Is there a breakdown of what a gallon of gasoline costs to manufacture and what it costs at the pump?
My apologies to our European Dopers (don’t know if the other folks laughing at $3 a gallon are from anywhere else) for a seemingly pointless complaint. Gasoline prices in the US are a major portion of more than a handful of family budgets. As mentioned, public transportation STINKS in most places, so if you are forced to use a vehicle to get to-from work, it can take a large chunk of a family’s budget, and leave very little in the way of alternative solutions for those families relying on gasoline to get them from point A to point B. I for one, would be glad to park my car in favor of a public transportation solution.
As for speculation, maybe someone can help my memory out here. I remember either reading or seeing on television a story about gas speculation. I believe it was Morgan Stanley, but I can’t recall so don’t quote me. But the story went on to state that this company speculating in the futures of light sweet crude was the largest oil company in the US at the time, and didn’t pump a drop for themselves. It’s late now, but I’ll try to dig up a link to the story. Like I said, it may have been on TV, so I’m hoping this description rings someone else’s bell before I find it… which will be tomorrow, I hope.
Anyway, if that is the case, that kind of wild speculation could artificially drive up the price of oil on the open market without changing the actual supply or demand of the product. Only when the margin calls were made would cause a large company to gain or lose a lot of money on gas they don’t physically own.
Sorry for the lack of a reference. I’m hoping I can find it or someone can link to something relevant.
Also, at one time, weren’t gas prices regulated in the US? That would certainly control prices via artificial means, correct?
In any event, here is what I find so interesting about this. Depending on what figures you believe, unemployment in this country is anywhere between 9+% and 22%. If that’s true, demand for fuel should be decreasing across the board, as fewer and fewer people are driving to work. Manufacturing jobs that have been lost forever to Mexico, China, or India, for example, will never be restored. That demand is simply not coming back. Add to that the hybrid cars that are starting to roll out, and I can see even less demand in the years ahead. What I’m trying to say is that because this so called “recession” has been hovering over this economy for years now (I personally think we are closer to a “depression”, but that will never be stated), the demand for fuel will not return to those pre-recession levels. With all else being equal, prices should be going down.
I understand things are not all equal. As a few have noted, our country’s deficit spending to finance the war certainly doesn’t help, and the weakened dollar has caused some price problems.
^^ apologies in advance if this note is a little less than coherent. I’m way past my bedtime and I’m propping my eyelids open with toothpics.
It appears that the price of gas was regulated in the U.S. between 1972 and 1981:
Note that the price (adjusted for inflation) rose during this point to the highest point since the 1920’s:
http://www.inflationdata.com/inflation/images/charts/Oil/Gasoline_inflation_chart.htm
Note also that most of us have a memory of a period of relatively low gas prices (adjusted for inflation) from about 1986 to about 2003. The prices during this 17-year period were the lowest (adjusted for inflation) of the past century. These prices (adjusted for inflation) were from about $1.50 to about $2.00. The current prices are now in the same range that they were in during nearly all of the past century except for that one 17-year period, approximately $2.00 to $3.50 (adjusted for inflation). So claiming that prices should be in the range of $1.50 to $2.00 is failing to look at the long range. It would be nice to still be in that low-price 17-year period, but we’re not. We’re in the same range as it’s been for most of the last century (adjusted for inflation).
Get used to it.
While you are getting used to it, be sure to vote for politicians who will promise you cheaper oil. They won’t deliver, but you’ll feel better in the meantime, and can complain about how you were let down at your leisure. After all, it isn’t your fault that you want to consume a huge amount of oil without paying the market rate.
ahh the finger waging judgment-whores show up. Get bent. It wasn’t the American consumer who lobbied congress for guzzler special status, for not increasing CAFE requirements, it was big auto and big oil.
I was born into this mess, why should I have to suffer just because I’d like to go to class and work so I can get bread to eat? As mentioned public transportation isn’t very viable for most, and hybrids aren’t exactly available for every economic class yet.
inb4 more finger wagging…
You’re in Great Debates, not the Pit. Insults like this are not allowed in this forum. You’ve been warned about this before.
Are there other kinds of ministers from Saudi Arabia?
Camel ministers. 
As you would imagine, the price of gasoline is highly correlated with the price of oil. For reference, since November 1994, the weekly all grade in conventional area price of gasoline has a correlation of coefficient of 0.9825 (1.0 being perfect positive correlation) with the weekly WTI NYMEX futures price of oil. Therefore, we should probably just stick with the factors driving the price of oil.
Also, while the daily consumption of oil may be somewhere around 86 million barrels per day, it is the marginal barrel that drives prices. That’s why OPEC and Saudi Arabia, in particular, have such a huge influence.
As most people are probably aware, we had a steep decline in the price of oil beginning in July 2008. For a monthly average, we went from a high of $134.02 per barrel in June 2008 to a low of $39.26 per barrel in February 2009. The recovery in the price of oil then began and we reached a price in the mid-$70s in October 2009. It has essentially remained very stable since then. There have been a series of runs up or down, but if we are simply speaking of monthly averages 10 of the following 14 months averaged mid to upper $70s per barrel. The other 4 months were low to mid $80s.
Let’s talk about some of the driving factors behind those moves. The initial run-up was partially driven by fundamentals and partially was a bubble. There was simply a flight to safe assets going on in 2008 as the world economy was effectively collapsing; commodities were a major beneficiary. Clearly there was a sharp reduction in consumption that caused the decline in prices. The recovery that began in early 2009 is probably most correctly attributable to a cut by OPEC. OPEC approved a cut of 4.2 million barrels per day of production beginning January 1, 2009 from September 2008 levels. In reality, compliance with that cut was only about 75%, but still the cut was significant.
Now, we can see that consumption has been increasing. According to the EIA, worldwide demand fell to 83.61 million bbl/d in the first quarter of 2009; it rose to 86.36 million bbl/d in the second quarter of 2010. That increase of 2.75 million bbl/d is made up of a 3.95 million bbl/d increase in non-OECD countries (1.59 million bbl/d in China alone) and a 1.21 million bbl/d decrease in OECD countries.
Additionally, we can see recently that floating storage has declined significantly, which is no surprise. Floating storage was 155 million barrels on 12/31/09. It fell to 76 million barrels at 9/30/10.
For those mentioning Iran’s ability to increase production, most people project that they will significantly increase. A recent forecast I read had Iraq increasing from about 2.5 million bbl/d now to around 6.0 million bbl/d in 2020. For those thinking Kuwait could somehow significantly increase production, they simply don’t have the capability. They are at near full capacity right now. The real swing producer right now is Saudi Arabia. They could probably ramp up production 2 million bbl/d pretty quickly.
Of note, the futures market officially went from contango to backwardation just recently for the first time in over two years. It really is a pretty flat futures curve right now. If you believe at all that markets are efficient, that should give you some hope that prices will now be continuing to rise.
Demand has increased somewhat in the U.S. It isn’t back to pre-recessionary levels, but it is significantly above the bottom of the recession. Further, it is offset by increases elsewhere in the world.
Oil doesn’t cost more, our dollar is worth less…
The Price of Oil Hasn’t Budged Since 2001 (If You Pay for Black Gold with Gold)
The American Geological Institute Workforce Program has published an interesting analysis of world oil prices… if you compare the spot prices of oil to gold, there has been almost no increase.
Read more: http://www.thedailygreen.com/environmental-news/latest/oil-gold-commodities-47041507#ixzz181VTdjnv
http://www.thedailygreen.com/environmental-news/latest/oil-gold-commodities-47041507
http://www.ridelust.com/the-real-price-of-oil-dollars-gold-and-the-price-of-tea-in-china/
Comparing the price of oil with the price of another commodity is kind of pointless.
This isn’t really a very simple question. The problem is that you don’t simply take crude oil, refine it into gasoline, and then sell it.
In reality, you take very different qualities of crude oil (sweet/sour, heavy/light, etc) and refine it into many different types of products (gasoline, diesel, jet fuel, chemical feedstocks, and on and on). Maybe the best way to answer your question would be to say, what kind of margins do refiners typically make. A simple way to look at this it to calculate the 3-2-1 crack spread.
1 X Heating Oil ($ per gallon X 42)
- 2 X Gasoline ($ per gallon X 42)
- 3 X Crude Oil ($ per barrel)
= Crack Spread
If the number is positive, then the refiner is making money. For example, right now the price for heating oil is $2.319 per gallon, the price for gasoline is $2.465 per gallon and the price for crude oil is $88.60 per barrel. This yields a crack spread of $12.89 per barrel.
The Price of Oil Hasn’t Budged Since 2001 (If You Pay for Black Gold with Gold)
The American Geological Institute Workforce Program has published an interesting analysis of world oil prices… if you compare the spot prices of oil to gold, there has been almost no increase.
Sure, of course, it is pointless to “YOU”. I understand that.
But to the Saudi’s, to Venezuela, to OPEC, to all oil exporting nations that sell to the United States, the falling value of the U.S.Dollar DOES!!! matter!
If the United States keeps going deeper into debt and continues to print trillions and trillions of its paper money, then oil and gasoline are going to cost more in terms of the US dollar.
But (c) if you hang on just a little bit longer you’ll make ever so much more money, and surely you’re smart enough to jump out just before everyone else jumps out. Right?
If you’re not, then you’re probably not speculating in commodities futures to begin with.
Probably because a lot of investment fled to the commodities market, including gold. It has nothing to do with the supposed intrinsic value of gold, or the US debt. You should have noticed something right here:
Um…‘we’ don’t know this actually. What is their proof that the price of oil has risen steeply? It has fluctuated between a high and low point, as others have already demonstrated.
So what? Possibly there has been no increase if you compare the spot price of tooth picks to oil either. What is that supposed to prove?
As to the OP…$3/gallon is ‘expensive’?? It was over $4/gallon a couple of years ago. It’s just the same fluctuation in the market that we’ve seen all along. Adjusted for inflation, the price of oil has been pretty stable.
-XT
But perhaps oil actually did peak. The numbers ought to debunk the notion or not in the next few years. If demand continues to increase, yet inventories and supply decline, that will be a sure sign.
Put another way- what if the speculators people blame for the $4 gas price spike were speculating about the inexplicable interruption in the increase of oil supply?
Oil got up to $150 a barrel a couple of years ago and then fell. The reason it got so high was the Fed pumping vast (a pre-2008 definition of “vast”) quantities of money into the system coupled with low rates to keep the economy going. The large amounts of liquidity caused the dollar to drop consistently over the 2000s (this isn’t an Obama phenomenon, it’s interesting that conservative economists/thinktankers/GOPers weren’t screaming about the debasement of the dollar back when it was doing this
)
so futures market speculators, mainly the big WS firms, bid up the price knowing that more and more money was being printed and that they could use this cheap money to make a killing on the oil price.
The reason oil is going up again is that OPEC* know from recent experience they can bump the price up a lot and so are keeping supply limited to keep the price up, plus there’s also speculation going on with the even vaster levels of cheap money currently in the system.
*When we keep printing more dollars they have to adjust their price upwards as they’re paid in dollars for their (normally only) resource and need the income maintained in real terms to pay their bills. Speculators know that and that moves the direction of the market as they jump on this to snowball the price upwards.
I’d actually like to be persuaded away from the peak oil explanation, but- are you sure the high prices aren’t also fundamentally due to tightening supply?
Let’s go back to 2008, when the Saudi’s were telling Bush they would not increase their output.
The Saudis said this:
Implying that the demand isn’t there to justify increasing output. But look at the behavior on the other side of that question:
Some people say supply isn’t the issue. Meanwhile economists say supply is the issue; Congress implies it is an issue by tinkering with the Strategic Reserve; and Congress also applies threats to SA in an attempt to get them to increase production… by 1 million bbd.
Again, I’m hoping to be proved wrong. I see the point about the falling dollar. Still, are you sure supply isn’t the problem?
Supply is definitely getting tighter and there’ll definitely be a point sometime soon when demand exceeds supply*, but right now there’s enough supply to keep the global demand satisfied, especially with the global economy the way it is now.
When it happens it’ll actually be a good thing. The reason we haven’t seen really serious investment in either new oil production or alternative fuels is that the history of oil prices ahows massive booms followed by massive busts, so even when prices are high energy companies are scared to invest a lot in case when their investment pays off the global price is $10 a barrel (it was $10 a barrel in the mid-nineties). Constant high prices will cause masive investment in energy technoligies and when somebody solves the problem* we’ll get the mother of all economic booms fuelled by cheap energy. We’ll also discover that for some reason tinpot little Arabian dictators no longer pose a credible threat to the national security of the United States and that we no longer need to bring democracy and/or maintain the peace around central Asian energy pipelines and in parts of Africa and make massive savings that way***.
**Apparently some fucker at MIT has just rewritten the laws of quantum physics and produced a machine where you pour a glass of water in the front and get energy out the back. And there’s stuff they’re doing with growing algae which turn themselves into gasoline. Somebody will crack the problem and sooner rather than later when the price goes up to a couple of hundred a barrel.
***Although having seen how the financial industry managed to emerge from the disaster the created I’m now not discounting the possibility that the US oil/war industry nexus will accept reality. Maybe we’ll discover a massive plot to overthrow America in the five Middle Eastern countries which contain half the world’s remaining conventional oil that requires a really massive increase in the military and real sacrifices from American families to pay for. Maybe they’re working on a pan-Arab/Shia, uh, weapon of mass destruction for instance. Worked last time.