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Posted By MCPO,
Sep 9, 2008 at 4:16 PM
What HE said!
I'm all for the oil companies making money. Lately though it has been the retailers and the refiners.
Oil is down $50/barrel. There are 42 gallons in a barrel of oil (not 55). That's $1.20/gallon. Or a $1.10 gallon prior to Ike. That's $1.20/gallon LESS going to the supplier. We've seen a $.30-$.40 reduction at the pump.
So either the refiner, retailer or distibuter are getting that other $.90/gallon. As far as I know, no supply & demand problem there other than the refinery's.
First off, we've seen nearly a $1/gallon reduction in gasoline in CT -- from a high of $4.49 to last week's $3.61 or more than twice your number. Second, oil is not all gasoline, nor is all oil equal in terms of the gasoline that it produces. On average a barrel of oil only produces 19.5 gallons of gasoline. Venezuelan oil only produces 5% gasoline (or 2.1 gallons) while Texas sweet produces 30% (12.6%) in a straight run (initial distallation). After that it takes a lot of work to make gasoline - catalytic and thermal cracking, hydrocracking, catalytic reforming, alkylation, and polymerization - none of which is cheap or easy.
Finally, the price of oil on the "market" that's reported everyday is not the price of oil coming out of the well head. IIRC the current cost of oil at the well ("next barrel pricing") runs around $50ish a barrel. The $100 barrel is the price of the commodity on the world market based on investor decisions on the likely demand, supply, and impact of world events (hurricanes, war, etc). This is no different than any other commodity like coffee, sugar, pork, beef, etc.
Somewhere in the late 90s we moved from a supply/demand market to a demand only market. That means the demand drives the price because we are at peak pumping (not to be confused with peak oil which changes based on price & technology and refers to when what's left to be pumped is less than what we have pumped already). The situation today is that we are pumping very nearly 100% capacity - there isn't the ability for someone to fire up more wells or run them longer/harder to produce bunches of more oil like there was back in the 70s/80s. On a "normal" day, demand and supply are almost exactly matched. (There is some capacity for over production like the Saudis who were over boosting their wells for the past couple of months by about 500,000 barrels a day to reign in pricing, but that shortens the life of the well and reduces the total amount of oil that can be produced by a well - kind of robbing Peter to pay Paul now scenario).
So, the only factor that really matters in the price of oil and any of its derivatives is demand. If the markets believe demand will rise or exceed supply they will price the commodity higher. If demand is projected to drop then the price drops. This is a global demand and not directly related to what you or your neighbor does in terms of demand. When hurricanes shutdown wells (3,800 of them in the Gulf of Mexico for the last week) or refineries (1 out of 5 in the US) or someone blows up a pipeline (Nigeria) but the global demand stays static - then supply will be reduced and demand will oustrip supply and the price of oil & its derivatives goes up. When refineries switch to home heating oil production over gasoline, the supply of gasoline drops and the price goes up. When gas is produced, home heating oil production drops and the price of that goes up.
We've done a great job of dampening demand lately, but the supply side is pressured and the home heating oil season is beginning so that's going to pressure gasoline as well.
The "gougers" you should be mad about are the people who don't allow supply to increase (e.g. no new wells, no new refineries) or those who add "fuel surcharges" like UPS but never take them off even though fuel prices have dropped 35%. But I guess it's easier to blame oil companies who must have swimming pools filled with cash that they have wild drunken parties in, no?
I applaude your knowledge of the matter. I agree with you on most of your points. There is no supply and demand in the commodities market anymore (speaking of oil specifically). Oil unlike most commodities is more like a guessing game since we donot really know how much oil is left on the planet. Other commodities (Corn, wheat, etc.) can be based on supply and demand because we can create more of these commodities at will. I am not a big proponent of drilling specifically because (IMHO) it will keep us dependent on a natural resource that we cannot reproduce. I am feeling the pain just like everyone else (relatively speaking). But the pain has made me adjust my lifestyle to accomodate the pain. I truly have faith in man and his ability to adapt, especially in adversity. But this (IMO) is a turning point in history that can bring about a new industrial revolution (Renewable Industry) and make us less vulnerable to outside influences whether they be political (the nations that can hold our country hostage via oil production) or natural (drilling for oil until there is not more).
Oil will go back up over $125.00 it has no choice but to. The global market uses 85 million barrels per day, it will go to 87 and 88 soon with China and India booming. Most creditable oil experts say we are peeked @ 85 Million barrels per day.
I agree with most of your reasoning, BUT what does any of that have to do with the gas already in this stations tank. Assuming of course that a NEW delivery came in during that 5 hour time span. It appears to me some were just jumping on the bandwagon. A bunch of thieves plain and simple. Period, my 2 pennies
If you do a search on "gouging" you'll find where I've explained why this happens a couple of times in the past month or so. Simply put, the gas station dealer doesn't price to pay for what's in the tanks - he has to price to pay for the delivery that's coming next week. If that price is going to be higher, he has to raise his price regardless of what it cost him to fill the tanks this week. He pays cash for deliveries (how'd you like a tanker driver to roll up and ask you for a check or wire for $30,000?).
It could have cost him $1/gal to fill his tanks this week, but if it's going to cost him $5/gal on Monday then he's got to charge more than $5 so he's got the cash to pay for next week's delivery when it comes.
I think everyone in the country should spend some time with their local gas station dealer to understand how their business works so they don't knee-jerk blame the poor guys for basic economic activity.
(I have a friend who owns a service station so I see this first hand all the time. It's frustrating to hear all the nonsense people spout about how this "should" all work. It's also one of the reasons so many gas stations have closed -- according to the Journal of Petroleum Marketing there were 187,000 in 1997 and 5 years later were down to 117,000. If it were so easy to make money, you'd think 70,000 station owners must have joined the stupid ranks to close down.)
Well, so far all the armchair experts - except for one or two - on this forum have been dead wrong. Very wrong.
I should count myself the exception, and luckily I put some money where my mouth was (sold my big energy holdings and bought DUG).
It's hard for most people to concede that economics and the oil business are beyond their comprehension....and even beyond the comprehension of the so-called experts.
Yes, oil will go up again. When? Such statements don't do too much good for the person who locked in at $4.50 a gallon and can now buy it for $3.25
Point is, this is all guesswork. The Saudis pump it from the ground for well less than $10. If they need cash flow or sense a threat to their dominance, anything can happen.
Here is a thread from two week ago where we all guess the highs and lows this winter. Note that most people lost already (maybe me too)....
Heating oil in my area is $3.65 a gallon, just posted new prices today.
Get it while you can. I still stick by my original prediction.....4.50-5.00 in peak season. Its low right now.....get it while u can! Jan. 09 4.50 minimum.
Looking foward to the warmth we had in our last house with a wood stove after getting my pellet stove.
Even when oil was somewhat reasonable in order to keep your home a toasty 75 degrees all winter would cost you.
Yes it is a little work hualing pellets or wood but is a warmer cozier heat and heat that comes form the USA.
Here is a site I check out to keep track of home heating oil prices on the NYMEX Exchange.
Bloomfield CT - $3.799 COD, 100 gal minimum.
MPH, you have been 100% wrong so far on the economy and on the price of oil.
I am taking the opposite bet. New lows. The economy is so bad, that demand will fall - and the price will stay or go relatively low. That's my current prediction for the time period until Xmas.
Keep in mind that the $147 was a pure bubble and was a futures price - speculation. I doubt very much oil got sold at that price.
I need about 100 gallons for the winter and have about 25 left in the tank I am planning on the 100 gallon purchase in late October hopefully around $3.00 per gallon at the moment in my area the cheapest for a 100 gallon delivery is $3.55 / GL.
Yep, unless you have a magic sword and can find some dinasaurs to slay? don`t expect oil to stay low for too long? Or, on the other hand, if we have a couple of good global conflicts, lots of human casualities, well, perhaps, those bones can be made into fossil fuel? Guess the naive and the blind can always wish? :coolsmirk:
I while ago, I predicted that oil would settle in at about $90. It wasn't too long ago that I made that prediction, but I have consistently said that the price would come down. (Pats self on back.)
Wrong? I never gave a prediction on the economy....you have been giving them all. lol. I merely have said in the long term we are going to be just fine. I never make such predictions at all. I might "quote" other people on the economy...including people from the liberal side. All the liberals ALWAYS for decades have gave doom and gloom negative predictions...many have flopped. And where other than this post have I said anything on oil prices? I gave you a low and high but I also said for the high it was during the PEAK season and not right now. I stand by it. Also....no serious stabilization on oil prices will take place until mid next summer. Watch.
As for oil....my prediction stands. in the peak season 4.50-5.00 a gallon. Watch.
I paid $3.54 a gal last week. I belong to a local co-op sponsored by CET (center for Ecological technology)
The oil co says it uses a 10% of vegetable oil (biofuel). I can`t find much if any data on this vs 100% fuel oil. I`m hoping it is nearly as efficient.
I agree - its seems like this happens every year. Come November, the price goes way up again. This is why I think this is market manipulation!
It might not have anything to do with the fact that November is when heating season begins, demand goes up and refinery capacity is diverted to home heating oil instead of gasoline and gasoline formulations have to change for oxygenation/clean air issues would it? I guess the only explanation is market manipulation based on election timing, no other logical reason.
I really meant to say that demand will exceed supply which will make the price go through the roof $200.00 a barrel and more? How much will the US scale back or switch to Natural Gas for cars? How much will China and India demand? Who knows but either way its not going to be pretty. Btw I am no expert at all but I do like T. Boone Pickens.
The simple truth is that the price of oil had risen FAR more than the demand had. Thus the bubble.
Oil has indeed been headed up again for the past few days closer to the $100 a brl prediction/hopes of the oil cartel.
oil cartel has not pumped up the price from the recent drop, its the fall of the american dollar due to the current credit crisis, when you print money with nothing to back it up as the fed is doing as we speak, oil will be going back up
i bet 1150 again soon