mbcijim 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?
!!
