Oil’s Down, Gasoline Isn’t — What’s Up With That?

http://spectator.org/articles/63865/oil%E2%80%99s-down-gasoline-isn%E2%80%99t-%E2%80%94-what%E2%80%99s ^ | 8/25/15 | m noon

[bestintxas]

A little more than a year ago, oil prices were above $100 a barrel. The national average for gasoline was in the $3.50 range. In late spring, oil was $60-ish and the national average for gas was around $2.70. The price of a barrel of oil has plunged to $40 and below—yet, prices at the pump are just slightly less than they were when oil was almost double what it is today.

Oil and gasoline prices usually travel up or down in sync. But a few weeks ago the trend lines crossed and oil continued the sharp decline while gasoline has stayed steady—even increasing.

Oil’s down, gasoline isn’t. Consumers are wondering: “What’s up?”

Even Congress is grilling refiners over the disparity.

While, like most markets, the answer is complicated, there are some simple responses that even Congress should be able to understand. The short explanation is “refineries”—but there’s more to that and some other components, too.

Within the U.S. exists approximately 20 percent of the world’s refining capacity. Fuel News explains that “on a perfect day,” these domestic facilities could process more than 18 million barrels of crude oil. But due, in large part, to an anti-fossil fuel attitude, it is virtually impossible to get a new refinery permitted in America. Most refineries today are old—the newest major one was completed in 1977. Most are at least 40 years old and some are more than 100. Despite signs of aging, refining capacity has continued to grow. Instead of producing at 70 percent capacity, as they were as little as a decade ago, most now run at 90 percent. They’ve become Rube Goldberg contraptions that have been modified, added on to, and upgraded. The system is strained.

[thackney]

You are changing the subject. This wasn’t about schedule shutdowns. This was about significant damage to a producing unit.

[A Formerly Proud Canadian]

No, it was about collusion and controlling the pump price. YOU chose to blame it all on problems with the poor, dear oil companies and their equipment.

As I mentioned with TransAlta, minor issues that could have been worked around instead were used to artificially inflate the price by shutting such plants down when they could have continued operating. IF oil companies were to collude in a similar way, shutting down parts of their various refineries when there were ‘work arounds’ to keep production going, because of the price inelasticity, ALL would gain. THAT is the issue!

When Enron collapsed, MANY Canadian producers of both petroleum products AND electricity (read TransAlta) were sued because of COLLUSION with Enron. They manipulated energy prices. There are STILL people in the energy business who were involved. Most executives of major companies earn bonuses based, at least in part, upon share price. When the price falls, such as has happened over the last little while, their bonuses wither. All of a sudden, that new Bentley Mulsanne and that chalet at Jackson Hole and that summer house in the Hamptons are suddenly unaffordable. “GET ME MY SHARE PRICE, OR ELSE!” comes the order from the Executive suite... A comment like that is a STRONG motivator, instilling fear in many and some will do anything to save their jobs. Calgary has lost over 40,000 jobs in the last year. Do you not think that some, either by order or by insinuation and fearing job loss, WILL collude? OF COURSE!

As my dear departed aunt would have said, “SOSOS”:Same Old S$%& Only Softer! The legacy of Enron’s illegal actions continues to this day.

[thackney]

You responded to my post #72. My whole discussion has been about the refinery unscheduled shutdown.

Start another thread if you want. I’m not changing the topic on this one.