[Pen-l] Re: Re: Peak oil

["Julio Huato" <juliohuato@xxxxxxxxx>]

raghu wrote:

> But surely they care about the fixed cost of the investment required
> to increase production. This cost does come out of *present* profits,
> and it may only make sense if there is a high probability of future
> profits.

When I say (oil) "production," I mean what people in the oil industry
call "production" -- namely, extraction.  As far as I can see, there's
no bottleneck in extraction, as far as capacity is concerned.  How do
I know that?  Well, first off, it's in the nature of oligopolies to
have redundant capacity.  If they run it down, they expand it.  And
oil producers are your textbook cases of oligopolistic firms.

Moreover, capitalist producers had experienced windfall profits in the
last few periods.  True, prices have risen.  But you can calculate the
change in average cost directly.  Or infer it by subtracting the
change in the average revenue (i.e. the change in the price of crude
oil) from the change in average profit (profit per barrel/day).  The
residual will be the change in the average cost.  Either way, what has
happened to the average cost of production over the last few quarters?
 Has it increased significantly?  It doesn't seem that way to me.
What does *that* mean?  It means that the marginal cost of extraction
for the capitalists producers overall is not very steep as of
recently.  In other words, most of the marginal cost of extraction
nowadays is labor costs plus little else.  Fixed capital is not the
bottleneck.  At least for now.  Why not?  Well, perhaps because,
contrary to what the NYT's reporter wrote, fixed capital in extraction
has *expanded* significantly as a response to higher prices!

Here are the financials of the sisters.  You be the judge:

BP/Amoco/Arco (http://www.bp.com/subsection.do?categoryId=717&contentId=2002211),
ExxonMobil (http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-reportsAnnual),
Royal Dutch/Shell
(http://www.shell.com/home/content/investor-en/financial_information/dir_financial_information_12122007.html),
and
Chevron/Texaco (http://www.chevron.com/investors/financialinformation/).

Again, I don't think this NYT's report was very diligent.
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