropped the withdrawal to the lowest point since they started the drawdowns.
I was responding to the OPs comment that was needlessly hyperbolic. I don't think you are posting with good intentions or limited thought got put into it.
I doesn't matter where the operational band is - if at about 280 M barrels - they have a reasonable amount of runway before they start hitting hard technical barriers per OP comment especially with oil flowing into the country from other sources.
...and investors. Remember that many investment funds around the world will also be benefitting from this, meaning pensions, investment savings accounts etc
Does this mean the industry is now able to clean up the underfunded environmental disasters they created in the Gulf of Mexico?
Oh, right.
When oil prices spike, producers may choose to be even more benevolent (bribes / paybacks) to politicians / administration who created the means which caused the price hike.
Can anyone explain how to read that first graph? Like, there's a line for demand, say, but given the axes labels, it seems to say "for greater demand, the price goes down", so the exact opposite of what basic price theory predicts.
Same for the supply lines, just the other way around.
Also, the use of straight lines indicates a linear relationship. Is that really the case in practice?
it's the other way around. For there to be a demand for large quantities, the price must be low. The graph seems correct.
So you're reading it as a "prerequisite chart"? That seems odd because the common way to read graphs is that what's reported on the y-axis is a function of the values of the x-axis.
I find it also hard to read it that way when I look at that "Price in February -> Price in April" annotation: if those two points on the y-axis mark points in time, then so do the correlating points on the x-axis. I can only read that as "from February to April, the demand went up while the prices went down".
I suppose one thing they're trying to express here is the idea of the equilibrium price of oil, by marking the intersection of the demand line with the two supply lines. However, why they are lines in this graph in the first place, or why they are located at these specific positions is unclear to me.
If you want to read it as one would normally, where the X axis is the input variable, you could read it as "For a given quantity of demand, what is the maximum price the market can sustain?" So if you want to sell higher quantities of oil, the price has to decrease. The supply side is the opposite direction since costs go up as quantities go up (ignoring efficiencies of scale).
Since the graph is without units, the only relevant of their positions are the signs of the slopes, and that you need a higher price to supply oil at any given quantity (hence the Straight closed" line being higher on the graph).
You're not crazy, economists really have a weird an IMO misleading way of drawing their diagrams.
I agree with you that price should be on the X axis, and drawing the two supply lines in the same diagram is at least somewhat problematic.
What economists posit[0] is that at any point in time, there are demand and supply curves. They answer the question of who is willing to sell or buy how much given a price? (Quantity is the dependent, so should be the Y axis!)
And they argue that the microarchitecture of the particular market causes price and quantity to converge to where these lines intersect.
And then factors external to the market can change the supply/demand curves. The February diagram looks different from the April diagram. They are conceptually separate diagrams. Combining them into a single diagram in a coherent way would lead to something 3D, which is hard to draw and think about, so economists have the convention of drawing it all in a single diagram anyway.
None of this is correct, by the way, but it's sometimes a useful model.
[0] Outside of literal markets with order books, supply and demand curves don't really exist. And in those markets, their dynamics are different.
it's classic "economists don't know what they're doing" case - traditionally they switch labels, with input variable on the y axis
why? no idea
Maybe because "economists don't know what they're doing"?
> "for greater demand, the price goes down"
If demand were to be greater, the entire demand line shifts to the right. But demand is generally stable because oil is a neccessity in the short term. This demand line is near vertical which means people/companies will buy a little less when the price spikes, but not drasticly less. People still need to drive to work, heat homes, etc.
The story back in the 1970s was that the global banking system was not so developed so the Saudis invested their profits from oil in the US so the money never really left the US which made the transition from domestic to imported oil much less painful for the US than it was for some other countries. The UK had it's bacon saved by
https://en.wikipedia.org/wiki/North_Sea_oil
https://www.resources.org/archives/gas-in-the-north-sea/
Read "Confessions of an Economic Hitman" its a good overview of how Saudi was set up.
"The Prize" by Daniel Yergin is the goto history of oil & gas industry worldwide
... but it (and TFA) still can't explain to me a 100$/barrel premium captured by diesel refineries recently !
"Where does all that additional money go, and who benefits from it?"
Doesn't reduced overall supply usually mean that the total amount of money (price * supply) also reduces? ie. in total, there is no additional money.
Price change and supply are not linear. I see the price of oil as largely a human decision, based on how much people are willing to pay for oil and its derivatives, or buy oil for thinking they can sell it for more later. It's linked to supply/demand but not directly controlled through a formula. You can look at the profit statements of oil companies around the world to verify that there is indeed much more money being made when supply is limited.
that doesn't negate my point: with the attacks in the middle east, Saudi Arabia can't export its oil, and therefore, they are not going to make any money. Norway, the US and others, may get a windfall because they can charge more, but does that compensate for the loss of profit in SA ?
Because it's so critical, money will be redirected into oil from other less critical spending.
This won't increase the amount of oil available.
It depends on the price elasticity of demand. When it's 1 - that is, when a 1% change in price results in a -1% change in demand - then any change in supply reduces the total amount of money spent on the good. If demand is more inelastic, then increasing price will increase total spending. Oil is a particularly inelastic good.
It's simpler: people who were long oil make money (on paper) and those who were short oil lose money (on paper).
You were long oil if you are an oil producer, or, e.g., if you owned oil futures. You were short oil if you are an oil consumer, or, e.g., if you had sold oil futures. If you are both (e.g., airlines might hedge future oil consumption by buying futures, and producers might hedge future production by selling away their future production), then you need to net it out across the futures curve.
Price responses to supply shocks in theory serve to allocate resources appropriately (e.g., if your consumption did not matter that much, you might curtail it); if another person's consumption is more productive (i.e. profitable), then they're likely to eat the input cost and still buy it. In the long run, you might hope that high prices lead to more investment in producing the scarce good, or in more hedging activity to prevent future harms. The net effect of (long) hedging activity is generally to slightly increase the future price because folks buy futures / futures options, and market makers, in addition to selling the option, buy the underlying to remain market neutral. This potentially increases future supply because it can, in theory, push up the futures price, or estimates of future price, which can make new resource extraction economical.
Unfortunately, today, given the degree of inequality, it is mostly poor people whose consumption is curtailed when there are supply shocks. This is consistent with the above interpretation: the implication of wealth inequality is that the poor people matter less and are less productive to the capitalist machine. As a real example of this, the oil price would likely be higher even, if the oil consumption of Southeast Asian countries had not decreased because they could not afford the higher prices. This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
> This is the great thing about inflation in a highly unequal society: it is partially tempered because demand goes away as prices rise.
Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Oil prices do not cause inflation. Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
Or, in another world, the official US CPI definition (https://www.bls.gov/cpi/) is 16.3% based on energy prices.
I strongly suspect this definition strongly correlates with what most people call inflation (my fuel bill went up! and strangely, not heading to work wasn't really an option).
Inflation is characterized by a general price increase, not a price increase in one commodity.
If everything has an oil component to its price i.e. energy to produce it or transportation to move it, a (large) price increase in one commodity would produce a general price increase.
Almost as if currency should be backed by a rare commodity that requires the same stuff that causes inflation to increase supply.
If printing value-free money wasn't how we are ruled, we could even come up with a diversified scheme where an alchemist could discover a way of turning silicon into gold and it wouldn’t affect the economy much.
But not that 16% level. If the cost of a good is 10% oil then it will increase 1.6% from the oil price.
People seem to have very odd views on inflation. “Eggs have doubled in price therefore real inflation is 100%”
The basket of goods and different figures are all there, build your own basket if you want and come out with your own inflation level. Don’t just gut feeling it.
Now there are legitimate issues — if the cost of 1kg of pasta hasn’t changed, but it is no longer available int he shops near you, then that’s a problem.
> a (large) price increase in one commodity would produce a general price increase.
Nope. Because if you spend more on one commodity, you necessarily spend less on other items. Spending less means less demand, and corresponding price reductions.
This is the Law of Supply and Demand at work.
Which also explains inflation - more money dumped into the economy, without a corresponding increase in the goods & services in the economy, devalues the money (see Law of Supply and Demand), which we call "inflation".
Money is not "special", and is subject to the LoSaD just like everything else.
Look what happened to Beanie Babies' prices when Tyco flooded the market with them. What do you think would happen to the price of Ferraris if Ferrari quadrupled production?
Why do you think Argentina's inflation is way down? It's the reduction in deficit spending. Do you think the Weimar Republic's trillion-to-one was caused by oil prices?
> Inflation is the result of devaluing the currency by creating money (i.e. deficit spending).
Though I agree that printing new money causes inflation (not all economists agree!), inflation does not have to be the result of new money creation. Shifts in behavior can lead to short term changes in price levels. All inflation is measured relative to a basket of goods. If prefs change for diff goods, then price levels (and thus inflation) can change.
> Oil prices do not cause inflation. This is probably not true in the short term. If the input costs for everything go up, then price levels change, and the CPI basket likely changes (up).
If we more reasonably measured inflation as some notion of quality of life, then increases in energy prices (which factor into everything) would definitely reduce per capita material well-being.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere. My point is that if you have a collection of people who can just barely afford something, and the price of that thing goes up just a little, those people will not be able to buy it. A person who gets priced out of participating in society (and, e.g., dies) contributes nothing to inflation. On the other hand, folks who have some capacity to adjust their consumption or who have a savings /capital buffer, may be able to reallocate funds to the purchase of oil (or other goods whose prices are increasing). This can lead to a further rise in the price of goods (hence, inflation).
If you print $100 trillion in dollar bills and buried it on a moon of the solar system, inflation won’t be affected at all.
Printing doesn’t cause inflation, releasing it into the economy does. Giving it all to one person in a Brewster millions challenge is unlikely to, as they aren’t going to be able to spend much.
Sure! But in our world, when money or money equivalents are created they usually become available for circulation :P.
Gold didn't cause inflation while it sat in the ground, either. But the US experienced significant inflation during the California gold rush and the Alaska gold rush, as the gold flooded into the economy.
People on HN really want to believe this because they tend to be hard-money weirdos of various kinds, but no: commodity price rises are inflation.
> Increases in the price of X cause the demand for X to drop
There has been a lot of "demand destruction", but because oil is an intermediate input to so many things, especially anything that requires transporting, what actually happens is it forces up the overall price level.
> People on HN really want to believe this
It's simply following the facts and the history of inflation in economies.
If oil forces up prices, that means people have less money to spend on other things, which reduces demand for them, which reduces prices.
The only way to get a general price increase is to increase the money supply.
Inflation numbers track the deficits, with a lag of about 13 months.
And when was the last time oil price reductions caused deflation?
> The only way to get a general price increase is to increase the money supply.
Deficit spending isn't the only way to increase the money supply. Lowering interest rates and increasing loans is another.
People go into debt to pay for expenses and necessities.
In fact here's a simplified model: oil prices increase, oil stocks go up, shareholders borrow against them and pay for gasoline. No government deficits were created but the money supply increased due to oil prices going up.
You are correct that borrowing money increases the money supply. But when the loan is repaid, the money is destroyed. It's a net zero.
The federal deficit, however, is not being paid back, and so the increase in the money supply causes inflation.
Does paying back the deficit reduce money supply?
Yes.
> Increases in the price of X cause the demand for X to drop, as people shift their spending elsewhere.
Elasticity of goods has entered the chat. If a significant amount of inelastic goods' price increase, cue inflation. Energy costs, especially fuel, are classic drivers of inflating prices.
> Energy costs, especially fuel, are classic drivers of inflating prices.
That's what politicians want you to believe ("Putin's price hike"), to divert attention from the real cause, massive deficits, which are the fault of the politicians.
BTW, Rockefeller dropped the price of kerosene by 70%. Why was there no deflation?
Many things can cause inflation. The definition of inflation is "when prices go up, on average." One thing that can cause inflation is bombing your own supply lines for an essential commodity that's an ingredient in almost all goods and services, so that there's a shortage of almost all goods and services, raising their prices until demand shrinks to meet the constricted supply.
Shrinking demand for other items, because when you pay more for gas means you have less money for other things, results in price drops.
Oil is an input cost to everything, if the price of oil goes up, so does everything else. Some forms of demand are inelastic, which means people will continue hitting the rising ask as prices go up. Commodity prices going up definitely causes inflation.
Oil demand is certainly elastic. Look what happened to gas mileage on cars.
> Commodity prices going up definitely causes inflation.
Nope. The proof is when they come down, there is no deflation.
Producing oil is different from having a long position in oil itself, or oil futures. I'm not saying this to be pedantic, cause long is already a technical term.
It’s a good job you’re not saying it to be pedantic, because it is certainly incorrect. If you produce oil you are long spot oil (from your inventory available for delivery) and you are long future oil as well (from your proven reserves and inventory in transit and refining). It is different in that you long in the cash market and are long your specific grade of oil (which is not precisely identical to that on the futures contracts) but you’re still long.
Note that the amounts of money involved here are not equal, companies respond to price movements and expected price volatility with less efficient behavior, so the volatility itself causes economic losses.
Like, there's a trade you can do where you load up an actual tanker with oil, park it, and sell an option to buy that oil. The cost of using this tanker and holding this oil a pure waste compared to just having a market-clearing quantity available at a consistent price at all times, but if the market is scared enough it makes money.
We really need to separate taxes at the pump. In my state, there is almost $1/gallon in taxes.
This allows the government to hide taxes in the total cost and blame the oil companies for it.
Why? If anything we should stop making tax a separate item everywhere else (like most of Europe does, for instance).
Is there any indication the gas tax is being blamed on oil companies? It’s literally a fixed cost per gallon… so all the extra cost literally is from oil companies. There’s even some places trying to suspend or cut the gas tax temporarily to artificially suppress the cost at the pump.
Utter nonsense. I'm in Germany, and by law all displayed prices must include tax, groceries, gas, everything.
The gas station operators sometimes do put stickers like "this is how much tax is in the gas price you pay" on the actual pumps as if to blame the government for the greed of the large refineries. But here, after the strait of Hormuz debacle, we've actually had the government lower the gas tax for a while so that people who need their cars for work arent stuck with the higher bill so much. And what do you know, somehow the gas got a little cheaper, but not nearly by the amount of lowered tax. Guess who pocketed the difference.
Worse still, the government then enacted a rule that the gas price could only be raised once a day, but lowered any time. And in average, gas was even more expensive than before.
So yeah, I have trouble blaming the taxes for the high gas price.
To the oilygarchy.
Somehow I read that in popeyes voice.
RIP Robin Williams
Shelley Duvall was amazing in Popeye.
No mention of Alberta or Canada at all??
Good point. It will go to producers that have a higher cost of production mostly.
The wording, "Where does the money go," strongly suggests a fix supply of money, which not true.
The money goes around and around. Money ultimately is just a tool to allocate resources. Higher prices mean the resource is less available than the demand, so it needs to be allocated more carefully (higher prices tend to make people more careful with their choices).
Insurance for transiting oil is primary culprit, along with supply shocks when pipelines or refineries get hit.
Is like in the covid era, where did the money go when all the prices spiked? I bet it's some kind of redistribution.
Having not read the article yet: it goes to the people still able to provide you oil. Some of which were already providing you oil and they get it as almost pure margin, some of which couldn’t afford to provide you oil at a lower price point.
Edit: yup
Try asking this about anything else. "When the cost of hairbrushes goes up, where does the money go?" "When the cost of RAM goes up, where does the money go?" or if that doesn't get you thinking outside the box, try to put yourself in the role of the commodity: "When the minimum salary I will accept goes up, where does the money go?" You'll quickly see that it's a really hard to answer question. Are you just a pass-through of rising costs? Do you need a raise because your gas went up? Because the cost of hot dogs went up? Why does this apply to you, but not companies?
> For a major exporter such as Saudi Arabia, the government owns and controls nearly all oil production, so high prices generally benefit the government’s finances
I mean, i guess, but i suspect Saudi Arabia would rather not be dragged into this war (incl. the proxy part with yemen). I doubt the higher oil profit compensates for the other consequences.
It's a very very basic tenet of economics. When you pay more someone earns more. Someone is always profiting. Many times it feels like the most important task of media is to obfuscate this fact.
To Russian war machine.
It goes to the cause for the spike!
I've always founds this curios, if I'm my company is going through a rough time, I don't call my boss and say I want 50% more money, I usually just help out until we get through it, occasionally I'll get a bonus for that but it's optional.
Oil companies are interesting because it seems like the first thing that happens if there is any kind of problem is put their prices up?
Does your company trade a global commodity like oil? The market prices it. Let’s say you had two buyers for your home with a market value of 300k. One buyer wanted to buy it for 240k and the other for 300k. Which offer would you take?
So basically, war starts, oil prices go up because war has started, and oil companies pocket the extra money for their oil which they've literally done nothing yet received a handsome bonus?
Do farmers triple or 5x the price of food during droughts?
> Do farmers triple or 5x the price of food during droughts?
Yes, actually. The price of 1 pint of real vanilla extract is currently $9.59 at Costco. I have seen it as high as $42.99. That is a nearly 5x spread, and it largely depends on the weather and politics in Madagascar.
Do those price differentials go the the vanilla farmers in Madagascar, or to the other farmers who are the sources for real vanilla; i.e. Uganda, Indonesia, PNG?
I always though that it basically was conditions reduced supply (weather and politics), purchasers of the raw products basically get all of the available production at pretty close to standard prices for what limited amount there is, farmers who dont have product get no income, farmers with product get some - maybe a little more per unit but fewer units overall, and then the raise global prices was due to the tier 1 buyers/distributors needing to cover fixed processing and distribution premiums which do not fluctuate much even when supplies are low.
So, Madagascar by virtue of overwhelming percentage of production pretty much set the availability curve, but i expect farmers pretty much get what they get for the beans they grow, within a range and that's probably not more than 2x at most. But I could be way off and the 5x price differential is perfectly proportional, 5x cost of raw bean == 5x cost of delivered extract.
If there's a shortage of labour, one company wants to pay you $60k, one company $90k and one company $150k. Where will you choose to work? Right, the last one. The first one will have to at least come close to $150k if it wants to keep you. The labour market has higher friction than the oil market so this probably won't happen for a few weeks until the manager realises he's bleeding employees.
This is intuitive on an individual level, but price discovery works differently in these two scenarios.
Wages are "sticky" and negotiated directly between two parties. Oil is a globally traded commodity. Oil companies don't just decide to "put their prices up", though large players can influence it.
When a shock happens, buyers immediately bid up the price to secure limited future supply. Producers largely aren't involved in that pricing.
I will also add that, depending on the situation, your company having hard times very well might be the time to renegotiate your pay. It also though may be the right time to sit quietly and not draw attention to yourself.
Cui bono?
investments https://news.ycombinator.com/item?id=49902592
> the U.S. and Israeli attacks on Iran closed the Strait of Hormuz
Am I the only one who finds this disingenuous? It's like saying: "the police's arrival to the bank robbery took someone hostage." The police's arrival may have triggered the hostage taker's actions but it was still their actions. It's like the author let their dislike of Trump get in the way of accuracy.
It's easy enough to argue that the war is a disaster without being misleading about who did what.
The U.S. is not the police. Sad, that it needs to be pointed out.
I wasn't trying to talk about the morality of the US's actions (not that the police are inherently moral), only point how it seems purposefully misleading to remove the direct actor from the equation.
If you want, we can change the moral insinuations. "The bully hit himself in the face." No, the poor kid being teased hit the bully in the face.
And in fact, rhetorical tools like that make it easier for people who disagree with the authors stance to discard the author's argument on the whole. "This person either doesn't understand the situation well enough, or is willingly lying to me. Why would I listen to them."
> the direct actor
In your example, the bank robbers started the situation.
Who started the war again? Was it Iran that started bombing the US unprovoked, or the US that started bombing Iran unprovoked?
Trump said he started the war because Iran was about to nuke the United States, despite months before saying their nuclear programs were totally obliterated, and his own DNI stating there was no evidence Iran had actually restarted their nuclear programs. Once again, who is the but-for cause of our current state of affairs?
It is absolutely not misleading to point the blame of the current state of affairs at Trump. We wouldn't be in this mess if it wasn't for his extreme incompetence. We didn't have to start this war, its his war of choice. If you stick your hand in a blender and turn it on you don't blame the blender for your mangled hand. The Straight being closed was an obvious out come of his actions, he was made aware of it, and he started the war anyway despite the US not needing to be involved. He himself campaigned on not getting involved in scenarios exactly like this.
It’s totally fair to point the first domino being his. In fact, most of your comment seems to be arguing against a position I don’t hold. However, unlike a blender, Iran has agency. You cannot rewrite history because you don’t like the actors.
You mentioned wanting to avoid moral insinuations and focus purely on the direct actors, but both of the analogies you used (police vs. robbers, bullied kid vs. bully) inherently rely on moral framing. They cast one side as a legitimate authority or innocent victim, and the other as the undisputed aggressor.
If the goal is truly to look at this without moral bias and just examine the causal chain of events, those analogies don't work. There is no geopolitical equivalent of your examples without bias. It's two competing states engaged in an escalating conflict. When you use analogies that bake in a "good guy/bad guy" dynamic, it introduces the exact moral framing you stated you were trying to avoid.
The first example was just the first that came to mind. The second was chosen in the opposite direction because that poster didn’t like the unintentional insinuation that the US was in the moral right; I chose something that has the opposite framing to show that it holds independently of who’s wrong.
What was the singular action that led to Hormuz being closed?
yeah, I get your point - technically Iran closed the strait, not the US. But that's equally disingenuous. The closing of the strait was the result of a chain of events (a short chain at that) which originated with the US bombing Iran.
In your analogy, the crims performed the burglary. That lead to the police arriving. That lead to the police closing the street. You can argue that the crims "didn't close the street", and sure, they didn't. But the street is closed purely as a result of their actions.
This is a fairly shallow article and a long way of saying "oil producers make more money". But it's not really the interesting part because it doesn't mention refineries and they're a key part to what's going on.
Crude oil is essentially worthless. What makes it valuable is a refinery that turns it into any number of products, most notably the middle distillates such as gasoline, diesel and aviation fuel ("avgas", which is just kerosene basically). Oh and heating oil.
How refineries work is they buy crude oil on the open market and produce a mix of products. A refinery will be somewhat designed for a particular flavor of oil but they'll also mix these oils to produce a more profitable product mix. The only big issue here is if oil is sour or not, meaning it's high in sulfur. You need processes to extract the sulfur. Most US crude is sweet (meaning low sulfur).
The general mix that gets tracked to see how healthy the refining industry is is the 3-2-1 crack spread [1], meaning 3 barrels of oil to produce 2 barrels of gasoline and 1 of diesel (and heating oil). Since the start of this war of choice in Iran the crack spread has gone through the roof. Why? Because a certain portion of refining capacity is inaccessible (being in the Gulf) and a bunch of it has been damaged, particularly in Russia.
So oil prices aren't higher because there's simply a lack of refining capacity to produce useful goods. Saying oil is "only" $100-110 misses the real issue entirely. If the refineries were still online, the oil price would be much higher so, as a result, the middle distillates would still be near record highs.
I see some comments here writing off OPEC (and OPEC+). That's a mistake. If you want to see an example of how OPEC can still screw us, look no further than the pandemic inflation shock, which was almost entirely caused by the Trump 2020 OPEC deal, which cut global oil production by 10% (going down to 6% over 2 years).
In 1945, FDR made a deal with King Faisal of Saudi Arabia, which was basically oil for weapons. The Middle East keeps oil flowing and the US guarantees their security. That's why the strategic defeat of the US in the Gulf is so consequential because it's an end to the US security guarantees that have lasted over 80 years.
Oil exists to induce demand for weapons the US sells.
[1]: https://rbnenergy.com/market-data/3-2-1-crack-spread