Maybe they Really are GREEDY SOB's

[Werewolf]

Price per barrel of oil has been hovering around $107 to $114 for a while now.

Last time it was that low price per gallon in OK bounced between $2.60 and $2.90.

Now it's bouncing between $3.55 and $3.75.

Price isn't going down.

Maybe the Oil Companies really are GREEDY SOB's!

Or maybe the goobermint want's the price that high and is doing goobermint stuff to keep it there.

Or maybe at $107/barrel other countries of the world are snatching the oil up quicker than we can and there's still a nationwide shortage relative to global demand.

I'm so confuuuuuuuused.

[Brad Johnson]

Crude oil and pump gas are traded seperately, making the prices almost mutually exclusive.

Brad

[Werewolf]

So you are saying that it is the speculators keeping the price of gasoline high?

[Jamisjockey]

So you are saying that it is the speculators keeping the price of gasoline high?

There's a surprise!

[Headless Thompson Gunner]

"Current" crude oil prices are actually the prices for futures contracts with delivery dates a couple months in the future.  Oil sold for $105 a barrel today won't actually be delivered to the refineries until this fall.  So there's a significant time lag between the current trading prices for crude/gas and their selling price at the pump today.  

There's still a lot of that pricey $150/barrel crude in the system that has to be worked through.  Does anyone here have the means to determine a 3 or 4 month trailing average for crude oil?  I think that number might be a much better indication of "appropriate" gas prices than the futures contract prices.

Wait until 3 months from now.  If crude prices continue to fall, and if gas prices refuse to fall any farther, then there might be a reason to suspect shenanigans.

[Brad Johnson]

So you are saying that it is the speculators keeping the price of gasoline high?

Nope.  I'm saying that the market price of gasoline and crude are almost mutually exclusive.

Brad

[Nick1911]

"Current" crude oil prices are actually the prices for futures contracts with delivery dates a couple months in the future.  Oil sold for $105 a barrel today won't actually be delivered to the refineries until this fall.  So there's a significant time lag between the current trading prices for crude/gas and their selling price at the pump today. 

There's still a lot of that pricey $150/barrel crude in the system that has to be worked through.  Does anyone here have the means to determine a 3 or 4 month trailing average for crude oil?  I think that number might be a much better indication of "appropriate" gas prices than the futures contract prices.

Wait until 3 months from now.  If crude prices continue to fall, and if gas prices refuse to fall any farther, then there might be a reason to suspect shenanigans.

Yet, if crude contracts in the futures market were to jump to $150/barrel today, by the end of the day, we'd see $4.00 at the pump.

Somebody is making out here...

[HankB]

See, when crude prices go up fast, so do pump prices, as the oil companies have to generate revenue to buy the newer, more expensive raw materials.

When crude prices drop, well, they still have to make a fair profit on the expensive stuff already in the pipeline, so prices go down slowly, if at all.

Simple, really. 

[K Frame]

Actually, if you factor it, you'll see that when oil prices were skyrocketing, pump prices were not keeping pace with the marginal increase in the price of the raw material. It was lagging considerably.

[French G.]

So you are saying that it is the speculators keeping the price of gasoline high?

Not really. Oil prices come and go but our gas demand is pretty steady with only about a 5% slide caused by high prices. Build some refineries, that might help unless you can figure out how to run your car on crude oil.

[wmenorr67]

Also have to take in to account the supply and when refineries change over to seasonal blends to meet EPA standards.

[Headless Thompson Gunner]

"Current" crude oil prices are actually the prices for futures contracts with delivery dates a couple months in the future.  Oil sold for $105 a barrel today won't actually be delivered to the refineries until this fall.  So there's a significant time lag between the current trading prices for crude/gas and their selling price at the pump today. 

There's still a lot of that pricey $150/barrel crude in the system that has to be worked through.  Does anyone here have the means to determine a 3 or 4 month trailing average for crude oil?  I think that number might be a much better indication of "appropriate" gas prices than the futures contract prices.

Wait until 3 months from now.  If crude prices continue to fall, and if gas prices refuse to fall any farther, then there might be a reason to suspect shenanigans.

Yet, if crude contracts in the futures market were to jump to $150/barrel today, by the end of the day, we'd see $4.00 at the pump.

Somebody is making out here...

Pump prices never tracked upward as high or as fast as crude oil prices did back when oil made its big run up to $150.  Now, as we're seeing, pump prices aren't tracking downward as far and as fast as crude oil is falling.

Such is the nature of futures markets.  They exist to buffer out price volatility.  That's what they're doing right now.

And Brad Johnson is correct.  Crude and gas prices don't trade or move in lockstep.

[Gowen]

Some of this is caused by a weak dollar.  If the dollar were stronger against other currencies, the price per barrel would drop.  These other nations can buy more oil because the exchange rate is more in their favor.

[Headless Thompson Gunner]

Some of this is caused by a weak dollar.  If the dollar were stronger against other currencies, the price per barrel would drop.  These other nations can buy more oil because the exchange rate is more in their favor.

Check your facts.  The dollar has been beating up on other currencies for a while now.

[cordex]

Nope.  I'm saying that the market price of gasoline and crude are almost mutually exclusive.

Crude and gas prices don't trade or move in lockstep.

... sort of.  They do actually move very closely together if not entirely in lockstep.

Here's a chart I threw together from US government data available here



As you can see, small upward and downward trends in the oil market (futures and spot) mirror drastically larger trends in the gasoline market (future and spot).

Also, oil spot prices aren't much different from four month oil futures prices, really.  They'll trend at most few bucks in either direction.

[Gowen]

Some of this is caused by a weak dollar.  If the dollar were stronger against other currencies, the price per barrel would drop.  These other nations can buy more oil because the exchange rate is more in their favor.

Check your facts.  The dollar has been beating up on other currencies for a while now.

I did not say that is what is happening now, it is only recently that the government has be strengthening the dollar.  That is why oil has slipped away from that $150 a barrel, the dollar has been getting stronger.

[Headless Thompson Gunner]

On a multi-decade long term time scale, oil and gas prices do tend to track in the same directions.  I don't think that anyone here disputes that idea.  What I and Brad are saying is that on a day-to-day and week-to-week basis, the gas and oil prices are fairly unrelated.

Look at the volatility in the two prices, spot oil vs retail gas.  Notice anything different?  The gas price is extremely volatile.  It spikes and plunges, up and down, over and over again in very short time spans.  The oil price is fairly constant.  There is very little correlation between these radical moves in gas prices and the more stable moves in oil.  A shorter term chart would show this clearly, gas moving up and down without any corresponding swings in oil.

Now look at the scale of the changes.  Pick as a starting point, say, the low point around Jan 2007.  Oil is $50/barrel, retail gas is maybe $2.25/gallon.  Now move on to the peak prices in July '08.  Oil is $150/barrel, a full 3 times higher than before.  Retail gas is $4/gallon, less than twice as high.  If the retail gas price had fully matched the move in oil, gas should have been priced at 3 times it's Jan '07 price, which would have put it somewhere near $6.75 per gallon.

[Headless Thompson Gunner]

Some of this is caused by a weak dollar.  If the dollar were stronger against other currencies, the price per barrel would drop.  These other nations can buy more oil because the exchange rate is more in their favor.

Check your facts.  The dollar has been beating up on other currencies for a while now.

I did not say that is what is happening now, it is only recently that the government has be strengthening the dollar.  That is why oil has slipped away from that $150 a barrel, the dollar has been getting stronger.

The US Government had no part in strengthening the dollar.  The recent changes are mostly due to the faltering economies in Europe and Asia.  In fact, I suspect that the economic gurus in Washington don't want the dollar stronger.  I think it's happening against their wishes.

The change in relative currency values has had an effect on oil prices, but the change in the dollar didn't cause oil to fall in the first place.  It merely magnified the drop. 

Actually, I suspect just the opposite, that falling oil prices pushed the dollar higher; investors backing out of their oil-as-an-inflation-hedge trades pushed the dollar up.  But I don't have any data to back this up, only an intuitive feeling.

[Perd Hapley]

Since oil is used in many other items besides gasoline, won't gas prices also be affected by the demand for other petroleum products?  So even if crude drops to 80 dollars per barrel, gas prices could theoretically remain at 3.50, if there is some unusually high level of demand for, say, diesel fuel. 

[macadore]

Thank T. Boon Pickens. We appear to be serious about breaking our dependence on foreign oil. The organizations that control the price of world oil cant have that so they are dropping their prices to keep us from doing that, just like they did in the eighties.

[French G.]

Thank T. Boon Pickens. We appear to be serious about breaking our dependence on foreign oil. The organizations that control the price of world oil cant have that so they are dropping their prices to keep us from doing that, just like they did in the eighties.

Umm, there is a stampede out of commodities (not just oil) right now going on in the global markets. I think that has a little more to do with it. The commodities ought to come roaring back once it is clear that we're not exactly out of the financial mess woods yet.

[Perd Hapley]

Maybe the Oil Companies really are GREEDY SOB's!

Or maybe you're just a communist. 

Possibly the best reply so far.  Making the most possible profit is not greed.  It's what any profitable enterprise is supposed to do. 

[HankB]

Just as a data point . . . on Sept 9, when I drove by in the morning on the way to work, regular gas at the local Shell station was $3.489.

That evening, on the way home, it was $3.659, a 17 cent per gallon increase.

Nothing to see here, just move along . . . 

[Headless Thompson Gunner]

A coupla hurricanes up the gulf will do that to gas prices, dontcha know...