Posted on 04/16/2020 7:12:11 AM PDT by Kaslin
The Chinese coronavirus has put a huge damper on business activity, consumer spending and transportation, especially recreational/discretionary spending and activity. With the lockdown and stay-at-home orders widespread in the U.S. and many other major countries, personal driving and regular passenger car/bus/train/air travel have all declined precipitously. This has dropped the demand for crude oil by millions of barrels per day. The upside is that retail gasoline pricing has fallen and the average driver is quite happy about the new lower prices. He shouldn’t be. He's getting a raw deal.
As world oil demand dropped, Saudi Arabia and Russia -- two of the world’s top three oil producers (along with the U.S.) -- engaged in a cutthroat crude oil price war in early 2020 as each country vied for market supremacy and dominant market share amid a rapidly weakening market. As a result, West Texas Intermediate (WTI) crude oil pricing has fallen from the mid-$60s at the end of November 2019 to the low-$20s at the end of March 2020. The world’s major oil producers -- both OPEC and the bigger independent players -- have recently come to an informal agreement to slash output in an attempt to prop up oil pricing and stabilize those economies that rely primarily on oil for the bulk of their country’s revenue.
It would be useful to review the four main factors that affect world crude oil pricing. They are:
1. Worldwide Supply and Demand. The demand for oil in the U.S. was at record levels in 2019 as our economy cruised along in overdrive. U.S. productivity was way up, the housing and automotive markets were at or near record levels, consumer spending was at an all-time high, the unemployment rate across all demographic groups was at or near historic lows.
(Excerpt) Read more at americanthinker.com ...
And now for something completely different...
$1.19 in my area.
Lowest MI price 88 cents a gal.
https://www.gasbuddy.com/home?search=49250&fuel=1&maxAge=0&method=
Two counterpoints:
1. This article didn’t adequately address State and Federal taxes, which are a huge proportion of the cost per gallon.
2. The $23.00 price is the price the producer gets and is set in Cushing, Oklahoma (for U.S. crude). But, the transportation to the refinery, the storage, the costs of refining, transportation to the region to be used, and the costs to distribute and sell at the retail site are all costs that add significantly.
These additional costs are not profits to the producer or refiner, and are to a significant degree are impacted by Federal regulations, laws, and procedures dictated from the government.
Wholesale has is at $0.68/gal except LA where it is $0.38/gal.
Writer makes no mention of wholesale has prices, or inflationary adjustments, or the typical markup by retailers.
Using the after tax price of gasoline is a worthless data point.
Sales volume is extremely low and fixed cost have not decreased. We will be lucky if the fuel distribution chain doesn’t start closing down. If I buy 20 gallons the retailer will gross $0.40/ gallon with fuel taxes taking up most of it. If I don’t go in side for coffee and donuts this retailer will break even at best.
Bottom line, the writer is shilling for government action based his weak and incomplete (by design?) analysis.
I’m sure he has bought tons of stock in these price gouging obscene profit maker has retailers. /s
Another factor is that there is actually very little oil being traded around $20 per barrel. Most producing oil companies have hedged their prices significantly, in the $50 range, and that’s another reason gasoline prices aren’t directly related to big oil price drops.
Well, all I know is gas is $1.08 in my little town and I’m very happy about it. When it takes $25.00 to fill up my Sequoia, I don’t see a down side right now.
Gasoline is cheaper than milk or bottled water. How is that possible?
This piece is worse than useless. American Thinker should get someone who understands the energy business to write articles like this.
Yeah, but you can’t buy gas at wholesale price. Maybe businesses that have those 18 wheelers can.
-— This piece is worse than useless. American Thinker should get someone who understands the energy business to write articles like this. -—
Exactly! I wonder sometimes how American Thinker can be so inconsistent when it comes to quality articles.
Kaslin,
I think AlbertasChild was just giving that information to show that the costs at the pump start from there, not that anyone but a jobber can buy at that price.
Still 2.25 in the oilfields of N.M. where it's only trucked a few miles from refineries. Go figure.
Oil is a variable cost in producing gasoline. There are many fixed cost. The storage costs, the capital costs of the refineries, the operating costs of the refineries, the transportation costs for both crude and refined gasoline. Just because the cost of oil goes down does not mean these other costs do. They become a higher percentage of the cost of the product that ends up in the consumer's gas tank. Ergo his ratio goes out of whack for a rational economic reason. No one is getting ripped off
For example, it costs the same amount to ship and handle a cheap orange to Kansas City as an expensive orange. If the price of oranges drops in Florida by 10%, the price does not drop by 10% in Kansas City because the cost of shipping and handling remains the same. So, the price of oranges in Kansas City may only drop 7 - 8%.
Averaging about $1.54 in my area - paid $1.84 for premium this morning...
You can’t but if you are going to bash an industry you should explain the impact of taxes.
Are you going to blame the retailer for the gas taxes you pay?
MI has 42 cents gas tax, and 6% sales tax on top of that, and you can still get gas in MI as low as 88 cents a gal!
Pretty soon they will be paying us to take it.
Gas taxes by state from the American Petroleum Institute
These numbers should be posted on every gas pump, lol.
If I owned a gas station, I’d advertise the price WITHOUT the tax included. Then, when the customer came to pay, add the tax back in. The shock would drive home just how much the States and Feds take out of the driver’s pocket.
(I know, that’s illegal by CFR’s.)
I like that idea, but the state & feds that add the taxes (and do very little for it)are never going to be ashamed of their actions.
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