Archive for Monday, February 16, 2009

Oil getting cheaper; why isn’t gasoline?

February 16, 2009


— 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.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

“We’re going definitely over $2, and I bet we’ll hit $2.50 before spring,” said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. “This is going to be an unusual year.”

The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.

That foreign oil sells in some cases for $10 more per barrel — and that doesn’t even include shipping.

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.


lionheart72661 9 years, 1 month ago

I am betting that the oil producers and big oil companies think that the american public is stupid.(WE ARE NOT) They come up with new excuses for oil prices going up while in the same breath boasting "HUGE" profits and paying outgoing CEO's enormous retirement bonuses. There is NO reason to have prices over the current price right now. Example: when prices first went up they blamed it on U.S. demand,the very next day the same analyst said U.S. demand went down but forigen demand was up so prices will stay up. I don't know about the rest of america but I'm not paying for other countries fuel demand. Note to big oil companies/producers.."WE WATCH THE NEWS AND KNOW THE GAMES YOU PLAY...THE AMERICAN PUBLIC IS NOT STUPID."

notajayhawk 9 years, 1 month ago

Okay, one more time for the slow folks:

Like any other product, the price of gasoline is set at what the market will bear. If you keep buying it, they'll keep selling it at higher prices until you buy less, then the price will come down. How many times do you have to see this happen before you believe it?

Chris Beilman 9 years, 1 month ago

Played like a simple game ... They set the price at the market ... The price goes up ... We use less ... They cut production .. The price goes up ... China uses more .. The price goes up again ... We use less ... They cut production again .. The price goes up .. A hurricane threatens the gulf coast, but does minimal damage ... The price still goes up again .. We lose again ... Give up ?? We can never win the game even when we conserve our consumption ...

jafs 9 years, 1 month ago

As long as OPEC controls the supply of oil, market forces will not operate as they are supposed to.

Chris Ogle 9 years, 1 month ago

My guess is OPEC aint sharing the wealth.

just_another_bozo_on_this_bus 9 years, 1 month ago

" When there are so many enviornmental restrictions and regulations on oil refineries and energy companies in general,"

Why, yes, I'll gladly just choke to death for $1 a gallon gas.

Left_handed 9 years, 1 month ago

"Why, yes, I'll gladly just choke to death for $1 a gallon gas."

Promises, promises.

Chris Ogle 9 years, 1 month ago

Hi Bozo- Glad to see you are up and around before I have to go back to work.

Janet Lowther 9 years, 1 month ago

I was shocked to read a while back that a major refiner was threatening to close two of its older, less efficient refineries if they couldn't sell them.

They were unwilling to invest in upgrading the refineries' efficiency.

This in a market where there is a decidedly tight supply.

Something is rotten in the state of the oil industry.

just_another_bozo_on_this_bus 9 years, 1 month ago

"Glad to see you are up and around before I have to go back to work."

I thought you were retired.

Uhlrick_Hetfield_III 9 years, 1 month ago

Sounds like BS to me. There's always an excuse for why big oil can screw us.

Chris Ogle 9 years, 1 month ago

just_another_bozo_on_this_bus (Anonymous) says…

“Glad to see you are up and around before I have to go back to work.”

I thought you were retired

Retirement didn't last long. Taxes come from people like me (taxpayers) Thanks for your concern.

just_another_bozo_on_this_bus 9 years, 1 month ago

"Taxes come from people like me (taxpayers) "

Looks like we're both bozos on that bus, too.

Chris Ogle 9 years, 1 month ago

Hey Bozo- Did the rich people take my money, or did the the poor people? Either way, off to work I go.

just_another_bozo_on_this_bus 9 years, 1 month ago

"Did the rich people take my money, or did the the poor people?"

If it's the latter, they apparently aren't very good at it.

avoice 9 years, 1 month ago

  1. During the Presidential campaign, both candidates decried our dependence on foreign oil. John McCain and all the Republicans at the convention loudly urged us to "drill, baby, drill."

  2. Now we're drilling and filling up warehouses with apparently cheap oil that no one wants to buy, so the price goes lower and more and more warehouses fill up.

  3. Meanwhile, we're buying more expensive, yet inferior-grade, oil from OPEC nations. So, at the pump, the price goes up, up, up.

What's wrong with this picture? How about stimulating our ability to transport and refine U.S.-produced oil?

But locally, we should be reaping the benefits of availability of West Texas crude that is, apparently, being refined in the Midwest. Does this mean our area gas stations are actually able to buy cheaper but are keeping prices escalated along with the rest of nation and pocketing windfall profits? Or is it the midwest refineries that are buying low and selling high? Either way, it's increasingly obvious that oil is the most blatantly manipulated to banking, that is.

bad_dog 9 years, 1 month ago

"Car I can drive for five years with only minimal maintainence, a car that will return over 20 mpg on the highway, a car that can carry six people and all their junk if I want and a car which is very safe in collisions; a car gurranteed to wipe out an offending Asianmobile in such a collision."

I'd be surprised if you exceed 16-17 mpg in that barge Marion, especially when you load it up with 6 passengers and all their junk even with it's primitive throttle body fuel injection. Good luck with the center front passenger riding the "crack" with the armrest as their seat back. I've been in many of these vehicles over the years and none of them could sniff 20 mpg on the highway even with only 4 passengers. The car was originally rated at 13/17 and maximum highway speeds were 55 mph in that era.

As for crash worthiness, I'll take a current model vehicle with airbags (no, I'm not describing you Marion) crumple zone technology, front wheel drive, traction control, etc any day over your lead sled which most likely has rusty subframe and suspension components. That's 1984's version of crumple zones.

Given the age of your present ride, I'll bet you'll be looking at replacing items on your "minimal maintenance" ride like the catalytic converter/exhaust components, fuel pump, power window/door lock switches and motors, the heater core/fan, radiator, water pump, master cylinder, brake rotors/drums and pads/shoes, AC compressor, shock absorbers, etc. over the next 5 years. Detroit was nearing the apogee of their crap building circa 1984-so good luck to you. Does yours have the horn button on the the blinker stalk? LOL

I will say this, they did have a great ride and are fairly easy to work on. Good thing, you'll need it. Do the safe/smart thing and just leave it parked.

As for spending $40,000 to get good gas mileage, once again you are the master of the overstatement. You can purchase a Kia or Hyundai for 11-14K, a Ford Focus for about 15K, etc.- all brand new. Program or decent used cars are even cheaper.

My most recent acquisition gets 36 highway mpg and sells new for 17K-complete with 5 star safety ratings all around. While it has Asian heritage, it's manufactured and assembled in the U.S by American workers and isn't primarily composed of imported parts and subunits.

To each their own.

NoSpin 9 years, 1 month ago

Plain and simple- The oil companies are refining less oil to lower inventories(supply) and therefore driving up costs. OPEC will drive up the cost as they know the new administration will not drill for its own oil and will continue the dependence on the foreign oil. It will take many years to get off the oil and by that time we will really be at their mercy. We need to bridge the gap between now and when we are able to use a completely alternative energy that is affordable by drilling in the US now. Can most Americans afford a $40K electric Chevy Volt? Don't think so. Then people will cry that only the rich can afford it while the poor have to use the expensive gasoline. Let's do the right thing:drill and develop a sensible alternative. BTW, what do we do environmentally speaking about the old batteries from the hybrids and electric cars? Will that be an issue?

just_another_bozo_on_this_bus 9 years, 1 month ago

"If their pollution affects your property, then you can sue them and get an injunction, and they'll have to pay you off or find some other way."

I'm more worried about my health than my property. And I really fail to see how what you suggest is any more efficient or less bureaucratic than having regulations limiting pollution.

bad_dog 9 years, 1 month ago

"Smog pumps replaced with Ford Motor Sports “off-road” air pump idler pulley and the air system scrapped, thus improving engine efficency, power and fuel economy."

So you're saying your LTD is no longer EPA compliant or street legal? Shame on you Marion. I'll bet she'll really power brake though ;-)

Low mileage doesn't necessarily connote no rust. Frame rails rust internally as well as on the more visible external components. Gas tanks and fuel/brake lines also corrode, often without visible signs

Ordinary maintenance typically is somewhat relative in the life of a car. I typically consider that to include items like oil & filter changes, tune-ups, etc.; not the laundry llst I referenced above. Wait and see, Marion. I saw all these items replaced by friends when their cars were in their prime (whatever that may have been) and not 25 year-old, 17 foot long cargo barges that requires permission from the Harbor Master to dock, I mean park.

Don't get me wrong; I really liked American iron at one time. I'd still love to own a late 60's pony car again. It's just that they've put such junk on the streets since the mid 70's. I refuse to pay good money for the unreliable and generally styling devoid crap they foist on the public. It does seem to be getting a little better lately though, eg, Chevy Malibu, Ford Fusion, etc.

I did appreciate your comment re: converters. Many of them become just that-resonators or a pain in the butt airflow restrictor. Perhaps you should drop a in set of headers and put some 20s on that beast?

bad_dog 9 years, 1 month ago

BTW, Marion, is it an '84 or '86 Crown? You posted both vintages above.

just_another_bozo_on_this_bus 9 years, 1 month ago

"I would take power away from the government to protect the environment and put in in the hands of the people directly affected by it."

I'm all for allowing people their day in court, but your suggestion merely takes the power away from the bureaucracy of the executive and gives it to the bureaucracy of the judiciary, which currently doesn't exist on the level you envisage, meaning that they aren't really equipped to monitor and enforce the regulations that they would be required to impose if they are going to have any effect. Fines, while they can be a useful enforcement tool, really are not an adequate substitute for carefully designed and clearly defined regulations.

lionheart72661 9 years, 1 month ago

to not a jayhawk..did you not read what i said? Well i will repeat myself. Just after the gas prices started going up the news anaylist on tv said it was because the demand was so high.The very next day this same anaylist got on and said demand in the U.S. went down but demand in other countries were still up. Then another lie that was told from the big oil companies was that prices should stay high incase of a shortage.And now barrypenders is blaming Obama just like bush was blamed.The real villans are the big shot oil companies. I remember reading a few weeks ago they were renting tankers to store excess fuel because demand went down.

just_another_bozo_on_this_bus 9 years, 1 month ago

" you can't pollute if it affects anyone else's property interests?"

I'm as much an environmentalist as it gets, but that's an impossible standard to meet unless we just all want to dig ourselves some holes and jump in.

Besides, to slightly lesser extent, that standard already exists. While the judiciary can be the proper venue to determine whether an acceptable level of pollution has been exceeded, industries need more guidance on their activities than just the knowledge that they can be slapped with big fines and injunctions if they exceed some ill- or un-defined level. Once legislatures and courts have determined what "acceptable" is, business needs clear guidelines (as in regulations) to know that they are on the right side of the law.

Frequently, as we learn more about the effects of our actions on the planet we all live on, the assessment of what is acceptable changes. That's currently happening with CO2. It would be the height of irresponsibility to build the coal plants in SW Kansas right now, knowing full well that they could be hit with a mega judgement as soon as they go on line because of all their CO2 emissions-- there are better ways to spend those $billions.

just_another_bozo_on_this_bus 9 years, 1 month ago

You've got a mighty romantic idea of "property rights" and how easily they are defined. By your definition, no one would be able to do anything on their property, because almost any action anywhere can be described as damaging to someone else's property rights.

That's because "property" is an abstraction-- it's not real, no matter how badly you hardcore libertarians want to pretend otherwise.

GardenMomma 9 years, 1 month ago

"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.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil."

AM I not reading this right?...US reserves (of a premium grade) are "brimming" but foreign oil goes into the gas made in the US? Why? Why not use the crude that is "brimming" in US surplus to make our own gasoline? Seems to me that it would be cheaper all the way around.

jonas_opines 9 years, 1 month ago

Imagine being tired of a poster's attacks and scummy behavior.

Or their elitist self-congratulations. Or their paranoid ravings. Or their hypocritical whining. Or their endless accusations. Or their. . . .

notajayhawk 9 years, 1 month ago

76trombones (Anonymous) says…

"Give up ?? We can never win the game even when we conserve our consumption …"

Perhaps you weren't paying attention over the past few months when gas dropped from $4/gal to less than $1.30/gal.

Geez, why isn't Economics 101 a required course?

When the price goes up, end-consumers use less. This creates a surplus in the finished product (gasoline) which means the middle-men (e.g. gas stations) buy less. That creates a surplus at the refineries so they buy less of the raw product (oil). Which eventually drives down the price of a barrel of oil because the folks who drill the stuff can't drink it.

Then the cycle reverses: The people who drill the stuff (like OPEC) sell off their surpluses and cut back on production, because they aren't getting what they want for a price on a barrel of oil. That creates shortages and higher demand all the way up the chain. Eventually we have something called equilibrium, which is why both oil and gasoline prices may fluctuate wildly over a period of a year or two, then stay stable for periods of a decade or two.

The prices of the two - the raw product (oil) and the finished end-product (gasoline) often seem to move in directions that make them appear disconnected. That's because of the number of steps in the process (which I've oversimplified here) and numerous complicating factors which affect every stage. It used to work much more smoothly, but then the government decided monopolies were bad, even 'vertical' monopolies, and said a company can't own everything from the wells all the way to the gas pumps.

If you don't like the price, stop buying it (or at least buy less). If you keep buying it, they aren't gonna' decide out of the kindness of their hearts to make it cheaper. Here's a newsflash - neither do the merchants who sell you everything else you buy; there's no reason they should, and there's no reason the oil companies should, either.

lionheart72661 9 years, 1 month ago

Ok now we blame obama,before it was Bush. Pay attention to some political correctness. The road to the white House is a road of lies and deception. The president is nothing but a figure head and a scapegoat. CONGRESS which is the opposite of PROGRESS is the main culprit. So stop blaming the president and start blaming congress. Example: congress passes a bill > president either signs or vetos bill > if passed congress happy if vetoed congress (by majority vote) overrides veto!!! Our Government in simple form

Shelley Bock 9 years, 1 month ago

Wow..."No night games" Marion is at it again.

He writes..."baby-raping needle-equipped bug-intercourser".

Don't worry. He doesn't understand English, can't read a court document and hides when proven wrong. But, that was a little strong even for him. Must be a bad day.

Flap Doodle 9 years, 1 month ago

girlfriend's being cranky. Must not be getting enough bulk in his diet.

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