i don't think the feds are gonna drop interest rates. given the comments at the last meeting, i think they'd be more likely to raise them again rather than drop them.
Here's what really blows my mind about the oil market. When refineries are down, stocks of finished products are falling, but stocks of crude are climbing, the price of oil goes through the roof. It can't be supply and demand, because supply is far above demand.
i don't get that either. you have less refining capacity. you have tankers carrying inventory all over the world that can't be moved. and the price goes up?
You're likely right about the lack of a drop. I did read that labor numbers for April are below expectations (that and the usual suspects not improving) so I don't believe an increase is likely. They've been talking about a rate drop since early this year. I hope it does since my parents are straddled with an ARM...
Where Gasoline is Cheap, and Why Your's is Not In Saudi Arabia gasoline costs about 45 cents a gallon. In Iran it's 33. Venezuelans pay under a quarter. These absurdly low prices are a direct result of massive government subsidies. While these numbers are not adjusted for cost of living, it's fair to say that drivers in those countries are getting a good deal. But it's straining government budgets. More importantly, it's not allowing the free market to do its job. Higher prices on the open market are not leading to a drop in demand, which is keeping the cost of oil high for everyone else. "Roughly two-thirds of new oil demand is coming from countries that have subsidized oil markets," said Christopher Ruppel, a senior geopolitical analyst with the consulting firm John S. Herold. "So demand is not going to be affected if oil goes from $60 a barrel to $80." By no means does this let motorists in the Untied States off the hook. Gasoline consumption in this country has been rising even faster than normal, around 2.5 percent annually over the last couple of months, despite average prices over $3 a gallon, close to an all-time record. But countries where consumption is rising the fastest may be surprising. With it's white hot economy, it's no surprise China tops the list. The country's oil demand is projected to grow 7.5 percent this year, according to statistics provided by Ruppel. Ruppel said China still has gasoline subsidies, although lately the government has been trying to whittle them back. The average price for a gallon of gas in Beijing is $2.44 a gallon, according to the research group AIRINC, which provided all the gasoline price numbers in this story. But the second highest demand growth isn't in the fast growing economies of India or Brazil. It's Saudi Arabia, projected to consume 5.6 percent more oil next year, according to Ruppel. Iran is number three, guzzling 3.3 percent more. Russia and Egypt, which Ruppel said both have heavy gas subsidies, are also high on the list. And the raw numbers aren't small either. The Saudis used over 2 million barrels of oil per day in 2006, and the Iranians used 1.7 million. India, a faster growing economy with far more people, used 2.5 million. (By comparison, the U.S. used about 24 million barrels a day, nearly 10 times as much as India despite having a population nearly four times as small and an economy just three times bigger.) "Maybe it's adding up," said Lou Pugliaresi, president of the Energy Policy Research Foundation. Pugliaresi said his group hadn't done any particular studies on subsidies and how they relate to worldwide demand growth and prices, but added "There are places where it's serious, and some of those populations are big enough to make a difference." Katherine Spector, head of energy strategy at J.P. Morgan, said the bank did a study on price supports and demand a couple years back. Not only was demand rising fastest in countries that had subsidies, it also greatly scaled back once the subsidies were reduced, such as in Thailand and Indonesia. "A subsidy tells consumers they don't need to adjust their behavior," said Spector. Of course, subsidies are just one factor contributing to high oil and gas prices, noted Adam Sieminski, chief energy economist at Deutsche Bank. Sieminski pointed to all the the other reasons why oil prices are high, among them rapid worldwide economic growth, limited supply and not enough refining capacity. But, he added "to the extend that it creates demand, it's helping push prices higher for everyone."
Hit a nerve? My ideas come from an ex-commodity broker. It is yours and the oil industries worst nightmare. Not as bad as price controls in the 70's but it keeps the market free as long as it's not abused.
Like lying about refineries being down? Or not building new ones in the past 30 years to control the market. Granted not exactly the same but the end result is manipulation of the market. $1.69 the night before Katrina, $2.99 today. Demand does not justify that markup.
Max, I'm still waiting for your definitive explanation of this big jump in prices. Inquiring replicants want to know. D&D. Replicant City.
according to a cnn.com article, americans are using twice as much gas as we were 20 or so years ago, but no new refineries have been made since 1976. seems like a good enough reason to me. if theres some tiny hitch in the refining process, the demand outweighs the supply so much that the price skyrockets.
i have no idea. i'm not an expert. the drop i "called" before seemed obvious to me at the time with a dud of a hurricane season and a bubble of unrealized fears. i still think the price is way inflated. for those asking about gas prices, my shell down the street is at $2.99
If 9/11 hadn't happened the Bush administration would have looked as good as the the Clinton administration without the blowjobs. War spending is running up huge deficits but basically the American economy is making a lot of money for a lot of people. I drive around Houston and see help wanted signs on businesses everywhere. But becasue it is a service and import economy we are burning a huge amount of fossil fuels to make it go. Take a trip up one of the Interstates or 59 North through East Texas. The truck traffic is a continuous convoy. The Walmart trucks alone seemed to equal all the traffic I remember from 10 years ago. And the Bayport container port just opened, and the Panama Canal is going to soon double it's capacity. Thursday I gad to make a run out I-10 to San Filipe and back. I wasn't in a hurry so I was only running around 72 mph, I was literally a traffic hazard. The average speed of the traffic was around 80, some 85+; and a lot of it was dually trucks. $3 gas pffffft, it doesn't hurt yet; people don't even seem to care.
That's what I was thinking too. Although the price of gas is more than double what is was just a few years ago and people complain about it, they really don't seem to care. Then I also thought, what choice do we really have?
Not that I know too much of the topic on hand, but I do kinda remember an article about how oil companies are delibratly raising the price of oil by keeping refining capacity low (the last refinery in America was built in something like 1974). I'll try to dig it up, but really, it wouldn't surprise me.
I am not quite sure about that. I have heard what you just posted, oil companies are not building refineries. Then I have heard they cannot because they simply cost too much, I have heard figures that say building a new refinery would cost over a billion dollars. Then I have heard that everybody from politicians to environmental groups keep new refineries from popping up because they do not want them built. The first and third reasons sound most likely. The second one I find hard to believe with energy companies making record profits and I am sure they could get some kind of government assistance.
Refineries do cost over a billion dollars to be built. The Marathon refinery in Garyville, LA will be doubling in capacity. Throughput will be increased by 180,000 barrels per day. Cost? 3.2 billion dollars. Basically, a new refinery is being built next to an existing one. People always complain about how we haven't built a new refinery in over 30 years, but they forget to mention how nearly every major refinery in the United States has gone through some sort of expansion that increases throughput, whether it be putting in a new crude unit, a new coker, or a new cat cracker. You can't just build a refinery overnight. The Marathon refinery in Louisiana has an EXCELLENT reputation amongst the community, which is why this expansion hasn't had many road bumps along the way. It is much easier to expand an existing refinery than to build a brand new one. You can use existing infrastructure (tanks, pipe, units, etc), employees who are familiar with the existing refinery, etc etc. Sure, refineries are raking in the cash right now, but they just can't shell out 3.2 billion dollars based on a short term high. The oil market is too volatile for companies to start these major projects. Anyone who has any type of knowledge about business or economics would know this. I hate to say this, but environmental groups have played a MAJOR role in the hiatus of new refinery construction. Their power is very underestimated, and companies do not want to go through the hassle of battling with these groups for years before they can even break ground. Suppose I want to build a refinery right now because the money is flowing in. But guess what, an environmental group stands in my way (I am in no way putting all the blame on them, but they are no doubt a MAJOR force). So two years pass before I clear this hurdle. But now oil prices are down and it's not profitable for me to build a refinery. See where I am going here? Just within the past year we have seen gas prices go from $3, down to $1.90, and now back over $3. If there was any guarantee that oil prices would stay up, believe me, more refineries would be built. I can go on and on about this... I am just sick and tired of people moaning about how a new refinery hasn't been built in over 30 years. Maybe it's too much work for people to do a little research.
To answer Deckard's question, I think the biggest contributor to the gasoline price hike is the shutdown of so many refineries throughout the US. Sunoco just down down a 36M bbl/day refinery, ConocoPhillips shut down a refinery for 5 weeks, and BP will shut down the infamous Texas City refinery for 11 days. Problems at a Valero refinery have cut off 130M bbl/day. A 410Mbbl refinery in the Midwest was shut down (not sure if it is back up). All in all, about 800M bbl/day is offline right now. Normally only 100Mbbl would be down due to maintenance. Trust me, these refineries are not going down on purpose. They are losing MAJOR money by shutting down their plants, while the ones online are raking it in. Couple this with the summer driving season demand, and you can see why the prices are going up. I suppose if all these shutdowns would have occurred in the winter (this isn't feasible because it is a daunting task to repair these refineries in extremely cold weather), prices wouldn't be as high because the demand would be lower.
There is one refinery being built (near Tucson), and many, many are expanding. The Motiva (Shell/Aramco joint venture) refinery in Port Arthur is going from 275,000 barrels/day to 650,000 BPD. Even so, many companies (notably Aramco multiple times) have started the process of building a refinery, only to find the negotiations with the EPA too restricting to make it profitable. There's a reason so many refineries have been built in the Caribbean over the past 20 years.
