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:

I love high gas prices they make me happy. 12mpg SUVs=not on the road

But not "high" prices, just "increasing". Once gas stays at X dollars/gallon SUVs start coming out of the woodwork again.

It has been kinda humorous ... just a couple of years ago every other Escalade and Navigator on the road had 24" wheels and was driven by teens that still lived at home with mommy and daddy.

Fast forward to today and go figure, they are back in their Civics and Scions .. Some that I talk to even carpool again because its cheaper to give a buddy a couple of bucks for gas ....

Organized petitions with specific goals can be usefull if documented, signed in person, distributed to news and then presented to the legislating bodies. I did my small part at a fair getting them to install (or should I say reenable) ventilation in their exhibition building, a couple hundred signitures with phone and addy plus a little blurb in the local news made it happen once the petition was presented to the board. It was amazing how the we can't turned around fast, (but this was a very small inexpensive issue)

I would rather see that petition have some additional verbage to reduce the price of gasoline by removing more of the speculation, adding more regulation (of the right kind in the right places), more public ownership of oil resources directly, mainly in cases where the companies have viable wells purchased for the purpose of capping them. I say if you have a fully productive well, without massive environmental issues and you don't want to pump it for 5 years or even 10, perhaps the mineral rights should go away. Motivation to keep good wells running and bad can go on the open market.

And ESPECIALLY to offer cars that get higher fuel economy, allow lighter cars to be legal and to advance alternative fuels, be it electric, CNG, syth or whatever. A requirement to store all CNG and make it illegal to just gas the CNG except during emergencies might force the hand to find uses for the "excess" stuff that just isn't profitable enough to process.

We complain about cars and emissions yet enough CNG in the US alone goes up in smoke without being utilized to power approx 800,000 cars for a year. (and that is just the documented figures which are guesses) May not seem like much to you but 1.5% of cars seems significant enough. Heck even if that "Waste" could be used in coal fired plants to offset their massive pollution somewhat.

What we need is a force independent of vested interests to do what everyone needs but no one wants to do, even if there is a cost associated.

Sadly what we need is rarely what we do because it might hurt someones profit. But that is exactly what needs to happen, truth and frank talk and direct changes and research.

I agree to an extent. Alternative fuels may never be cheaper. I have seen E85 in Florida as expensive as regular gas. As long as there is someone controling the fuel, there will be someone manipulating the price.

If we were to go electric suddenly, they would make up for it in our electricity bills by designing the cars to charge off of independently monitored outlets or simply add a surcharge for having an electric car.

Heck if we went solar electric, I am sure they would find a way to get us there by charging more to register the vehicles or give us special travel lanes on the highway that we would have to pay for. Or maybe just raise toll rates to recover any money lost.

For any alternative to oil we find there will be equal due diligence to make money off it.

Thats why I think its futile to fight against higher prices, I'd rather focus on giving other countries less of my money for the fuel I have to use by using the least amounts possible.

What a horribly misguided petition. I'll have nothing to do with it. :mad:

A) This is probably just a scam to get email addresses.

B) Whatever happened to free market capitalism?

C) If you don't like high gas prices, buy some oil company stock. Exxon/Mobil would be good, but I'd stay away from BP right now. :thumbup:

I will only address point B:

"We the people" have elected a president and congress who are disdainful of capitalism. The previous administration pretended to promote a "free" market, but their version of the market wasn't exactly that, and it ended up giving capitalism a bad name.

"Democracy is the theory that the common people know what they want, and deserve to get it good and hard." (H.L. Mencken)

I'd say we are getting it like that already ..lol

...I didn't realize that Hugh Hefner or Dr. Ruth were writers of 'political copy' for Mr. Mencken.

Frankly, the cheap and easy shots at 'big oil' and 'speculators' are misplaced. Big oil only has the power we give it, and we're giving it power right now because nearly all of our transportation needs are fueled almost exclusively by petroleum-based products.

It's easy to rant and shout, but it's hard to actually change your lifestyle. I suggest that the emotions I see displayed in that petition are indicative of people who don't want to face up to the fact that if they don't like big oil, the answer is not government regulations to make sure that big oil sells its product cheaply, the answer is to stop purchasing what big oil has to sell.

In short: we have met the real Big Oil, and he is us.

We are taught from very young that oil is required to drive us, any creativity is beat out of us.

In a way we are giving Big Oil power but in another way we aren't really being taught any different and once you are set in your ways it takes a massive upset to break you out.
So although its our fault by our actions, the fault lies in our society not doing its children good by teaching them correctly. We expect many things in this country that our great grandparents would not have and that is as well taught and learned, if media, schools, government and companies did not reinforce bad habits things could change.

Unless people are taught about alternatives (and see them used) and those alternatives are readily available, prescribed and supported by authority figures and cost effective you will not see the sheep using them, nor can you expect them to do so as their decisions are based off what authority figures say is true, not what is actually true.

Much like a diabetic will scorn you if you state a fact, diabetes can be controlled if starch & sugar is not consumed and you excersize, look how berserk people go over that one even though it only takes a few weeks to prove true to themselves. Odd how societies that do not have refined sugar and products also have no type II diabetes? Doctors do as well, saying its unhealthy not to eat grain, but which is more unhealthy, high blood sugar or a natural diet with plenty of meat and vegetables and no high blood sugar? I would think out of control blood sugar and its complications would kill you before eating too many omega III fats and too much good cholesterol.

People don't change unless, authority figures they support and believe in present the changes. Even then its a slow road as the alternatives have to be available which many times is not the case because of profit motive.