Posted on 08/25/2015 9:42:36 AM PDT by 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.
(Excerpt) Read more at spectator.org ...
And they are still long in refineries on the West Coast by quite a bit. They are running out of places to put GASOLINE too, but you don’t hear about that on Fox.
Amazing how many refineries come up lame in the summer time.
We already refine more than we use and export the surplus.
We have too many different blend requirements that make it difficult to move gasoline from one area to another to meet a local disruption.
I’m curious. What kind of day would there be other than a “calendar day”?
http://www.eia.gov/dnav/pet/TblDefs/pet_pnp_cap1_tbldef2.asp
Barrels Per Calendar Day
The amount of input that a distillation facility can process under usual operating conditions. The amount is expressed in terms of capacity during a 24-hour period and reduces the maximum processing capability of all units at the facility under continuous operation (see Barrels per Stream Day) to account for the following limitations that may delay, interrupt, or slow down production:
- the capability of downstream facilities to absorb the output of crude oil processing facilities of a given refinery. No reduction is made when a planned distribution of intermediate streams through other than downstream facilities is part of a refinery’s normal operation;
- the types and grades of inputs to be processed;
the environmental constraints associated with refinery operations;
- the reduction of capacity for scheduled downtime due to such conditions as routine inspection, maintenance, repairs, and turnaround; and
- the reduction of capacity for unscheduled downtime due to such conditions as mechanical problems, repairs, and slowdowns.
- - - -
Barrels Per Stream Day
The maximum number of barrels of input that a distillation facility can process within a 24-hour period when running at full capacity under optimal crude and product slate conditions with no allowance for downtime.
I should have added
Calendar day is their yearly average.
Stream day is their maximum capacity.
Thanks!
60 cents per gallon difference now between 87 and 93 octane. That’s gouging.
STOCKS FEEEEEEELL yesterday. So did precious metals .... What’s Up Wit Dat ? ?
There is one Shell station in town that has maintained a 10-cent differential between 87, 89, and 93 for at least 15 years. Mrs riverdawg’s car requires 93 octane, and it's worth the couple of extra miles to fill it up there.
Unfortunately, Canada has been a primarily a ‘raw material’ economy for all of its existence. Yes, we are economically a ‘developed’ nation but the source of our economic strength, like Russia, has been the extraction of raw materials, NOT ‘value added’ production. As the old saying goes, “Give an American a dollar and he’ll either make two or go broke trying. Give a Canadian a dollar and he’ll put it in the bank.” A gross generalization, but it has much basis in fact. (Don’t know if this is true anymore, with O’Venal in charge however.)
Here’s the kicker. Several weeks ago, in Calgary we were paying $3.60USD/US gallon for Regular (87 octane) or $1.22CDN/litre. At the same time, some FReepers were saying gasoline cost them $2.40/gallon. From comments now, the price Stateside seems to have increased while here, after much protesting, the price has dropped to $1.13CDN/litre.
About two or three weeks ago, it was announced in the media that TransAlta, the largest publicly traded electrical generator in Canada, was being sued for $1.4 billion for price manipulation via the timing of their ‘forced’ shutdowns and turnarounds. It seems to me, a little more than a co-incidence that, while crude oil is the cheapest its been in many years, we were paying the same as we were two years ago when it was over $100USD/BBL. It seems to be more than a co-incidence that so many US refineries are having production issues when the price of crude is so low. Keep the gasoline supply tight by whatever means, so you can keep the pump price high.
While the US market is 10x bigger than Canada’s, based on population, and even larger based upon manufacturing, it sure seems Canadian gasoline prices are ‘massaged’ much more than US prices. That said, it seems that Big Oil is also ‘massaging’ the price in the US.
The depth of greed of so many executives of multinationals knows no bounds and I would put NOTHING past them including price manipulation. Politicians? The same thing!
In Canada, primarily Edmonton, Sarnia and Québec, we have a number of petrochemical plants and refineries, but though capacity is close to demand, capacity is not enough to fully supply our gasoline needs so gasoline is imported. The largest refinery is the Irving refincery on St John, NB, but it refines mostly Saudi crude. In a country that produces so much BOE, we should NOT have to import gasoline!
Also known as “gouging” or “profiteering.”
I keep seeing people make this claim and do not understand it. It is not one company. BP doesn't shutdown their refinery to allow ExxonMobil to make more money while BP themselves lose millions during their shutdown.
There are three primary causes for gas prices not dropping as rapidly as oil prices.
1. Refineries have fixed costs as well as variable costs not related to crude that are not declining.
2. Federal and state taxes are fixed and assessed per gallon. They do not decline when crude falls.
3. Distributors and retailers still have fixed and variable costs and will turn a profit that is not reflected in the cost of crude.
I just got my FIRST EVER GasBuddy price DROP alert!
“Expect gas prices to drop 20 cents in Indianapolis”
Collusion in industry is not unheard of. I was told of a senior exec in Calgary who claimed that, though the big oil companies all have different executives, management and ownership are the same and therefore their ‘actions’ are the same.
In the US, there SEEMS to be some sort of retail price competition at the pump. Not so in Canada. Prices move in lock step. I know from personal experience, it is not the middle management marketers nor the individual station operators that collude but who knows about the discussions that occur over dinner and a few drinks at 319 5th Avenue SW? I’m sure such discussions occur in swank settings and much more private settings in Houston, London or Vienna!
One can only hope that there are breakthroughs in electricity and batteries so that oil no longer has such a stranglehold on so many.
What company colludes with competition to cost themselves money while increasing their competition’s profits? Do you think they intentionally start fires and blow up their own units?!?!
In a tight market, if your plant ‘accidentally’ has be shut in for repairs while my plant remains open, ALL participants gain from a higher price. After all, gasoline is VERY price inelastic. If these temporary shut ins rotate among the limited number of players, ALL gain due to the higher price received by all. The key is that gasoline is very price inelastic. We, as a society, are addicted to our gasoline and, though we complain about the increased prices, few then choose to take the bus, walk or ride a bike. The oil companies win.
If you do not believe that collusion is rampant, just take a look at share trading for a company whose results differ markedly from forecasts. What you will see is that two to three days before the results are announced, you will see a flurry of trades. Because of Sarbanes-Oxley, they are NOT insiders trading BUT, the insider will pass on info to a LLB or CPA friend, who passes it on to someone in the know at another company. Later, it becomes quid pro quo, as the favour is returned, a real ‘old boys network’. No benefit for the working stiff but the execs benefit their portfolios with such information. The rich get richer and the poor go broke!
Thanks!
I don't gain; my plant is shut down. I'm spending extra money making repairs while not making product. If I was able to still supply product at normal levels, the price would not climb.
What they are alleged to have done is to manipulate the 'SMP', or system marginal price, to increase profits beyond what the market would have provided.
How was it allegedly done? At the time of this alleged ;-) manipulation, electrical supply was very tight in AB. As I understand it, the manipulations occurred mostly on very hot days, when a/c demand pushed demand even higher. At peak demand they would have an 'emergency' shut down ;-) at a thermal plant and have to use the Hydro plant to fill the gap. The thermal plants' price is based on a rolling 30 day average SMP while the Hydro plant IS the SMP. The result would be a bump of several hundred dollars per MWh X several hours X several hundred MW for Hydro versus thermal. In addition, users all across the Province who purchased at SMP would have been affected. What TA is alleged to have done is well documented by the Provincial Regulator. A class-action suit for $1.4 billion CDN is pending. (But by the Grace of God, none of these alleged actions were done in the winter when -30°C temperatures also pushed demand higher, else some people may have frozen to death!)
In spite of economic slowdowns (or even screeching halts!), many executives STILL demand ever increasing profits. Collusion is not out of the question to maintain such profits. While oil companies operate on a different pricing regime than the AB electrical market, a producer can manipulate the price through strategic 'shutting in' of production. In fact, if the company has multiple refineries, it is possible they can increase their profits without coluding on the timing of shut downs. If they have multiple refineries in a tight market, they may be able to earn higher revenue with one temporarily shut down.
Algebraically:
P0*Va+P0*Vb+P0*Vc < P1*Va+P1*Vb where:
P0 is the unit price with all refineries operating,
P1 is the unit price with one refinery shut down temporarily
Va is production volume of refinery 'a'
Vb is production volume of refinery 'b'
Vc is production volume of refinery 'c'
Refinery 'c' is shut down temporarily, reducing volume supply but increasing the unit price. The resulting new price times the remaining volume can be greater than the old, lower price times the volume of the three refineries. In the case of TransAlta above, instead of 'refineries', think 'electrical generating plants'.
For the gasoline market in the US, one company is not likely to have that much dominance in the marketplace. If however, you extend the refineries from 'a', 'b', and 'c' to include 'd', 'e', 'f', etc., and they collude through the timing of plant 'turnarounds' throughout the year so that one or two plants are down at any given time, they have effectively artificially increased the price of the product! THAT is the collusion I am talking about! Factor in the fact that ALL energy companies have large 'trading' groups that 'hedge' exchange rates, futures and many exotic derivatives, based upon energy and money, and you multiply the effects.
For example, assume total refining capacity was 120,000,000,000 gallons per year divided between 24 refineries owned by six companies. Assume turnarounds take one month on average and the companies agree to space their turnarounds equally over the year, therefore, at any given time, two refineries are in turnaround at any given time. Because of the timing, effective capacity is reduced by 1/12 on average (10,000,000). Without a new refinery in the last 40 years, demand must be near capacity. Since gasoline is price inelastic, the price will have gone up more than 1/12, likely closer to 15% or more, due to price inelasticity. (A paper published by Stanfod University suggests a short term price elasticity for gasoline of between -.29 and -.61 L Levin paper) What that means is, you lose 1/12 of your volume at the old price but gain 11/12 at an additional 15% increase. Total revenue INCREASES over 5% for the year by producing only 11/12ths of the volume! ((11/12*1.15)-(12/12*1.00)=5.42%). All due to price inelasticity of demand and potential collusion on shutdowns.
With a government that wants to destroy the middle class, corporate giants that continually demand more, there is no one to protect the middle class. In the end, the colluders win and the consumer loses! "plus ça change, plus c'est la même chose"
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