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Crude oil is getting cheaper so why isn't gas?
AP/Yahoo ^ | 15 Feb 09 | John Porretto, Jennifer Malloy, Ryan Nakashima

Posted on 02/15/2009 9:59:43 AM PST by saganite

NEW YORK – Crude oil prices have fallen to new lows for this year. So you'd think gas prices would sink right along with them.

Not so.

On Thursday, for example, crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It's just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That's the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

(Excerpt) Read more at news.yahoo.com ...


TOPICS: Business/Economy; News/Current Events; US: Texas
KEYWORDS: bhoenergy; economy; energy; gasoline; gasprices; oil
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1 posted on 02/15/2009 9:59:43 AM PST by saganite
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To: saganite

This is an interesting story since I’ve been wondering about this myself. I thought maybe taxes had gone up in my state but the article gives a pretty good explanation why West Texas Intermediate crude isn’t really a good benchmark for gas prices right now.


2 posted on 02/15/2009 10:02:14 AM PST by saganite (What would Sully do?)
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To: saganite

I love PR and Marketing.

Move the sheep along.


3 posted on 02/15/2009 10:03:31 AM PST by Tempest (Greed is putting money before PEOPLE.)
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To: saganite
This is the first time I've heard this - in addition to the first time in recent memory I've seen the MSM defend oil companies.

Oil is a fungible commodity - I didn't think it mattered who or where it was pumped.

4 posted on 02/15/2009 10:03:33 AM PST by skeeter
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To: saganite

0’pinhead mentioned this the other nite—said the refineries were cutting back for the good of us all and that was causing the increase—guess he already milked this topic for all he could get and take credit for the price coming down (temporarily) from 4$ per....


5 posted on 02/15/2009 10:04:09 AM PST by gunnyg
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To: saganite
A bit of common sense answers the question.....

When gas prices begin to rise sharply, many distributors (not refineries, but distributors) will contract to buy gasoline at a certain price as a hedge against future price spikes. Airlines do this as well.

If your local gasoline distributor has done this, they are more than likely still paying what is now an inflated price for gasoline. They contracted to buy it at a certain price, regardless of whether the market price is higher or lower.

When oil prices fall, they are stuck with having to pay higher costs. They took a calculated risk and it didn't work out. Just as there were market forces that raised the prices to begin with, there are market forces keeping the prices where they are today. Sorry - no conspiracies.

6 posted on 02/15/2009 10:06:25 AM PST by TexasNative2000 (Obamamania - not terminal, but, sadly, it does have to run its four-year course.)
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To: saganite
Something is completely wrong here.

Crude oil is always given as an example of a fungible commodity.

.

7 posted on 02/15/2009 10:07:35 AM PST by Seaplaner (Never give in. Never give in. Never...except to convictions of honour and good sense. W. Churchill)
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To: saganite

Because refiners are bottlenecking supply.


8 posted on 02/15/2009 10:08:14 AM PST by mysterio
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To: skeeter
Skeeter, ya beat me.

(Great minds...)

.

9 posted on 02/15/2009 10:09:30 AM PST by Seaplaner (Never give in. Never give in. Never...except to convictions of honour and good sense. W. Churchill)
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To: saganite

It doesn’t matter who tells what lie about this being a free market product, which natural disasters occur, or what misery or threat the country is in, the oil companies will make record profits.


10 posted on 02/15/2009 10:10:57 AM PST by nufsed
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To: TexasNative2000

This would be easier to believe if my local gas station owner wasn’t out there on his ladder changing prices the very moment the price of oil on the global sport market makes the slightest of moves upward.


11 posted on 02/15/2009 10:11:05 AM PST by skeeter
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To: TexasNative2000

I don’t think distributers have hedged in my area since the price moved down over the last few months and has been increasing just recently. Your explanation would assume they hedged at a higher price when the market was moving down. Not too likely IMHO.


12 posted on 02/15/2009 10:12:08 AM PST by saganite (What would Sully do?)
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To: Seaplaner

:) Like I said, oil being a commodity, I’ve never heard this explanation before. Gas has always seemed to track the per barrel price of oil pretty closely.


13 posted on 02/15/2009 10:12:21 AM PST by skeeter
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To: Seaplaner
Crude oil is always given as an example of a fungible commodity.

Read the source you posted. It has to be the dsame type of crude.

14 posted on 02/15/2009 10:12:44 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: saganite

This reads like a press release from the petroleum industry.
It sounds like something written to counter the many other stories pointing out that oil companies have intentionally cut the ratio of gasoline versus other products produced from a barrel of oil because they were unhappy with retail prices around $1.50 a gallon or less.


15 posted on 02/15/2009 10:13:01 AM PST by Iron Munro (Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.)
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To: skeeter; Seaplaner
Here's what the article says about fungibility:
Historically, West Texas International crude has cost more. So nobody bothered building the necessary pipelines to carry it beyond the nearby refineries in the Midwest, parts of Texas and a handful of other places.

Now that the premium oil is suddenly very inexpensive, refiners elsewhere can't get their hands on it.

"It's so cheap," said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. "But you can't just build a pipeline to everywhere. We know we can't get it."


16 posted on 02/15/2009 10:13:09 AM PST by Yardstick
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To: saganite

All depends on the effective dates and expiration dates of the contracts and the benchmark price agreed to.


17 posted on 02/15/2009 10:13:47 AM PST by TexasNative2000 (Obamamania - not terminal, but, sadly, it does have to run its four-year course.)
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To: Seaplaner

I had to excerpt the article but there’s some good info in the article as to why WTI crude is uncoupled from other oil prices. Go to the article and read the whole thing.


18 posted on 02/15/2009 10:14:19 AM PST by saganite (What would Sully do?)
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To: skeeter
Gas has always seemed to track the per barrel price of oil pretty closely.

Not really. If you look at last year's increase in prices, crude went up far more than gasoline. If they tracked together, we would have reached about $6/gallon of gasoline.

Then, as the price of crude dropped, people whined that gasoline didn't drop as quickly. At the end, they came back together, but people just want to get something for nothing.

19 posted on 02/15/2009 10:14:25 AM PST by Gondring (Paul Revere would have been flamed as a naysayer troll and told to go back to Boston.)
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To: Gondring

Interesting, Got sources? I’d like to understand this better.


20 posted on 02/15/2009 10:15:55 AM PST by skeeter
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