********: FOXNEWS SAYS STOP WHINNING ABOUT GAS PRICES ?

..so, hows that "supply and demand" thing work again???

Jmh80 says stop whining about gas prices. Go build yourself a Fluid Catalytic Cracker.

Originally Posted by anabolicrhino

********: FOXNEWS SAYS STOP WHINNING ABOUT GAS PRICES ?

..so, hows that "supply and demand" thing work again???

Higher prices at the pump today are a matter of simple economics. U.S. refiners have the ability to churn out 17 million barrels of gasoline per day. Demand is around 22 million barrels per day. To make up the difference, we bring in gasoline from foreign refiners, which means that, at the margins, pump prices are set by import prices. Gasoline, like crude oil, is auctioned worldwide to the highest bidder, and with the dollar weak and overseas economic growth strong because of our fantastic appetite for iPods made in China and T-shirts made in Costa Rica, we have to pay up to keep our supply coming in. And that's all there is to it. With U.S. refinery capacity now at ridiculously low levels due in part to lack of investment in new plants amid harsh environmental rules. because of our environmental rules there has not been a refinery built in the US in the past 30 years and we are only able to access gas in 15% of the outer contentianal shelf. The supply is constrained by us, the American people. people dont want the trade offs of having lower gas. its that simple.

Originally Posted by spunkles182

Higher prices at the pump today are a matter of simple economics. U.S. refiners have the ability to churn out 17 million barrels of gasoline per day. Demand is around 22 million barrels per day. To make up the difference, we bring in gasoline from foreign refiners, which means that, at the margins, pump prices are set by import prices. Gasoline, like crude oil, is auctioned worldwide to the highest bidder, and with the dollar weak and overseas economic growth strong because of our fantastic appetite for iPods made in China and T-shirts made in Costa Rica, we have to pay up to keep our supply coming in. And that's all there is to it. With U.S. refinery capacity now at ridiculously low levels due in part to lack of investment in new plants amid harsh environmental rules. because of our environmental rules there has not been a refinery built in the US in the past 30 years and we are only able to access gas in 15% of the outer contentianal shelf. The supply is constrained by us, the American people. people dont want the trade offs of having lower gas. its that simple.

Oh come on. Don't you know it's evil CEOs with magic powers like Skeletor to over ride markets that keep prices high? Sheesh, I thought that was common knowledge...

Spunkles - good response - reps.

But - you forgot to mention one of the big problems this spring has been maintenance that has extended into the summer driving season (most is completed in the fall and spring).

I attribute that to refiners running flat out since, basically, Katrina/Rita to meet the demand (and were told that by the government).
Equipment will foul up/fail if you don't maintain it. It's like your car.

The other portion of this is labor. Companies are having trouble finding guys to weld, fix equipment, and engineers to design fixes.
The labor pool since Katrina of folks with any knowledge of petrochemical plants has really shrunk. Companies have had real trouble staffing up for maintenance times. That has caused them to string further out in the driving season.
(Plus - time to build steel components has increased also - due to the squeeze on engineering design firms and steel availability.)

I do think refiners aren't totally without blame. The concept of "pay me now - pay me a lot later" is often lost when chasing profits (relative to proper maintenance intervals).

Originally Posted by jmh80

Spunkles - good response - reps.

But - you forgot to mention one of the big problems this spring has been maintenance that has extended into the summer driving season (most is completed in the fall and spring).

I attribute that to refiners running flat out since, basically, Katrina/Rita to meet the demand (and were told that by the government).
Equipment will foul up/fail if you don't maintain it. It's like your car.

The other portion of this is labor. Companies are having trouble finding guys to weld, fix equipment, and engineers to design fixes.
The labor pool since Katrina of folks with any knowledge of petrochemical plants has really shrunk. Companies have had real trouble staffing up for maintenance times. That has caused them to string further out in the driving season.
(Plus - time to build steel components has increased also - due to the squeeze on engineering design firms and steel availability.)

I do think refiners aren't totally without blame. The concept of "pay me now - pay me a lot later" is often lost when chasing profits (relative to proper maintenance intervals).

well part of the maintenance is for the government mandated "summer blend" of gasoline. the oil refineries actually have to shut down temporarily to switch the whole refinery over to the new blend. summer blends can cost between 3 to 15 cents more to produce than winter blends and then add on the cost of switching over all of the gas stations in the country to the new blends as well.

oil companies make so much profits becuase they sell a heck of alot of units. even with the price rising the profit margin of oil compaines has stayed relatively the same of exon mobile is 10% and compare that with citibank 18%, 3M is 19%, and microsoft was 31%... I dont hear anyone complaining that citibank, 3m or microsoft are making too much profits.

Originally Posted by spunkles182

well part of the maintenance is for the government mandated "summer blend" of gasoline. the oil refineries actually have to shut down temporarily to switch the whole refinery over to the new blend. summer blends can cost between 3 to 15 cents more to produce than winter blends and then add on the cost of switching over all of the gas stations in the country to the new blends as well.

oil companies make so much profits becuase they sell a heck of alot of units. even with the price rising the profit margin of oil compaines has stayed relatively the same of exon mobile is 10% and compare that with citibank 18%, 3M is 19%, and microsoft was 31%... I dont hear anyone complaining that citibank, 3m or microsoft are making too much profits.

You seem to have a bit of insight to how this system works.

Remember the Summer of 2006 when gas prices peaked around mid July, then slowly drifted downward toward the Fall ?

What economic factors cause this ?

Thanks!

If I recall correctly there was a mild autumn that year and then winter it all at once, so inventories were climbing for a while and then demand started to rise again.

Originally Posted by spunkles182

Higher prices at the pump today are a matter of simple economics. U.S. refiners have the ability to churn out 17 million barrels of gasoline per day. Demand is around 22 million barrels per day. To make up the difference, we bring in gasoline from foreign refiners, which means that, at the margins, pump prices are set by import prices. Gasoline, like crude oil, is auctioned worldwide to the highest bidder, and with the dollar weak and overseas economic growth strong because of our fantastic appetite for iPods made in China and T-shirts made in Costa Rica, we have to pay up to keep our supply coming in. And that's all there is to it. With U.S. refinery capacity now at ridiculously low levels due in part to lack of investment in new plants amid harsh environmental rules. because of our environmental rules there has not been a refinery built in the US in the past 30 years and we are only able to access gas in 15% of the outer contentianal shelf. The supply is constrained by us, the American people. people dont want the trade offs of having lower gas. its that simple.

Bingo!!

Originally Posted by anabolicrhino

You seem to have a bit of insight to how this system works.

Remember the Summer of 2006 when gas prices peaked around mid July, then slowly drifted downward toward the Fall ?

What economic factors cause this ?

Thanks!

doesn't it always go up in the summer due to increased demand because of summer travel and such? that's the impression that i always had, could be wrong though

The current supply and demand situation is exacerbated by the fact that there appears to be little if any "price elasticity of demand" for gasoline in the current market. For many products, there is a price point at which consumers are no longer willing to purchase and demand falls triggering a corresponding fall in prices. Currently gasoline prices appear to be relatively inelastic. Consumers have not been willing to decrease their demand for gasoline in the face of rising prices, hence a continuing lack of suppy with little market correction in the form of decreased consumption. This market environment tends to keep prices at relatively high levels and supplies tight.

As spunkles182 mentioned, not only do we import oil to be refined here, we also are importing refined GASOLINE. Very inefficient and cost ineffective.

I would be interested in getting other's opinions on Ethanol as any sort of a viable alternative for the U.S. My personal opinion is that though it works great for Brazil, we here do not have the same readily available arable land for the clutivation of Corn for ethanol production. Currently, any corn used in the production of ethanol competes against the demand for corn as foodstuffs. I think it is a blind alley for us as any sort of a significant solution. In limited quantities similar to what exists now it is a pretty good deal for farmers financially. But corn prices for all consumers will be placed under significant upward pressure if demand increases significantly for fuel ethanol.

My 2 cents.

We are still very lucky compared to Europe on our gas prices. It is around $5/gallon over there.

Originally Posted by Jumper

The current supply and demand situation is exacerbated by the fact that there appears to be little if any "price elasticity of demand" for gasoline in the current market. For many products, there is a price point at which consumers are no longer willing to purchase and demand falls triggering a corresponding fall in prices. Currently gasoline prices appear to be relatively inelastic. Consumers have not been willing to decrease their demand for gasoline in the face of rising prices, hence a continuing lack of suppy with little market correction in the form of decreased consumption. This market environment tends to keep prices at relatively high levels and supplies tight.

All prices are elastic. For something as relied upon and essential as oil and gas have become, not to mention the subsidization that has kept prices low for quite some time, inelasticity does result. But there still is a price at which people will start responding. It's just likely very high at this point.

I would be interested in getting other's opinions on Ethanol as any sort of a viable alternative for the U.S. My personal opinion is that though it works great for Brazil, we here do not have the same readily available arable land for the clutivation of Corn for ethanol production. Currently, any corn used in the production of ethanol competes against the demand for corn as foodstuffs. I think it is a blind alley for us as any sort of a significant solution. In limited quantities similar to what exists now it is a pretty good deal for farmers financially. But corn prices for all consumers will be placed under significant upward pressure if demand increases significantly for fuel ethanol.

My 2 cents.

We don't need the arable land, we just need the ethanol. Whether growing it elsewhere and transporting it is a viable future option I don't know, right now alternatives require oil for their creation and transport. My guess is oil/gas will slowly but surely be replaced at the consumer level with ethanol and other alternatives, with oil/gas being used for higher valued ends like transporting and creating the alternatives, large scale transportation of other goods. And, perhaps eventually, the alternatives will even replace oil/gas further up the structure of production.

The real interesting thing is it's likely we're looking at heavily subsidized economies of scale through the use of oil/gas. Which means once those dive on the consumer level production ramps down in many areas and becomes more localized than it is currently. That will definitely be an adjustment for some industries and for consumers.

Originally Posted by Rodja

We are still very lucky compared to Europe on our gas prices. It is around $5/gallon over there.

true, but about 60% of that is taxes. they then use those revenues to subsidize public transportation. i dont agree with that at all.

Originally Posted by spunkles182

well part of the maintenance is for the government mandated "summer blend" of gasoline. the oil refineries actually have to shut down temporarily to switch the whole refinery over to the new blend. summer blends can cost between 3 to 15 cents more to produce than winter blends and then add on the cost of switching over all of the gas stations in the country to the new blends as well.

oil companies make so much profits becuase they sell a heck of alot of units. even with the price rising the profit margin of oil compaines has stayed relatively the same of exon mobile is 10% and compare that with citibank 18%, 3M is 19%, and microsoft was 31%... I dont hear anyone complaining that citibank, 3m or microsoft are making too much profits.

Shhhh - I work for one of the biggest petrochemical complexes in the US.

As far as I know - you don't have to necessarily shut down the whole refinery to go to a lower RVP blend....

Originally Posted by anabolicrhino

You seem to have a bit of insight to how this system works.

Remember the Summer of 2006 when gas prices peaked around mid July, then slowly drifted downward toward the Fall ?

What economic factors cause this ?

Thanks!

Demand Rhino.

Joe Schmoe takes his family to wherever for the summer vacation (multiplied by a few million) - you get the drift.

Prices always rise in the summer due to demand and fall in the winter. The degree of the fall depends on how mild the winter is (as CDB said).

alright guys all of your arguments and responses are well supported but can anyone explain to me why gas prices DOUBLED in less than a year? along with oil company profits?

There is another reason gas prices increase during the summer. Different EPA regs on gas.

well sometimes ill smoke some angel dust and fly from place to place. and little pink ponies will come with me.

Originally Posted by jomi822

alright guys all of your arguments and responses are well supported but can anyone explain to me why gas prices DOUBLED in less than a year? along with oil company profits?

Once more, it's called supply vs demand, and the price equilibrates the two.

Originally Posted by CDB

Once more, it's called supply vs demand, and the price equilibrates the two.

so worldwide consumption of gas DOUBLED in one year? hence the price doubled?.....hence oil company profits doubled?

Originally Posted by jomi822

so worldwide consumption of gas DOUBLED in one year? hence the price doubled?.....hence oil company profits doubled?

oil company profits doubled??? just looking at exxon from year 2005 to year 2006 profits went up 9.4%. thats far from doubling.

exxons profits also went down 10% from qtr 4 2006 to qtr 1 2007. they had 1billion dollars less in profits during that time. this was from a warm winter and lower sales from lower demand, just like CDB said.

its easy information to get. just look at their income statement.

Originally Posted by jmh80

Demand Rhino.

Joe Schmoe takes his family to wherever for the summer vacation (multiplied by a few million) - you get the drift.

Prices always rise in the summer due to demand and fall in the winter. The degree of the fall depends on how mild the winter is (as CDB said).

So, Joe Schmoe's two week family vacation expends more fuel than Joe schmoes daily, two way weekly commute?

If this is the cyclical event that happens every summer why not increase production ahead of demand to keep prices stable?

Its just smart business if the oil companies want to make to make a profit by the manipulation of the supply in order to create a rise in price, but why all the speculation ?

Originally Posted by CDB

Once more, it's called supply vs demand, and the price equilibrates the two.

equilibrates

This supply/ demand thing works in the vacuum of an economics class, but there is no real world equilibrium.

The market sets the price as to what ever it can bear.

The only equilibrium is the JOHN NASH EQUILIBRIUM ...which is also know as the "f*ck you buddy" economic theory.

The only equilibrium is the balance between the highest price per unit that can be charged for the maximum amount units sold. The point at which the any higher price deters the sale of any more units per market becomes the market price.

...as Tony "scarface" Montana used to say "Never underestimate the other guys greed" !

Originally Posted by jomi822

so worldwide consumption of gas DOUBLED in one year? hence the price doubled?.....hence oil company profits doubled?

What makes you think the relationship is linear? Demand could go up slightly and price can triple. There is no mathetmatical relationship between the two, it's a subjective valuation on both the seller's and buyer's part. Generally the price adjusts so markets clear. Prices can be sticky upward and downward as well depending on other factors. It's not as simple as twice demand equals twice the price.

Originally Posted by anabolicrhino

equilibrates

This supply/ demand thing works in the vacuum of an economics class, but there is no real world equilibrium.

The market sets the price as to what ever it can bear.

Yeah, that's called equillibrating supply and demand so markets clear...

The only equilibrium is the JOHN NASH EQUILIBRIUM ...which is also know as the "f*ck you buddy" economic theory.

Actually equillibrium is a theoretical state of no uncertainty called the evenly rotating economy, and it has nothing to do with prices 'equillibrating' supply and demand. Once more you're letting your basic knowledge of the matter lead you into areas you think you know but actually don't.

The only equilibrium is the balance between the highest price per unit that can be charged for the maximum amount units sold. The point at which the any higher price deters the sale of any more units per market becomes the market price.

...as Tony "scarface" Montana used to say "Never underestimate the other guys greed" !

Congratulations, you just discovered marginal utility. However the sellers have margins too. Prices are formed through buyer and seller interaction, not solely on one side or the other.

Originally Posted by anabolicrhino

...as Tony "scarface" Montana used to say "Never underestimate the other guys greed" !

Lopez said that, not Tony.

"never underestimate ... the OTHER GUY'S greeeed! HAHAHAHAHAHA!"

Originally Posted by anabolicrhino

So, Joe Schmoe's two week family vacation expends more fuel than Joe schmoes daily, two way weekly commute?

If this is the cyclical event that happens every summer why not increase production ahead of demand to keep prices stable?

Its just smart business if the oil companies want to make to make a profit by the manipulation of the supply in order to create a rise in price, but why all the speculation ?

yes. for my 4 day vacation i am driving 600 miles round trip. and for my weekly commute i drive about 150 to 200 miles a week.

and we are already are over 100% production. we cant produce anymore and have to buy on the open market. re-read post #3.

Oil companies want to please there shareholders. If company XYZ makes $500m one year and $490 the next year their share price will drop. Prices go up to keep the profits up and the bubbly flowing at the annual shareholders meeting. And the governement likes the prices going up as their cut gets bigger and bigger.

Originally Posted by Australian made

Oil companies want to please there shareholders. If company XYZ makes $500m one year and $490 the next year their share price will drop. Prices go up to keep the profits up and the bubbly flowing at the annual shareholders meeting. And the governement likes the prices going up as their cut gets bigger and bigger.

A higher price does not equate to a higher profit. In fact depending on various factors such as demand elasticity it can lead to lower profits.