The price at the pump

[FlFishOn]

My guess is that next year we'll look back fondly at the time when gas was only $3 a gallon. I was researching (not too successfully) the cracking spread or the refining margin between crude and gas. I once found a beautiful graph that showed exactly how much I got screwed over on summer priced gas. This time I see that refiners aren't getting rich right now and if crude stayed at $75 we can expect $4+ gas soon. Has anyone found a neat, tidy graph of the refining margin? Please post it if you find one.

[morphball]

Don't fall for it. The is no supply shortage at all. Their is a refinery shortage combined with monopolies. People don't get a $145,000 a day retirement package because of low profit margins.

[ScottieK]

I found this interesting:

http://money.howstuffworks.com/gas-price.htm

ScottieK

[Cyrus]

[ QUOTE ]
Their is a refinery shortage combined with monopolies.

[/ QUOTE ]There are no longer any monopolies in refining in the world, nor in production. There are players with extraordinary power, but they can affect the market only if they act against their best interests (e.g. Saudis cutting back in half their production out of spite for the West's support of Israel).

Although each player is extraordinarily powerful, i.e. the U.S., Russia, the E.U., etc, no one alone can influence the commodity markets to the extent that the markets will be distorted, in the true sense of the world. If, for example, the U.S. decides (for some reason) to buy up every September contract of gasoline in the world, the prices will zoom straight up and stay there and the world will suffer the consequences -- until September! Then the U.S. will have to decide what to do with this tsunami of gasoline about to hit its coasts!

But there is a refining capacity shortage, as you wrote. The reason is that oil prices have been depressed for such a long period of time (in nominal terms, and even more so in real terms), that scores of refineries around the world have been closed or, at best, mothballed. And when demand picked up, and seriously so (led by the Asian economies, msot notably China's), the imbalance between demand & supply has become almost systemic.

Even now, though, with oil product prices striding high, it is not economical for oil companies to open up those mothballed refineries, and even less so to build new ones. It will take more time, to convince the oilco's about the durability of this bull market, and make an investment to refining worthwhile again. Throw in the new, much more stringent, environmental-friendly specifications for gasoline and gasoil, and the consequent additional investments required (lower sulphur, etc), and you realize why the majors are not impatient yet about new refinery openings.

So, your cries of pain are music to the ears of Planning & Strategic Analysis. Louder, please.

[img]/images/graemlins/cool.gif[/img]

That said, refineries around the world have been operating in 2004 (last year for which such data are available, but one doesn't expect 2005 to have been much different) at approximately 87% capacity! That's the average global refinery utilization figure but it's still nearing the safety limits of refining. It's also the historical high for the past 30 years or so. (In other words, refiners are not "holding back" in any way.)

[lozen]

Here we have so much oil it is hard to imagine but yet we still pay $1.07 a litre. Which works out to about $4.40 for a US gallon. Morph is right about the lack of ability to process.

[FlFishOn]

Oil is fungable, it's all more or less the same. The price is the same world wide. There is litle opportunity for US companies to really screw US consumers only. They could attempt to screw the world , likely unsuccessfully.

[Nut4Dawgs]

Scottie's link is a good source.

The observations about our refining capacity are correct, too. There haven't been any new refineries built in umpteen years. EPA restrictions and the "Not In My Backyard" folks have seen to that. The refineries have spent Billions retrofitting the old equipment to meet the continually tightening restrictions on emissions. You pay for those costs.

California and Florida won't OK new offshore drilling. (Don't screw up OUR beaches, dammit!) Some estimates show the US becoming damned near self-sufficient if we tap those pools.

The Gulf is still rich, but the depths are getting higher and that's more $$$$. Add the hurricane problems and relying so heavily on the Gulf is dumb.

Then we have the commodity traders. You do know oil is traded on the open market, right? It's not just the producers, refiners, etc., making a buck on the price. It's the guys speculating. People who don't own anything connected to the industry except contracts for crude.

Traders, no matter the commodity, do not like uncertainty in the weather or politics - any country's politics. Oil traders especially get antsy over political upheaval - or threats/hints of turmoil.

So, how are GWB and Big Oil going to control all the above? Find the solution(s) and you'll have Warren Buffett asking you for a loan.

[adios]

I made a post awhile ago about the mega oil company mergers that were approved by the Clinton administration. At the time the Asian financial crises was underway and oil prices plummeted. The oil companies stated they need to merge to effect economies of scale to lower production costs. Profit margins of oil companies don't seem to be out of line with other businesses IMO.

I agree with your take basically. There won't be any new U.S. refiners for quite some time IMO. Additional refining capacity yes, new refining companies doubtful. Also several U.S. refiners came out last year when the energy bill was passed and stated that the new law that removed their exemption for MTBE contamination liability would cause gas prices to go higher due to the retrofitting of equipment to refine with ethanol instead of MTBE to accomodate clean air standards.

[Wes Mantooth]

investing in ethanol within the united states has been increasing dramatically over the past few years. This just came out last week....

In case anyone is interested here is a list of cars that are E85 (85% ethanol) ready.

[Machinehead]

[ QUOTE ]
Profit margins of oil companies don't seem to be out of line with other businesses IMO.

[/ QUOTE ]

Is this a joke? What other businesses are you comparing them to?