F**cking Gas Prices

[not_big_enuf]

what's this speed limit you speak of?

[jmh80]

Risk - the crack spread I hear of is the difference between sending a molecule to motor gasoline (or diesel, etc) and to a steam cracker.

What spread are you speaking of?

[riskarb]

Risk - the crack spread I hear of is the difference between sending a molecule to motor gasoline (or diesel, etc) and to a steam cracker.

What spread are you speaking of?

The futures relationship between the crude and reduced-distillates. There is a loose triangular-arbitrage relationship which is followed in the crude/UG/HO markets. The Crude and distallates normally stay within a tight-oscillator. The current volatility notwithstanding.

[ss01]

Price controls have a much higher tendency to do strange things to the economy. Rapid, pronounced rises in prices of any commodity are almost always the result of government meddling in the market, and it's pretty strange to think that the people/entity that caused the problem have the know-how on the best way to fix it. Further meddling always makes the problem worse in the long and short term.

Just keep that in mind.

I agree totally bro. Although the oil market is toyed around with by an "entity" or whatever you want to call whoever is doing this. The price of oil is NOT going down. Not soon, not by much. When it does, it will be just part way back, and then it'll slowly creep up again. And then again. This is another oil shock. Inflation will rise. So will interest rates. With the current debt load, be it consumer, corporate or national, many people will undergo a great deal of pressure. IOW: If you have debt, refinance now for longer-term at the best rate you can get and PAY IT DOWN because anyone who doesn't do that will end up in deep sh**.

But then again, I'm just a black chick with half a shell for a hat, so what could I possibly know?

[CDB]

I agree totally bro. Although the oil market is toyed around with by an "entity" or whatever you want to call whoever is doing this. The price of oil is NOT going down. Not soon, not by much. When it does, it will be just part way back, and then it'll slowly creep up again. And then again. This is another oil shock. Inflation will rise. So will interest rates. With the current debt load, be it consumer, corporate or national, many people will undergo a great deal of pressure. IOW: If you have debt, refinance now for longer-term at the best rate you can get and PAY IT DOWN because anyone who doesn't do that will end up in deep sh**.

But then again, I'm just a black chick with half a shell for a hat, so what could I possibly know?

If you look at the price adjusted for inflation, other than temporary shocks like this it's gone down fairly steadily over the years. Resource prices tend to do this, but then that's long term over decades of time. What will most likely lead to the price staying at this level or rising more is increased demand from other economies in the world. It's at times like these people should pray for the socialist tendencies in those countries to crack down on the private market and stunt or stop growth. More for us then.

[jmh80]

Risk,
So, the crack spread is the profit of a barrel of crude refined into distillate products only (I think C8's and heavier). So this doesn't take into account naptha production (C5-C8)?

I'm also assuming it doesn't take into account the lights (C4's and ligher).

[riskarb]

Risk,
So, the crack spread is the profit of a barrel of crude refined into distillate products only (I think C8's and heavier). So this doesn't take into account naptha production (C5-C8)?

I'm also assuming it doesn't take into account the lights (C4's and ligher).

Right on all counts. This is the crack that traders are concerned with and which they base their regressions.

[jmh80]

How odd. So, it doesn't take into account some of the biggest components in the motor gasoline pool (naptha) nor the MTBE production from the isobutylene (C4) that is a huge upgrade for RVP and octane in the pool.
Also doesn't take into account of ethylene and propylene recovery (for polymer make and alkylation).

I'm really confused as to why such the limited view of a refinery.

[riskarb]

Due to the fact that the interest is limited to futures contracts. Since the other distillates only trade OTC or in their respective cash markets, and not in the futures exch., there is no need to make the calcs. The CL/UG/HO crack is of great interest to futures-spreaders/traders.

[CROWLER]

True, but to be blunt opinions don't matter in the face of reality. If someone would rather have a shortage so long as the prices aren't allowed to rise that's one thing. Denying the reality that price controls cause shortages is another thing entirely. It is basically disregarding reality.


Yes, that's the point. I don't think just because a majority of people don't get that means it has to be said as anything less than a statment of plain fact.

What is your definition of reality

[CROWLER]

True, but to be blunt opinions don't matter in the face of reality. If someone would rather have a shortage so long as the prices aren't allowed to rise that's one thing. Denying the reality that price controls cause shortages is another thing entirely. It is basically disregarding reality.


Yes, that's the point. I don't think just because a majority of people don't get that means it has to be said as anything less than a statment of plain fact.

You keep talking about reality.

The reality is over 400 gas stations in FL are being fined for price gouging.


CROWLER

[toughchick401]

Where I am from it went up to 3.25 a gal and is now back to 2.35 a gal! Thankfully

[kwyckemynd00]

You keep talking about reality.

The reality is over 400 gas stations in FL are being fined for price gouging.


CROWLER

I hope those fines make their way over here. I'm still paying $2.90 per gallon

[CDB]

You keep talking about reality.

The reality is over 400 gas stations in FL are being fined for price gouging.


CROWLER

The reality is way more than 400 people are busted for steroid use, possession and sale every year. Maybe every day. That's reality, but it doesn't make it right.

What is your definition of reality

I think Phil Dick said it was defined this way: Reality is that which doesn't go away when you ignore it.

Whether the government arrests people for gouging or not doesn't change the fact that 'gouging' is what people do in the market every day: charge the highest price possible in the given market conditions. If the price rise is justified a shortage is prevented. If it's not the people who raised their prices too high will lose business to those who didn't. Either way the market works the way it should.

Gee, there's a labor shortage in New Orleans right now. I hear Burger King has had to start offerring cash bonuses of 6000 dollars or so if people work there a year just to get workers. Gee, the supply of workers is down, so the price of labor went up ridiculously compared to what it was before the hurricane. Are the workers gouging Burger King? Under the circumstances wouldn't it be more reasonable for previous workers just to come back and work for their previous wages? By your logic any worker who accepted that offer should be arrested and charged with gouging. By mine the price rise in labor is perfectly justified given the relative shortage.

Not to mention people should be able to sell their labor and their property for whatever price they damn well see fit. Just like any gas station owner should be able to sell his wares for any price he damn well sees fit. It's his. He assumes the risks, he negotiates the contracts, he runs the station, he gets people to work there, he keeps the tanks full, he deals with the accounting, he makes all the decisions and he should get the rewards and pay the consequences of those decisions. It's his ass on the line, not yours or mine or anyone else's, and it takes a lot of nerve couple with little knowledge about economics to say otherwise. My guess is you wouldn't be so high on the gun about gouging if you were selling something and market conditions allowed or even forced you to set prices higher.

Gee, are the supplement companies gouging when they offer a product at a much higher price until duplicates show up, and only lowering it then? Would you deny DS, ALRI, USP Labs or any of those people the right to charge what they want for their own products? Should we report them and have them arrested? You are always paying the highest price possible, period. When market conditions change in an extreme way that price can change in an extreme way. I don't see anyone complaining when a surplus forces prices down. I don't see anyone complaining that the price of computers has fallen dramatically since their introduction onto the market. I don't see anyone complaining about the availability of sub 20,000 cars these days. I don't see anyone complaing about 0 percet car loans when they're available. I don't see them complaining when mortgages are offerred at super low rates. Sounds to me like people already do know and enjoy the other side of the supply/demand coin, and only complain when they find life inconvenient.

Fact: price controls cause shortages. This is basic, in every economic text book that covers the subject. It's not a debatable point, any more than saying taking certain steroids causes muscle growth when you eat and train right is debatable. And as Dick said, you can ignore it but that doesn't mean it's going to go away. That to me, is reality.

[kwyckemynd00]

I see where you're coming from CDB. I know a lot of the worry after Katrina was that the Fed would put a cap on the inudstry, and hold it for too long, and cause major crisis.

[CDB]

I see where you're coming from CDB. I know a lot of the worry after Katrina was that the Fed would put a cap on the inudstry, and hold it for too long, and cause major crisis.

The was a worry. But the industry is so screwed up in so many different ways, most of them interventions by government at all levels to try and ensure as much energy as cheaply as possible is available. The mistake in that is future allocation, one of the markets primary functions, gows down or gets put on hold altogether. Which means everytime a mouse farts prices could go through the roof, or if they get capped we could get a nice shortage to live with.

[Grunt76]

Here in Canada most oil companies reported quarterly earnings over 50% above same Q last year. Strange, isn't it?

[BigVrunga]

Gas prices are never going to go back down. Its good to see that private industry is finally starting to take action. Look at all the new Hybrid vehicles coming out...not only from Toyota but from nearly all major auto manufacturers. I just read today that an energy company in Texas is planning on getting a new-technology windmill farm up and operational by 2010.

With all these 3rd world countries entering the equivalent of their industrial revolutions, America had better be leading the charge for alternative energy. Sooner or later, even greaseback politicians are going to have to think about the future before their bank accounts.

BV

[jmh80]

Pretty simple.

[CDB]

With all these 3rd world countries entering the equivalent of their industrial revolutions, America had better be leading the charge for alternative energy. Sooner or later, even greaseback politicians are going to have to think about the future before their bank accounts.

BV

Which is why I'm tempted to say thank God for the price rise. Despite the best attempts to subsidize the process, the price rise in energy is the only thing that's going to make alternatives more viable.