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 ...
Gas prices are high because George Bush is making his oil buddies rich.
Oh, wait...
OK, I’ll take a stab at this. If what they are saying is true, then the reason that gas prices are not lining up with WTI prices is because most gas uses oil from a different source, which costs more. Hence the comments about pipelines, etc.
If this is true, then the price of gas in the region of the country where WTI is available should match the ups and downs of that, even if the rest of the country does not. Can that be confirmed?
Gas buddy doesn’t seem to remove local taxes, complicating this.
Because Zero/Bambi/Alinskyite is in charge.
Watch all the states that have budget shortfalls and deficits this year in particular. What is the quickest way to pour revenue into a state treasury? Through gas and sales taxes. They are instant, and there is no need to wait for the end of the year, and sort it all out with accountants, attorneys and bureaucrats.
Many increases in fuel prices are the result of taxes previously voted in, beginning to be installed at the pumps. This will become a particularly hidden agenda by these Socialist regimes.
The price of wholesale gasoline this minute, as of Friday's close, is $1.30/gal, basis the April contract. Assuming a $4/bbl crack margin, this would imply $58.60/barrel crude. Crude is actaully $41.97/bbl, basis April.
Therefore, further drops in the price of crude will have a lower impact on the price of gasoline than they ''normally'' would. The other way to say this is that the crack spread, the gross refining margin for refiners producing gasoline, will be coming down in the next couple of months.
And, as long as there's oversupply of crude at Cushing, crude will not be rising in price, and the retail price of motor gasoline hang in the $1.00-1.40/gal range, wholesale. All bets are off, of course, if Israel and Iran tee it up.
Its either that or believe, contrary to every other commodity on the face of the planet, that prices for gas can go up even as supplies and consumption are going down purely due to market forces.
Correction - Its either that or believe, contrary to every other commodity on the face of the planet, that prices for gas can go up, even as supplies are going up and consumption is going down.
Read post 6 by TexasNative2000 He explains it better than I.
;^)
You see what happens when the Republicans have full control of the government. They take care of their buddies in the oil business and... uh, oh well never mind.
Oil from Saudia Arabia took about 60 days to be transported to the US be refined and arrive at your local gas station. As part of a study group thesis we measured how often a tank truck would replenish our local gas station's fuel tanks. The average was alittle over 10 days for the 20 odd stations we compliled data on.
Today this average is about the same for my local 7-11. When gas goes up and down 10 to 15 cents during that 10 day period how much does the price of a barrel of oil effect the retail price.
Multiple choice
A. None
B. None
C. None
D. None.
So who or what is fueling the price?
I was trying to keep it simple so everyone might understand that wasn't raised in a town that smelled like cabbage farts. Texas City makes more gasoline and chemicals than any place on earth per capita. There are many contributing factors in the price of gas that are very arcane and would put most here asleep. The basic idea though is the spring brings shut downs of the refiners units.
Simple answer,
Retailers make money when the price of gas is going down.
The reason for this is, retailers have trouble passing on the price of increased on consumers and only do when as a whole the market goes up. When prices are declining there’s less of a push to decrease gas prices, and such retailers can keep their prices high and lock in profits.
The price of gasoline is sticky because of this.
You are correct that the increased supply of crude has brought the price down further, while everyone else seems confused that gasoline has not gone down in retrospect along with it.
Gasoline is not a commodity it is the result of production. That is why we can have an over stock of crude and at the same time, see the price of gas go up.
Like several other FReepers here have pointed out correctly, it depends on the dynamics of individual regions. They vary dramatically. Some have gone down a great deal while at the same time have gone up in other areas. I see this weekly , as I travel across 3 states to earn a living.
That way we can get those red state California voters moved into real red states where their vote would actually mean something and increase the population in those red states to get more red state members in the House and decrease California's population and decrease their representation.
And I could have a larger pool of quality people who actually want to earn their income as employment candidates moving into my red state.
Let me see if I can explain this to you as I know many other folks don't understand the reason for this also (Retailers changing prices for product in the ground bought earlier at a lower price).
Last year provides us an excellent example as prices during the spike were sometimes increasing on the wholesale level......5 cents daily and more.
Refined gasoline is a commodity in that it cannot be safely stored for any great length of time. Unlike widgets, you cannot put gasoline up in a warehouse somewhere..... hoping for better retail prices. Because of this characteristic gasoline pricing is volatile and subject to market influences by the minute. When it's refined it has to be sold very soon.
If a dealer purchases 9000 gallons (one tanker load) of product at $2.00 a gallon (wholesale) the normal retail price would then be about 10/15 cents higher to his customers. This is approximate depending on location. If you're competing locally with other brands it will be in the 10 cent range. If your location is all alone.... close to a freeway on ramp you can demand a higher price...and most likely get it.
Let's assume that you purchased a load of gasoline on Sunday evening at $2.00 a gallon. If you are an average dealer you'll probably go through that inventory in two days. There are of course many locations that have much larger volumes but your average neighborhood dealer will pump 4000/6000 gallons daily. This means that by Tuesday night when you get your next load you will have made about $900.00 profit (one tanker load times .10 cents a gallon).
Here's the problem.....Monday morning gasoline went up .05 cents a gallon and you didn't increase your price on your product in the ground you already own. Tuesday morning the futures markets send unleaded gasoline up another .05 cents a gallon. This means that when the tanker pulls into your station with your Tuesday night load it's going to cost you .10 cents a gallon more. On Sunday night you paid your wholesaler $18,000.00 for your 9000 gallons at $2.00 a gallon but now....two days later you've got to pay $18,900.00 wholesale for the same amount of product! How much money did you make selling your Sunday night load? $900.00! But....because you did not increase your prices daily, watching the spot market.....you have just now worked for free. You didn't make a dime because your entire profit went for current inventory!
This is why you see your dealer up on the ladder changing his prices according to the fluctuations in the spot market. He owns a commodity that has just increased in value.....so up goes his price!
His latest column in the Fort Worth Star Telegram is a good read.
Here are 2 sources that back up the assertion that WTI prices frequently become uncoupled from other oil prices because of the regional nature of the distribution network. They didn’t address your question about local (midwest) prices being different based on the cheaper price of WTI but I would bet it depends on what those refieries in the midwest mostly produce. It may not be predominately gasoline.
http://en.wikipedia.org/wiki/West_Texas_Intermediate
The problem resides in the physical market of the mid-continent of the US, specifically at Cushing, Oklahoma, an obscure but crucial oil gathering hub and the pricing point for financially traded WTI on the Nymex. Often viewed as the global crude oil reference point, Cushing is really a regional, parochial crude market tenuously linked to international markets by bottlenecked pipelines from the Gulf coast. Cushing pulls oil from the Gulf coast, Canada or the mid-continent but, unless regional refiners process WTI, it becomes landlocked and decouples from global markets. As inventories build, WTI’s price must fall until it sells, even if that means trucking oil south.
This physical situation is not new but the problem has worsened as Canada’s tar sands production has grown nearly 500,000 b/d since 2002 and should rise another 200,000 b/d this year, most of it headed towards mid-continent, where refining capacity has fallen by 200,000 b/d. A new pipeline will soon increase flows into the region by another 100,000 b/d. WTI will continue to disconnect from world markets until new pipeline connections create a physical escape valve for oil to flow from the mid-continent to the Gulf coast.
Some believe the problem stems from market manipulation but it is the twin facts of higher storage capacity in the mid-continent and the bottleneck that provide a temptation for companies to trade around the storage, building it in weak markets and emptying it in strong markets. Weak markets discount spot sold oil to deferred oil, further encouraging storage and weakening WTI’s spot price; the reverse happens when spot prices are at a premium to deferred prices, depleting storage rapidly.
http://www.ft.com/cms/s/0/503e1d26-ec12-11dd-8838-0000779fd2ac.html
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.