TWIP - This Week In Petroleum (1-3-08)

The details are out on the weekly crude oil statistics. In sum, a larger drop in crude stocks was offset by higher gasoline stocks and lower gasoline demand than expected. Oil sold off initially, rallied to $100.10, and has now settled around $99.25. At $100 oil, isn't it strange that gasoline at the pump is $3.05. Are the refiners working for free? And if so, why would they do that? Details of this weeks TWIP below the fold:

US Crude Stocks -Thanks -Khebab

First, the numbers:

DOE and API oil and product inventory reports. A comparison of the two is below:

DOE: Actuals
Crude oil: Down 4.1 million barrels
Motor gas: Up 2.0 million barrels
Distillates: Up 0.6 million barrels
Complex Down 1.5 million barrels

API: Actuals
Crude oil: Up 0.2 million barrels
Motor gas: Up 4.5 million barrels
Distillates: Up 2.0 million barrels
Complex: Up 6.7 million barrels

This compares to the Bloomberg survey of analyst’s expectations:

Crude oil: Down 2.3 million barrels
Motor gas: Up 1.8 million barrels
Distillates: Down 0.6 million barrels
Complex: Down 1.1 million barrels

"Over the last four weeks, motor gasoline demand is up 0.1% year over year; distillate fuel demand is up 5.7% and jet fuel demand is down 1.1%. Refinery utilization was 89.4% vs 88.1% last week."

“U.S. crude oil imports averaged 10.0 million barrels per day last week, up 204,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.7 million barrels per day, or 180,000 barrels per day more than averaged over the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged nearly 1.2 million barrels per day. Distillate fuel imports averaged 326,000 barrels per day last week.”

$100 per Barrel?
Crude oil prices, which settled yesterday at a new nominal record price of $99.62 per barrel, are near $100 per barrel for the second time in recent months. While oil markets are expected to remain tight and the average price of crude oil in 2008 is expected to be well above the average price of about $72 per barrel (for West Texas Intermediate crude oil) seen in 2007, EIA expects average monthly crude oil prices to drop throughout most of 2008, reflecting increases in supply from both OPEC and non-OPEC countries and the impact of slowing economic growth on demand. See EIA’s Short-Term Energy Outlook for details on EIA’s energy market outlook for 2008, and for 2009 after it is updated next Tuesday. The rest of the report, which largely discusses Propane can be read here:This Week In Petroleum:

Each barrel of oil is 42+/- gallons, which means that at $100 oil, gasoline would be at $2.40ish with NO taxes, transportation costs, refining costs, or refining profit margins. Yet it is only hovering around $3? And refinery utilization, while up this week is still at 89%?? How can this be explained? I know no different, but could this be political in nature? Keep gasoline prices down during presidential caucuses, etc? I wonder where gasoline at the pump will be if oil retreats to $80-$85? My guess is it won't go any lower than it is now - this is a 'buffer'. But stockholders don't like buffers, which is perhaps why the refining stocks are taking it on the chin today.

Please discuss (and post relevant links)...

Wouldn't refineries have bought up contracts for quite a number of months in the future at a much lower price than $100?

Just because something is bought cheap don't mean it's worth less.

If refined product is being sold at 85$bbl equivalent, they could make more money selling the crude at £100.
So although the company may be making a profit if they bought the crude futures, or arranged contracts for less than 85$, the actual refining would be losing 15$ of profit.

Maybe the oil companies want to keep profits low to avoid the usual calls for them to be taxed into the ground.

Also, doesn't Saudi Arabia sell at a discount to U.S. refineries?

I also read recently that Iraq was selling to the US at a pretty substantial discount of around $80 per barrel.

Why the API and the DOE disagreeing by 4.3 million barrels on the crude oil inventories??

Good question--

They are off by 3.3 MB, -.7 vs -4

They are also off in total supplies by 8.1 MB, 297.7 vs 289.6. I wonder if either will issue a correction, or have next weeks figs take up the slack. With that in mind and predicted temperature thaw, kind of sets the stage for price drop before maintenance season. Then look out.

Don't they always disagree?

Different surveys, different results.

They use different methodologies, and they often disagree. Put more stock in the EIA numbers. Refiners have to report inventories to the EIA directly.

Regular unleaded is still $3.15 here in my town in Vermont, which is higher than most places in the country I believe. People are used to this now and it doesn't have any affect on driving habits. The tourists are here in droves, ski areas are booming with all the snow we've had, my retail business is booming. We're not seeing any negative effects from the sub-prime crisis or higher fuel prices that I can tell.

As long as they can keep the price of gasoline down below $4 it will be business as usual. I think there has to be some manipulation as well. The service station owners need to make a profit too, you forgot to mention that.

At some point something has to give and we'll see a big jump in the price of gas. Then things may get interesting.

Its $2.95 in central Wisconsin, but of course that has 10% ethanol which has lower joules, etc. So 'pure gasoline' would be slightly over $3. By all rights we should be at $4 tho - at least - with $99 oil

Rochester NY - I bought a tank 3 days ago: $3.33/gal for 87 octane.

I pulled up to the pump (somewhere along I-5 as I recall) as I was driving home from Christmas and saw this:

Yow. Sure glad that wasn't my fillup!

One of the few things about living in California that are not so fun...

"few things"??

I take you either have never in California, or have not been back for a couple decades? About the only thing "nice" about CA anymore is the good weather, surf and great National Parks --and that's wearing mighty thin these days.

Typical life as a proletarian in So Cal:

--Get up 2 hours early to make your "heroic" commute in perma-gridlock from Riverside/San Bernardino/Palmcaster or other "affordable" desert hellhole to your not-very-heroic downtown job for a less-than-heroic wage.

--Get to pay among the highest state & local taxes in the country to pay for all the "free" taxpayer hand-outs (Section-8 housing, free Medi-Cal, AFDC, food stamps & free bus passes) to the illegals replacing you, robbing you, and undercutting your wages. And lets not forget the prison guard unions and friends & business associates of our corrupt state legislators and city officials. Meanwhile, roads, infrastructure, schools, and overall quality of life continue to deteriorate.

--Get to see the price of housing triple in 5 years, due to $0-down, negatively amortizing, stated-income, fog-a-mirror NINJA loan products, and the Fed & Con-gress that pimped them. Wages, of course, have not tripled.

--Get to wait in long lines and spend forever looking for parking at amusement parks, beaches or other popular venues on weekends and holidays. Enjoy the teeming mass of "diversity" with your fellow 38 million caged rats.

Be grateful that you either live elsewhere or are very rich (areas of "Richistan" overlap the real CA, but are not actually part of it).

All true...which is why I live in northern California, where life is still sweet, thank you very much.

Maybe it's finally time to secede...

Oh no you don't. I live in Northern California. Its even worse than Southern California. In fact its so bad I recommend that all of you stay away from here. Tell your friends to stay away too.

Oops! Sorry! (Shet my mouf!)

I don't even want to set foot in Cali as a tourist. As a rule, I don't go to states that I can't pack heat while traveling.

Really!?! Wow. I'm guessing that you would want a firearm for protection. I can't even imagine this kind of thinking but don't feel that its necessarily wrong.

Bringing a firearm with me on vacation is something I've never contemplated, but I could see bringing a rifle on a hunting trip or when visiting a friend with a vermin problem or target shooting hobby. Although I can't really understand why one would carry a gun for protection, I can understand why one would take issue with it not being legal to do so.

hope this is'nt to cynical for the times....
But that may have been a dude trying to monetize the last of his credit card by selling off gas.
I can't recall many 65gallon tanks on gas burning p/ups

More likely an RV...80 gals or more is not unusual.

I think about those yahoos who go out there with friends & family to wreak as much damage as possible on the desert with their ATVs. You should see them lined up at the pumps down near the Salton Sea some time. Mile after mile of convoys of vehicles...the biggest pump lot I've ever seen, with room for at least twelve huge RVs to fuel up at once and drive in and out of there. Then each RV is followed by a truck. And behind the truck, a trailer, with three ATVs, and maybe four to six 5-gallon gas cans strapped onto the side. A 65 gallon tank is certainly possible with an RV. Add the truck and the ATVs, they're probably dropping $500 at the pump, easy.

Chh. Makes me ill. Talk about a useless waste of...everything.

Been lurking for a while, just joined up to share an observation...

As long as I can remember, the difference in price between different octanes of gas has always been a dime. That is, until recently...the spread between 87 octane and the others has been increasing. Don't recall the exact numbers, but I was in SW PA recently...and one station had an ~25 cent difference between 87 and 89 octane. I've only been noticing this recently.

Perhaps this is one trick to keep the price of 87 octane lower...the one most people use and therefore the one reported by the press.

Is it just me or is VT way over-represented here?I have read we use more solar - per capita - then any other state. I'm pretty sure we were under represented in subprime mgs.
Personally, I bought my hybrid 2 1/2 yes ago (tag - 51 MPG).

No, it's not just you. Vermont is very peak oil aware. IME, Vermont generates more peak oil articles per capita than any other state.

And yet, like every other place, there's plenty of people in Vermont that just don't want to hear anything about Peak Oil. It all depends on who you talk to.

Are the refiners working for free? And if so, why would they do that?

Well I'm not sure Nate, but there is an election this year. So do you think its possible that the oil cos may be holding prices down artificially in order to help the Republican withered bush?

I know it sounds far fetched, but if this were true would it not break US competition law, be seen as a form of illegal cartel and could even be seen as Gerrymandering to boot?

I know it sounds far fetched, but if this were true would it not break US competition law, be seen as a form of illegal cartel and could even be seen as Gerrymandering to boot?

It would certainly be illegal price-fixing if there was confirmed collaboration on the price between suppliers. Gerrymandering is more of a technique used to carve voting districts to the disadvantage of the opponents.

Yeh I looked up Gerrymandering beforehand to see how to spell it and decided to go ahead and use it in an abstract metaphorical sense - I suspect, but may be wrong here, that in the UK the term may be used in a broader sense to imply vote rigging.


Elbridge Gerry may have a problem with your usage of the gerrymandering term; but, you are correct--I have also heard British scholars use the term that way. No idea on why though.

Hi Kyle,

What you need over in the US is a sophisticated honors system. What happens then is that very, very wealthy business(wo)men, folks like Lee Raymond, simply donate a huge amount of money to the political party of choice - often one that has created a low tax regime conducive to the accumulation of aforementioned wealth - in exchange for an honor. So Lee would become, by way of example, Lord Lee Raymond of Valdez and the political party of his choice receives a huge sum of money used to pay for advertising and (wo)man power to ensure their re-election.

This system is tried and tested in the UK and seems to work really well. Its much more sophisticated than moving boundaries around:-)



We already have that. We just replaced the honorifics with "tax cuts."

What is clear is that gasoline prices are largely disconnected from oil prices. This became evident in 2004 (July 2004) when oil and gasoline went their separate ways just before the Democratic Party Convention. They have occasionally come close to their old coupling relationship. But in 2007 what is clear from plotting the data is that something just over $3.00/gallon is a ceiling price as the gasoline price "spreads out" near $3 regardless of what the oil price happened to be.

Gasoline prices should be around $3.75/ gallon based (national weighted average all areas, all grades)upon "historical" values. With the low gasoline inventories (and blending components) there appears to be a "we aren't going there" limitation.

It might be a "loss-leader" approach to keep from triggering what the folks on CNBC seem to be afraid of...a severe pullback by the US consumer (as if consimption is not the problem). The correlation formula for the period from 2002 through the past week is: gas price (cents/gallon) = 102.54 x e ^(0.014 x $/bbl). But, as noted, gasoline price are held back from climbing much above the $3/gallon mark. It looks like a big contraceptive "diaphagm" has been placed across this curve to prevent gasoline prices from reaching their "mark."

It begs the question how long this subsidy can last, especially if the oil prices keep going up. Looks like an unsustainable quick fix to me.

Is it at all possible that market forces are holding back gasoline prices? Up the page it seems that gasoline demand is stagnating. Or is it?
Not that I don't think some collusion is possible but simple answers are always better.


The nice clean exponential function is a convenient summary of the connection between variables. Do you have a data set you can share? Would love to give it to my students to estimate and graph. Its a timely and practical problem.

The dataset comes from the EIA (but I've manipulated it just a bit) in a fairly large spreadsheet I maintain. I take the weekly price data for gasoline (released each Monday) and plot it against the mean price for oil (WTI spot price but you could use the NYMEX front month and come up with almost the same relationship) from the previous week (M-F).

Perhaps I can extract the basic dataset for you in an Excel spreadsheet.

Each barrel of oil is 42+/- gallons, which means that at $100 oil, gasoline would be at $2.40ish with NO taxes, transportation costs, refining costs, or refining profit margins.

Is it really this simple?
According to this link,
51% of a barrel crude produces gasoline (what API gravity they are using, if that's a reference to crude pumped in California or crude processed in California I don't know but should be a rough estimate).

Someone with greater insights in price levels of the rest of the products should be able to calculate a rough estimate of what the gasoline is costing, my point being is that if you charge more for, let's say, the "other refined products" and "lubricants" the USD/bbl just can't simply be divided by 42 to get gasoline prices (OTOH in all fairness it's probably a good guesstimate!).

Edit: That above link raises another thought.. if, for fuel economys sake, you'd market & sell lots more diesel cars worldwide, there shure would be a practical limit in how many diesel cars there could be, since it appears it's not possible to refine the entire barrel to diesel fuel. It appears to be about maximum 1/4 of the total transportation fuel needs could be met by diesel. Or am I thinking wrong some way?

At $100 oil, isn't it strange that gasoline at the pump is $3.05. Are the refiners working for free?

Margins have evaporated, because demand right now in the offseason is soft enough that they can't make price increases stick very well.

But I will eat my hat if 1). Oil prices are still hovering around $100 in April; 2). Gasoline inventories are starting to come down (as they should be); AND 3). Gasoline prices aren't making a sprint toward $4. As demand picks up in the spring, that's bound to happen.

It has nothing to do with any elections. I know people love the conspiracy stuff, but refiners don't take their marching orders from company headquarters. Pricing decisions are made at far more of a local level than that.

Demand is soft therefore crude is $100?

Can't make price increases stick very well so why not $2/gallon?

Seriously, the question here is what sets the gasoline price. And some posted on TOD (not in this thread) some historical data on gasoline prices relative to crude prices, and they are abnormally low now. With consumption as usual, I am not convinced that "demand is soft" is the explanation. And with the historical price/demand elasticity (or lack thereof) and the current very low margins I think the refiners will make a LOT more money if they demand $4/gallon, even if they sell half as many gallons!

Wouldn't Congress would hold hearings and threaten price controls if they demanded whatever price they wanted?

Demand is soft therefore crude is $100?

Gasoline demand is soft. Demand for oil is high. Gasoline demand will firm up during the spring, and as turnarounds start and inventories start to come back down prices should head up.

So what is driving the demand for oil at this time of the year. Domestic heating?

Gasoline inventories are building at the current price of gasoline and are almost back to Dec 2006 levels.

The demand for gasoline at $3 +/- per gallon is ~9.2 million barrels. Gasoline imports are up and crude imports are down.

If a refiner were to charge 10-20c more per gallon they would probably not be able to move product. As RR says above it may change in spring.

Crude and gasoline are different markets and are subject to different supply and demand dynamics.

But historically the gasoline price has been slaved to the price of oil. It can't now be argued that they are independent commodities.

But historically the gasoline price has been slaved to the price of oil. It can't now be argued that they are independent commodities.

They certainly are independent! Again referencing those charts from the Oct 31 thread:

Gasoline prices

Crude prices

And it still is. We are not going to see gasoline prices lower than the cost of delivering it to the pump (crude+taxes+transportation+retail_margin+crack_s).

In some competitive environments, crack_s + retail_m can get squeezed.

Exqueese me for the ignorant Q bbut..

what inputs are the "local levels" using to base their "pricing decisions" on?


is it at all possible to manipulate those inputs?

Here is how it happens. You have a local rack that you use to supply your local customers. You have other shipments that go out via pipeline. You have a refinery LP that gives you guidance on your margins (and I really need to do a post on this).

If margins are good, you make all of the product you can. If they are zero or negative, you only make enough to satisfy your contracted volumes. But if margins are merely poor, you generally make pricing decisions based on what your local rack is doing.

What happens when gasoline demand is soft is one company raises prices, the other companies around don't match, and customers are lost. So they have to lower prices. If demand was higher, they could raise prices, and know that the competitors can't steal customers away because they don't have any spare capacity.

On a day to day basis, what happens is that you watch your local rack. That's where the incremental production that you can't put in the pipeline ends up. If the local rack is filling up, you adjust by lowering prices. If it is drawing down, you raise prices. But if you raise prices and your competitors can pick up the slack, you may find yourself right back where you started.

Keep an eye out for increasing refinery utilization, but also keep an eye on the gasoline inventory situation. If utilization is creeping up, but inventories are still falling, gasoline prices are usually headed higher. This year they will be headed higher on the back of $100 oil - about $40 higher than last year's level. So it won't take much for us to get to $4 gasoline.

"At $100 oil, isn't it strange that gasoline at the pump is $3.05. Are the refiners working for free?"

Are refiners making it back up on the diesel-gas price spread?

Our retail spread is usually 50-60 cents higher, has been up to 80, for diesel highway use. Using the 3-2-1 crude crack spread for spot prices on TWIP and $100 crude gets a spread of $6.18/barrel, nothing to celebrate. But using the old spread, where heating oil/diesel is cheaper than gas, say the 2.47 gas but 2.30 heating oil, and the spread falls to $1.36/barrel.

It seems funny to me, in that heating oil/diesel is supposedly less refined oil. But that's what we have today. Certainly there's higher overall demand for the gas.

But I will eat my hat [...]

Would you care to place a wager on that?


But I will eat my hat if 1). Oil prices are still hovering around $100 in April;

RR, are you implying that by April crude oil price will be significantly above $100/barrel? Or do you expect it to be significantly below $100/barrel?

No, the "eat my hat" comment was about all three happening. If crude is still around $100 and gasoline inventories are coming down, then gasoline will make a run toward $4.

Robert, with your luck you'll probably be correct and still have to eat your hat. B^)

"there are no results here"

you have to create an account (which seriously takes about five seconds--no email addy or anything required), and then, after logging in, you will have the option to hit the "up" arrow to give the article a point on reddit. the more points an article gets, the more readership, etc.

I just think dumping every single oildrum post into reddit as if it's of supreme importance is pointless. People get fatigued after a while, treat it like spam, and just ignore it. Not every blip in the peakoil story is of equal significance. When the sh*t really hits the fan, THEN put it on reddit.

I sort of agree. It pisses people off if they see you promoting your own articles all the time, and they may even start to downrate you out of resentment.

But I don't think we should wait until TSHTF. Rather, we should save it for articles that are really good. As in have a lot of original work in them, and have something important to say. IME, nothing ticks people off more than submitting blog entries that only link to other articles, or summarize them.

My guess on the 3.05 retail gas:
Given the recent gasoline supply builds, they still have to price it somewhat according to seasonal demand/supply - the April contract is 2.70 (versus 2.53 Feb.), and heating oil is 2.72.

Based on what I have read here (on TOD) and elsewhere, it has been my impression that refiners do not pay the price of WTI for oil, unless of course they bought contracts for WTI. No? E.g., the gasoline that CITGO sells is in significant measure from oil from Venezuela (PDVSA), is it not?

To think that so many private enterprises would work together to lose money for an entire year (until Nov 2008) seems absurd to me.

I asked this late on New Year's Eve about the article Leanan posted that stated Iraq oil sold for just under $84 in November 2007. So the question is, how much of that came to the US? And I'm curious if it's possible to get data on the amounts paid for oil during any given time ie how much for Saudi oil during a month's time, how much oil that represents versus say Mexican and Venezuelan oil.

I thought that refinery usage was unusually low, perhaps indicating a shift from a refinery bottleneck to a crude oil bottleneck. Is 89.4% low? Otherwise, I'm stumped too.

The average over the last 15 years for this time of the year is around 92%.

Poor margins are to blame for the low utilization number. Refiners aren't delaying maintenance and they aren't buying those last few marginal (more expensive) barrels to fill up their refineries. This situation won't continue until summer.

RR - Glad to see you weighing in here, as you're the only one I've found to really explain WHY the margins have been staying so low. I'm betting that they'll start rising again here (TSO and VLO), because it looks as though the refiners have been struggling along with margins around 5% for quite a few months, which can't continue for very long (can it?).

Question, then, since you seem sure that the situation will change by summer: If refiners stopped buying crude right now, how long would it take before their crude inventories were spent? It's a purely theoretical question of course, since no refiner would actually do that (I don't think), but I'm looking for an idea of just how much longer they can wait for crude prices to come down before they have to start buying again...and probably buying vigorously, in order to refill their diminishing inventories before they have to crank up production for summer?

it looks as though the refiners have been struggling along with margins around 5% for quite a few months, which can't continue for very long (can it?).

For a pure refiner, it's brutal. But most companies also have some oil and gas production, and they can withstand some downstream struggles as long as upstream is doing well (as it is right now).

If refiners stopped buying crude right now, how long would it take before their crude inventories were spent?

In my previous refinery, 3 days. But that's an extreme case. More typical is probably a week or two.

It won't be long until refineries start coming down for turnarounds. Then, you will see crude building and gasoline inventories coming down.

Let's assume a progression in gasoline prices--because of skyrocketing crude oil prices as net oil exports crash--that goes as follows: $2, $4, $8, $16, $32 . . .

At each doubling, one could safely assume that the volume of gasoline purchased at each price level would drop off. This would mean that refinery utilization would drop. Refiners will not buy very expensive oil if they cannot at least break even or make a minimal profit.

So, as oil exports decline, we would expect to see refinery utilization in more and more importing countries declining, ultimately resulting in smaller, less efficient refineries shutting down.

It's simply a question of allocating crude oil to the importing countries that are able to pay the retail price that will justify buying the expensive oil.

IMO, I think that we are just in the early stages of the process.

Two posts here explain that refiners' reluctance to buy the last few expensive barrels of crude keeps refinery utilization down. Mskes sense. But that still doesn't explain why gasoline at the pump is not going up as availability goes down.

Few of us really want to believe that collusion is holding gasoline prices at an unsustainably low level. But I suspect the petro companies have simply come to the realization that price instability is their worst enemy. In this business it takes time for high prices to destroy demand or for low prices to destroy investment. But they are still trying to avoid both scenarios, not for competitive reasons but for their own long term bottom lines. Each time demand or investment is destroyed, part of the market disappears permanently.

I know that, after Katrina, gasoline went up like a rocket. They weren't worried about price stability or being investigated by Congress back then. Now, maybe they took so much heat from that that they are reluctant to have another go-round.

On the other hand, price manipulations are not so far fetched. Many big corporations make much of their money from no-bid government contracts. We have moved pretty far from a free-market economy, especially with corporations that are big enough to influence the government. Given the corruption in Washington today, I find it entirely plausible that the government would ask for special considerations from big companies and that big companies would grant them, so as not to jeopardize the governemnt gravy train.

Still, given what was said about the decisions being made locally, I don't understand how the mechanics of price manipulation would work. So, I'm still puzzled. If oil keeps going up, will they sell at a loss?

I know that, after Katrina, gasoline went up like a rocket. They weren't worried about price stability or being investigated by Congress back then. Now, maybe they took so much heat from that that they are reluctant to have another go-round.

After Katrina, several refineries and pipelines shut down due to physical damage, with uncertainty over when they would come back online. IMO, prices rose artificially high to prevent stations from running out of gas. A local Chevron had prices 30 cents above stations next to it, apparently in order to keep customers away (Chevron had a lot of damage and shutdowns). Currently, we have a buildup in gasoline supplies and no physical damage. When we start seeing a week or two of gasoline drawdowns, the RB price will jump.

You would think that with Peak Oil, for every refinery built in China and India, an equal amount of capacity will need to be shut down in the OECD (read: USA). Thus, the Western refiners will get clobbered and be slowly forced to retire valuable plant and equipment as their costs rise and the demand for their product withers as you suggest.

The rising oil price will force the price of gas upward
(perhaps with something of a lag) because refiners will only operate at a loss for so long before shutting down. A nice hedge play on this would be to short the refiners and go long the production co's.

And of course under the Export Land Model this process happens in fast forward because you have that much smaller of a pie to work with each year.

As for the price of gas in the US, honestly, my guess would be that the economy is significantly weakening and on the verge of a recession if not already in one. This together with the realization by consumers that $3.00 gas is not a temporary phenomenon, is resulting in lower demand for gasoline as consumers begin to change their behavior.

Of course, the world oil price is not affected by minimial conservation by Americans (and Japanese, apparently) because of Export Land factors and increased demand from China and India.

Do you think this is a cost-benefit move? The refiners are trying to keep demand destruction from occurring in the US market so they won't have to start shutting in capacity?

You would think that with Peak Oil, for every refinery built in China and India, an equal amount of capacity will need to be shut down in the OECD (read: USA).

I don't think that's necessarily true. Refined products are a much more local market than crude. And (at least in theory) we are still increasing global crude production. So it's not a zero-sum game (yet).

A nice hedge play on this would be to short the refiners and go long the production co's.

With the refiners reaching the end of their low-margin rope, and the major producers controlling a mere 10% of the remaining global production, I'd call that a suicide play!

Here is an interesting link I just found...

National Gas Temperature Map

It gives you the price of gas county for the whole country.

thanks. I had seen that before but forgot it.
I wonder if those prices are 'ethanol adjusted'.
Im quite sure not, as nothing else is.

A comment about Crude inventories. At $100, how much crude is going to be bought for stockpiling? Is it possible that this time it's different, the price has crossed a crucial threshold (at say $80) and crude stocks will not build again from here on? And secondly, is there even enough oil being produced in the world anymore for some of it to be stockpiled? Is it possible that things changed that significantly during 2007? I mean if 2 1/2 years ago C+C was 74.3Mbpd and now its 73.1Mbpd how long can this go on before something snaps in the system and we have a paradigm shift?

What do you guys think the tipping point for release of oil from the SPR is? I'm sure when gas inevitably busts through the $3.50 threshold the public/congress will start rabble rousing again...

Bad news in polling for the republicans.

The government is filling the SPR, and they plan to increase the rate at which they buy oil for the SPR in January. Given that they're willing to do that at $100/bbl, I don't see them releasing under any circumstances, at least not just to control the price. They might stop or cut back on the buying, but even that is questionable given who the Vice President is.

I think they will only release from the SPR if there are actual shortages, which will most likely be caused by an attack on Iran. IMO, they have not given up on attacking Iran. They cannot attack without adequate reserves to ride out a short (they believe) war. They are running out of time. They must first tank up on the reserves, then gin up a causus belli, and then have enough time before January 2009 to carry out the war. I think they're on a tight timetable, and they aren't going to release oil from the reserves and lose their chance to attack Iran.

Using the Crack Spread Calculator:

$10.01 per barrel, a bit on the low side, historically, but not without precedent. With the way corporate fascism has taken over, it wouldn't surprise me if the oil companies were keeping refined products affordable for fear of a recessionary revolt, in light of all the other troubles with the U.S. economy. What the heck, we already get a $150 / bbl MIC subsidy on Iraqi oil.

What is the trick to [img] tags? I seem to be having difficulty.

We use plain ol' HTML. If you're using BBCode, it won't work.

However, please think twice about posting an image that's huge. It'll slow down the thread for everyone. And a lot of people won't be able to see it if it's too big. A text link is fine.

For those who are interested, I just dug up this thread by Khebab from Oct 31, which had some great charts tracking the crack spread, gasoline prices & crude prices, among other things.

There are a bunch of factors affecting the crack spread, which I tried to ferment a discussion about in this thread.

But no doubt there are others on the board who can address these issues better than I can...and I wish they would.

Memmel posted this chart showing the crack spread (O&GJ data) from Jan '03 - Sept '07, which showed that as of Sept 07, the actual spread had dropped to about $10, when it had been at about $32 back in May. If you look at '05 and '06, you see the same pattern: spiking in May, and dropping away by January. So if the pattern holds (and why shouldn't it?) we should be back to margins in the $30s soon enough...haven't done the math myself, so I'll go with Robert's $4 estimate.

Also note that the "future prices 6 months" line is a pretty steady upward trendline over the whole four years. I don't know where it stands right now (Anybody?) but let's say it's around $5; it would have to rise to $15 or better just to revert to that trendline.

Wish I had an updated chart of this. Anybody? And does anybody know what this O&GJ data is, exactly? Average for all areas for light sweet, or all grades, or what? (I don't know my way around their data.)

Edit: OK I did the calculation using a formula I found here, and at $100 crude and a $15 crack (the trendline) we get $3.61 gasoline. With $100 crude and a $30 crack (typical for the last two Mays) we get $4.02 for gasoline.

It's really quite simple. Refineries don't buy oil at prices based on WTI. WTI is approximately 1mmbpd out of total supply? Refineries are buying crudes (sour, heavy, etc.) that are discounted to WTI.

There is no magic. There is no conspiracy.

It doesn't seem simple to me (just my ignorance). If other sources are much cheaper, then who is buying WTI? And wouldn't that put a drag on the price of WTI? And aren't those other crudes cheaper for a reason (i.e. they are more expensive to refine)? Shouldn't the price of all crude be roughly the same, after factoring in the quality (i.e. if it were 5% more expensive to refine a heavy sour oil, wouldn't it be about 5% cheaper)? How could WTI go up without pulling all other oil up with it (or being pulled back down by other oil)?

Sorry, I know that's a lot of questions. I'm just trying to understand the dynamic.

The type of crude that a refinery is purchased is a function of the complexity of the refinery. The simpliest distillation operation would have to buy a light, sweet crude like WTI. However, complex refineries that have invested in upgrading will prefer to buy the cheaper crudes when they can. It's simple.

Fewer refiners can handle the heavy stuff. It requires higher up-front investment, and greater energy inputs. They use spot prices for light sweet as a benchmark only. Nothing you don't already know, I'm sure.

Refineries don't buy oil at prices based on WTI.

However, a lot of contracts are based on a formula tied to WTI. So, it is a lot more than a million bpd that are directly affected by WTI price.

Matthew R. Simmons?


Which gives me an idea, maybe I should change my
nickname to something more real, something like
Dan Yergin ^_^

In the US at least a significant amount of work has been done to increase refining capacity for heaver sour grades for crude. And expand capacity some. I'll dig for the links but a factor in KSA maintaining capacity is they reduced the price they wanted for their heaviest sour oils and are now shipping quit a bit more of it.

Some good if dated graphs here.

And a very dated article that points back to when heavy sour was plentiful.

I've read in several places that about 50% of US imports is heavy sour.
I don't have a good link for this.

This would account for the price being less that 3.60 but not these spreads are not all that wide now so the 3.00 price is still very low.

So gasoline is still under priced. In my opinion the only thing that makes sense is that we have spare refining capacity at 100 dollar oil. Refinery utilization has been low all year actually so occam's razor would say the simplest answer is refinery capacity is in excess.

Also for the US we import a lot of gasoline so I'm guessing we are still getting good prices for gasoline imports.

Dated but a good read.

Now here is the thing. One reason we get a pretty good deal on gasoline is Britain for example has spare refining capacity so they ship us gasoline as they make other products.

But no matter what at the end of the day although spare capacity means the profit margins are thin I just can't see how they can sell for much less than say 3.25 a gallon.

But here is the kicker gasoline production seems robust and the same with gasoline imports.

So although it seems likely we have spare capacity the prices still don't make sense.
They are still off actually it seems by quite a bit. No way in my opinion can this continue long term it just does not pencil out for me.

It may be something to due with octane in UK cheapest petrol has 95 octans in us 87 that mean US petrol has around 8.4% less octans
and probably costs of production are cheaper for 87 and you can get more gallons of it from barrel of oil

GM Drops V-8 Engine on Rising Fuel Prices, Regulation (Update4)
By Jeff Green

Jan. 3 (Bloomberg) -- General Motors Corp., the world's largest automaker, canceled a $300 million program to build an advanced V-8 engine for luxury vehicles, citing rising oil prices and tighter U.S. fuel economy restrictions.

``We have seen a declining demand for V-8 engines as fuel prices have risen,'' GM spokeswoman Sharon Basel said today. New requirements for carmakers to boost average mileage 40 percent by 2020 also figured in the decision, she said.

GM is trying to shed its reputation for gas-guzzling vehicles as it loses sales to Toyota Motor Corp. and its fuel- sipping Prius, a gasoline-electric hybrid. Eight-cylinder engines, used mainly for high-performance sedans, large pickup trucks and sport-utility vehicles, get lower mileage than conventional four- and six-cylinder engines.

how come can get a Prius to plug-in but GM can't? felix kramer even put PVs on his roof for his Prius.

Volt debut fluid, Wagoner says

Plug-In Hybrid feature on and Felix Kramer

When do we get to the mass market 600 cc i-3 (inline-3) :-)

My guess, about 2017 ?

With the rising gas prices and scarcity of oil, it better be before 2017.
Several automakers already have the small, lightweight cars, but with bigger engines. VW Lupo (80mpg) and Fiat 500 comes to mind, there are several small Japanese cars in that league too.
It always has baffled me why an ordinary family sedan "needs" 165hp to get around. In the 50's even larger cars had about 60hp mills, it got people around then and it should do so today, too.
Now, a small car, with your 600cc 3-cyl, diesel of course, in a series hybrid configuration, that would be something.

"When do we get to the mass market 600 cc i-3 (inline-3) :-)"

Hopefully never. 600/3 = 200cc per cylinder. That's ugly. Make it a parallel or V-twin with 300cc per cylinder and you'll be a lot better off. Might even be better off displacing a little more (400-500cc per cylinder) and using an even higher gearing to turn the engine more slowly.

When do we get to the mass market 600 cc i-3 (inline-3)

My Smart car (made by Mercedes) already has it, and it gives around 55 mpg - fully automatic, traction control etc.

PV on the car roof affect performance about as much as silicone affects milk production

watch the video.

Fixed solar panels like that, on a house roof, won't produce enough electricity to power a car very far (or an average house come to that) - do the simple math!

Also, the video had a lot of misleading statistics about plug-ins - be skeptical, I'll bet there are good reasons that manufacturers aren't producing plug-in hybrids in bulk - you shouldn't assume that the manufacturers don't know how to make or sell cars. Ask yourself why the manufactureres aren't building them - think, hard.

Making one car is relatively easy, if costly ... making millions? ... not so easy.

"Zahl" at posted these graphs of US inventories. Crude oil is fine:

Gasoline is looking kinda scary, though:

Prices for both crude oil and gasoline are determined at the margin. I think we all can agree on that. Crude oil is an international market where a large importer like the U.S. is bidding against the rest of the world. The price that must be paid is the world price at the margin.

Gasoline in the U.S. is largely a domestic market since we do not export gasoline and import relatively little finished product. Therefore the price is determined at the margin in the U.S. domestic market. The situation in the gasoline market internally is not the same as in the world crude oil market. Domestic gasoline faces some, albeit relatively small competition, at the margin. It is ethanol. There is a glut of ethanol production due to the large corn harvest and the many new ethanol plants being opened. Ethanol is relatively cheap when the blenders credit is included. Some states like Missouri have recently mandated ethanol use at 10%. The net effect of ethanol competition is to hold the price of gasoline down for the moment. It is as simple as that IMO.

I think that finished gasoline is a little misleading because of the ethanol effect. Probably total gasoline stocks makes more sense.

Leanan, those charts track data through last summer. Since then US supplies of crude have dropped below five year average while gasoline supply has firmed up and is now near the five-year average.