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?

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.

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

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.

OT
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).

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.

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."

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.

"there are no results here"

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.

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

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.

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.

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.

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

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 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.

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?

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.

http://www.econbrowser.com/archives/2005/08/sweet_and_sour.html

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

http://www.businessweek.com/magazine/content/04_46/b3908079.htm

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.

http://www.ncseonline.org/NLE/CRSreports/04Sep/RL32583.pdf

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.

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

My guess, about 2017 ?

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

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.