The price of gasoline

[bjornolf]

Here in DC, the attorney general is investigating a company that owns 164 gas stations in the metro area for price gouging and practices leading to higher prices at the pump. If they find anything, I hope they nail them to the wall.

[roywhite]

Here in DC, the attorney general is investigating a company that owns 164 gas stations in the metro area for price gouging and practices leading to higher prices at the pump. If they find anything, I hope they nail them to the wall.

Drove up and back from NC to DC area for a conference over the last few days. I was surprised to see the prices in Northern VA were as much as 20 cents per gallon higher than those in Southern VA. Richmond area was also expensive compared to areas around Danville and South Boston.

[Doug.I.Am]

Right now WTI crude is at $95.66. It hasn't been that low since February and a gas station in the area actually hiked it's price to $4.13 a gallon yesterday. What the heck don't I understand? I always thought there was a direct correlation twixt the price of oil and the price of gas, or is that only when the price of oil rises?

[theAlaskanBear]

I have been withholding comment on this thread due to the direct political/ppb nature of my comments. Have the mods decided to open this up for discussion?

[hurleyfor3]

I have been withholding comment on this thread due to the direct political/ppb nature of my comments. Have the mods decided to open this up for discussion?

It's been open. Discussion of oil/gasoline prices, why they are at the levels they are, and where they may trend, is fair game. Discussion of government policy towards same (taxation, policies regarding exploration/alternatives, etc) is PPB.

Whether price-fixing is going on walks a rather fine line. My stance is the two people most responsible for the level of oil prices are you and me.

[bjornolf]

My stance is the two people most responsible for the level of oil prices are you and me.

The problem is that that's not even true any more. They said on the news this morning that the prices have driven demand WAY down, to the lowest point in years, and supply is higher than it's been in years. If that's the case, then we have become irrelevant to their money grabbing play.

[theAlaskanBear]

It's been open. Discussion of oil/gasoline prices, why they are at the levels they are, and where they may trend, is fair game. Discussion of government policy towards same (taxation, policies regarding exploration/alternatives, etc) is PPB.

Whether price-fixing is going on walks a rather fine line. My stance is the two people most responsible for the level of oil prices are you and me.

Except that you can't accurately discuss the "valid" part without discussing the "invalid" PPB stuff. The gas and oil industry is all about taxation, exploration, government policy, consumer and corporate law.

Oil and gas do not follow the traditional supply and demand laws and therefore should not be treated as such...all I will say here is that gas prices are way too high to be accounted for except by collusion/price-gouging measures.

[hurleyfor3]

Except that you can't accurately discuss the "valid" part without discussing the "invalid" PPB stuff.

Then don't discuss it.

I can say this: For more than 10 years I either walked or biked to work. Didn't own a car. No government ever coerced me to live this way. Rather than complaining about taxes, politicans or corporations, it's always an option to just use less of the damn stuff.

[devildeac]

The problem is that that's not even true any more. They said on the news this morning that the prices have driven demand WAY down, to the lowest point in years, and supply is higher than it's been in years. If that's the case, then we have become irrelevant to their money grabbing play.

Except that you can't accurately discuss the "valid" part without discussing the "invalid" PPB stuff. The gas and oil industry is all about taxation, exploration, government policy, consumer and corporate law.

Oil and gas do not follow the traditional supply and demand laws and therefore should not be treated as such...all I will say here is that gas prices are way too high to be accounted for except by collusion/price-gouging measures.

Then don't discuss it.

I can say this: For more than 10 years I either walked or biked to work. Didn't own a car. No government ever coerced me to live this way. Rather than complaining about taxes, politicans or corporations, it's always an option to just use less of the damn stuff.

I'm not sure use is WAY down but I'd guess 10% lower with more fuel efficient cars, 2 years or more of a depressed economy and perhaps more economic and environmental awareness. I have also heard/read inventories are fairly high also.

And we (our family) have reduced our personal usage through higher MPG cars and by driving about 20% less miles/year. Yet, as the 2 prior posters point out/suggest, the price increases over the last several months has been out of proportion to supply/demand for the most part.

What else do you/we do to reduce US/global consumption? Higher fossil fuel taxes? Large incentives on alternative energy transportation or even larger penalties on grossly inefficient vehicles? I'm not even going to suggest exploration for more sources of the black stuff as that, if successful, would likely further feed our already almost insatiable appetite for the refined product (but obviously not for years as I realize the time from discovery to our tanks would likely be years).

[rthomas]

So this may push this into the nether regions for this board but: why are we giving tax breaks to BP, Exxon Mobil, Shell, Chevron and Conoco Phillips? The tax breaks would raise about $1.2 billion in 2012. By comparison, the five oil companies had combined revenues of $1.5 trillion last year.

Read more: http://www.foxnews.com/us/2011/05/12...#ixzz1MBFf51bb

I chose to link Fox for the more right wingers of you out there. So kick me off if this is PPB, but it really p's me off.

[sagegrouse]

Probably wrong.

Crude oil is a commodity, as are its high-volume refined products (gasoline, diesel fuel, lubrications products, etc.). There are organized markets for most commodities.

A commodity typically has a "spot price," or a cash price, at which it is bought and sold. A "futures price" is just what it sounds like -- the price for the delivery of the commodity at a future point in time.

The spot price of oil is not just the equilibrium price that equates current consumption with current production. The spot price is influenced by expectations of what the price will be a year from now. Particularly because of this latter influence, the prices of oil and other commodities bounce all over the place, influenced by the actions of consumers and producers and the actions of speculators. Speculators serve a useful purpose in enabling folks to contract for delivery of a product in the future. Needless to say, there is much potential for mischief.

As an example not specific to oil: In September and October 2008, while the market was crashing, Mr and Mrs Sage Grouse were visiting Australia and New Zealand. The price of the Aussie and NZ dollars immediately fell 20% against US dollar (which was good for us). Why? Well the relatively high price of the Aussie dollar was because China was importing and expecting to import more and more minerals from Australia. The world market crash dampened those expectations of future export sales to China and returned the Aussie to more historic levels vis a vis the USD. (And the NZ dollar is always pegged about ten cents below the Aussie dollar, and no one knows why.)

Who controls the oil market? Well, OPEC clearly has the largest influence, but as a coalition of voluntary players, it is rather undisciplined and unstable, as most cartels have been. I don't see any consumers out there big enough to affect prices. The U.S. government with its petroleum reserves (naval and other) can have some short-term effects and may serve to dampen some speculative behavior. Otherwise, except for burning a lot of oil in aircraft, ships, trucks and armored vehicles, the US government role as an actor in the market is small.

sagegrouse

[devildeac]

So this may push this into the nether regions for this board but: why are we giving tax breaks to BP, Exxon Mobil, Shell, Chevron and Conoco Phillips? The tax breaks would raise about $1.2 billion in 2012. By comparison, the five oil companies had combined revenues of $1.5 trillion last year.

Read more: http://www.foxnews.com/us/2011/05/12...#ixzz1MBFf51bb

I chose to link Fox for the more right wingers of you out there. So kick me off if this is PPB, but it really p's me off.

Interesting question/s and arguments on both sides of the debate (more taxes vs big business interests). The current committee/administration doesn't look like they are going to reach any consensus and solve this, nor did any of the prior administrations since our 1st oil embargo in 1973. That is NOT meant to be a partisan statement. I have to wonder how/why this country allowed the multiple mergers of the oil giants over the last 30 years or so (my memory is foggy so someone with economic, political and judicial expertise help me with the history and rationale here, please) which has created the 5 companies mentioned above who profit by the billions when oil prices increase so dramatically as they did about 3 years ago and have done so again this year.

[77devil]

Interesting question/s and arguments on both sides of the debate (more taxes vs big business interests). The current committee/administration doesn't look like they are going to reach any consensus and solve this, nor did any of the prior administrations since our 1st oil embargo in 1973. That is NOT meant to be a partisan statement. I have to wonder how/why this country allowed the multiple mergers of the oil giants over the last 30 years or so (my memory is foggy so someone with economic, political and judicial expertise help me with the history and rationale here, please) which has created the 5 companies mentioned above who profit by the billions when oil prices increase so dramatically as they did about 3 years ago and have done so again this year.

Most of the mega mergers(Conoco/Philipps, Exxon/Mobile, BP/Amoco and Chevron/Texaco/Unocal) occurred in the last 15 years. These are the high profile names, but more important to the price of gasoline is the concentration of U.S. refining capacity as a result of many additional smaller mergers. As a consequence, the almost 30 major refiners in the mid to late 90's has concentrated into less than 10. And there hasn't been a grassroots, new refinery built in the U.S. in the more than 30 years. As a result of increasing consumer demand, industry concentration, and debottlenecking instead of building capacity, the U.S. refiners as a whole carry a significantly lower level of excess capacity relative to U.S. industry. This has enabled increased price leverage and a higher than historical profit margin.

Not surprisingly, the price of gas at the pump net of the cost of crude and taxes has substantially exceeded the historical average for most of the last decade.

[OZZIE4DUKE]

Most of the mega mergers(Conoco/Philipps, Exxon/Mobile, BP/Amoco and Chevron/Texaco/Unocal) occurred in the last 15 years. These are the high profile names, but more important to the price of gasoline is the concentration of U.S. refining capacity as a result of many additional smaller mergers. As a consequence, the almost 30 major refiners in the mid to late 90's has concentrated into less than 10. And there hasn't been a grassroots, new refinery built in the U.S. in the more than 30 years. As a result of increasing consumer demand, industry concentration, and debottlenecking instead of building capacity, the U.S. refiners as a whole carry a significantly lower level of excess capacity relative to U.S. industry. This has enabled increased price leverage and a higher than historical profit margin.

Not surprisingly, the price of gas at the pump net of the cost of crude and taxes has substantially exceeded the historical average for most of the last decade.

There hasn't been a new grassroots refinery built in the U.S. in 30 years because because of the environmental regulations and NIMBY - no one wants it built near them, or as the acronym says, in their back yard. So all the existing refineries expand and modernize. Today's refineries, for the most part, are nothing like the refineries of 30 years ago - they produce their products far more efficiently, far more safely and far more cleanly, and meet our energy requirements. Realize that they are dealing with a flammable and explosive product, and when the concentrations and temperature and pressure conditions are right, or wrong as the case may be, fire and explosion results, so nothing is perfect. Fortunately their safety records are reasonably good, and with few exceptions, the management personnel don't want to die either. Disclaimer - I don't work in the gas and oil industry, I never have, and I've never been on a well or rig. But I have sold industrial instrumentation (measurement and control equipment) for 30 plus years that is used in those industries and have talked with people who have sold to those applications, so I do know a little about what I'm talking. My experience is in similar chemical plant applications along the Carolina coasts in Wilmington and Charleston.

Did you know that there used to be a small refinery in Wilmington? I believe it closed about 10 years ago. It had one cat cracker and produced heavy fuels, not gasoline. Also, back in the early 80's Exxon wanted to build a large refinery near Wilmington, across from the port, but NIMBY and environmental regulations shot it down.

[77devil]

There hasn't been a new grassroots refinery built in the U.S. in 30 years because because of the environmental regulations and NIMBY - no one wants it built near them, or as the acronym says, in their back yard. So all the existing refineries expand and modernize. Today's refineries, for the most part, are nothing like the refineries of 30 years ago - they produce their products far more efficiently, far more safely and far more cleanly, and meet our energy requirements. Realize that they are dealing with a flammable and explosive product, and when the concentrations and temperature and pressure conditions are right, or wrong as the case may be, fire and explosion results, so nothing is perfect. Fortunately their safety records are reasonably good, and with few exceptions, the management personnel don't want to die either. Disclaimer - I don't work in the gas and oil industry, I never have, and I've never been on a well or rig. But I have sold industrial instrumentation (measurement and control equipment) for 30 plus years that is used in those industries and have talked with people who have sold to those applications, so I do know a little about what I'm talking. My experience is in similar chemical plant applications along the Carolina coasts in Wilmington and Charleston.

Did you know that there used to be a small refinery in Wilmington? I believe it closed about 10 years ago. It had one cat cracker and produced heavy fuels, not gasoline. Also, back in the early 80's Exxon wanted to build a large refinery near Wilmington, across from the port, but NIMBY and environmental regulations shot it down.

Ozzie, I agree in large part with your first statement. In addition, it's always more risk averse and cost effective to modernize a refinery or buy capacity than build grassroots regardless of the regulations due to scale and the very long ROI cycle. The companies have operated very rationally in this respect. Nevertheless, as the refiners have concentrated, some capacity has been mothballed contributing to the relatively tight supply/demand relationship in this industry. It's not a coincidence. And there is the issue of different state/regional gasoline standards such that capacity in one part of the country cannot necessarily be diverted to relieve a shortage in another.

Safety has been a more uneven story between companies than you suggest, in my opinion, and this is true in the chemical industry as well. The best are really excellent, but there are laggards.

[budwom]

Noted Duke prof Dan Ariely has an interesting take on the gas price issue. He says the issue is magnified in people's minds because it's one purchase where you literally stand there and watch the expenditure roll up on the pump. As such it affects us more psychologically.

I tend to agree. Anyone who has bothered to pay attention should have noticed by now that as long as China and India (among other places) continue to develop and use oil, the price is going to rise on a long term basis. Those who haven't planned accordingly (and have bought immense, gas-sucking vehicles) don't have my sympathy.

(Which is not to say some gas dealers aren't gouging, nor do I feel the oil companies have much need to generous tax breaks these days).