Gas Prices Explained

[denjohn]

Gas Prices Explained
http://www.youtube.com/watch?feature=pl ... 0hNSJEKUgo

[Amskeptic]

Gas Prices Explained
http://www.youtube.com/watch?feature=pl ... 0hNSJEKUgo

I am scrood. These gas prices in March have already taken my price increase for the itinerary all for themselves. Supplies are plentiful. Demand is flat. Prices are going up. And now we have this "refinerary shortage" being trumpeted. Do we have oil companies who need a Republican in the White House all of a sudden?
Quantitative Easing . . . another tool of the oligarchy.
Colin

[sailorkh]

It's definitely changing my plans for the summer. I think Maupin is as far north as I'm going to make it this year

[dingo]

Greedy Speculators and Hoarding

The pervasive narrative among people and politicians, and which is spread by a campaigning press, is of ‘greedy speculators’ who are ‘hoarding’ commodities and ‘gouging’ consumers in search of a transaction profit.

There is no better example of this meme than the UK’s Daily Mail scoop on 20th November 2009.

Here we saw pictures of shoals of some 54 shark-like tankers loaded with oil lurking off the UK coast with millions of barrels of ‘hoarded’ crude oil, some of them having been there since April 2009. The Mail’s story was that these tankers were full of hoarded oil whose greedy owners were waiting for prices to rise before gouging the public.

The reality was rather different.

The motivation of the investors involved was not greed but fear. The Fed had been busily printing another trillion in QE dollars to buy securities and the sellers, and other investors aimed not to make a dollar profit but rather to avoid a dollar loss.

So they poured $ billions into oil index funds and similar products and the oil leases/loans which accommodated these funds’ financial purchases of oil had the effect of raising forward prices and of depressing the spot price, thereby creating what is known as a market ‘in contango’.

When the forward price is high enough in a contango market what happens is that traders will borrow money to buy crude oil now, and sell the oil at the higher price in the future. Provided the contango is high enough, they will cover interest costs, and the cost of chartering and insuring the vessel and its cargo, and lock in a profit for the trader at the end.

This is exactly what traders did through the summer of 2009, until the winter demand by refineries for crude oil and a reduction in the flow of QE dollars into the market combined to see the stored oil gradually delivered to refineries and the sharks depart the UK shores.

The point is that the widely held perception of high oil prices being the fault of hoarders and greedy speculators is – apart from very short term ‘spikes’ in the price, entirely misconceived. And even when speculators do dabble in oil markets, they are almost always pillaged by traders and investment banks with much better market information, which is probably what is happening right now.

http://www.nakedcapitalism.com/2012/01/ ... d-oil.html

[denjohn]

Here is a great map showing the gas prices by county for all of the USA by using heat colors... red for high prices:

http://gasbuddy.com/gb_gastemperaturemap.aspx

[Lanval]

Greedy Speculators and Hoarding

The pervasive narrative among people and politicians, and which is spread by a campaigning press, is of ‘greedy speculators’ who are ‘hoarding’ commodities and ‘gouging’ consumers in search of a transaction profit.

There is no better example of this meme than the UK’s Daily Mail scoop on 20th November 2009.

Here we saw pictures of shoals of some 54 shark-like tankers loaded with oil lurking off the UK coast with millions of barrels of ‘hoarded’ crude oil, some of them having been there since April 2009. The Mail’s story was that these tankers were full of hoarded oil whose greedy owners were waiting for prices to rise before gouging the public.

The reality was rather different.

The motivation of the investors involved was not greed but fear. The Fed had been busily printing another trillion in QE dollars to buy securities and the sellers, and other investors aimed not to make a dollar profit but rather to avoid a dollar loss.

So they poured $ billions into oil index funds and similar products and the oil leases/loans which accommodated these funds’ financial purchases of oil had the effect of raising forward prices and of depressing the spot price, thereby creating what is known as a market ‘in contango’.

When the forward price is high enough in a contango market what happens is that traders will borrow money to buy crude oil now, and sell the oil at the higher price in the future. Provided the contango is high enough, they will cover interest costs, and the cost of chartering and insuring the vessel and its cargo, and lock in a profit for the trader at the end.

This is exactly what traders did through the summer of 2009, until the winter demand by refineries for crude oil and a reduction in the flow of QE dollars into the market combined to see the stored oil gradually delivered to refineries and the sharks depart the UK shores.

The point is that the widely held perception of high oil prices being the fault of hoarders and greedy speculators is – apart from very short term ‘spikes’ in the price, entirely misconceived. And even when speculators do dabble in oil markets, they are almost always pillaged by traders and investment banks with much better market information, which is probably what is happening right now.

http://www.nakedcapitalism.com/2012/01/ ... d-oil.html

This sounds more likely than the simplistic version the media generally offers, but still results in the same local problem; gas prices aren't tied to either production (supply) or use (demand). You'd think the low-grade morons that pass as conservatives would recognize the failure of their system, but whatever; oil shouldn't be available for speculation in any form. Like water, energy and few other things, it ought to be more closely regulated.

Except:

We should be moving away from oil for everything but cars; and even cars eventually. Other forms of power are far too plentiful with low environmental damage. We'll have to give some things up (big sections of Yellowstone Park ought to be generating thermal power) but it'll be far better for us in the long run.

Still, I fail to see why any institutions should be able to manipulate prices, and by extensions economies and lives, simply so they can park their dollars, euros, yen or whatever someplace profitable.

Michael L

[Amskeptic]

The pervasive narrative among people and politicians, and which is spread by a campaigning press, is of ‘greedy speculators’ who are ‘hoarding’ commodities and ‘gouging’ consumers in search of a transaction profit.


The reality was rather different.

This sounds more likely than the simplistic version the media generally offers, but still results in the same local problem; gas prices aren't tied to either production (supply) or use (demand). You'd think the low-grade morons that pass as conservatives would recognize the failure of their system,
I fail to see why any institutions should be able to manipulate prices, and by extensions economies and lives, simply so they can park their dollars, euros, yen or whatever someplace profitable.

Michael L

Dingo, the whole gaming of the system in California that got Gray Davis thrown out, remember that? Dynergy? Cheney? Enron, electricity shortages? blasted for years by Representative Waxman? The files went down in Building #7 at the WTC?

You gonna tell me that I don't have grounds for deep suspicions? Are you kidding? Where the fuck did this sudden "shortage of refining capacity" come from THIS TIME?? Chevron and Sunoco have been shutting down refineries that "aren't profitable"? Seen their balance sheets? What the hell! We are that stupid. When some fat cat plutocrat comes up with a bogus bullshit excuse, the lemmings are all over it.
Like Lanval said, when supply and demand is no longer the basis, it ain't capitalism any more, and it ain't. And we/they deserve what is coming.
Colin

[denjohn]

Here are some things to consider before blaming it all on the evil speculators:

1. Supply: Supply is finite. Oil is a scarce resource, and getting scarcer. [and getting a lot more expensive to get out of the ground]

2. Demand: Meanwhile demand, while fluctuating, is growing overall. [globally]

3. Devaluation of currencies: The world at this point runs on 'fiat' currencies, not backed by anything solid, and when governments (like the USA and Europe's and Japan's) try to deal with debt by electronically printing more money--or creating it by making loans out of thin air--you get inflation. There are still X number of barrels of oil but now your money is worth less per unit, so it takes more units to purchase the oil.

4. Uncertainty: Market uncertainty about things like the possibility of a war or confllict with Iran, plus market uncetainty about a 'contagion' of things like Greek debt are not helping. A war in the Middle East will make the scarce resource even scarcer, at least temporarily, by cutting off shipping routes if nothing else.

[Lanval]

Here are some things to consider before blaming it all on the evil speculators:

1. Supply: Supply is finite. Oil is a scarce resource, and getting scarcer. [and getting a lot more expensive to get out of the ground]

2. Demand: Meanwhile demand, while fluctuating, is growing overall. [globally]

3. Devaluation of currencies: The world at this point runs on 'fiat' currencies, not backed by anything solid, and when governments (like the USA and Europe's and Japan's) try to deal with debt by electronically printing more money--or creating it by making loans out of thin air--you get inflation. There are still X number of barrels of oil but now your money is worth less per unit, so it takes more units to purchase the oil.

4. Uncertainty: Market uncertainty about things like the possibility of a war or confllict with Iran, plus market uncetainty about a 'contagion' of things like Greek debt are not helping. A war in the Middle East will make the scarce resource even scarcer, at least temporarily, by cutting off shipping routes if nothing else.

Those points are generally true, but not specifically. The problem with 1 & 2 is that your claims assume a perfectly transparent system; in fact that's not the case. For example, oil in many oil producing countries is way, way cheaper than it is elsewhere... gas is really cheap ~ like $ .22 p/gallon in Venezuela. How does that square with the claims of supply and demand? Couldn't they sell that gas for considerably more on the open market, and provide a good deal of services for the desperately poor people of Venezuela?

Gas in Egypt is about half of what it is here in the US; how does that work?

Best,

Michael L

[denjohn]

Hi Michael,
Seems you may be reading too much into what I wrote.
I'm not following your logic, it seems to me that 1 & 2 are true and stand on their own w/o any assumptions re transparency.
Re Venezuela and Eqypt: even if what you say is true, I don't see that it refutes 1 & 2.
I couldn't begin to tell you how things work in V & E, but suspect that short term political expediency is part of those prices.

[Amskeptic]

Hi Michael,
Seems you may be reading too much into what I wrote.
I'm not following your logic, it seems to me that 1 & 2 are true and stand on their own w/o any assumptions re transparency.
Re Venezuela and Eqypt: even if what you say is true, I don't see that it refutes 1 & 2.
I couldn't begin to tell you how things work in V & E, but suspect that short term political expediency is part of those prices.

Looking at the larger picture of both economics, and human behavior of which economics is a subset, I am less prone to "buying" the explanations I have heard over the past several centuries. There is a rich rich tradition of "authorities" telling us what "is", from the Church telling us Galileo was just totally wrong, to the U.S. Goernment telling us that of course they would not perform radiation experiments on hospital patients. Well, our economic authorities have a history of telling us "what is" and it has been richly proven beyond a shadow of a doubt that they were blowing smoke up our, nevermind.

I am NOT BUYING the price run-up explanations currently being bandied about, I am NOT. It does not matter that I think a price run-up would indeed be an excellent way to motivate us to seek newer greener means of energy, or if this price run-up were a tax that helped rebuild infrastructure I would be for it, but no, I do not see any natural causes for this price run-up right now, nothing in the world market that says U.S. gas prices had to increase 28% in the past month.
Just like California's electricity crisis in 2001, it is manipulation coming from emboldened plutocrats. And if you look at the true causes of shutting down refineries, you would find more substantive answers that don't insult you like the bullshit flying around right now.

It was Shell Oil who closed down a refinery in Bakersfield (?) California a few years ago where the official line was that the refinery wasn't making enough money, and a disgruntled employee spilled the beans that it was indeed one of their top-performers, and was closed solely to drive demand up artificially across their entire collection. More of this bullshit is on the way if we do improve our nation's fleet fuel economy, because, as you know, the bottom line is that the people making the money damn well want to keep making the money.

You're not dumb, neither am I, the rich are getting richer yet. That is not due to "market forces".
Colin

[dingo]

Venez pays the artificially low price of .22 because Chavez has to bribe the starving masses in his country, so that they dont overrun his castle in the middle of the night


also some confusion here between oil-producing countries and those that can process the oil into gasoline; Venezuelan crude is the sour kind...and few places are equipped to refine this..the US being the major one. In another example, Iran purchases gasoline from northerly neighbors, rather than the expensive option of pumping/shipping its crude from the gulf all the way up to the tehran in the north.

[Lanval]

Venez pays .22 because Chavez has to bribe the starving masses in his country, so that they dont overrun his castle in the middle of the night

The "why" isn't important. My point was that the price of gas is fundamentally divorced from either supply or demand.

Supply is not an issue per se; there is plenty of gas, just based on current production, to cut the price of gas in half or more worldwide. However, there is no free market (suppliers don't always supply, for a variety of reasons) and the oil that is available is often manipulated in price by entities that operate for their own benefit (cf. Enron).

The same issue of manipulation by both types of groups affects demand as well. I don't believe in bullshit "cartel/shadow gov't" manipulation; it's a variety of groups that work towards their own ends (like BP gives a shit about Chavez, or vice versa) that dictate supply/price/demand. Let's suppose we bought the entire output of Venezuela on a daily basis (a bit 2.5 million barrels per/day) at a cost that equaled three times their current rate of gas; .66 per gallon after refining, etc.

Venezuela would have 3 X the value in hard currency (dollars). The US oil consumption is about 18.6 million barrels p/day, meaning a little more than 1/9 of our oil (and by extension) gas would be bought at a price of $.66 p/gallon. Average that into our current $4 p/gallon cost (8 gallons @ $4, 1 gallon @ $.66) and the current cost of gas drops to $3.62. Not huge, but certainly enough to affect demand, inflation and consumer cost, I would think.

By the way, here's a matrix for Venezuela's proven oil Reserves:

Country 2002 2003 2004 2005 2006 2008 2010
Venezuela 63,950,000,000 63,950,000,000 78,000,000,000 75,590,000,000 75,270,000,000 78,270,000,000 97,770,000,000

Yeah, you read that right: Venezuela's proven supply increased 30% over 8 years, between 2002 and 2010.

****************************************

Let me reiterate:

1. Supply is NOT going down
2. Current cost for gas in the US is NOT about supply or demand
3. The only real factor in gas prices are: cartels, individual gov'ts and business entities. They seek to maintain an optimum balance in which the price remains high enough to ensure huge profits, while staying low enough that people will tolerate the cost rather than seek alternatives (of which there are MANY)

If you don't believe what I'm saying, then ask yourself this:

How can an increase in cost (presumably cost of supply due to scarcity, according to traditional economic theory) result in high profits for an oil company? Shouldn't their profits remain static if the price is tied to scarcity? But that ain't how it works; read here:

http://www.nytimes.com/2011/02/01/business/01oil.html

allow me to quote:

"Exxon Mobil, the largest American oil company, reported a 53 percent increase in its fourth-quarter profit on Monday, helped by an improving world economy that has increased energy demand and crude prices"

Demand has increased, resulting in higher prices; note the issue isn't scarcity; they could be buying and supplying plenty of oil from various oil suppliers at costs considerably below current costs. They don't for a variety of reasons as noted above. The demand isn't artificial, but the scarcity is, which in turn makes the demand essentially artificial, for the following reason:

Suppose you went into a store to buy a special item listed as on sale ~ a big screen TV, for example. They tell you, "Oh, were down to the last one, and that guy over there wants it". You'd offer a little more, maybe, to get the TV, since it's still at a good price. Or they tell you, "that one is sold out (i.e. not available) so buy this one over here."

As you may note, both tactics are illegal, for the obvious reason; if that sort of thing were allowed, they'd advertise the low price, keep one out front to create artificial scarcity, and then bring out another one as soon as the first TV was sold. It's simplified, but that's basically how oil works. Except you also have TV speculators who make offers on future TVs, and then sell them at a higher price later... it's crazy.

Best,

Michael L

[Lanval]

Here's an article from NPR pointing out that the current rise in gas price in the US isn't due to US demand:

http://www.npr.org/2012/03/22/149061105 ... ne?ps=cprs

Michael L

[Amskeptic]

Here's an article from NPR pointing out that the current rise in gas price in the US isn't due to US demand:

http://www.npr.org/2012/03/22/149061105 ... ne?ps=cprs

Michael L

Hello. I remember staring at my gas bill in upstate NY.
"Due to increased demand there is a surcharge."
then after all of our energy saving upgrades dropped the consumption,
"Due to diminished demand there is a 'recapture fee'".
both are p-r-i-c-e i-n-c-r-e-a-s-e-s