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Picture of olfuzzy
posted
The other day in a thread someone asked what the deal was on the price of gasoline. This explanation seems like a Catch 22 to me.


From Texas to the Dakotas, oil output has surged, ranking America once again among the world’s top energy producers. But, the boom hasn’t stopped rising gasoline prices.

Unleaded regular has pushed over $2.41 per gallon on average in Memphis, Nashville and Jackson, Tenn., and has neared that level in Chattanooga and Knoxville, reports insurer AAA’s price survey.

Analysts expect gas prices in cities throughout the state could climb another 10 cents by early spring, a gain of almost half a dollar in a year.

For the typical driver putting 250 miles per week on a V6-powered Ford F-150 pickup truck, the nation’s top-selling vehicle, gasoline for the home-work commute will cost about $39 per week, up from about $31 last spring.

It’s the new normal at the pump.

It’s happening across the country, and few experts think it could fade away soon. Instead, energy-fed inflation could weigh on Washington policy makers later this year when they mull possible interest-rate increases.

Higher gasoline prices trace in part to the new surge in U.S. gasoline exports. Tankers crossing the Gulf of Mexico are unloading gasoline in South American ports following Venezuela’s oil sector collapse and the inability of Mexican refiners to make full use of their own production capacity.

“We’ve got plenty of crude oil in the United States. Production is blasting through all kinds of records,’’ said energy analyst Tom Kloza. “We’ve become perhaps the world’s biggest exporter of gasoline.’’

At the same time, oil output by Saudi Arabia finally eased. This ticked up oil prices worldwide, attracting back into the commodity futures market speculators and investors betting on rising energy prices. Kloza estimates these bets account for about a third of the rise in oil prices, and in turn gasoline prices, over the last year.

Investors looking for quick profits had touched off the dramatic rise in oil prices a decade ago. West Texas light sweet crude oil surpassed $110 per barrel. Unleaded regular crested in September 2008 at $4.11 per gallon on average at gas stations across Tennessee. But heavy losses battered money managers by 2015 and they left the market.

That’s when surprisingly big finds of U.S. shale oil reached refiners in high volume, a glut of oil that filled the massive oil tank farms at Cushing, Okla., source of the oil refined at Valero Energy Corp.’s Memphis plant, and sent oil prices reeling to $40 per barrel.

Alarmed by the so-called oil fracking boom in America, Saudi Arabia's leaders marshaled the cartel known as the Organization of Petroleum Exporting Countries to keep up global oil prices. Trying to sustain huge domestic social programs paid for by oil exports, the Saudis shipped waves of oil worldwide. At many gas stations in Memphis and throughout the state, unleaded fell below $1.90 per gallon as the Saudis bid to throw U.S. shale oil producers out of business by pushing prices down.

Although a spate of bankruptcies shook the American Great Plains, home of the largest frackers, survivors learned to produce at lower cost using machines to take the oil from layers of sand and rock. Realizing the frackers were dug in and restoring U.S. oil output to high levels last seen in the 1970s, the Saudis retreated from the price war last year.

As the oil glut eased and speculators pushed in, demand for gas by U.S. motorists putting over 1.1 trillion miles per year on the fleet of 300 million cars and trucks remained steady. Oil nosed over $71 per barrel in late January and has leveled off around $66, marking the end of the three-year spell of low prices, said Kloza, head of global energy analysis at market researcher Oil Price Information Services of Gaithersburg, Md.

“The average family is going to pay $40 to $50 more for gasoline this year than last year,” Kloza estimated. “And $90 over what they paid in 2016. That’s still $50 to $100 lower than what they paid every year from 2011 to 2014.”

Although national gasoline prices have climbed about 40 percent in two years, to about $2.75 per gallon on average for unleaded regular and premium combined, economic analyst Joel Naroff said he doubts the higher expense will diminish consumer spending on gas or other items.

“This is now beginning to dig into lower and middle-income household wallets," said Naroff, co-author of the 2014 book “Big Picture Economics: How to Navigate the New Global Economy. “But it’s really going to be offset by the tax cuts’’ approved by Congress in December.

With families buying ever more products online, rather than driving to the stores, Amazon, UPS, FedEx and other distribution chain companies will be pressed to look for savings in their operating costs, Naroff said.

“Even though it’s going to be offset by the tax cuts I don’t think we can dismiss higher gasoline prices,” said Naroff, head of Naroff Economic Advisers of Holland, Pa.

If the energy costs ripple through the supply chain and tick up the inflation rate, he said, the Federal Reserve Board perhaps late this year or next year might respond with a rise in interest rates, particularly if wage growth has kicked up and the tax cuts accelerate the economy.

“If we see rises in energy prices and rises in wages, those factors and increasing demand in the economy all lead to rising inflation,” Naroff said. “That will translate into higher interest rates. Whether the higher rates cause the next recession will partly depend on how high and fast they are raised.”


https://www.commercialappeal.c...gas-prices/312622002
 
Posts: 4633 | Location: 20 miles north of hell | Registered: November 07, 2012Reply With QuoteReport This Post
Drill Here, Drill Now
Picture of tatortodd
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The Feb 7th article is a hack job of random facts not tied together. Here are the three biggest glaring errors:
  • First is basic math - Jan '18 is the latest month ($2.585 nationally according to EIA) so comparing to conventional gasoline in Jan '16 ($1.949) which according to my calculator is 32% not their 40% assertion.
  • Second, they're all over the place talking about crude oil prices and likely intentional. If you want to talk about gasoline prices rising in two years it's only fair to talk about crude oil prices for the same time period. For example, EIA last published WTI price in Cushing prior to author's article is Feb 5, 2018, and it's $64.18 per barrel. Going back to 2/5/16 the same barrel of WTI in Cushing is $30.86. That is a 107% price increase, but gasoline only went up 32%.
  • Third and most important. They didn't publish as single data figure for gasoline exports. If you want to prove gasoline exports are causing gasoline price increases then you need to show data, and if you're actually being scientific about it you need to disprove other contributing factors like massive increases in crude oil prices.



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    Posts: 16518 | Location: N. Houston, TX | Registered: November 14, 2005Reply With QuoteReport This Post
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    Thank you tatortodd.

    Hack job is right but there is an agenda to be driven so...........




     
    Posts: 10830 | Location: Westminster, Colorado | Registered: June 18, 2008Reply With QuoteReport This Post
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    That's life. The alternative is market controls like Venezuela- We see how that's working for them.


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    Posts: 11283 | Location: Bottom of Lake Washington | Registered: March 06, 2007Reply With QuoteReport This Post
    Get my pies
    outta the oven!

    Picture of PASig
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    Just heard there's another glut on the horizon and prices around here are starting to drop, thankfully.

    Here in PA, it's brutal, $2.89+ a gallon for regular. Frown


     
    Posts: 23769 | Location: Pennsylvania | Registered: November 12, 2007Reply With QuoteReport This Post
    Rule #1: Use enough gun
    Picture of Bigboreshooter
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    The amount of oil produced and the amount of refined gasoline produced are very different things. Our ability to produce oil is far greater than our ability to refine it. Oil is a raw material. Gasoline is a finished product.

    Also, remember that less than half of a barrel of oil goes toward making gasoline.




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    Posts: 14368 | Location: Birmingham, Alabama | Registered: February 25, 2009Reply With QuoteReport This Post
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    Picture of downtownv
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    None of this makes sense, that we can be foreign oil independent and we EXPORT it and raise our prices on gas. Screw these oil companies.
    The Feds are looking to add $.30 per gallon tax on top of this.


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    Posts: 6054 | Location: 18 miles long, 6 Miles at Sea | Registered: January 22, 2012Reply With QuoteReport This Post
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    quote:
    Originally posted by downtownv:
    None of this makes sense, that we can be foreign oil independent and we EXPORT it and raise our prices on gas. Screw these oil companies.
    The Feds are looking to add $.30 per gallon tax on top of this.


    If you produced a product that someone halfway around the world was willing to pay more than domestic buyers, who would you sell to?
     
    Posts: 5351 | Registered: October 31, 2008Reply With QuoteReport This Post
    Drill Here, Drill Now
    Picture of tatortodd
    posted Hide Post
    quote:
    Originally posted by downtownv:
    None of this makes sense, that we can be foreign oil independent and we EXPORT it and raise our prices on gas. Screw these oil companies.
    The Feds are looking to add $.30 per gallon tax on top of this.
    First off, as I previously posted the article didn’t substantiate quantity of gasoline exports had changed or it had affected prices.

    Second, the free market benefits the consumer. Unlike gasoline, crude oil is NOT fungible and refineries are set up to run on a crude slate. In layman’s terms, a refinety setup for a heavy crude slate will shit its pants on a light crude slate and vice versa. In the 90s consumers benefited from Gulf Coast refineries (largest refinery cluster in Western hemisphere) being reconfigured to produce cheap gas from heavy Venezuelan and Mexican crude oil. When Canadian tar sands came online even more US refineries (eg Chicago) were set up to run on the cheap oil and gulf coast refineries could run on it too. That meant that light crude oils like West Texas Intermediate (WTI) weren’t desirable which was OK since the field was depleting. Then, fracking took off and WTI started selling at less than Brent but due to law put in place for TransAlaska Pipeline it couldn’t be exported. That law got repealed about the same time as they discovered the Deleware basin underneath the Permian Basin. Now, WTI can be exported and oil companies have money to build out the field. Refineries can decide to reconfigure if there is an economic advantage to do so or just keep using the heavy crude oil. Consumers benefit with cheap gas because so far it’s a free market decision (ie the government hasn’t fucked it up).



    Ego is the anesthesia that deadens the pain of stupidity

    DISCLAIMER: These are the author's own personal views and do not represent the views of the author's employer.
     
    Posts: 16518 | Location: N. Houston, TX | Registered: November 14, 2005Reply With QuoteReport This Post
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