teddys
teddys
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March 28th, 2011 at 9:17:49 PM permalink
I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.

There is no such thing as a summer blend or weekend blend or raising prices on the weekend -- that is all ridiculous. Prices are higher in the summer because people travel more and there is more demand -- simple as that. Actually, some years the price is less in summer.
"Dice, verily, are armed with goads and driving-hooks, deceiving and tormenting, causing grievous woe." -Rig Veda 10.34.4
mkl654321
mkl654321
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March 28th, 2011 at 10:27:50 PM permalink
Quote: teddys

I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.

There is no such thing as a summer blend or weekend blend or raising prices on the weekend -- that is all ridiculous. Prices are higher in the summer because people travel more and there is more demand -- simple as that. Actually, some years the price is less in summer.



Any collusive market, or a cartel, is pretty much by definition a conspiracy. And please don't tell me that the market for petroleum products is competitive.

There is no "free market" for oil. The most obvious indicator of this is that the market that does exist behaves nothing like a free market would.

I agree that the "summer blend" is ridiculous, but that's exactly what the oil companies are using as one of the pretexts for the present (and, of course, coming) price gouge--it's their phrase, not mine. In any case, no one believes their bullshit any more--they charge whatever they can get away with, pure and simple. And the market is tightly controlled at all phases of extraction, production, and distribution, to ensure that free market forces cannot intervene and cause prices to be fair or to reflect reality. The only recourse we poor face-down-and-enjoy-it consumers have is to drive fuel-efficient cars, not that that will help in the long run.
The fact that a believer is happier than a skeptic is no more to the point than the fact that a drunken man is happier than a sober one. The happiness of credulity is a cheap and dangerous quality.---George Bernard Shaw
AZDuffman
AZDuffman
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March 29th, 2011 at 4:38:50 AM permalink
Quote: teddys

I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.



Very correct, even with all of the consolidation the last 20 years the industry is still fragmented. Back in the 50s/60s the Seven Sisters had more control than OPEC has now and they could not set prices. Today OPEC has a "target price" but has a very hard time maintaining it for long. Lots of oil from lots of sources to lots of customers in lots of places means no one will "control the market" in our time. Even in the USA only and down to what is it now, four of the old Seven Sisters, prices go up and down all the time. At least the signs at most stations are digital now so the teenage kid at the Mobil Station doesn't have to drag the ladder out to change them twice a day.

Heck, as a kid I remember prices changed THREE TIMES in one day once.
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Doc
Doc
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March 29th, 2011 at 6:04:08 AM permalink
Quote: mkl654321

... I agree that the "summer blend" is ridiculous, but that's exactly what the oil companies are using as one of the pretexts for the present (and, of course, coming) price gouge--it's their phrase, not mine. In any case, no one believes their bullshit any more ....


I have never worked in the refining industry (considered an offer once back in '68), but I don't think I have been convinced yet that this is completely bullshit. I think there may even be two different interpretations of the term "summer blend."

One definition would relate to the blend of components in the gasoline that is sold. Perhaps someone on this forum has some actual experience in petroleum refining and could expound on this. I think there is, or at least used to be, a seasonal adjustment in volatility -- provide sufficient volatility for cold starts in the winter and low enough volatility to keep it from evaporating too quickly in the summer. I think there were/are geographic differences in what is sold, with adjustments for typical temperatures and altitudes. I remember a TV commercial in the '60s or '70s showing a car that ran well in the northern Rockies but not so well when it used that same fuel blend along the Gulf coast. Now the commercial could have been BS, but the claim was that they sold different blends all around the country. Don't know what was supposed to happen if you drove from the mountains to a nearby coast on a single tank. ;-)

The other definition would relate to the blend of products that are being produced simultaneously. In the summer, the process is set up to produce less heating oil and more gasoline from the same feed stock.

I'm not sure that either of these interpretations of "summer blend" necessarily implies that gasoline itself costs more to produce in either the summer or winter. Instead, the changeover from one production mode to the other may involve at least partial shutdown of facilities, giving a drop in supply to the market place -- at the start of the summer and at the start of the winter -- and a resulting increase in retail price (in spite of the many aspects of this market that don't seem to follow "normal" supply-demand economics.)
SFB
SFB
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March 29th, 2011 at 6:57:09 AM permalink
Yes, thee are differences in the chemicals added to gasoline for different times of the year. The chemicals are more expensive in the summer, than in the winter, so the price goes up. But the difference in prices is pennies on the gallon.

There is a cartel that controls oil prices. It is called OPEC.

And right now, many of its members are feeling the heat of revolution. The House of Saud may explode someday soon, and if that happens, you will be dreaming of the days of $3.78 gas......

The cost of production of one barrel of Oil averages from about $10 per barrel in the Middle East to about $20 in the North Sea. The "standard" price is still West Texas Crude, and all grades of crude oil are based upon that price, either higher or lower.

Production costs have very little to do with the "market" price of a barrel of oil. The "market" price is set as to what OPEC wants, currently about $70 a barrel, and what the "market" will force it go too. Since there is alot of "fear" inthe market, the price of Oil is increasing on the world market.

Libya is a small player in the worldwide oil market, but they may be the first oil regime to be changed before this all sorts out. Who do you write the check to when the other guy is swinging on a lampost out front? How can you be sure that the guy you are writing the check to, WILL deliver the oil you just purchased? So, the "stable" ones can and will get a higher price for thier oil, until there are no "stable" ones left.

And then your talking about $10 to $30 a gallon for gas.

Because if the House of Saud falls, then you have Iran and Iraq to sell to the western world. Then you have Kuwait, UAE, Nigeria and Venezuela We have Iraq generally in our pocket, and Kuwait will certainly listen. That crazy guy in charge in Venezuela loves to criticize us, but he WANTS the checks every month, and price increases just gives him larger checks. UAE could fall, and Nigeria is a mess of a different order.

So, its understandable WHY someone who has something that others want, WHY they would charge MORE if they can get it.

SFB
AZDuffman
AZDuffman
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March 29th, 2011 at 8:06:22 AM permalink
Quote: Doc

I think there were/are geographic differences in what is sold, with adjustments for typical temperatures and altitudes. I remember a TV commercial in the '60s or '70s showing a car that ran well in the northern Rockies but not so well when it used that same fuel blend along the Gulf coast. Now the commercial could have been BS, but the claim was that they sold different blends all around the country. Don't know what was supposed to happen if you drove from the mountains to a nearby coast on a single tank. ;-)



I remember a magazine ad that showed all the different blends needed nationwide, I think it was 10 or more. Chicago is supposed to have higher priced gas because some government mandated belnd makes it an "island" inside of other blends. I remember as a kid when the weather first changed in spring the cars ran crappy until the old gas was gone from the tank (theirs and yours.)

I agree and don't think it is the chemicals themselves that cause the increase. Instead it is that you need to store "summer gas" this time of year until April 15th or so. To have enough ready you need to blend it in advance and fill the literal and figurative pipeline. After you switch the supply of winter gas falls. Thus the price rises.

I have always wondered why not a larger alcohol conversion in motor fuel. We can make it from other things than corn.
All animals are equal, but some are more equal than others
mkl654321
mkl654321
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March 29th, 2011 at 9:22:26 AM permalink
Quote: Doc

I'm not sure that either of these interpretations of "summer blend" necessarily implies that gasoline itself costs more to produce in either the summer or winter. Instead, the changeover from one production mode to the other may involve at least partial shutdown of facilities, giving a drop in supply to the market place -- at the start of the summer and at the start of the winter -- and a resulting increase in retail price (in spite of the many aspects of this market that don't seem to follow "normal" supply-demand economics.)



That makes some sort of sense, but exactly how much disruption are we talking about? Since whatever variety of gasoline is being produced is meant for consumption several weeks later, the summer fuel could start to be made well before summer, and before the converted fuel actually arrived at the pumps. So the refineries could ramp up production of the WINTER fuel just before the conversion took place, to ensure that the supply wouldn't be disrupted during the changeover. This is a trivially obvious strategy, and would occur to anyone with a brain who actually cared about not disrupting supply: if a company manufactures a product for which there is a constant demand, and it knows its production facilities will be idled for some length of time, it will increase production before the shutdown to ensure that the market isn't disrupted. But of course, the oil companies BENEFIT from every disruption in the market, so they have no reason to act as a rational supplier in a free market would.

It's very much akin to taxation. The only constraint on the market price is that above a certain point, demand drops, but even that is OK as long as net revenue continues to increase (much the same way as tax increases continue to increase revenue even if some taxpayers cease/reduce economic activity because of those taxes). The oil companies have been probing, probing, probing to find out just how much they can charge before the price starts to significantly affect consumption patterns. A couple of years ago, they found out that $4.50 was about as high as they could go. They're obviously trying to get past that point again, on the assumption that the recession is sort of over, that people have more money in their pockets, and they therefore can siphon off all that extra money.

The sad part is that most of us have no choice but to drive; our national transportation infrastructure is geared to the private vehicle. The oil companies are all too aware of this dependency, and the tax they exact on the American public will choke off and kill whatever economic recovery we manage to achieve.
The fact that a believer is happier than a skeptic is no more to the point than the fact that a drunken man is happier than a sober one. The happiness of credulity is a cheap and dangerous quality.---George Bernard Shaw
P90
P90
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March 29th, 2011 at 10:43:02 AM permalink
Quote: mkl654321

The question I've had is, just what is the COST of gasoline? From the purchase of crude, to shipment costs, to refining and distribution costs, to the retailer's markup, what does a gallon of gas cost Arco, Shell, Chevron, etc. to produce and sell?


Well, oil is $105/barrel now, AFAIK it's the price at point or port of origin. A barrel is 42 gallons, of which 33 is vehicle fuel (gas, diesel, jet), the rest is mostly cheaper fuel oil and bitumen. So starting oil alone, you are around $2.50/gallon. Since ~22% of that goes into cheaper products, another 10% can be added.

Current retail gas prices start at around $3.25 in New Jersey. That leaves about $0.50 for oil transportation, refining, delivery, retail handling and profit.

So oil processing companies aren't making their megaprofits on high margins (they only have a couple percent to play with), rather on high volumes. Maybe they could deliver gas at $3.15 instead of $3.25 if they were non-profits, but that's it, it can't be $2/gallon.


Quote: mkl654321

Since whatever variety of gasoline is being produced is meant for consumption several weeks later, the summer fuel could start to be made well before summer, and before the converted fuel actually arrived at the pumps. So the refineries could ramp up production of the WINTER fuel just before the conversion took place, to ensure that the supply wouldn't be disrupted during the changeover.


I'm pretty sure that with all these SUVs flooding the market and the roads, refineries are close enough to full capacity already.
No for-profit industry is also going to sell gas for less than it costs to make now, even if it spent less actually making it some time ago.

The problem with oil is that demand is barely satisfiable and keeps growing (regardless of cost), while increasing the supply isn't so easy, so even marginal changes in the supply can lead to deficit situations. In such a situation, it's either drawing lottery tickets to who gets $2/gallon gas and who gets a day off, or the supply going to the highest bidder first.
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teddys
teddys
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March 29th, 2011 at 10:59:23 AM permalink
I disagree that there is a conspiracy or cartel setting oil prices. (But it is more plausible than VP being rigged :)) It certainly isn't the oil companies doing it. Their profit margins are slim anyway. If you want to blame someone, blame OPEC, or your own local government. Taxation and regulation is a huge part of gas prices -- ever look at a gas price map and wonder why the price of gas in New York City is often the highest in the country, while right across the river in New Jersey it is often the lowest? Taxes and regulation. Even OPEC doesn't have ultimate control over prices; when they work together, like they did in 1973, they can have an effect and cause prices to shoot up. But it didn't work in the '80s, when prices fell, OPEC weakened, and Saudi Arabia broke away raising production against the will of the rest of the members. The market for buying and selling oil is free -- how is a free market "supposed" to behave? It is certainly more volatile than any other commodity, but that's because it is the most traded, most demanded commodity in the world, and there are hundreds if not thousands of downstream, midstream, and upstream processors and a bunch of weird political factors come into play. The best you can hope for is for a transparent, regulated exchange and let the price settle at what buyers are willing to pay.

I don't complain about high gas prices. If you don't like them, don't drive. I haven't driven locally in two months. I would be much more concerned with the price of coffee at Starbucks. I would like to know the cost of producing one of those coffee or lattes. (Okay, I do know how much it costs). Now THAT is an obscene profit margin -- yet nobody complains? (And yes, there are some people who need coffee as much as some need gasoline).
"Dice, verily, are armed with goads and driving-hooks, deceiving and tormenting, causing grievous woe." -Rig Veda 10.34.4
nullzero00
nullzero00
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March 29th, 2011 at 5:13:13 PM permalink
Quote: mkl654321

I realize that's the pretext, but raising prices based on something that COULD happen is ridiculous, and irrational.



well, Apple's stock cratered when ol' stevey revealed his latest tumor or illness du jour, as if he thought up, developed, built, and shipped every iBuyitagain product out there.

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