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Ask HN: Why don't US oil companies just buy oil from Saudi Arabia?
The situation today seems to be largely equivalent to the situation that Herbert Dow (Dow Chemical) faced when he was producing bromine over 100 years ago: A cartel engaged in predatory price cutting to drive unwanted competition out of the market.
The response of Dow was to just buy up all the cheap bromine from the cartel and re-sell it and with this strategy he was able to break the cartel price cutting and greatly expand his business. [1][2]
I'm wondering why US oil companies who suffer from SA price cutting still pump oil themselves at a loss rather than use the same strategy as Dow and buy Saudi's oil instead. The situation seems to be largely the same and that would be the "textbook response" to it.
[1] https://www.quora.com/Whats-the-shrewdest-smartest-maneuver-youve-ever-seen-in-business/answer/David-Fry
[2] http://www.mackinac.org/article.aspx?ID=31
- smt88 11y agoOil is really complicated. It is deeply tied to US foreign policy and all recent military conflicts. Lower foreign oil prices harm US oil producers, but they're awesome for almost every other industry (unless they bought oil futures!) Lower fuel prices also make it easier for people and goods to move more cheaply/freely around in an economy, which is also incredibly good for everyone! I don't know the answer to your question, but I did some research and will also speculate. I could be totally wrong. I don't believe there's a tariff on oil imports in the US. So why don't US oil companies buy foreign oil? Probably because the infrastructure required to move and store oil is incredibly expensive, and because the oil buyers could just go straight to the source. The amount of oil that would have to be purchased in order to increase prices again is totally astronomical. I imagine most oil companies prefer to have low storage costs and therefore try to avoid overproducing, which means they probably don't have massive amounts of unused storage space.
- jinushaun 11y agoThis. People forget that the US is a big oil producer and has an industry that benefits from high market prices set by OPEC. The OP's question strikes me as anti-Arab or jingoistic, or both.
- falsestprophet 11y agoOne would store a commodity if one thought it could be sold at a higher price in the future. Companies across the globe are storing oil including on parked tankers. Here is some data for US storage: https://www.eia.gov/petroleum/supply/weekly/ https://www.eia.gov/petroleum/supply/weekly/ However, crude and distillate storage capacity is much smaller than consumption and production.
- whip_lash 11y agoOPEC produces 33 million barrels of oil a day. You know how big an oil barrel is. I'm not sure how much American companies would have to buy and store to significantly affect the price, but lakes full, at vast storage costs. According to your article Dow bought "hundreds of thousands of pounds" of bromine and based on a quick Google search a pound of bromine is about the size of a pill bottle. So one warehouse full.
- andyakb 11y agoI dont think OP is suggesting buying their oil to somehow impact the price, and is instead saying that the cost US oil companies are paying to extract oil themselves is more than it would cost them to just buy it from Saudi companies
- DrScump 11y agoTo be refined... where? Oil refineries have to be configured for a given class of crude. Prudhoe Bay differs from shale-derived, etc. Arabian "light sweet crude" is the easiest to refine, but it still means differing processes.
- ap3 11y agoTheir operations have costs: loans, operating costs, and they have to at least get a return. If they stop pumping oil tey are down to zero. What funds do they use to buy up the world's oil? Saudi Arabia, Iran, Russia will just keep dumping oil while still taking in profits DOW was able to buy up all the bromine - today the oil will just keep flowing