Trying to figure out gas prices

[Rifleman]

So as crude oil price plummet to 6 and 7 year lows... why do we keep getting jumps in gas prices.

obviously the price drops a cent or two, every day, every other day. but twice in the last month I've seen the price jump 30+ cents in one day, even as the price of crude closing below $40 bux, then $37...

anyone have any insight how this happens, I'm not versed in the economics of the petroleum markets.

does this have something to do with Al Gore running his mouth in Paris?

[SLOWn60]

It's simple: we keep buying it

[Somchai]

http://www.bloomberg.com/news/articl...counting-smoke

[WolFeYeZ]

OP, that is a loaded question... although I understand some of how oil/gas is priced there can be hundreds of factors the influence the price: Timing, supply, demand, refinement cost, plastics cost, any industry that uses gas, China (said it Trump voice), transportation cost, future oil price, exchange rate, interest rate, ETC. Normally each change can be linked to some reasoning, but there is no one specific reason.

[choneofakind]

There's tons that goes into the price of a gallon at the pump, and the cost of a barrel of crude is just one factor. The drillers and the refiners, while often connected as a part of the same company, see opposite ends of the stick when the price for a barrel of crude changes. The best interest of the oil companies depends on how much of their business is at which end of the process. Are they mostly upstream and hurt from low price per barrel or are they mostly downstream and benefit from low price per barrel?

Then there's a cost associated at every step in the refining process between that barrel of crude and usable product.

Then there's the marketing departments at each refinery/company. They do different blending to get different ratios of gas/jet/diesel out of each barrel in order to get the most money out of each barrel of crude. Then on top of that, each company is able to change what market it sells to, based on supply and demand. So you'll see definite regional changes in price based on local demand, sale price of jet, sale price of diesel, etc etc etc etc. There's tons of variables in the equation and if we were able to pinpoint an answer to your question, we'd be getting job offers overflowing our mailboxes from oil companies because they want to know that information also. There's entire business models and complex programs and doctoral thesis involved with predicting these numbers and figuring out how to manipulate them.

[FrugalNinja250]

The price of gas now is significantly higher than it was the last time oil prices were this low, and it's because in this country you can charge whatever you want for what you're selling. There are some market forces that help keep retail prices in line with wholesale costs but in our economy the oil companies have lots of power to minimize those price drops whenever wholesale prices drop. For instance, there are only a few refineries in this country, most if not all are owned by the major producers of crude, and as such there's almost no competitive pressure. It costs over a billion dollars to commission a refinery, a pricetag that keeps every single smaller player out of the business.

Here's a place you can compare crude and refined gasoline prices over the years:

http://www.gasbuddy.com/Charts

Click on Gas Price Charts at the top and proceed from there. Don't forget to check the Show Crude Oil Price checkbox at the lower left. You can also search specific areas by entering zip code or other info in the Area boxes.

[choneofakind]

Only a few?

Try 137 operable refineries in the states:
https://www.eia.gov/dnav/pet/pet_pnp_cap1_dcu_nus_a.htm


The majority of those are connected with a major corporation, like Marathon, Exxon, BP, etc etc. There's some independants around, but they're typically small. Valero comes to mind as a company that only has business in refining, no upstream IIRC

[Rifleman]

well yes to all, but aren't all the other expenses basically constant, or nearly constant? I understand that there is ebb and flow in refineries, regulation, man power, equipment maint and repair... but those are pretty steady. The only real variable in the system is the price of the raw product. You are going to stick $100 a barrel crude in and get $4.oo a gallon gas out. you are going to stick $35.oo a barrel crude into the same refinery and get $1.85 a gallon gas out.

Yes, we keep buying it, but I also keep buying eggs and they don't mysteriously jump 35% in cost in one day.

It just seemed contradictory to have crude close at record lows and gas prices jump $0.30 on the same day.

I suppose it will all even out in the end.

[choneofakind]

No, the sales market varies hugely as well. You've got marketing groups that react and predict the changes and therefore change what is being made at refineries. These changes can be made on a daily basis and have a huge impact on the price at the pump.

So you've not only got the changing variable of crude price going in, you've got the market supply and demand as well as the reactive/predictive nature of the companies who are filling the supply and creating demand. It's a very complicated system of causes and effects. For example, let's say Jet goes way up in cost due to short supply, all else equal. Refineries are flexible enough to make more jet with blending and changes to the process, and therefore less gasoline. This in turn will raise the price of gas until gas becomes profitable enough to be worth the refiner's time to make more gas. That's just one variable. There's tons of variables in the systems used to predict the most optimized breakdown of a single barrel of crude in a refinery. It's not as simple as just looking at the cost of a barrel of crude.

Then on top of that, there's always regional work going on, pipeline sections need repairs, blah blah blah. That all plays into regional price changes as well. Refineries have to trade intermediate feed or feed stock when other equipment or other refineries goes down. Also realize that they get their supply in big batches, it's not always a constant flow, and that's all a function of the pipeline situation. Pipeline shipments are typically made in common pipelines, so a pipeline change effects an entire region of the country, not just a single company.

it's a fascinating system if you get to know it a little bit.

[toEleven]

I'm looking forward to the part where someone offers their dissertation on the effect of hedging, which has thus far gone unmentioned. Futures contracts are only a piece of the game. You guys make me miss undergrad (meaning it was fun and this topic isn't really part of my daily life anymore).

P.S. Since when is Marathon a major? They're pretty small (market cap) by industry standards.

[choneofakind]

They're a good chunk of around here.

[toEleven]

Originally Posted by choneofakind

They're a good chunk of around here.

Okay. I didn't mean to derail the conversation . Please continue!

[cbinker]

oil is sold for futures, not present. IE Crude Oil closing today is for future market in January. you would have to look at the sales back in november to see what is really happening.

[SLOWn60]

Originally Posted by cbinker

oil is sold for futures, not present. IE Crude Oil closing today is for future market in January. you would have to look at the sales back in november to see what is really happening.

So 20 cent gas in the new year?

[cbinker]

Originally Posted by SLOWn60

So 20 cent gas in the new year?

you clearly have no clue about it do you?

[SLOWn60]

Originally Posted by cbinker

you clearly have no clue about it do you?

Not a serious statement. Note the rolling around laughing.
But many would expect if oil is a 1/3 of what it was that gas would be too.
One other factor; its in $/litres to me. We were paying as much as $1.50 CDN a litre. It's dropped to $1.20, not down 2/3. As well; oil is in US$ and the Canuck buck has lost almost 1/3!

The good news is our American cousins can come visit for cheap!

[toEleven]

Originally Posted by Somchai

http://www.bloomberg.com/news/articl...counting-smoke

Probably interesting news for anyone who doesn't invest in the oil and gas industry. I'd expect those who do were well aware of the accounting standards (and Saudi Aramco's obvious strategy), and stock prices reflect that expectation pretty well. "Investors" who weren't aware should probably just burn their money instead of investing it.

Originally Posted by SLOWn60

It's simple: we keep buying it

Inelastic demand! Yay!

[Racer x]

I thought it kept dropping till the next election cycle comes through. Has nothing to do with supply or demand or crude oil prices. Just pure politics.

[verboten1]

Originally Posted by SLOWn60

Not a serious statement. Note the rolling around laughing.
But many would expect if oil is a 1/3 of what it was that gas would be too.
One other factor; its in $/litres to me. We were paying as much as $1.50 CDN a litre. It's dropped to $1.20, not down 2/3. As well; oil is in US$ and the Canuck buck has lost almost 1/3!

The good news is our American cousins can come visit for cheap!

I've seen it as low as $0.99/L in the Windsor Ontario area (across the river from Detroit), Which makes it about $0.75/L for me

[cbinker]

Originally Posted by SLOWn60

Not a serious statement. Note the rolling around laughing.
But many would expect if oil is a 1/3 of what it was that gas would be too.
One other factor; its in $/litres to me. We were paying as much as $1.50 CDN a litre. It's dropped to $1.20, not down 2/3. As well; oil is in US$ and the Canuck buck has lost almost 1/3!

The good news is our American cousins can come visit for cheap!

yeah, I lost a couple hundred USD last month with currency investing on the Canadian.

[toEleven]

At least you're not seeing 40% price hikes at the pump like Saudia Arabia. On the other hand, 40% of really cheap is still really cheap:

In order to address the situation, the Gulf kingdom has set the price of 95 octane gasoline at 0.90 riyals ($0.24) per litre up from 0.60 riyals per litre - a hike of 40 percent. The price increase takes effect on Tuesday, the official SPA news agency said on its Twitter account.

$0.24 ! Outrageous

edit: forgot the article link.