HN

Comments (141)

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  ggm
  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.
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  kleiba2
  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"
• rossjudson
  Does this mean the industry is now able to clean up the underfunded environmental disasters they created in the Gulf of Mexico?Oh, right.
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  PaulHoule
  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 byhttps://en.wikipedia.org/wiki/North_Sea_oilhttps://www.resources.org/archives/gas-in-the-north-sea/
• DivingForGold
  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.
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  kleiba2
  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?
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  jsrozner
  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.
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  elmer2
  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.
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  hanwenn
  "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.
• krupan
  The wording, "Where does the money go," strongly suggests a fix supply of money, which not true.
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  NordStreamYacht
  To the oilygarchy.
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  CosmicShadow
  No mention of Alberta or Canada at all??
• gblargg
  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).
• phendrenad2
  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?
• lobo_tuerto
  Is like in the covid era, where did the money go when all the prices spiked? I bet it's some kind of redistribution.
• bjourne
  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.
• factorialboy
  Insurance for transiting oil is primary culprit, along with supply shocks when pipelines or refineries get hit.
• atemerev
  To Russian war machine.
• r3trohack3r
  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
• bawolff
  > 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 financesI 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.
• lolakutty
  It goes to the cause for the spike!
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  bamboozled
  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?
• jmyeet
  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
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  oersted
  Cui bono?
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  arijun
  > the U.S. and Israeli attacks on Iran closed the Strait of HormuzAm 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.
• jodapogo
  [flagged]