Posted on 02/23/2013 8:22:15 AM PST by Kaslin
That's certainly contributing to the problem but it isn't the only cause. Here are a few more contributors that I've been reading about (by no means is this a complete list):
Earlier this week I read that oil supplies in this country are up over 15% from levels last year, and 25% from two years ago. There's no shortage of oil. There is a shortage of refining capacity even though the existing refining capacity is being manipulated by the refiners to keep prices up. Remember, refineries make money on the crack spread, which for them means they're making the most profit when gasoline reaches near $4/gallon. The high oil prices are affecting them also since oil's obviously the raw material from which gasoline is created.
Anyone who thinks prices have peaked and are going back down is sadly mistaken. Wait until the refineries all restrict output at the same time while converting over to the "summer blend." I suspect we here in the midwest are going to see prices exceeding $4.75 and approaching $5 gallon before summer hits. Californian's are already seeing prices above $5.
The main problem (as many others here have noted) is that the intrinsic value of petroleum is substantially greater than the intrinsic value of paper and ink.
And of course those making federal policy feel in their hearts that anything that gets us out of our personal vehicles is a step in the right direction.
Pricing manipluation doesn't stop at the Stock Market and the Futures Market.
A gas station near my home changes their price up to 5 times a day. Highest price is always in the morning as people are on their way to work. Lowest price is after 9pm in the evening.
Same gas station is within 100 feet of a county line, and is on the side where the gas taxes are half that of the other county. The lowest price is always after 9pm when there's little traffic on the road left and they're trying to get those passing through to stop there and "top off" or fill up.
Blaming speculators for the gasoline prices is not only wrong, it is just flat out ridiculous demogoguery. Speculators can hardly be responsible for increasing the cost of a commodity which they have no opportunity to trade in the first place. The great majority of petroleum is NEVER traded in the futures markets. The vast majorty of petroleum is traded by direct contracts between the upstream sovereign nation monopolies s and cartels such as OPEC and non-OPEC nationalized oil companies and the downstream refiners, some of whom are also nationalized entities. Only a small fraction of this petroleum produced and traded is ever traded on the financial markets.
The small fraction of petroleum traded on the financial markets is financed by the speculators, which relieves the oil corporations of the responsibility for spending their own monies to finance the petroleum inventories necessary to hedge adequate supplies to maintain a steady flow of feedstock to maintain the operation of the refineries. without costly additional shutdowns. If the financing of spot market petroleum supplies by speculators were to be ended and oil corporations had to finance their own reserve petroleum supplies, the resultant costs for the oil refiners would cause a major increase in their costs to refine and a major increase in the cost of the refined gasoline considerably higher than what is now being seen. These higher refining costs would be the result of oil refiners needing to compete to purchase the reserve supplies rather than sharing the same pool of supplies, the massive increase in costs for separate storage and transportation facilities, which are now a shared cost in the pooled market, and the increased costs to the refiner for borrowing the capital necessary to purchase and sote the reserve petroleum supplies.
The bottomline is that ignorantly blaming and scapegoating the speculators on the open capital markets for petroleum supplies used in spot market hedging of such supplies is tantamount to eating the goose that lays the golden eggs at no cost to the users of the golden eggs.
Obama has threatened energy companies again and again. Those investors in the biz are only reacting to his Communist messages that are causing insecurity in the energy markets. If he would get off his personal Communist goals and stop harassing the energy markets then gas prices would fall significantly.
What value does a Wall Street bank or hedge fund add by buying oil futures?
None. They only add volatility, profit on the way up, profit on the way down, so long as the pendulum is swinging wildly they’re happy.
But, the real world is thrown into disarray. Restrict trade to those who not just can but will take delivery and return the process to rational purpose.
Commercial end-users of oil such as airlines and trucking companies who once dominated 70 percent of the market for market for future deliveries of oil now represent just 30 percent. Non-commercial financial speculators now dominate 70 percent of the market.
That is a fundamental shift in commodities trading. And when the supply margins are narrow, as they are now, controlling a relatively small amount of petroleum (or in this case, gasoline) can have a significant impact on pricing, as we saw in 2008.
I am not saying speculation is the only factor, far from it. The real blame lies with the nitwits such as Obama and his minions who try to sandbag production increases. But I am saying there should be position limits on those who are neither producers nor end users.
GOOD!
Will they ever cut it to zero and then freak out and boost production, as they realize they have no income and the US is now getting all the bucks?
Ethanol in gas causes a 12% reduction in mileage.
That is a NASCAR number, not mine.
yes
The problem is with how you read the stuff you quoted and proceeded to fail to understadn what you read.
For example, Delta airlines purchased the 185,000 barrel per day ConocoPhillips refinery in Traner, Pennsylvania to mitigate the crack spread differential in cost for some its aviation fuel. This had the effect of removing some of Delta Airlines share of the market speculation, which in turn increased the share for market spculators. So, the shift in percentages does nto mean what you choose to imply that it means at all.
Indeed, the Federal Government policies, especially the EPA policies and policies of states like California, are responsible for the skyrocketing increases in prices for gasoline.
Start with the wholesale and deliberate sabotage and destruction of the economy. The decreases in the U.S. consumption of gasoline had been due to the lack of sales and economic activity caused by the impoverishment of the consumers. Lower sales of gasoline means fewer customers for the refineries and their products. Refineries have to be kept in constant production to avoid damage and maintenance costs over and above the routine shutdowns for maintenance. If a refiner is unable to sell enough refined gasoline and other distallates at prices sufficient to justify the continued operation of the refinery, the refinery must either be sold to another business or it must be shutdown.
Once a refinery is shutdown, it must either be mothballed for a short enough interval for it to be restorred to full operation in the near future, or it must be demolished. Once a refinery is shutdown and demolished, it cannot be rebuilt bevause the EPA has made it almost impossible to build a petroleum refinery in the United States. Consequently, oil refineries are becoming fewer and fewer due to progressive political attrition and destruction of the domestic refineries. If the trend wre allowed to continue, the United States will in the forseeable future U.S. gasoline marketers will find it necessary to export domestic oil production to foreign refineries and then import the refined gasoline and aviation fuel back into the United States at vastly increased costs. Some companies are already looking at the prospect of constructing tanker ships for the transport of gasoline from foreign refineries.
Before you go around trying to scapegoat investors who are financing oil reserves for the small fraction of the total market of petroleum out of their own pockets, you had better look at the actual barrels of petroleum being produced andd sold versus the number of barrels of petroleum being traded by speculators on the commodities markets. Speculators simply cannot inflate the contract prices which are not sold on the commodities markets and they are unable to trade in the first place, which means the vast bulk of petroleum sold around the world.
If you want o blame and scapegoat someone for the high gasoline prices, why don’t ou start with the people who are blocking the construction of the Keystone XL pipeline and the people who are blocking the continued operation of existing oil refineries and the construction of new oil refineries. Obama and the Obama Administration aer blocking the keystone XL pipeline as payback for the political campaign monies from Warren Buffet and George Soros. Warren Buffet’s Berkshire hathaway owns the Burlington Northern & Santa Fe railroad that is the only economical means of transporting the Bakken oil production to the refiners. The keystone XL pipeline would end that monopoly and lower the costs for this petroleum and make it possible to lower gasoline prices in the northwest. Yet here you are trying to demonize, villify, and lynch the reputations of the speculators who are helping to finance lower prices at their own expense or profit.
Uh, I did just that:
The real blame lies with the nitwits such as Obama and his minions who try to sandbag production increases.
However, since you mentioned refining capacity, refiners have deliberately taken capacity off line. It isn't just the enviro-nuts.
And my point stands, there needs to be position limits on those who are neither producers nor end users.
As I already commented upon and you disregarde, the oil coporations are selling and closing refineries as a consequence of the politicians making it operationally and/or financially necessary to do so. The EPA is making it increasingly difficult to continue the operation of refineries, especially the older refineries where the costs of retrofitting the latest emssions controls and spill safety mandates are too uneconomical or risky due to potentail lawsuits. The refinery must then either be sold to a comapny who can justify the costs and risks of legal complications or the refinery must be closed, demolished, and the real estate remediated at great expense. Given the political landscape where there is no relief in sight for many years to come, what would you have them do? do you really think they should take such financial and other risks when there is not enough consumer demand to keep the refinery from being idled or not enough market for its products to remain profitable?
Aiken County, SC yesterday, Friday: $3.599/gal
Today, Saturday, 3.479/gal
Gotta love that, “plunge in crude futures.” :)
I wish someone with credible creds would do a comprehensive story on how the price of gasoline is determined, from the oil field worker to the worker at the corner convenience store.
I understand retail profit is about $.02/gal. I watch the futures prices. There doesn’t seem to be much coordination between that and the retail price. So, what gives?
Horsecrap. The refiners themselves have admitted such:
http://www.theatlantic.com/business/archive/2013/02/why-are-gas-prices-so-bizarrely-high-right-now/273357/
"Atlantic Basin capacity closures have improved refining fundamentals," the nation's biggest refiner, Valero, said in a slide presentation at a Credit Suisse conference this month. It estimated that nearly 1 million barrels a day of refinery capacity has been closed on the East Coast or in the U.S. Virgin Islands in the past two years, which Valero said allowed it to increase profit margins.
And BTW, I don’t blame refiners like Valero from making business decisions to improve their margins. Just don’t pretend this is all the fault of the enviro-weenies. Blame is all around here.
I think it is mostly Obunghole.
Speculators.
Some day I hope to read a serious explanation of this.
Every trade is a two way street.
If one trader bets the price is going up, he must find another trader who thinks the price is going down.
It’s just like every other market in the economy.
If there are more buyers than sellers, the price goes up.
Oil prices are set in a world oil market. Speculators speculate that oil prices will fall as well as that they will rise. If they speculate the wrong way, they lose their shirts. That is why an exhaustive investigation in 2008 by the Commodities Futures Trading Commission, which unlike Obama’s politicized Justice Department actually enjoys expertise on the issue, concluded that the net effect of speculation was to reduce prices. That is because all the speculation just nets out to accelerating market recognition of supply and demand conditions, making oil prices smoother and less volatile, reducing risk and hence price.
That is why as Investors Business Daily editorialized on April 26, “At last count, 35 such investigations have been conducted over the decades, and none — not a single one — has turned up wrongdoing by investors or oilmen.” All of this talk of speculation is just boob bait for bubbas, intentionally misleading the gullible, uneducated, and easy to command. As IBD added, “Rather than carry out another useless inquisition of private citizens, our political class should be investigating its own role in the price crisis. The result would be a revelation for those who fall for Washington’s line about greedy businessmen whenever gasoline prices become painfully high.”
http://spectator.org/archives/2011/05/04/obamas-war-on-oil/
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