Oil prices are down; why is gas up?

denverpost.com ^ | 02/19/2009 12:34:03 AM MST | KATHRYN SCOTT OSLER

[rightinthemiddle]

The cost of a tank of gasoline has marched higher since the start of the year, defying a continued slide in oil prices and reduced demand.

So what gives?

Industry experts said refiners are trying to reclaim profit margins that disappeared late last year when gasoline prices collapsed after reaching $4 a gallon last summer.

"Refined-product prices were way underpriced relative to the cost of crude oil. The refiners were losing money," said Bryant Gimlin, energy risk manager for Gray Oil, a fuel wholesale marketer based in Fort Lupton.

A gallon of regular unleaded gasoline in the metro area has risen from an average of $1.42 in the first week of January to $1.82 on Wednesday, according to AAA Colorado.

That 28 percent increase contrasts with a 34 percent decline in crude-oil prices from $53.13 a barrel to less than $35 over the same period. Crude oil accounts for about three-quarters of the cost of gasoline.

The rising price of gasoline has cost drivers such as David Todd and his employer extra money.

"It is $10 to $15 more a tank," Todd said while filling up a work van at a station at Alameda Avenue and Broadway. "I wish it would go back to where it was."

Todd, who transports temporary workers to job sites, said he fills up his van two to three times a week and called the increases noticeable in a tight economy.

From about October to mid-December, refiners lost money on every barrel of gasoline they created from crude oil.

In late November, the loss exceeded $7 a barrel. This month, the gross margin for refiners has been as high as $18 a barrel.

[roaddog727]

“Refined-product prices were way underpriced relative to the cost of crude oil. The refiners were losing money,” said Bryant Gimlin, energy risk manager for Gray Oil, a fuel wholesale marketer based in Fort Lupton.

BS!

[Beagle8U]

My tank is close to 30 gal. I can squeeze in about 28.6 if I fill it to the top.

[rednesss]

So you mean all that drivel that I had to listen to from Sean Hannity and company about how we haven't built a new refinery in 30 years blah, blah, blah... wouldn't have had any affect on the price of gasoline seeing as how currently the total US refinery capacity is sitting at 20% idle??? So if we only had 40% more refining capacity we could have even more capacity sitting idle.

Wow, what this means is that oil and refining companies really only have the best interest of the oil and refining company's at heart and that they'll do anything to manipulate the price to reap a profit?? Who'd of thunk it???

[Cincinnatus.45-70]

Yep, BS.

Ed Wallace has been consistently right on oil market prices and supply over the last 5 years. He’s written numerous article for Business Week, but last weekend he had a column in the Fort Worth Star-Telegram that explains the relation of gasoline prices to crude oil prices:

http://www.star-telegram.com/ed_wallace/story/1203800.html

By the way, the company I work for runs over 200 gas stations around the country, and Ed is the one I listen to for perspective.

Maybe I ought to post the article in new thread, since I didn’t turn it up using the search feature.

[Bonaparte]

"Because the wholesale cost of crude is only a tiny fraction of the entire expense that goes into gasoline production."
____________________________________________

On the contrary --

According to the Energy Information Administration, which provides official energy statistics from the U.S. government, approximately 19% of the cost of gas is attributed to federal and state taxes. The remaining cost of a gallon of gas is accounted for by gasoline distribution and marketing, which accounts for 9% of the cost filling your tank, refining the oil, which accounts for 19%, and cost of crude oil, which accounts for 53% (using 2005 data).

These figures are averages, of course, and will vary somewhat from state to state.

[OneWingedShark]

>“Refined-product prices were way underpriced relative to the cost of crude oil. The refiners were
>losing money,” said Bryant Gimlin, energy risk manager for Gray Oil, a fuel wholesale marketer
>based in Fort Lupton.
>
>BS!

Agreed. There’s something not right here.

[thackney]

Unleaded Stockpiles are running low

Gasoline stocks are not low but comming back to normal. They were high (relative to the time of year)

This Week In Petroleum, Gasoline Stocks
http://tonto.eia.doe.gov/oog/info/twip/twip_gasoline.html#stocks

[Proud_texan]

I'm not trying to defend anyone here but if you look at a historical chart of crude and gas over a year or more you'll see a pretty consistent spread between the two until June, 2007 at which point crude went up a huge amount and gas lagged way behind.

You'll have to customize it but Gasbuddy has a chart here.

The chart shows local pump prices and crude futures which can be deceptive but still if the trend had held but locally gas should have been north of $6 last summer.

So I'd rather pay less than $1.70 but on the other hand I'd rather pay $1.70 than not be able to get any (ala the 70s).

[OneWingedShark]

Question: Given that Amendment X of the Constitution reserves rights not specifically delegated to the government to the people, then couldn’t we just build our own Refineries, and then when the wackos come, shoot them in defense of our private properties?

[netmilsmom]

You are exactly correct!

(but I still love the 2.00 while it lasts.)

[CowboyJay]

Here’s my over-simplified (and possibly mistaken) understanding of it:

The oil and gasoline industries are seperate. Each has an effect on the other, but they are not the same.

Worldwide monetary supply has increased as a result of globalism. That dollar you hold in your hand has competition from everybody else in the world who wants a gallon of gas. In a world of perfectly elastic supply, that would be fine.

Oil supply is not perfectly elastic. OPEC is one problem. Then there’s recovery - producers have to spend more to find and develop new reserves. So it costs more to produce. The law of diminishing returns kicking in.

Then market speculation enters the picture. Traders drove futures through the roof. Now we have tankers full of the stuff sitting around and nobody wants to sell because they paid more than they can sell it to the refiners for. Nobody wants to buy from them now because futures are down. We have an oil glut.

When oil prices increase, the cost of inputs for gasoline production increase as well. The price was increased which had a downward effect on demand. Demand for gasoline is not static. Prices had to be kept lower than they should to keep it from cratering. This means that less money was available for capital improvement (refineries & delivery capacity). Less capital improvement over time acts as a restriction on supply.

Partly because of the law of diminishing returns and partly due to environmental regs, it is more cost-efficient for corporations to build refinery capacity in other countries. Therefore refinery capacity has been built overseas instead of here.

So right now, we are paying for the twin problems of an oil glut and reduced refinery capacity. It’s being offset somewhat for now by a global recession. Once the global recession is over, prices will go back through the roof.

Our economy will take a hit relative to everyone else because we consume tons of oil and gas per unit of GDP, global demand will go up, and the law of diminishing returns is not on our side.

[thackney]

refiners losing money?

On gasoline, late last year, yes.

But they were making up the difference on diesel. Now that imbalance is correcting, and has been slowly correcting most of the year so far.

Diesel price may drop below gasoline
http://www.freerepublic.com/focus/f-news/2183116/posts
February 11, 2009

A few of us were talking about this when it was happening late last year, when wholesale gasoline was selling for less than the crude used to make it.

http://www.freerepublic.com/focus/news/2165580/posts?page=51#51

[Star Traveler]

You said — “Crude has steadily gone down, but gasoline has steadily gone up.”

That’s not true. You can see the prices, which have gone up and done, and there is a rough correlation between oil and gas prices, with gas prices being “behind” the oil prices.

See the chart at...

http://www.gasbuddy.com/retail_price_chart.aspx

[click the oil price checkbox and pick a three-month chart and see how it goes. If you want local prices compared with oil prices, then go to the state that you’re in...

http://www.gasbuddy.com/

and go to the charting section on the left side of the page (after you choose a city), and it’s part of the way down the page. You can do the same thing there with the local price of gasoline.

I’ve been watching this chart for a long time and there is a following of the gas price to oil prices, but it’s not an exact penny-for-penny (or dollar) following and gas does lag behind oil prices for the dips and the highs, except when it was all “crashing down” back in November and December of last year. Then gas was outpacing oil price drops. You’re not going to see that any more, because we’re bouncing around the bottom now.

[DoughtyOne]

The price should be somewhere between $1.35 to 1.75 per gallon right now, due to the drop of crude oil.

The price where I live was $1.75 a few months back. Now it’s $2.25. During this time the cost of crude oil has actually droppped a few dollars per barrel.

If crude goes up a few dollars, the cost of gas spikes immediately.

We now know that when the cost of crude goes down, the cost of gas trails far behind, and now even climbs by $0.50 cents per gallon.

I have defended the quick increase in the cost, due to gas station owners having to be able to replace stock.

What I will not defend, it the consumer obviously getting screwed over the oil companies. IMO< what is taking place right now is the corporations trying to continue to show massive profits, so that their stock costs will remain constant.

The average Joe can’t catch a break. Obama may have lopped off some drilling leases, but the public is still getting the shaft.

[thackney]

They can’t make both at the same time.

They do make both at the same time. But during the different season they will change the ratio. It is actually impossible for us to make all the crude oil into one or the other. But the ratio can be changed to more gasoline by adding additional process like crackers after the distillation.

[thackney]

BS

Look at the spot market price last Oct, Nov and Dec. Crude oil was selling for more than gasoline.

Cushing, OK WTI Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rwtcm.htm

U.S. Gulf Coast Conventional Gasoline Regular Monthly Spot Price
http://tonto.eia.doe.gov/dnav/pet/hist/rruusgm.htm

(Note: 42 gallons in a barrel)

[PISANO]

Why?

Shhhhhh.....you wouldn't want this to be reported by the MSM, they would somehow have to blame Bush!

Remember, for the next 4 years, the MSM will either gloss over bad news, blaming [anyone but the Messiah], or not report it at all!!

[Star Traveler]

You asked — “What am I missing?”

Well, you’re missing the “stats”... :-)

---

QUICK STATS

- One barrel of crude oil contains 42 gallons
- About 46% of each barrel of crude oil is refined into automobile gasoline
- In the US and Canada an average of 3 gallons of crude oil are consumed per person each day
- The US imports about 50% of its required crude oil and about 50% of that amount comes from OPEC countries

— — — — — — — — — — —

Product — Refined Gallons/Barrel

Gasoline — 19.3
Distillate Fuel Oil (Inc. Home Heating and Diesel Fuel) — 9.83
Kerosene Type Jet Fuel — 4.24
Residual Fuel Oil — 2.10
Petroleum Coke — 2.10
Liquified Refinery Gases — 1.89
Still Gas — 1.81
Asphalt and Road Oil — 1.13
Petrochemical Feed Supplies — 0.97
Lubricants — 0.46
Kerosene — 0.21
Waxes — 0.04
Aviation Fuel — 0.04
Other Products — 0.34
Processing Gain — 2.47

Source: EIA March 2004 Data

from webpage — http://www.gasbuddy.com/crude_products.aspx

[Star Traveler]

You said — “Because the wholesale cost of crude is only a tiny fraction of the entire expense that goes into gasoline production.”

The newspaper article said — “Crude oil accounts for about three-quarters of the cost of gasoline.”

And I posted a chart showing how much gasoline comes out of a barrel of crude oil. Also, note that the price percentage doesn’t necessarily have to match the percentage per the quantity, either... (so there can be a discrepancy there...).

[businessprofessor]

Which causes me to ask two questions: First, in what way does their behavior differ from OPEC's? Second, what good would it have done to have additional refinery capacity on line?

Refiners are not colluding in public or private. They do not meet to determine production levels. The economic conditions are leading to coordination in production levels. If you were the owner of the refineries, you would probably reduce your output also. I am confident that ridiculous government policies are also at play.