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A Gas Rant

I almost hate to post this, because I know that most Wizbang readers keep up with the news and are well aware of how market forces work, but I have heard quite a few people commenting about how gas prices are "conveniently" going down prior to the elections. From now on, rather than respond to each individual comment making such a reference, I will just refer back to this post.

For those questioning the "timing" of the current drop in gas prices, take a look at the news from the past few weeks and things won't seem so mysterious. Just a few points to consider...

  • Gas prices always go down after the summer -- that's simply supply and demand at work. It even happened when Bill Clinton was in office. How convenient, indeed.
  • The market is responding to a milder than expected hurricane season. High prices over the summer factored in warnings about this hurricane season that did not come to pass. Now the market is responding to the reality.
  • Tests indicating a new discovery of oil in the Gulf of Mexico hailed as the most significant in a generation, and the largest since Alaska's North Slope, was announced less than two weeks ago. The news was reflected in the price of oil almost immediately.
The three listed above are only a few factors that may have played into the drop in price. Of course, if you don't understand market forces, or follow the news, or read a calendar, it might be easier to believe Karl Rove pulled out his magic oil price machine.


The cheapest gas I have seen in my area is $2.30/gallon, but it has been dropping fast. To see what the lowest (and highest) prices are in your area, or anywhere else in the country, visit Gas Buddy.


Comments (14)

In a <a href="http://www.ny... (Below threshold)
mantis:

In a recent poll (.pdf), Americans were asked this question:

33. Is the price of gasoline something a president can do a lot about, or is that beyond
any president's control?

and 63% said the President can do a lot; 30% said it was beyond the President's control. I'm no economics wiz, but the basic knowledge of market forces among most of the population is quite pathetic.

What is the cause of such ignorance? Is it just easier to cast blame on one person or thing (66% said Congress could do a lot about gas prices), rather than the complex and often baffling forces at work? Does the media simplify these things too much? Do people not care enough to spend the time to understand? A combination of these? Something else?

I weep for the future.

So, Lorie, are you opining ... (Below threshold)
MikeSC:

So, Lorie, are you opining that Karl Rove had control when Clinton was in office. :)

-=Mike

If it goes up it's the Pres... (Below threshold)
Faith+1:

If it goes up it's the President's fault. If it goes down it's the President's fault. Convenient logic when you are totally ignorant of economics. You can't blame the Left for that kind of thinking. Since they seek to rule the world with a select few self-apponted elitist they assume the other side is too. Also thinking the government should control everything leads them to think it already does.

Did anyone else notice how ... (Below threshold)
Mike:

Did anyone else notice how it's starting to get cooler as we get closer to the election ? Damn you Karl Rove! /moonbat

What I do want to know is w... (Below threshold)
jpm100:

What I do want to know is why the price of Gas, which is rough 50% the cost of the oil, seems to change more than the price of oil.

For a 10% change in the price of oil we've gotten a 20%+ decrease in the price of gas. If anything, isn't decreasing prices of gas suppose to increase our already tight production capacity? It basically leave the change in demand from summer to fall as the primary reason for the gas price decrease.

If gas production is that tight, we have the oil processing companies laughing about the unnecessarily constricted refining capacity all the way to the bank. They have no motive to change it and their buddies the environmentalists are more than happy to help.

jpm: Gas futures markets (p... (Below threshold)
jody:

jpm: Gas futures markets (plus switch to cheaper to produce fall blend)

LORIE , your posts remain s... (Below threshold)
Mark Blahut:

LORIE , your posts remain silly .
THE REASON THE GAS IS GOING DOWN - ELECTION TIME
Wake up young girl - You must be twelve years old.

"(66% said Congress coul... (Below threshold)

"(66% said Congress could do a lot about gas prices)"

See, the trouble here, mantis, is: what's wrong with the other 34%? As we all have seen, Congress can indeed do a hell of a lot about the gas prices...none of the many, many things they do actually affect the price of gas, but they can indeed do many, many things about the gas prices...talk about it, hold hearings, gripe, block domestic production, threaten to raise taxes on the very groups they depend on to provide gas because nothing spurs hard work like less pay, gripe about domestic production, go see AlGore's movie, pretend that suddenly alternative sources are ready to take the place of gas, use the opportunity to visit Iowa and talk about the ethanol scam and, hey, maybe about 2008...and many more. The question is phrased badly as it does not require actual results, but 100% should be aware that Congress is busily taking actions relative to the price of oil. By contrast, the President has done relatively little about the price of gas this summer. Has he even gone on TV to feel our pain? He also can do much, much more about the price of oil that will have little to no impact on the actual price of oil.

So when, exactly, is our cheap Iraqi oil that we conquered Iraq for going to start flowing?

I'm a die-hard conservative... (Below threshold)
Kathy:

I'm a die-hard conservative, but I am having a hard time believing that the sudden, huge drop in the price of gas isn't somehow related to the up-coming election. I don't so much think that the administration has any direct control over the price of gas, but I do find myself wondering if the oil/gas industry has a vested interest in seeing Republicans remain in control. In any event, I think the recent high price levels have been the result of greed, and the spiel about hurricane predictions is a crock.

All of the gas conspiracy t... (Below threshold)
Gizmo:

All of the gas conspiracy theorists overlook one major fact on this subject: The US is a minority player in the world oil market. The World oil market isn't going to drop for the convenience of the US.

As for domestic gas prices, we're seeing the convergence of the positive "perfect storm" that finally brought a bit of sanity to the market. In addition to the reasons cited above, the following things are also finally taking hold in the minds of traders:

1) Gas stockpiles are UP. It appears that soaring gas prices have caused enough people to put off long car trips and pass up more "gas hogs" when car shoppings to do something practically unheard up in the US: flatten gas demand.

2) The oil market "freak out" over Isreal's actions in Lebanon petered out.

However, all of this is subject to change without notice. One possible "Katrina", one refinery fire, one pipeline shutdown, and "bingo" the market could go back into panic mode.

give us all a break kathy..... (Below threshold)

give us all a break kathy...go to Yahoo or almost any site with financial information and look up crude prices. They're lower. That's it, that's the reason, that's all there is to it (well, plus the less expensive non-summer blends, etc). While you're at it, research gas price trends in election and non election years and see if there's a correlation and let us know. While you're at it, let us know why natural gas is falling when consumers won't see much of that impact until after the elections are over. Honestly, why people here think every little political football dominates global economics is beyond me...yeah, Iran and Venezuela are cutting prices as a little wet kiss for the Republicans...that's more believable than well-documented global macroeconomics. As for hurricanes, while you're doing your research, check to see when this year's hurricane predictions came out and what happened with gas prices relative to it before you call it a 'crock'.

Good description of market ... (Below threshold)
Publicus:

Good description of market forces which have lowered gas prices, Lori! Kudos from an old economics major...(me.)

How would the oil companies... (Below threshold)
jp:

How would the oil companies intentionally drop prices? This is an easily proven or disproven theory, the oil companies within the US made a whopping 7 cents Profit per gallon of gas they sold in the 2nd quarter...roughly the same as past quarters....so if they are intentionally dropping prices to help whoever, you'll see it in their statements for 3rd quarter which would show a huge loss per gallon of gas!

I'm going to go out on a limb and predict that the Profit per gallon will roughly be the same this quarter and the 4th quarter.....I also bet the MSM will lead off their news with "record profits" of the oil companies

Oil companies may, indeed, ... (Below threshold)
Riverpickers:

Oil companies may, indeed, make only 7 cents or less per gallon of gasoline sold on their REFINERY DIVISION Company books. Where the huge windfall profit is made is on their PRODUCTION DIVISION Company books - Yes, they all have Refining Operations and Production Operations accounted for separately (quite legal), and then the separate sets of books are consolidated for tax and other required public reporting purposes.

All domestic US oil production will be accounted for on a company's PRODUCTION DIVISION books at the actual cost of production . . . which will vary from oil field to oil field, but will be substantially LESS THAN $70 per barrel . . . maybe $20 to $30 per barrel produced. That crude oil is then "sold" or transferred to the company's REFINING DIVISION at a "transfer price" set by the oil company.

By using the "World Market Price" of (+/-)$70 per barrel of crude, the oil company PRODUCTION DIVISION will book a whopping (+/-)$40 to $50 profit per barrel on their US produced oil, and the REFINING DIVISION gets socked with the "World Market Price" per barrel for their domestic produced oil turned into gasoline and other products.

And who establishes the "world market price" for crude oil? Certainly, it starts with the OPEC cartel, who set production quotas for their member countries - 10 Middle Eastern and African major oil producing contries + Venezuela. The USA is prohibited, by law, from joining or consorting with such cartels. The OPEC cartel regulates the production of its member countries to impact the "world market price". Their web site candidly states, while denying that OPEC fixes oil prices, as follows:
"Given that OPEC Countries produce about
40 per cent of the world's oil and about
50 per cent of the oil traded internationally,
any decisions to increase or reduce production
may lower or raise the price of crude oil."

That is called, simply, "supply and demand" price fixing and is against Federal law in the US of A!

Once OPEC production quotas are established (to avoid any over supply condition which would tend to lower the "world market price" of oil) the speculators at the New York Mercantile Exchange, the International Petroleum Exchange in London and the Singapore International Monetary Exchange bid up the OPEC crude oil prices for "future delivery" on specified dates.

That results in the quoted "World Market Price" at which domestic US refiners are pricing their refinery feedstocks - including not only imported, purchased foreign produced oil, but also the domestic produced crude oil "transfer priced" to the refinery by the company's domestic production division.

And that is why U.S. Gasoline Refiners trumpet that they are only making a paltry few cents per gallon profit on the gasoline they produce.

The windfall profits are separately stated on their PRODUCTION DIVISION books, resulting from their parallel "transfer price" collusion with speculative marketing and "world market" pricing of oil futures manipulated by the OPEC cartel crude oil production restrictions..






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