We’ve all watched the crude prices shoot through the roof far exceeding $100 per barrel, meanwhile the price of gas exceeded $4.00 per gallon.
The Republicans were saying that the only solution was for us to increase off-shore drilling. (Drill baby drill.) Many of us knew it was related to the speculator in the market. I wrote a 3-part series that looked more at the offshore oil drilling scam and the major culprit of the time – speculation.
In late summer, the speculators began pulling out of the market and something strange occurred. The price of oil began to fall along with the price of crude – drastically. Most of us eventually paid less than $1.60 per gallon.
We’ve all heard the nonsense from the Middle East – they want to cut production so the price of oil could rise. I’ve heard the Russian economy could not survive $25 per barrel of crude.
Oil companies made record profits in 2008 at a time when millions of Americans lost their homes and jobs.
The price of crude at the time of this writing is $37.29 (NYMEX crude future) and the price of gasoline is creeping higher. It has now passed the $2 per gallon mark.
Fact: If the speculators had returned, the price of crude would increase.
OPEC is getting $37 per barrel from us so someone is making the money.
Big Oil takes their profit per dollar received– not per gallon. Therefore, they benefit from a higher gasoline price.
But how are they pulling it off?
Are they closing refineries which in turn reduces supply?
A friend of mine forwarded me this story from Yahoo Finance: (h/t: DLS)
Crude oil is getting cheaper – so why isn’t gas?
Crude oil is getting cheaper — so why isn’t gas?
The price of crude oil falls to yearly low, but gas goes ever higher — what gives?
Chris Kahn and John Porretto, AP Energy Writers
Sunday February 15, 2009, 12:30 pm EST
NEW YORK (AP) — Crude oil prices have fallen to new lows for this year. So you’d think gas prices would sink right along with them.
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.
Which oil? Storage facilities are brimming with crude? Why don’t we tap into the storage facilities? I’m not certain if the U.S. storage facilities to which they refer are the reserves we’ve heard so much about. Either way, with gasoline prices higher at the pump, our friends at Big Oil are very happy.
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.
According to this article, the price of gasoline was $1.62 on 31-DEC-2008. Real Clear Markets article Oil Ends Worst Year in NYMEX history below $44 is self-explanatory.
That said, with Oil currently at $37+ on NYMEX – we add $10 per barrel and we’ll round up. So we sit at $50 per barrel. Does that $6 increase relate to more than 40 cents per gallon increase?
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.
What really drives the price? For years, we have heard that it was OPEC and our ‘friends’ at the House of Saud. Now when the price for their oil is so dirt cheap, other oil is driving our price?
When speculators were kicking our asses in the market driving the price of oil near $150 – NYMEX was the determining factor. Now it isn’t?
That is what makes me suspicious. If it was an average based on the quantity purchased from each company all along, you would figure that this would have been common knowledge all along. Since that clearly isn’t the case, you have to question who is profiting from this rise in price. Again, that would be Big Oil.
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?”
Sayegh said what we were discussing all along. Prices always come down just prior to a national election cycle and begin to rise following that election. Maybe that’s all it is. But then again, isn’t that a scam?
If anyone knows the real story behind this anomaly, please let me know.