Oil people...

[Okla-homey]

Does it really work sorta like this:

(We know this part)
World crude oil price goes up for any number of reasons.

Gas prices at pump are indexed to crude oil price and go up immediately.

(Here's the alleged part)

Gas being sold at higher price today was refined from crude oil bought at cheaper price -- perhaps several months earlier.

Meanwhile, oil companies begin to refine their crude reserves they bought earlier at lower basis .

Oil companies cut their current purchases of the higher priced crude.

When price of crude goes back down, oil companies crank up purchases to restore their reserves and resume refining of newly purchased crude purchased at lower basis thus saving their reserves to insulate them during the next crude price increase.

[OklahomaTuba]

I think thats how it works.

Now tell me, how is this any different than any other processed commodity that is sold?

Chemicals, food, textiles, etc all work the same way in principle.

[OUinFLA]

that's how I deal with cans of Vienna Sausage.
I buy them on sale and stockpile them. Then eat them as the prices rise due to seasonal fluctuations of the vienna commodity.
If I run out before vienna goes back down due to increased production of vienna or a bonanza year of vienna prodution, I try to compensate by buying extra vienna during the next down cycle, while living off the gain I had while consuming cheaper viennas.
Once I have increased my stockpile, if prices havent gone up, I will consume the oldest viennas in my cupboard while replenishing my inventory on a weekly basis.
This practice has led not only to savings on consumption expenses, but increased weight gain to carry me through the lean times.

I think you are dead on Homey.

[SOONER44EVER]

I think thats how it works.

Now tell me, how is this any different than any other processed commodity that is sold?

Chemicals, food, textiles, etc all work the same way in principle.
If that is true the why don't the prices of all those commodities change every day and sometimes two or three times in one day?

[OklahomaTuba]

If that is true the why don't the prices of all those commodities change every day and sometimes two or three times in one day?
They don't?
Last I checked, at the spot market, they do.

[Okla-homey]

I think thats how it works.

Now tell me, how is this any different than any other processed commodity that is sold?

Chemicals, food, textiles, etc all work the same way in principle.

mebbe so. I'm not trying damn the process, just making sure I understand basically how it works.

that said, I wouldn't think perishable commodities work quite that way since produce processors can't establish apple or tomato reserves to insulate themselves from the impact of a rise in world apple or tomato prices.;)

[SOONER44EVER]

They don't?
Last I checked, at the spot market, they do.
Yeah a loaf of bread jumped 5 cents at 9 yesterday morning and 3 more cents in the afternoon. This morning its 2 cents higher than it was last night........................NOT!

[OklahomaTuba]

mebbe so. I'm not trying damn the process, just making sure I understand basically how it works.

that said, I wouldn't think perishable commodities work quite that way since produce processors can't establish apple or tomato reserves to insulate themselves from the impact of a rise in world apple or tomato prices.;)Thats why I said in principle.

Unfortunatly, combustable fuels do get treated differently than other things.

Also, don't forget the impact of additives for pollution that have to be put into gas. The price for those things are soaring right now (MTBE, ETH, etc)

And the .50 of tax we pay on each gallon hurts as well!

[OklahomaTuba]

Yeah a loaf of bread jumped 5 cents at 9 yesterday morning and 3 more cents in the afternoon. This morning its 2 cents higher than it was last night........................NOT!
Ok, fair enough. Apples and Oranges though. Last time I checked, bread wasn't traded.

But what about wheat then?

[SOONER44EVER]

Ok, fair enough. Apples and Oranges though.

But what about wheat then?
I'm pretty sure the price of wheat is different every day but the price of bread doesn't move like the price of gas does.

[Mjcpr]

I'm pretty sure the price of wheat is different every day but the price of bread doesn't move like the price of gas does.

And if a wheat farmer in Nebraska has an argument with his neighbor, the price of wheat doesn't jump $5 a bushel.

[OklahomaTuba]

I'm pretty sure the price of wheat is different every day but the price of bread doesn't move like the price of gas does.

Again, Bread isn't traded as it is a finished good.

Gas is traded.

There is a difference.

[mdklatt]

Yeah a loaf of bread jumped 5 cents at 9 yesterday morning and 3 more cents in the afternoon. This morning its 2 cents higher than it was last night........................NOT!

But when when have you ever seen the price of bread go down?

[sooneron]

I think the biggest problem that people have is the gouging on an instant basis. A camel drops a turd that looked like a pipe bomb in Saudi Arabia- Prices go up that afternoon. If not, within the hour. I'm not for heavy gov't reg, but it seems that a cap should be placed on the fluctuation of the price and how much it can fluctuate in a given time. This should account for downward as well as upward trends. I'm willing to bet that the oil companies would still see the same profits at quarter's end.
At some point, this greed is really going to be a detriment the US economy.

[Harry Beanbag]

I'm no expert on the oil business, but from what I understand the oil companies make a profit of like 8 or 9 cents on a gallon of gas. The government makes a profit of around 50 cents per gallon. Now besides OPEC, who is really gouging us?

[OklahomaTuba]

I'm not for heavy gov't reg, but it seems that a cap should be placed on the fluctuation of the price and how much it can fluctuate in a given time. This should account for downward as well as upward trends. I'm willing to bet that the oil companies would still see the same profits at quarter's end.
At some point, this greed is really going to be a detriment the US economy.
Hmm, interesting idea.

If only Government could control the production and consumption of the economy, we would all be better off. Karl Marx would be proud.

As for "greed" being a detriment to the economy, give me a break. How many jobs has high oil/gas prices created in Oklahoma the last year or so? How much taxes has this brought in for the state?

And even better, look at all the new interest in ethanol and biofuels! Its called creative destruction, something that the more liberal "thinking" types don't comprehend I guess.

[Mjcpr]

I'm no expert on the oil business, but from what I understand the oil companies make a profit of like 8 or 9 cents on a gallon of gas. The government makes a profit of around 50 cents per gallon. Now besides OPEC, who is really gouging us?

The gas STATIONS make only a couple of cents on the gallon. The government "makes" a tax and it is spent for what taxes are spent on......right or wrong. I wouldn't call it a profit.

[OklahomaTuba]

The refiners make a lot of profit.

The easy answer is make more refineries.

[Chuck Bao]

Does it really work sorta like this:

(We know this part)
World crude oil price goes up for any number of reasons.

Gas prices at pump are indexed to crude oil price and go up immediately.

(Here's the alleged part)

Gas being sold at higher price today was refined from crude oil bought at cheaper price -- perhaps several months earlier.

Meanwhile, oil companies begin to refine their crude reserves they bought earlier at lower basis .

Oil companies cut their current purchases of the higher priced crude.

When price of crude goes back down, oil companies crank up purchases to restore their reserves and resume refining of newly purchased crude purchased at lower basis thus saving their reserves to insulate them during the next crude price increase.

I'm not an oil industry accountant, but I don't think it works that way.

I don’t think most refineries or retailers have that much flexibility to adjust reserves based on perceived future fluctuations in oil prices.

Their reserves are largely based on continuing operations.

Now, hedging through oil future contracts is a very different matter. This brings up the very important issue of whether oil prices are being driving by speculation or real oil demand.

[Harry Beanbag]

The gas STATIONS make only a couple of cents on the gallon. The government "makes" a tax and it is spent for what taxes are spent on......right or wrong. I wouldn't call it a profit.


I know stations don't make much, but the oil companies profit margin isn't that big either.


More recently, ConocoPhillips reported that during the third quarter of 2005 earnings from its U.S. refining and marketing operations amounted to 9 cents per gallon.

http://www.conocophillips.com/newsroom/other_resources/energyanswers/oil_profits.htm

http://www.conocophillips.com/NR/rdonlyres/C0F0E99B-3142-4C8C-BF3F-527477AED060/0/ProfitsGasPump1thru22006ave.gif



Taxes are income to the government no matter how you slice it. IMO we are way way overtaxed as a society because the government is a gigantic wasteful inefficient turd of mythological proportion.

[soonernation]

I know stations don't make much, but the oil companies profit margin isn't that big either.



http://www.conocophillips.com/newsroom/other_resources/energyanswers/oil_profits.htm

http://www.conocophillips.com/NR/rdonlyres/C0F0E99B-3142-4C8C-BF3F-527477AED060/0/ProfitsGasPump1thru22006ave.gif



Taxes are income to the government no matter how you slice it. IMO we are way way overtaxed as a society because the government is a gigantic wasteful inefficient turd of mythological proportion.


Here's some information I found.

http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/Images/pump.gif




Source: Energy Information Administration

WHAT ARE THE COMPONENTS OF THE RETAIL PRICE OF GASOLINE?
The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners.
In 2004, the price of crude oil averaged $36.97 per barrel, and crude oil accounted for about 47% of the cost of a gallon of regular grade gasoline (Figure 1). In comparison, the average price for crude oil in 2003 was $28.50 per barrel, and it composed 44% of the cost of a gallon of regular gasoline. The share of the retail price of regular grade gasoline that crude oil costs represent varies somewhat over time and among regions.
Federal, State, and local taxes are a large component of the retail price of gasoline. Taxes (not including county and local taxes) account for approximately 23 percent of the cost of a gallon of gasoline. Within this national average, Federal excise taxes are 18.4 cents per gallon and State excise taxes average about 21 cents per gallon.2 (http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html#2) Also, eleven States levy additional State sales and other taxes, some of which are applied to the Federal and State excise taxes. Additional local county and city taxes can have a significant impact on the price of gasoline.
Refining costs and profits comprise about 18% of the retail price of gasoline. This component varies from region to region due to the different formulations required in different parts of the country.
Distribution, marketing and retail dealer costs and profits combined make up 12% of the cost of a gallon of gasoline.From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, then loaded into trucks for delivery to individual stations. Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.
1National Petroleum News, May 2005.
2Energy Information Administration, Petroleum Marketing Monthly September 2005, Table EN1 at:
http://www.iea.doe.gov/pub/oil_gas/petroleum/data_publications petroleum_marketing_monthly/current/pdf/enote.pd


FACTORS BEHIND THE INCREASE IN GASOLINE PRICES IN 2005
Since the beginning of 2005, U.S. retail gasoline prices have been generally increasing, with the average price of regular gasoline rising from $1.78 per gallon on January 3 to as high as $3.07 per gallon on September 5, as Hurricane Katrina further tightened gasoline supplies. But the hurricane is only one factor, albeit a dramatic one, which has caused gasoline prices to rise in 2005.
A major factor influencing gasoline prices in 2005 was the increase in crude oil prices. The price of West Texas Intermediate (WTI) crude oil, which started the year at about $42 per barrel, reached $70 per barrel in early September. Crude oil prices rose throughout 2004 and 2005, as global oil demand increased dramatically, stretching capacity along the entire oil market system, from crude oil production to transportation (tankers and pipelines) to refinery capacity, nearly to its limits. With minimal spare capacity in the face of the potential for significant supply disruptions from numerous sources, oil prices were high throughout 2005.
In addition, Hurricane Katrina had a devastating impact on U.S. gasoline markets, initially taking out more than 25 percent of U.S. crude oil production and 10-15 percent of U.S. refinery capacity. On top of that, major oil pipelines that feed the Midwest and the East Coast from the Gulf of Mexico area were shut down or forced to operate at reduced rates for a significant period. With such a large drop in supply, prices spiked dramatically. Because two pipelines that carry gasoline were down initially, some stations actually ran out of gasoline temporarily. However, once the pipelines were restored to full capacity and some of the refineries were restarted, retail prices began to fall. Increased gasoline imports in the fall of 2005, in part stemming from the International Energy Agency’s emergency release, also added downward pressure to gasoline prices. However, retail prices are likely to remain elevated as long as some refineries remain shut down and the U.S. gasoline market continues to stretch supplies to their limit.

WHY DO GASOLINE PRICES FLUCTUATE?
Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition. Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events, or domestic problems such as refinery or pipeline outages.
Seasonality in the demand for gasoline - When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and fall in the winter. Good weather and vacations cause U.S. summer gasoline demand to average about 5% higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 10-20 cents from January to the summer.

Changes in the cost of crude oil - Events in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council’s study, U.S. Petroleum Supply - Inventory Dynamics.
About 47 barrels of gasoline are produced from every 100 barrels of crude oil processed at U. S. refineries, with other refined products making up the remainder.
Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC). Since it was organized in 1960, OPEC has tried to keep world oil prices at its target level by setting an upper production limit on its members. OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world’s oil supply, accounting for about 40% of the world’s production of crude oil and holding more than two-thirds of the world’s estimated crude oil reserves. Additionally, increased demand for gasoline and other refined products in the U.S. and the rest of the world is also exerting upward pressure on crude oil prices.
Rapid gasoline price increases have occurred in response to crude oil shortages caused by, for example, the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990. Gasoline price increases in recent years have been due in part to OPEC crude oil production cuts, turmoil in key oil producing countries, and problems with petroleum infrastructure (e.g., refineries and pipelines) within the United States. Additionally, increased demand for gasoline and other petroleum products in the U. S. and the rest of the world is also exerting upward pressure on prices.
Product supply/demand imbalances - If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Such imbalances have occurred when a region has changed from one fuel type to another (e.g., to cleaner-burning gasoline) as refiners and marketers adjust to the new product.
Gasoline may be less expensive in one summer when supplies are plentiful vs another summer when they are not. These are normal price fluctuations, experienced in all commodity markets.
However, prices of basic energy (gasoline, electricity, natural gas, heating oil) are generally more volatile than prices of other commodities. One reason is that consumers are limited in their ability to substitute between fuels when the price for gasoline, for example, fluctuates. So, while consumers can substitute readily between food products when relative prices shift, most do not have that option in fueling their vehicles.



Figure 2. Motor Gasoline Prices at Retail Outlets, 2004 Average Regular Grade, by Region
(dollars per gallon, including taxes)


http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/Images/US%20Map.gif
Source: Energy Information Administration, Weekly Motor Gasoline Price Survey, 2004.




WHY DO GASOLINE PRICES DIFFER ACCORDING TO REGION?

Although price levels vary over time, Energy Information Administration (EIA) data indicate that average retail gasoline prices tend to typically be higher in certain States or regions than in others (Figure 2). Aside from taxes, there are other factors that contribute to regional and even local differences in gasoline prices:
Proximity of supply - Areas farthest from the Gulf Coast (the source of nearly half of the gasoline produced in the U.S. and, thus, a major supplier to the rest of the country), tend to have higher prices. The proximity of refineries to crude oil supplies can even be a factor, as well as shipping costs (pipeline or waterborne) from refinery to market.

Supply disruptions - Any event which slows or stops production of gasoline for a short time, such as planned or unplanned refinery maintenance, can prompt bidding for available supplies. If the transportation system cannot support the flow of surplus supplies from one region to another, prices will remain comparatively high.
Competition in the local market - Competitive differences can be substantial between a locality with only one or a few gasoline suppliers versus one with a large number of competitors in close proximity. Consumers in remote locations may face a trade-off between higher local prices and the inconvenience of driving some distance to a lower- priced alternative.


WHY ARE CALIFORNIA GASOLINE PRICES HIGHER AND MORE VARIABLE THAN OTHERS?
The State of California operates its own reformulated gasoline program with more stringent requirements than Federally-mandated clean gasolines. In addition to the higher cost of cleaner fuel, there is a combined State and local sales and use tax of 7.25 percent on top of an 18.4 cent-per-gallon Federal excise tax and an 18.0 cent-per-gallon State excise tax. Refinery margins have also been higher due in large part to price volatility in the region.
California prices are more variable than others because there are relatively few supply sources of its unique blend of gasoline outside the State. California refineries need to be running near their fullest capabilities in order to meet the State’s fuel demands. If more than one of its refineries experiences operating difficulties at the same time, California’s gasoline supply may become very tight and the prices soar. Supplies could be obtained from some Gulf Coast and foreign refineries; however, California’s substantial distance from those refineries is such that any unusual increase in demand or reduction in supply results in a large price response in the market before relief supplies can be delivered. The farther away the necessary relief supplies are, the higher and longer the price spike will be.

California was one of the first States to ban the gasoline additive methyl tertiary butyl ether (MTBE) after it was detected in ground water. Ethanol, a non-petroleum product usually made from corn, is being used in place of MTBE. Gasoline without MTBE is more expensive to produce and requires refineries to change the way they produce and distribute gasoline. Some supply dislocations and price surges occurred in the summer of 2003 as the State moved away from MTBE. Similar problems have also occurred in past fuel transitions.


Environmental programs - Some areas of the country are required to use special gasolines. Environmental programs, aimed at reducing carbon monoxide, smog, and air toxics, include the Federal and/or State-required oxygenated, reformulated, and low-volatility (evaporates more slowly) gasolines. Other environmental programs put restrictions on transportation and storage. The reformulated gasolines required in some urban areas and in California cost more to produce than conventional gasoline served elsewhere, increasing the price paid at the pump.
Twenty-five States have passed legislation to restrict the use of the gasoline additive MTBE but only California, Kentucky, Missouri, New Hampshire, New Jersey, New York, and Rhode Island relied on the additive. The Energy Policy Act of 2005, signed into law in August 2005, also allows refiners to discontinue use of oxygenates (including MTBE) in reformulated gasoline. Because of the concerns of groundwater contamination, MTBE is expected to be phased out in the U. S. in the next few years. MTBE removal requires large changes to gasoline production and distribution. California faced temporary supply dislocations and price volatility during the summer of 2003 as MTBE was removed from gasoline in the State. Nevertheless, New York and Connecticut had a relatively smooth transition phasing out MTBE in 2004 as a result of better preparation from the gasoline suppliers and distributors.

Operating costs - Even stations located adjacent to each other have different traffic patterns, rents, and sources of supply that influence retail price.




http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html

[Chuck Bao]

In Thailand, the gross refinery margin for the refineries is obscene. Currently it is more than $10 per barrel. Well, on percentage terms a $10 margin on $70/barrel is the same as $3 on $21/barrel.

Competition is not working at the moment and they can sell all they produce.

I'm sorry about the losses they made five years ago, but it is no excuse for them to PROFITEER NOW!!!

[SoonerInKCMO]

The refiners make a lot of profit.

The easy answer is make more refineries.

I read somewhere recently (sorry, but I can't remember where at the moment) that refineries were experiencing an all time high margin... something close to $0.60/gallon. I'm sure making more refineries would, in the long term, keep that number down. However, the corresponding lower prices at the pump would also decrease interest in alternative fuels and make us less likely to descrease our dependance on oil - hurting us in the longer term. So it's a choice of hurt now, or hurt later. :(

[OUinFLA]

. So it's a choice of hurt now, or hurt later. :(


I'm 60, want to know my choice?
:D

[sooneron]

Hmm, interesting idea.

If only Government could control the production and consumption of the economy, we would all be better off. Karl Marx would be proud.
It's called for the good of many, not just the oil production states- Gas is hard wired into all consumer goods. If gas stays over 3 dollars, EVERYTHING goes up. Then you have massive inflation- increased in unemployment. Nice try to pigeonhole me as a socialist though.


As for "greed" being a detriment to the economy, give me a break. How many jobs has high oil/gas prices created in Oklahoma the last year or so? How much taxes has this brought in for the state?

Once again, see above. The good of the country.


And even better, look at all the new interest in ethanol and biofuels! Its called creative destruction, something that the more liberal "thinking" types don't comprehend I guess.

Oh, you mean the same liberal types that have been screaming for alternative fuel sources for years now? Your job is to tell the people to keep drinking the kool-aid. It's mine too, in a way. Like any corporation, oil companies only care about one thing- the bottom line.

[1stTimeCaller]

isn't coffee a traded commodity? I don't buy or drink coffee but do the prices in stores fluctuate on a daily basis?

[yermom]

i think the beans might be

but you can turn beans into coffee in your house

[Mjcpr]

i think the beans might be

but you can turn beans into coffee in your house

You can turn beans into gas in your house too.


Brrrrrrrt!

[1stTimeCaller]

i think the beans might be

but you can turn beans into coffee in your house

shoulda clarified what I meant. I'm talking about the ground up beans and the beans themselves, not the drink.

To my knowledge the coffee beans are traded as a commodity just as gasoline is yet the price for coffee beans at Albertsons doesn't fluctuate as much as gasoline does. Or does the price of the coffee beans move like the price of gasoline? Like I said I don't buy coffee.

[yermom]

i would compare coffee beans to oil, not gas though

[OUinFLA]

I dont need coffee beans to get to work.

[GottaHavePride]

shoulda clarified what I meant. I'm talking about the ground up beans and the beans themselves, not the drink.

To my knowledge the coffee beans are traded as a commodity just as gasoline is yet the price for coffee beans at Albertsons doesn't fluctuate as much as gasoline does. Or does the price of the coffee beans move like the price of gasoline? Like I said I don't buy coffee.

The price of coffee only moves noticeably when there's some gigantic crop disease down there; then prices skyrocket.

[1stTimeCaller]

i would compare coffee beans to oil, not gas though

why is that?

I'm here to learn not argue.

[sooneron]

why is that?

I'm here to argue not learn.:texan:

[1stTimeCaller]

No, I'm serious. I don't drink coffee so maybe there's another way to look at it but I see roasted beans at the store as a finished product, fully refined as gasoline is.

I think GHP's answer has satisfied my curiosity about the coffee - gasoline analogy.

[OklahomaTuba]

I dont need coffee beans to get to work.

I do! :D

Damn 9:00 AM start times.

[Harry Beanbag]

why is that?

I'm here to learn not argue.


As far as I know, oil is the traded commodity, gasoline is a byproduct.

I don't have an answer as to why stations raise their prices multiple times each day, but I can't think of a good reason. Their holding tanks don't get filled up 3 or 4 times a day with newly bought gas.

[yermom]

why is that?

I'm here to learn not argue.

i'm just saying coffee isn't as complex

gas prices can fluctuate independent of the oil prices

also if people don't want to pay Starbucks prices, they can buy Folgers or roast/grind their own beans

i'd imagine that eventually gas will hit a breaking point where people won't drive as much, or will carpool, etc... and stop buying as much gas

i don't think that is really close to happening though, i could be wrong

[royalfan5]

Yeah a loaf of bread jumped 5 cents at 9 yesterday morning and 3 more cents in the afternoon. This morning its 2 cents higher than it was last night........................NOT!
consider the amount of wheat out of a bushel of wheat, compared to the amount of crude oil that makes up a gallon of gas. It makes a lot more sense for the breadmaker to swallow the cost increase than it does for the oil company. Also look at the changing prices of beef over the past few years.

[opksooner]

Hmmmmm. Buy low -- sell high! Interesting concept.

I think you're on to something here.

[mdklatt]

http://img242.imageshack.us/img242/1672/timeseries9qd.png


Let's take a look at this graphically. The blue line shows the price fluctuation over time of some commodity. The other two lines show the price fluctuation of products based on that commodity. Each product has a different pricing strategy.

Product A

Price stability is not important at all. The price is always $0.05 more than the commodity, and goes up and down as the commodity price varies.


Product B

Price stability is important. The price is always at least $0.05 more than the commodity, it only goes up in increments of $0.25, and once the price goes up it never goes back down again.


The more astute readers will have figured out by now that Product A is very similar to gasoline. Product B is very similar to...just about everything else. About 8 years ago, the bread I buy was $1/loaf. Then one day it was $1.50/loaf. Now it's $2/loaf all of a sudden. Even though the price jumped $0.50 overnight I didn't hear anybody complain, and I don't see news stories every other week about how bread (or milk, or a house, or a Toyota, or a candy bar, or bottle of shampoo) costs more now than it ever has. I also don't hear politicians calling for investiagtions of and price controls for Big Bread.

Pricing strategy A is cheaper for the consumer in the long run, but they seem to prefer the stability of strategy B--even though it costs them more.

[yermom]

when i need 14 loaves of bread every two weeks to get to work, etc... plus about that same amount or more anytime i drive to Tulsa or Dallas then i'll start complaining

the price of bread is probably related in some way to gas going up as well ;)

it's not like gas is going down any appreciable amount anyway

it might fluctuate, but it's not likely it will be $1 again

[OUDoc]

http://studentorgs.utexas.edu/buh/pics/valentine/syphilis.jpg

BTW, that links to a ut web site. Go figure.

[mdklatt]

when i need 14 loaves of bread every two weeks to get to work, etc... plus about that same amount or more anytime i drive to Tulsa or Dallas then i'll start complaining


If the oil industry followed Strategy B instead of Strategy A nobody would complain and the oil companies would be making even more money. Oil companies get all the blame when prices go up, but nobody notices when prices creep back down. If oil prices had steadily gone up $0.10 every six months for past 10 years we'd be paying the same amount but without all the fuss.

[OUDoc]

Oil companies get all the blame when prices go up, but nobody notices when prices creep back down.
I notice. When I stop flipping the bird to every gas station I pass, that's when you know prices are slowly dropping. (Maybe I should just grow up. :O )


If oil prices had steadily gone up $0.10 every six months for past 10 years we'd be paying the same amount but without all the fuss.
True, and we wouldn't feel like they were hosing us all the time. But they don't. Maybe they need a better PR person.

[yermom]

If the oil industry followed Strategy B instead of Strategy A nobody would complain and the oil companies would be making even more money. Oil companies get all the blame when prices go up, but nobody notices when prices creep back down. If oil prices had steadily gone up $0.10 every six months for past 10 years we'd be paying the same amount but without all the fuss.

creep down to what? $2.50?

[Vaevictis]

The refiners make a lot of profit.

The easy answer is make more refineries.

That won't happen, at least not in the States. Oil companies can make far, far, far, far, far, far, far, far, far, far, far, far, far, far (ad infinatum) more money by putting the refineries in nearby third world countries, especially the ones with relatively lax environmental controls.

[mdklatt]

creep down to what? $2.50?


Gasoline is cheaper now than it was back in September (although it's catching up quickly). It was a lot cheaper in February. I think most people would have been more understanding if the price had simply stayed at $2.89 all this time instead of going up and down. We are not rational creatures.

[OklahomaTuba]

That won't happen, at least not in the States. Oil companies can make far, far, far, far, far, far, far, far, far, far, far, far, far, far (ad infinatum) more money by putting the refineries in nearby third world countries, especially the ones with relatively lax environmental controls.
They put refineries where the oil is, or where the people who need it are.
Oh, and since most of those evil 3rd world countries have oil, how dare those crooks at the oil companies dare put refineries next to them!!!!

And what third world countries DON'T have lax environmental controls??? :rolleyes:

Your view on the oil industry isn't based on facts my friend. Its based on what the media is telling you.

Its next to impossible to build a refinery in the US right now because of taxes, permiting, environmental regulations, insurance, etc.

Fix those problems, and maybe in 10 years a refinery can be completed here.

[OUinFLA]

I thought they hadnt built a new refinery in the US in over 15 years?

[OklahomaTuba]

I thought they hadnt built a new refinery in the US in over 15 years?

30-35 years to be exact.

Its much easier for refiners to expand their refineries here in the US, which they have done and still do.

Unfortunatly, theres only so much legally allowable.

[Vaevictis]

Your view on the oil industry isn't based on facts my friend. Its based on what the media is telling you.

Wrong. It's based on what people in the oil industry tell me. Specifically, people who do the financial analyses and make the decisions based off of them.


Its next to impossible to build a refinery in the US right now because of taxes, permiting, environmental regulations, insurance, etc.

Well, that's not what the people I know tell me. It's not that it's next to impossible to build a new refinery, it's that it's impossible to build a new refinery that's as profitable as the old ones, MOSTLY because the old ones are grandfathered in past many of the newer environmental regulations put in place in the last 30 odd years. It's not a matter of whether or not you can build a new refinery, it's that building a new refinery is insufficiently profitable.

[Harry Beanbag]

There are plans to build a new refinery near Yuma, Arizona.

http://www.arizonacleanfuels.com/faq.htm

[Harry Beanbag]

If the oil industry followed Strategy B instead of Strategy A nobody would complain and the oil companies would be making even more money. Oil companies get all the blame when prices go up, but nobody notices when prices creep back down. If oil prices had steadily gone up $0.10 every six months for past 10 years we'd be paying the same amount but without all the fuss.


If the price of a barrel of oil was suddenly cut in half, gasoline would follow. Gas seems to be more of a Product B to me, but I'm no economist.

[OklahomaTuba]

Well, that's not what the people I know tell me. It's not that it's next to impossible to build a new refinery, it's that it's impossible to build a new refinery that's as profitable as the old ones, MOSTLY because the old ones are grandfathered in past many of the newer environmental regulations put in place in the last 30 odd years. It's not a matter of whether or not you can build a new refinery, it's that building a new refinery is insufficiently profitable.

First off, I work in this industry.

Infact, I am seeing the project information on the largest refinery in the world right now, in China. Wonder where they will get the oil to process in that thing once its online? Should I mention they have larger plants planned in the next 5 years?

Second, environmental regulations aren't "grandfathered" in. The federal and state agencies make the refineries comply with all regulations based on TRI's emitted. If they violate, they get fined forcing the refineries to update equipment until they stop violating EPA TRI's. That is how it works. If someone is telling you otherwise, they have no clue WTF they are talking about.

Thirdly, it isn't profitable to build a refinery because it is simply next to impossible to get permitting for it. It would take to long, cause to much of a PR stink and get the NIMBY types and libz up in arms about having a refinery.

Same goes for a Nuclear Power Plant. Same ****, different process.

[TUSooner]

that's how I deal with cans of Vienna Sausage.
I buy them on sale and stockpile them. Then eat them as the prices rise due to seasonal fluctuations of the vienna commodity.
If I run out before vienna goes back down due to increased production of vienna or a bonanza year of vienna prodution, I try to compensate by buying extra vienna during the next down cycle, while living off the gain I had while consuming cheaper viennas.
Once I have increased my stockpile, if prices havent gone up, I will consume the oldest viennas in my cupboard while replenishing my inventory on a weekly basis.
This practice has led not only to savings on consumption expenses, but increased weight gain to carry me through the lean times.

I think you are dead on Homey.
You know, the ones made with real viennas always cost more.

[TUSooner]

The price of coffee only moves noticeably when there's some gigantic crop disease down there; then prices skyrocket.
Somebody remind me. Did coffee prices rise when New Orleans was flooded? I've heard it's a major coffee port and grinding & roasting center for the USA.

[OklahomaTuba]

I dunno, but beads sure got cheaper.

[Vaevictis]

Should I mention they have larger plants planned in the next 5 years?

China != USA. As I initially mentioned, you won't see them in the USA any time soon.


Second, environmental regulations aren't "grandfathered" in. The federal and state agencies make the refineries comply with all regulations based on TRI's emitted. If they violate, they get fined forcing the refineries to update equipment until they stop violating EPA TRI's. That is how it works. If someone is telling you otherwise, they have no clue WTF they are talking about.

It's not the environmental regulations that get grandfathered in. It's the plants. Plants built prior to the Clean Air Act of 1977 are, to my understanding, exempt from its requirements. Didn't you say that no new refineries have been built in the USA for 30-35 years? The fact that the Clean Air Act was passed 30ish years ago with this grandfathering clause is no coincidence.

[royalfan5]

Somebody remind me. Did coffee prices rise when New Orleans was flooded? I've heard it's a major coffee port and grinding & roasting center for the USA.
Cash corn prices plummeted when New Orleans flooded because New Orleans is the main corn export port. That just crushed the basis because the grain pipeline was full and couldn't empty.

[OUHOMER]

So we are screwed, is that what you are saying

[tulsaoilerfan]

I never thought i would see the day that i would wish gas was at $2 a gallon; i just hope a year from now that i don't wish it was $3 a gallon.

John

[GottaHavePride]

Oh, I saw on TV over lunch: gas all over Europe is sitting at about $5.50 a gallon. Gas in China is roughly equivalent to here, though a bit cheaper ($2.35 a gallon or so). Venezuela is paying 12 CENTS per gallon.

[mrssoonerhubler]

Oh, I saw on TV over lunch: gas all over Europe is sitting at about $5.50 a gallon. Gas in China is roughly equivalent to here, though a bit cheaper ($2.35 a gallon or so). Venezuela is paying 12 CENTS per gallon.
5.50 aint bad when they can drive across their entire country on half a tank of gas. :)

[OUAndy1807]

3 things:

1) It's all about entry barriers. You don't like the prices, build your own refineries. You can't? Oh right, these companies have spent billions building their assets. And don't kid yourself. They're in business to make money, not to provide a service.
2) Any attempt to stifle the profits of these companies is a step closer to communism in my book. This is not profiteering. Profiteering is selling bottles of water for $10 a piece to people who need the water to live. Profiteering is selling canned goods for 10x the price they're worth right before a hurricane because you know people will pay it. Just because you want to drive an SUV from your suburban house to your job in the city every day doesn't mean you should be subsidized by a company or the gov't. Now, if someone was enterprising enough to go do the research and find out that there was collusion and price fixing between the companies, that would be illegal.
3) You can't compare a commodity to other industries where you have brand loyalty, such as coffee. People are alreadypaying a premium for designer or name brand coffee brands, so they don't have to fluctuate their prices daily. You want to compare oil to another industry? Compare it to the lumber industry. It's just a cut-throat, the prices vary by the minute, people are constantly hedging and stockpiling, etc...

[Mjcpr]

Oh, I saw on TV over lunch: gas all over Europe is sitting at about $5.50 a gallon. Gas in China is roughly equivalent to here, though a bit cheaper ($2.35 a gallon or so). Venezuela is paying 12 CENTS per gallon.

Gas has been that much in Europe for years hasn't it?

[mdklatt]

Gas has been that much in Europe for years hasn't it?

The lion's share of that amount is taxes, so it's easier to insulate gasoline prices from changes in oil costs.

[OklahomaTuba]

It's not the environmental regulations that get grandfathered in. It's the plants. Plants built prior to the Clean Air Act of 1977 are, to my understanding, exempt from its requirements. Didn't you say that no new refineries have been built in the USA for 30-35 years? The fact that the Clean Air Act was passed 30ish years ago with this grandfathering clause is no coincidence.

Again, you have no idea what you're talking about.

Since no new refineries have been built in 30 years, that would mean that ALL the refineries in this country are exempt from EPA TRI regulations, right????

Hmm, so I guess that means no refineries EVAR get fined then huh?

Gee, I wonder why the EPA even has a department to monitor this stuff, or why there is a multi-billion dollar air pollution control industry out there?

:rolleyes:

[12]

I have a theory that these elevated gas prices are a direct result of the complaints brought forth when it hit $2.00+. The prices will continue to rise to a ridiculous level and eventually recede to around $2.50. Everyone will be pleased at how "affordable" it is and start traveling like mad again.

In other words, a huge mind-f***.

This has probably been posted more eloquently before, but I am far too lazy to read a four page thread.

[BigRedJed]

That's it. From now on, every time I need to fill up I'm driving to Venezuela. Screw American oil companies.

[Vaevictis]

Since no new refineries have been built in 30 years, that would mean that ALL the refineries in this country are exempt from EPA TRI regulations, right????

Aren't TRI's regulated under a different statute than the Clean Air Act (EPCRA and PPA, specifically)? We may be talking about two different things here.


Hmm, so I guess that means no refineries EVAR get fined then huh?

It depends. As TRI's seem to be regulated under a different act, there is no Clean Air Act grandfathering for them. Also, physical changes to the plants can revoke the grandfathering status of the plant, but my understanding is that the plant operator can "shift" the upgrade requirements to elsewhere in the stream where the upgrades are cheaper, but have the same environmental impact.

And yeah, I don't know what *I* am talking about on this, but that's never stopped you. So you'll excuse me if I take the word of 30-40 year industry vets who make the financial decisions on these plants on this over some dude that does *marketing* for oil companies.

[RUSH LIMBAUGH is my clone!]

Bottom line-more domestic drilling, production and refining needed. Hear that, jerk-w*ds in congress?

[TheHumanAlphabet]

Byron Dorgan, D-ND is a tool. Companies are reinvesting in finding oil to the tune of $10-18B a year. He is an disingenuous when he tells companies that they can have their money if they invest in refineries? where? in the U.S.? He, the EPA and the NIMBYs have prevented a new refinery from being built. Many have wanted a refinery in the NE, but they keep saying no, I keep saying I'll laugh at them when they have extremely high gas prices becuase they have to barge it in...

[mdklatt]

Bottom line-more domestic drilling, production and refining needed.

Bottom line: Less domestic consumption needed.

We can increase domestic production all we want, but that's only going to put off the inevitable. Until we significantly wean ourselves from the oily teat we're going to have to continue to put up with all the shenanigans in places like the Middle East and Venezuela.

[RUSH LIMBAUGH is my clone!]

Bottom line: Less domestic consumption needed.

We can increase domestic production all we want, but that's only going to put off the inevitable. Until we significantly wean ourselves from the oily teat we're going to have to continue to put up with all the shenanigans in places like the Middle East and Venezuela.I know you mean well, but it's silly-not gonna happen. It's agin' human nature, like socialism. We need more production, short and simple.We can do that, and will when the painful, idiot restrictions in place are at least partially lifted. But,it's probably not that near critical mass for that to happen, YET.
We SHOULD AND ARE making efforts to consume less, and use energy more wisely, but it will not be enough of a savings to keep down prices of oil, as worldwide demand increases. We simply need to be able to have more control of our own fate, as in more domestic production.

[Stoop Dawg]

I know you mean well, but it's silly-not gonna happen. It's agin' human nature, like socialism. We need more production, short and simple.We can do that, and will when the painful, idiot restrictions in place are at least partially lifted. But,it's probably not that near critical mass for that to happen, YET.
We SHOULD AND ARE making efforts to consume less, and use energy more wisely, but it will not be enough of a savings to keep down prices of oil, as worldwide demand increases. We simply need to be able to have more control of our own fate, as in more domestic production.

On a personal level, Americans have made themselves dependant on gasoline. While it may be next to impossible to not use any gasoline, it's certainly possible for the vast majority of Americans to use considerably less. Look at all the SUVs still on the road getting less than 20 mpg.

On a larger level, companies have also made themselves dependant on gasoline and it is well within their power to change. Certainly not overnight, but over time. Rail used to be the cheapest way to get goods across America, but now trucks are the preferred method? Why? Cheaper and/or faster. Once trucks are too expensive, some other mode of transportation (or trucks that run on something other than gasoline) will appear and kick the trucking industry's ***.

So go ahead and be mad that gas prices are going up. No reason not to. Then go look for an alternative. If there is none, get off your entrepreneurial *** and make one. ;)

[Petro-Sooner]

How many jobs has high oil/gas prices created in Oklahoma the last year or so?

I know of one. :texan:

[OklahomaTuba]

Aren't TRI's regulated under a different statute than the Clean Air Act (EPCRA and PPA, specifically)? We may be talking about two different things here.

It depends. As TRI's seem to be regulated under a different act, there is no Clean Air Act grandfathering for them. Also, physical changes to the plants can revoke the grandfathering status of the plant, but my understanding is that the plant operator can "shift" the upgrade requirements to elsewhere in the stream where the upgrades are cheaper, but have the same environmental impact.

And yeah, I don't know what *I* am talking about on this, but that's never stopped you. So you'll excuse me if I take the word of 30-40 year industry vets who make the financial decisions on these plants on this over some dude that does *marketing* for oil companies.


Look, TRI is an industry used term for everything emitted. It could mean NOx, VOC, SOx, Benzene, anything. The EPA uses it this way as well.

So it really doesn't matter which act has this law, what matters is the laws exist and refineries get fined for violating the limits no matter how old the refineries are, thus making the assinine argument about grandfathered refineries moot. Get it? This is not difficult to understand.

It doesn't matter if a flare, furnace or pump was replaced in 1977 cause the Clean Air Act said so. It would be stupid to require every refinery in the nation to replace its equipment overnight if its working properly, making the refinery shut down and driving the cost of gas up even more.

Instead, look at the TRI's released. This is where the EPA monitors refineries and what matters. When a refinery (like the two in Tulsa for example) violates the EPA regulations, they get slapped with fines. If they don't want to get slapped with fines anymore, they upgrade their equipment.

As for my knowledge in this subject, well all I can say is one of the companies I "market" for designs and manufactures air pollution control equipment. So this would explain why I know nothing about it compared to your secondary source huh?

[SOONER44EVER]

This may be a dumb question but shouldn't the price for a quart of oil be going up at about the same percentage gas is going up?

[Vaevictis]

Look, TRI is an industry used term for everything emitted. It could mean NOx, VOC, SOx, Benzene, anything. The EPA uses it this way as well.

That may be, but it doesn't *look* (http://www.epa.gov/tri/chemical/index.htm) that way to me. Notably, CO, CO2, SO2 are not on that list, all of which are regulated under the CAA.


It doesn't matter if a flare, furnace or pump was replaced in 1977 cause the Clean Air Act said so. It would be stupid to require every refinery in the nation to replace its equipment overnight if its working properly, making the refinery shut down and driving the cost of gas up even more.

Thus the grandfathering clause. This is exactly why it existed in the first place.


As for my knowledge in this subject, well all I can say is one of the companies I "market" for designs and manufactures air pollution control equipment. So this would explain why I know nothing about it compared to your secondary source huh?

Hah. You market these things, so you must know about them? You're kidding me, right? In my experience, how much someone knows about a product is very often inversely proportional to how involved they are in marketing it. As far as talentless ******-baggery is concerned, marketing departments are second in concentration only to HR departments.

I am a wall to you. You have no credibility with me. Like I said, I will take the word of 30-40 year industry vets who make the financial decisions on these things over some dude in marketing who was still taking mom's milk when these guys were starting. I'm not saying you can't be right, or they can't be wrong. I'm saying the word of an experienced executive that I know personally and is at the top of his game trumps the word of some random dude on the internet who I think is a bit of a ****** to begin with.

If you want to make a dent (although I don't know why you'd care), some documentation and facts please.

[TheHumanAlphabet]

This may be a dumb question but shouldn't the price for a quart of oil be going up at about the same percentage gas is going up?

That's an interesting question. I haven't seen the price of oil recently and I buy it so infrequently (I, sad to say, no longer change my own oil) that I wouldn't know if the price increased or not. I'll check around. I do know that the base stock has been increasing and on the chemical side, their margins are taking a big hit and end users of products are seeing comodity prices spike. Like films and plastics and ethylene and such...