Gas Junkie - Gasoline Prices Questions

Question: I really dont understand recent gasoline pump prices.?

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Answer #1:

Gas stations have already paid for the gas you put in the car when you buy it. They price based on what it will cost them to buy new gas to replace what you bought. If there is Hurricane damage to refiners/wholesalers, the price may go up short-term and thus the stations raise their prices.

Another trend is that overall, gas prices are going down. That means gas stations and wholesalers only buy the absolute minimum to meet their customers needs -- they aren't filling their tanks to the brim. This is logical -- if the price is dropping, and gas will be cheaper tomorrow than today, then you don't want to stockpile gas. The effect of this, though, is that stockpiles are very low in both stations and wholesalers, and any short-term price increase from refiners has an immediate impact.

Answer #2:

You have to refine the oil into Gasoline. It is not an easy or clean process, and our ability to refine oil into gas is limited. We can only refine what we need, so the price of gas is not only dependent on the price of oil but on our ability to turn it into gas. Since IKE took the Houston Refineries offline, there is and will be a shortage in gasoline (not oil, just gas).

Answer #3:

Well, no one has sunk a new oil well, have they? We haven't stopped the Chinese or the Indians from driving have we? Wasn't that supposed to make oil/gas keep going up? It's all a racket. The middlemen
in the oil/gas biz are getting scrutinized finally and are being more cautious about their raises.
Production, refining, and transporting all drive costs up. If the oil rigs are evacuated, production slows. Ditto for the refineries in the Gulf.
If we are so upset over the costs of petroleum products why are we still buying all this plastic stuff? Wood, metal, and paper can be substituted for plastic in a lot of applications. Why are we not out-
raged about all the plastic in our lives that can' be recycled? Why can't we, as a nation, say we will only
buy plastic that can be recyled so that we can free up our petroleum resources for transportation? Or, better yet, why can't the trains go where we need them to go so we are not dependent on cars so much?

Answer #4:

Most, if not all, of the oil platforms in the Gulf of Mexico have been shut down for two weeks now. To reduce the likelihood and severity of wasted crude (also known as "oil spills"), oil platforms shut down production several days before a hurricane might come through, and starting them back up takes several days. They were shut down for Hurricane Gustav, which bypassed the area. While they were being turned back on, it turned out that Hurricane Ike was headed that way, so they were shut back down, and the platform workers evacuated.

As I type this, refineries that produce about 1,400,000 barrels (or about 58,800,000 gallons) per day of gasoline have been shut down because of Ike. After the storm passes, some (if not all) of those refineries will need to be repaired before they can be turned on again.

Being Americans, we didn't stop driving by about 59 million gallons per day worth. No, we keep on driving, and then complain that the price rises while we suck the storage tanks dry. Frankly, oil prices are the only global market that most of us pay attention to; and the US ability to buy from overseas right now is fairly low, because about half of our capacity to take oil from tankers is located in the Gulf Coast. And, as I understand it, it takes a couple of weeks or so for an "extra" tanker to get here from Europe or the Middle East, so buying a tankerfull on, say, the London spot market won't help for a couple of weeks or so.

How high prices go, and how long they stay elevated, depends on how many oil platforms and refineries were damaged or destroyed. We won't know that until after petroleum engineers inspect them, which won't happen until after the engineers return from wherever they evacuated to. And, frankly, I expect most of them will be more interested in surveying the damage to their homes, and dealing with that.

And don't forget OPEC's decision to cut their production, Russia's proposal to ally with OPEC, Venezuala's threat to stop selling to the US, and the concern that a McCain victory at the polls makes an attack on Iran (reducing or eliminating Iran's oil production) more likely. It's also unclear what, if any, impact the scandal involving oil producers bribing employees of the agency that is supposed to oversee them will have. It may be none, or the accountants may demand the back-payments the oil industry failed to make on terms similar to the IRS' response to income tax fraud. If they take an IRS-like approach, only a fool would think it won't increase the price of US-produced crude.

Isn't personal contact with a (pseudo-)free market fun?





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