I think anyone who has paid health insurance premiums, or suffered
through a medical event, knows that the healthcare system is broken. The
Affordable Healthcare Act has tried to make some headway, but we have
all seen healthcare premiums continue to rise. Insurance companies are
definitely part of the problem, but the other part in my opinion is the
disconnect between doctors, hospitals and the rest of a capitalistic
society.
There is no capitalism, or price
checks and balances in healthcare. And, you're thinking with all of the
money being made by doctors and and the healthcare industry that you
can't get more capitalistic than that. Money does not equate a
capitalist environment. When was the last time you went to the doctor,
and knew what your costs were going to be before you went in? Maybe you
go to an orthopedic surgeon for a procedure, and he tells you what he
charges. But, does he tell you what the anesthesiologist is going to
charge? Does he tell you what the X-Ray company is going to charge? Does
he tell you what the hospital charge is going to be? Of course not,
because they don't know. But, they should know. When I agree to a
procedure I am making a contract with the doctor I am dealing with. The
price he quotes me should be all inclusive. That's the way everything
else works. If my car breaks down my quote is for the complete price,
and I can compare it with other businesses. I don't get a bill for the
technician who made the repair, and then go home to find another bill
for the part, and another for the transportation of the part, and
another for use of the repair shop. It's ridiculous. What other business
sector does business like the medical community?
If I am trying
to reduce healthcare costs the first thing I am going to do is require
medical offices of all kinds to publish and post in waiting rooms the
procedures they offer and the costs involved, ALL inclusive. Of course
they play the "you can't put a price on your health" card, which is a
load of you know what. Doctor's should have a documented track record.
This is most important for specialists. If I need a hip replacement I
should know how many my doctor has done, and his success rate. That may
be available to some extent today, but how do we know those numbers are
real? How do we insure we have audited numbers? All major corporations
are required to supply audited income statements to potential investors.
Isn't healthcare more important? Too many physicians have alliances
with certain radiologists, hospitals, anesthesiologists and others. It
is not based on price. It is based on who knows who. By making the
physicians compete, healthcare costs will be reduced. It's crazy when a
guy just out of medical school charges the same price as someone who has
20 years of experience. And, really it should not be based upon
experience, but by track record. Let me be clear. The doctors don't all
make the same amount of money. But, the large organizations they work
for do. They charge the same, pay some physicians less and keep the
difference. It's crazy when I go to the doctor and he's not available,
but the physician's assistant is. I get treated by the assistant, never
see the doctor, but pay full price for the visit. Insurance companies
have to be addressed, but until we fix the non-competitive nature of
healthcare it's not going to get better. I remember back in college
(circa 1979) when a professor in a business class stated that one of the
best groups who keeps control of supply and demand is the American
Medical Association (AMA). They limit the number of medical school
graduates to perpetuate the the prices in medicine.
I
reflect back on going to a large medical center in David, Panama. This
building had all kinds of specialists, and most were trained in the US. I
walk in with my wife without an appointment about 4 days before
Christmas. We sign up, wait about 20 minutes, she talks with the Doctor
who recommends a blood test, we pay $30 and leave. We go back to the
center on Christmas Eve without an appointment, and go to the lab for
the blood test. They tell us to come back after 4 for the results, and
to my amazement they had them! We paid $40 for the test, and return two
days later to see her doctor again. We meet with him for 20 minutes to
discuss the blood results, and that's it. No more to pay, and everything
done.
If it can be so simple there, then why can't it be so here?
Thursday, February 18, 2016
Saturday, February 13, 2016
What is the Future Price of Oil?
Everyday I am listening to all the experts regarding the price of
oil. Just a few short years ago in 2008, oil prices were predicted to go
to $200 a barrel because of the lack of supplies, and today 8 years
later, it is right at $30 a barrel. What happened?
It is not a simple answer, but we will start with the obvious. The output of oil has increased substantially with the use of fracking and other technologies. It has increased so much that the United States is now the largest producer of oil in the world surpassing Saudi Arabia! Add to that, the Organization of the Petroleum Exporting Countries (OPEC) has refused to cut production causing an over supply. This is not exactly true. Many OPEC members would like to reduce production, but the largest producer, Saudi Arabia, does not want to lose market share and refuses to cut therefore causing the other members to maintain their production as well. The third leg of this stool is a global economic slowdown, mainly China. With slowing growth comes less need for energy, which exacerbates the oversupply.
Now that we know why the price has gone down, let's examine where the price is going. I heard someone on the news the other day claiming that with the new technologies to obtain oil there will be a never ending supply, and that oil prices will remain in the $20's forever. He is right in that we have increased the amount of oil available to us, but what he doesn't address is the cost to retrieve that oil. These new reserves that we've found do not come cheap. The most expensive oil produced in the United States today comes from older wells known as “stripper wells.” These are aging oil and gas wells that only produce a few barrels per day. The maintenance cost on the wells does not decline with oil prices, and these wells become unprofitable around $40 per barrel. Other high-cost oil comes from Canada’s tar sands and the United Kingdom’s North Sea oil fields. Those become unprofitable around $30 per barrel and $50 per barrel respectively. Obtaining oil through "fracking" can be done for around $25 per barrel, however, it is not profitable to discover and open a new well unless the price is $60 per barrel. I say all of this to let you know that over 30% of the world's oil costs more that $36 per barrel to get it out of the ground.How long can anyone stay in business selling oil below $30 per barrel when it costs you $36 per barrel to get it? Not very long. What happens when that 30% is eliminated, and how will it be made up? The world is producing around 93 million barrels per day. Is it reasonable to assume that the remaining producing countries can increase their production to 28 million barrels per day? I think not.
Perhaps the biggest threat to the low price of oil is economic. Saudi Arabia is the lowest cost producer of oil at under $10 per barrel. But, even at that low cost the country is losing money because their entire economy is based on oil revenues. They have high unemployment, and high subsidies and benefits for its citizens. The main source of revenue for Russia is also oil and gas. The country is bleeding money with the invasion of the Ukraine, and now involvement with Syria. If you watch and listen carefully you can see that Putin is starting to act very nervous. Venezuela's economy is very dependent on oil revenues, and at this writing is close to bankruptcy. There are other OPEC countries that are suffering financially not because of their oil dependence from an energy standpoint, but from an income standpoint. Therefore, I believe that the price of oil will be influenced more by the economics of income rather than by supply and demand.
At the end of the day I see oil prices at $40 per barrel by the middle to late 2016, and rising to $60 per barrel in 2017. As the global economy recovers we will continue to see a rise in the price. After all, it's still a limited resource.
It is not a simple answer, but we will start with the obvious. The output of oil has increased substantially with the use of fracking and other technologies. It has increased so much that the United States is now the largest producer of oil in the world surpassing Saudi Arabia! Add to that, the Organization of the Petroleum Exporting Countries (OPEC) has refused to cut production causing an over supply. This is not exactly true. Many OPEC members would like to reduce production, but the largest producer, Saudi Arabia, does not want to lose market share and refuses to cut therefore causing the other members to maintain their production as well. The third leg of this stool is a global economic slowdown, mainly China. With slowing growth comes less need for energy, which exacerbates the oversupply.
Now that we know why the price has gone down, let's examine where the price is going. I heard someone on the news the other day claiming that with the new technologies to obtain oil there will be a never ending supply, and that oil prices will remain in the $20's forever. He is right in that we have increased the amount of oil available to us, but what he doesn't address is the cost to retrieve that oil. These new reserves that we've found do not come cheap. The most expensive oil produced in the United States today comes from older wells known as “stripper wells.” These are aging oil and gas wells that only produce a few barrels per day. The maintenance cost on the wells does not decline with oil prices, and these wells become unprofitable around $40 per barrel. Other high-cost oil comes from Canada’s tar sands and the United Kingdom’s North Sea oil fields. Those become unprofitable around $30 per barrel and $50 per barrel respectively. Obtaining oil through "fracking" can be done for around $25 per barrel, however, it is not profitable to discover and open a new well unless the price is $60 per barrel. I say all of this to let you know that over 30% of the world's oil costs more that $36 per barrel to get it out of the ground.How long can anyone stay in business selling oil below $30 per barrel when it costs you $36 per barrel to get it? Not very long. What happens when that 30% is eliminated, and how will it be made up? The world is producing around 93 million barrels per day. Is it reasonable to assume that the remaining producing countries can increase their production to 28 million barrels per day? I think not.
Perhaps the biggest threat to the low price of oil is economic. Saudi Arabia is the lowest cost producer of oil at under $10 per barrel. But, even at that low cost the country is losing money because their entire economy is based on oil revenues. They have high unemployment, and high subsidies and benefits for its citizens. The main source of revenue for Russia is also oil and gas. The country is bleeding money with the invasion of the Ukraine, and now involvement with Syria. If you watch and listen carefully you can see that Putin is starting to act very nervous. Venezuela's economy is very dependent on oil revenues, and at this writing is close to bankruptcy. There are other OPEC countries that are suffering financially not because of their oil dependence from an energy standpoint, but from an income standpoint. Therefore, I believe that the price of oil will be influenced more by the economics of income rather than by supply and demand.
At the end of the day I see oil prices at $40 per barrel by the middle to late 2016, and rising to $60 per barrel in 2017. As the global economy recovers we will continue to see a rise in the price. After all, it's still a limited resource.
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