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

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?"

Crude oil is getting cheaper — so why isn't gas? - Yahoo! News

Your comment on refiners may have something to do with it, but I'm a total newbie when it comes to financial markets.

I lost some money in '97 and vowed to never indulge those people again.

Here in NZ, diesel vrs petrol prices have varied wildly...

Totally independent of refining/drilling/production parameters, the only determining factor being media and government pressure re trucking and transport...

I guess that there will be things going on behind the scenes that we never know.

"Drivers are being ripped off even more now than before,"

Which encapsulates a whole lot of this society's problems in one pithy sentence. It's like "hey, we're frigging ENTITLED to cheap gas, and if it's not cheap enough someone must be ripping us off".

related article on cnn:

"Brockwell said refineries lost money last year, despite the surge in gas prices. The refineries in the latter half of 2008 were paying top dollar for oil, and then producing gasoline in a low-demand economy, he said. Now, refineries are producing less, driving up prices in even this low-demand economy, while stockpiling discount oil, he said."


Gas prices could hit $2 a gallon - Feb. 16, 2009

cheaper
 

Around the November elections,prices here dropped momentarily to below pre-Katrina/post Desert Storm levels.A rumor is afoot,that gasoline prices have been decoupled from the price of crude.I can't prove it one way or another.------------------------- The radio announced that fears of lower demand was pushing prices "higher".So much for supply-side Reaganomics.My guess is that Saudi Arabia is the de facto 51st state in the U.S.,and to protect "jobs" we must provide steady capital flight from the continent to Ridya to finance petro-dollar recycling through exports to the Middle East regardless of petroleum demand.

Lol now gas will hit $3 I wonder how they "made" it on $1.50 a gallon or less 6/7 years ago.

$6.76/gal here and rising.

A while ago we've had blockades strikes and other civil disobedience to get it down it has worked in the past, at the end of last year it was around the $7.73 range (12%difference?)

may be you need to have a 'we the people' moment......

:D

Sign here please

...WE THE PEOPLE....

:thumbup:

Instead of signing a petition that will likely accomplish nothing, have y'all thought about, I don't know, just reducing your gasoline usage...? :confused:

ya , but you should post that there, not here...:D here we ALL save gas :turtle: