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  #1  
Old 02-15-2009, 02:15 PM
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Current gas prices

Crude oil is getting cheaper so why isn't gas?

By CHRIS KAHN and JOHN PORRETTO, AP Energy Writers
1 hr 42 mins ago

NEW YORK Crude oil prices have fallen to new lows for this year. So you'd think gas prices would sink right along with them.

Not so.

On Thursday, for example, crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It's just a matter of which oil.
The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That's the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

"We're going definitely over $2, and I bet we'll hit $2.50 before spring," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "This is going to be an unusual year."

On the last day of 2008, gas went for $1.62 on average, according to the auto club AAA, the Oil Price Information Service and Wright Express, a company that tracks transportation data.

The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.

That foreign oil sells in some cases for $10 more per barrel and that doesn't even include shipping.

Brent North Sea crude, which feeds some East Coast refineries and therefore winds up at many gas pumps around America now costs about $7 more per barrel than the West Texas crude. Deutsche Bank analysts say the trend should continue.

Historically, West Texas International crude has cost more. So nobody bothered building the necessary pipelines to carry it beyond the nearby refineries in the Midwest, parts of Texas and a handful of other places.
Now that the premium oil is suddenly very inexpensive, refiners elsewhere can't get their hands on it.

"It's so cheap," said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. "But you can't just build a pipeline to everywhere. We know we can't get it."

Tesoro's refineries in North Dakota and Utah use locally drilled oil and Canadian oil, which also has been running about $10 more per barrel than West Texas crude.

So why not build more pipelines? Because investing billions of dollars over several years makes no sense when the prices could just flip a year from now to where they were before.

"How long is WTI going to be cheaper than Venezuelan oil? Than Canadian?" asked Charles T. Drevna, president of the National Petrochemical and Refiners Association. "You just don't build a pipeline like that."

At the same time, refiners have seen the same headlines as everyone else about job losses and consumer spending. They've slashed production just to avoid taking losses on gasoline no one will buy. Result: Higher gas prices.
"Why should a refiner produce more gasoline when the stuff we produce is not being used?" Drevna said.

Of course, complex explanations of the diverging price paths of West Texas crude and gas are unlikely to placate frustrated drivers. Memories of last summer's $4-plus gas have not receded.

"Drivers are being ripped off even more now than before," said Stuart Pollok, who was filling up recently at a Chevron station in downtown Los Angeles. He pointed out Exxon Mobil Corp. reeled in billions in profits last year when oil prices neared $150.

Others see the conspiracy reaching higher.

"It got really low during the elections and now it's going back up," said Christel Sayegh, a 23-year-old graphic designer in Los Angeles. "They do that every election, though, right?"
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  #2  
Old 02-15-2009, 02:36 PM
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Quote:
Originally Posted by Botnst View Post
"Why should a refiner produce more gasoline when the stuff we produce is not being used?"
So much for supply and demand economics.

Low demand, high inventory, raise prices.
High demand, low inventory, raise prices.

We're so screwed no matter what the circumstances are.
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Old 02-15-2009, 02:45 PM
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How much do you want to bet that Exxon posts another record profit this quarter?

So much for the oil man in the White House theory the libs were spouting. OB's in charge now and its going to go right back up.
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Old 02-15-2009, 04:37 PM
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The union that represents refinery workers is promoting a strike. In anticipation of the strike, a lot of refineries in the USA are planning to take their capacity down and conduct maintenance, modernization, and expansion. That will also tend to push the prices higher. Worse, it will reduce reserves as we approach the summer driving season. A perfect storm.

B
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Old 02-15-2009, 05:27 PM
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I also read that with the current over-capacity, plans for increasing production have been put on hold. This will definitely bite us when the economy kicks in again and demand goes up.

Of course its nobodys fault. Its funny how these blameless situations always get the consumer/taxpayer by the nads.
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Old 02-15-2009, 05:32 PM
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Price of oil represents a small percentage of the cost of gasoline? That would be my immediate guess.
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Old 02-15-2009, 06:10 PM
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There is likely to be no strike since the United Steelworkers are voting on accepting the contract offered now. Most of the Steelworkers I know are going to vote to accept the contract. Of course, until the vote is in anything is possible.

The reason crude oil is down and gas prices are up is not that cut and dired. The price of WTI is down becuase there is an over supply of it. The cost of imported oil is up because there is not enough of it.

So... How does this work? WTI is the best oil to refine in the US. It has also been the most costly for as long as I can remember and that goes back about 40 years. In order to make more profit on each bbl of oil refineries have reconfigured to process the preveiously cheaper offshore oil which is usually about $10 to $15 a bbl below WTI.

So what we have now is not a shortage of crude but a shortage of refineries that can process WTI. Therefore, WTI stacks up in inventory whild refiners scramble to find the type of oil the industry spent billions of dollars to gear up to refine.

How did we get into this mess? I blame the free market. Every refinery manager I know that tried to point out this was coming was either fired or just shunted aside. You can shout the truth from the rooftops, but if there is a few billion quick dollars to be made from doing the same thing everyone else is doing it is not long before that is what you are doing.

The companies that can still process WTI see no reason to cut their prices just because they are currently getting WTI cheap. One refiner was once getting a 'spread' of $18 for every bbls of oil refined and they did not cut their prices just because they could. They are now getting killed on the high price of imported oil, but then so is everyone else.

In essence the high cost of WTI drove refiners out ot the WTI refining business. OPEC has caught on that most of the US refineries must have their oil and have priced it to reflect that fact.

Once a refinery is configured to process a grade of crude it can cost hundreds millions of dollars to switch to another grade.

Also, refinery turnarounds are rather common and they are allowed to work with each other to make sure they are not off all at once. This has nothing to do with keeping the cilivian supply of fuel at acceptable levels; it is so the military will not be caught short in a crisis.

Pooka
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Old 02-15-2009, 06:21 PM
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Renewable Bio Diesel

Yet ,Another reason to wean ourselves off ANYTHING offered by the Energy
Cartels.
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Old 02-15-2009, 07:50 PM
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Sounds like BS to me...


First of all even if BNS is a whole 7 dollars more a barrel than WTI, a barrel is 42 gallons. That is what $0.165 a gallon?

How does that translate into a $.50 increase in a gallon of gasoline?


Sounds like the speculators are blowing smoke up our butts again...

Second of course the oil filling the tanks in Texas to capacity can't be shipped to the refineries back East. I mean oil tank rail cars don't exist, right?
Railroads don't run from Texas to NJ, right?
An oil tanker certainly can't sail from Galveston to Newark...

I guess that puts an end to the DRILL HERE DRILL NOW crowd. Even if we drilled, we could not refine the oil we got out of the ground...
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Old 02-15-2009, 07:52 PM
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Quote:
Originally Posted by Botnst View Post
The union that represents refinery workers is promoting a strike. In anticipation of the strike, a lot of refineries in the USA are planning to take their capacity down and conduct maintenance, modernization, and expansion. That will also tend to push the prices higher. Worse, it will reduce reserves as we approach the summer driving season. A perfect storm.

B
Low fuel prices are one of the things keeping this economy from getting even worse, if it goes to $5 a gallon were in a depression.
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Old 02-15-2009, 07:55 PM
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Yet ,Another reason to wean ourselves off ANYTHING offered by the Energy
Cartels.
To go to what? Another different cartel?
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Old 02-15-2009, 07:57 PM
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Originally Posted by LUVMBDiesels View Post
Sounds like BS to me...


First of all even if BNS is a whole 7 dollars more a barrel than WTI, a barrel is 42 gallons. That is what $0.165 a gallon?

How does that translate into a $.50 increase in a gallon of gasoline?


Sounds like the speculators are blowing smoke up our butts again...

Second of course the oil filling the tanks in Texas to capacity can't be shipped to the refineries back East. I mean oil tank rail cars don't exist, right?
Railroads don't run from Texas to NJ, right?
An oil tanker certainly can't sail from Galveston to Newark...

I guess that puts an end to the DRILL HERE DRILL NOW crowd. Even if we drilled, we could not refine the oil we got out of the ground...

Yep, I bet the oil companies start posting some very nice profits as the 1st quarter comes to a close...
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Old 02-15-2009, 08:00 PM
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Originally Posted by LUVMBDiesels View Post
I guess that puts an end to the DRILL HERE DRILL NOW crowd. Even if we drilled, we could not refine the oil we got out of the ground...
Ah, but if we got enough for cheap enough, we could sell it and make a few bucks.
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Old 02-15-2009, 08:02 PM
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Shipping the oil from Cushing, Oklahoma, which is where it is stored, to refineries back east would not help since the refineries there lack the capacity to refine it. (Sorry, but I should have said the 'ability' and not the 'capacity'.

While the initial difference of the cost of oil per bbl is not that great the refining cost of lower grade crude is. Also, after you desulfer a bbl of sour crude you have to dispose of the sulfur. There used to be a market for this, but there is so much sulfur out there now the price of it has gone down. This could change if a market developes for sulfur, but I don't know of any that is developing.

On the other hand, you car will last a lot longer without the sulfur in the gasoline unless you have an older diesel. The sulfur in diesel was used to cushion the valves. The only car diesel you can buy now is Ultra Low Sulphur.

Last edited by Pooka; 02-15-2009 at 08:06 PM. Reason: to clarify a term
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Old 02-15-2009, 08:02 PM
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Yep, I bet the oil companies start posting some very nice profits as the 1st quarter comes to a close...
Probably about 10% or maybe 12%. I know I am shooting for more in my companies but that's me.

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