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The Astounding Fuel Price Conundrum

testosteronepit's picture




 

Wolf Richter   www.testosteronepit.com

Republicans have been out in force, trying to tar President Obama with gas prices that are approaching $4 a gallon, and that appear to be shooting for an all-time high into the driving season. But no one has even tried to out-claim Newt Gingrich, who in his desperation claimed that gas would miraculously plunge to $2.50 a gallon if he became President but would hit a world-ending $10 a gallon if Obama stayed in power.

The strategy worked: Obama’s disapproval rating on handling the "situation with gas prices" has reached 65%, and his disapproval rating on the economy as a whole has jumped to 59% over the weekend from 53% in early February.

Meanwhile, oil companies worldwide and our special friends, like Iran, are drooling over these gorgeous prices, while consumers are getting rattled as the cost of a tank of gas is dreadfully close or already beyond their pain threshold. Gallup, which excels at finding irrelevant averages to everything, has found one for the pain threshold as well: $5.30 a gallon, the price at which people would "make significant cutbacks" in spending in other areas. In fact, 17% would do so with gas under $4 (now happening), and an additional 28% would do so with gas between $4 and $4.99. So 45% would cut back significantly in other purchases before gas ever hits $5.

The White House feels the heat—and is fighting back. Already, 85% of the people want Obama and Congress to take "immediate action" to lower gas prices, and 65% actually believe that the government can do so. Consequently, you can’t turn on the TV today without seeing Obama discussing energy.

The White House also released a report that touts energy feats already accomplished or to be accomplished, some as soon as 2025. Many of them are laudable, such as reducing oil imports by a third by, well, 2025—they're already down by a million barrels a day over the last three years. Yet, in the biggest non sequitur of mankind, given that high fuel prices sparked the report in the first place, the report also brags about the refining sector that has become ... a net exporter.

Turns out the place where gas prices tend to be the highest in the nation, San Francisco....

 

March 12, 2012

 

.... is just across the Bay from five major oil refineries that together are the largest exporters of petroleum products in the nation (Brookings Institution, New York Times, March 8, 2012). In 2010, the period of the report, the five refineries exported $7.8 billion in petroleum products, an increase of 10% over prior year. Other refineries on the West Coast have also experienced booming export sales. Last December alone, West Coast refineries exported over one million barrels of gasoline, eight times as much as in 2007.

The Census Bureau's trade report confirms the trend nationwide: in January exports of petroleum products jumped 16.8% to $8.9 billion from December's $7.6 billion, and were up 8.8% from January last year.

Why? Because that’s where the money is. Domestic demand is stagnating. In California, based on data from the State Board of Equalization, which collects taxes on motor fuels, gasoline sales have actually slid 14% from 2006 through last year:

 

People in California—and in many other places—are driving slightly less, and their vehicles are slightly more fuel efficient. It adds up. So we’ve got a little problem—sagging demand—that should push gasoline prices down. But business is business:

 “Our options were to reduce production, lay off workers, close refineries, or find markets for our products," said Tupper Hull, a vice president at the Western States Petroleum Association. And those markets are in Mexico, Brazil, China, and other developing countries where demand for refined petroleum products is growing.

Oil and refined petroleum products are worldwide commodities whose prices are determined by the markets, not Newt Gingrich. Or President Obama. Central banks, however, are another story. They’ve handed trillions to their cronies for the purpose of driving up asset prices. And some of this money has hit oil. For just how helpful this has been, read.... The Fed’s Rain Dance at the Bottom of the Stairs.

As always, consumers pay the price, this time at the pump. They’re already squeezed, particularly those at the lower half of the income spectrum. And people who just finished their higher education, the future of America, are struggling like never before. For the whole fiasco of the costs of higher education, and how they're mauling young people, read.... Next: Bankruptcy for a whole Generation.

 

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Tue, 03/13/2012 - 10:45 | 2250320 Flakmeister
Flakmeister's picture

From Westexas over at TOD:

The WTI crack spread this morning is $32, versus $13 for Brent, a spread of $19, which curiously enough is the current spread between WTI and Brent crude oil prices.

 

The weekly WTI spot crude oil price in the first week of March, 2008 was $103, and the average Midwest gasoline retail price was $3.15.

 

The weekly WTI spot crude oil price in the first week of March, 2012 was $108, and the average Midwest gasoline retail price was $3.82.

 

So, an increase of 12¢ per gallon of WTI crude, from 3/08 to 3/12, corresponded to an increase of 67¢ per gallon of gasoline.

 

Note that from the first week of March, 2008 to the first week of March, 2012, the price of Brent increased from $102 to $125, an increase of 55¢ per gallon of crude.

 

So, are product prices in the Midwest (check out those crack spreads) more closely following WTI or Brent crude oil prices?

Tue, 03/13/2012 - 07:42 | 2249808 Gold Dog
Gold Dog's picture

"The cure for high commidity prices is high comodity prices."

It's illegal to not post your gasoline prices at the station. It's also illegal to post the tax per gallon at the station.

This was one of the first cases of Newspeak in our Brave New World.

Tue, 03/13/2012 - 05:13 | 2249745 blueridgeviews
blueridgeviews's picture

Today's gasoline prices and politics is no different than 4 years ago except for one thing, you can't blame Bush.

Tue, 03/13/2012 - 09:35 | 2250044 Flakmeister
Flakmeister's picture

Right... in fact it is fuelish to blame any president for the price of gas....

Peak oil doesn't care who is in the Whitehouse....

That combined with the print-or-die economic system....

Tue, 03/13/2012 - 04:33 | 2249735 bigwavedave
bigwavedave's picture

I think Obama should sell the remaining Strategic Reserves onto the open market so that China can fill there own reserve at much lower prices. 

Tue, 03/13/2012 - 03:37 | 2249715 AnAnonymous
AnAnonymous's picture

Oil rich countries love the high price.

They love it so much that they welcome the consequence, that is being paid in devalued dollars.

US world order.

Tue, 03/13/2012 - 00:38 | 2249608 taffy
taffy's picture

I realize the shock rising gas prices have on the economy, however being from canada we are paying almost $5 a gallon now. $1.30 per liter x 3.8 liters per US gallon = $4.94. Maybe we're just used to the hot tax poker being shoved up.......

The ironic thing is we produce the most oil ( and have the largest potential) in north america. Yes its expensive to extract, in fact not profitable before $60.00 per barrel. Yes its devistating to the environment, (and the government doesn't care). However, with a much higher tax base, we seem to be weathering the tyrany just fine. The indigeonous people, and wildlife aren't but thats a whole other rant.

Everyone seems to be keeping their nose to the grindstone here, like good little sheeple. I'm sure our fine neighbours will probably do the same, with enough main stream media coverage to keep the people grumbling 

about lesser significant topics like the price of gas, while your constitution contiues to be eroded, and government

engages in unconstitutional wars (with ours licking their boots to join in) because as the secretary of defense

declared, "congress is just ceremonial now". I may be wrong, but I believe there be more important issues on the docket!

Tue, 03/13/2012 - 05:19 | 2249746 FrankDrakman
FrankDrakman's picture

Oh, for pity's sake. Fewer than 500 ducks die in an oil-sands tailing pond, everyone's up in arms, and the oil company pays millions of dollars in fines.

Meanwhile, government subsidized aerial mixmasters slaughter close to 50,000 birds annually, and the enviro-weenies turn a blind eye becaus wind energy is "green".

And red, as in tinged with blood.

 

Tue, 03/13/2012 - 09:32 | 2250040 Flakmeister
Flakmeister's picture

What does this have to due with the price of gas in Amarillo?

Tue, 03/13/2012 - 01:04 | 2249636 Yen Cross
Yen Cross's picture

Taffy? Don't you throw the command switch at the FED?

Mon, 03/12/2012 - 23:12 | 2249480 AndrewCostello
AndrewCostello's picture

I'm not sure why Americans are so uppitty about $4 a gallon....most countries pay twice that.

 

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

Tue, 03/13/2012 - 01:33 | 2249654 FeralSerf
FeralSerf's picture

Americans pay a lot more then $4/gal if you include the costs of her trillion $$$ military that's needed to steal the oil .... uh, I mean protect the ME oil fields.

Tue, 03/13/2012 - 09:44 | 2250078 Flakmeister
Flakmeister's picture

You do forget that same military enables you to exchange pieces of paper of otherwise no intrinsic value for the alpha asset of oil....

How much would oil be otherwise?

Tue, 03/13/2012 - 04:48 | 2249738 Iconoclast
Iconoclast's picture

Bingo, we all pay an indirect tax in order to put a lid on prices for the USA consumer..

Tue, 03/13/2012 - 00:42 | 2249610 taffy
taffy's picture

I suspect you may be canadian. I just want to say you have a great way with words!

Mon, 03/12/2012 - 23:48 | 2249544 Flakmeister
Flakmeister's picture

Manifest destiny and being born with a God-given right to burn as much energy as they like???

Mon, 03/12/2012 - 23:07 | 2249468 Augustus
Augustus's picture

Oil and refined products are certainly worldwide products.  However, when examining the price / supply / demand curves, note the amazing decline in NG prices in the US that have resulted from only about a 5% increase in supply.  O"Bummer has cause about a 4,000,000 bbl per day decrease in world supply.

Defeat him. 

Then Deport him.

Mon, 03/12/2012 - 23:42 | 2249536 Flakmeister
Flakmeister's picture

How so? I am all ears....

Tue, 03/13/2012 - 06:58 | 2249780 krispkritter
krispkritter's picture

So's Obammy...

Mon, 03/12/2012 - 22:59 | 2249422 Flakmeister
Flakmeister's picture

Wow... with a few notable exceptions, the usual claptrap of ideology and energy ignorance...

This is as a good an overview of Keystone as you are going to find...

http://www.csmonitor.com/USA/Politics/2012/0309/Inside-the-Keystone-pipeline-How-much-would-it-really-help-US-consumers

Peak oil combined with a desperate attempt by the OWO (old world order) to keep a busted neo-classic economic model running is a real bitch, ain't it?

Edit: Anyone out there like to have a *real* debate about Keystone??? You know, with numbers and stuff?

Wed, 03/14/2012 - 07:51 | 2253194 DevilsPrinciple
DevilsPrinciple's picture

We avoid debates with the mentally challenged and emotionally crippled here at ZH.

 

I approved this message.

Tue, 03/13/2012 - 02:41 | 2249696 Sathington Willougby
Sathington Willougby's picture

Peak oil is a fantasy perpetuated by dinosaurs.  Show me the geological process that stopped hydrocarbon chains catenating from decomposed organic matter under heat and pressure.  It's inherently sustainable and it is simply solar energy.

Tue, 03/13/2012 - 04:03 | 2249723 John_Coltrane
John_Coltrane's picture

To put it in financial terms its more of an asset/liability duration mismatch problem:  you know, borrowing short (consuming) and lending long (developing new sources in the far future).  Doesn't work with energy any more than it did for bank funding in 2008.  Truly a liquidity problem, eh?  Not enough hydrocarbon liquids but plenty of HCs (LOL) if you're willing to use some other "cheap" energy source to extract them that is.

We owe our HC reserves  more to dead plankton than dinosaurs anyway.

Tue, 03/13/2012 - 09:42 | 2250068 Flakmeister
Flakmeister's picture

Very nicely put....

Tue, 03/13/2012 - 03:31 | 2249714 AnAnonymous
AnAnonymous's picture

Made me laugh.

Before all, show me the geological process that can match US citizen consumption rate.

All in all, human life styles are as sustainable as the sun is.

But somehow, not everybody is equal, and some reach the bottom far, far, far, far, far, far, far, far, far, far, far, faster than others...

Mon, 03/12/2012 - 22:47 | 2249421 ALANBEEKMAN
ALANBEEKMAN's picture

Drill, baby, Drill!

Mon, 03/12/2012 - 22:49 | 2249423 Flakmeister
Flakmeister's picture

The US has been drilled more than a 2 bit whore.....

Tue, 03/13/2012 - 02:18 | 2249682 FeralSerf
FeralSerf's picture

Maybe they can drill deeper.

It's rumoured that BP and RIG can show you where you can drill in the Gulf of Mexico where there's lots of oil -- more oil than you'd know what to do with.

Tue, 03/13/2012 - 06:15 | 2249764 noses
noses's picture

Even with a dick like Long Dong Silver that won't help. It's not size that matters, it's what you would find drilling even deeper. That stuff is hard to suck upward.

 

 

noses.

Tue, 03/13/2012 - 13:32 | 2250916 FeralSerf
FeralSerf's picture

There wasn't any problem "sucking" up that GoM oil.  The reservoir pressure was plenty to get it out.  You can also displace the oil with injected water where it's available.

Mon, 03/12/2012 - 22:39 | 2249397 tlnzz
tlnzz's picture

The export of the glut in gasoline is what keeps running the price up here. I would like to see a hard target set that when regular gasoline gets to $3.50 a gallon here, all exports of gasoline is halted. The "law of supply and demand" is not working because the energy companies are allowed to export the excess that is ever increacing in volume.

Tue, 03/13/2012 - 05:38 | 2249750 disabledvet
disabledvet's picture

it's working perfectly vis a vis economics. there are only two worlds in the economics profession: growth and recession. When prices rise and people keep buying "you are in a growth phase." When prices fall and people stop buying "you are in a recession." The fact that the GOAL is growth doesn't mean you get growth. Indeed the amazing thing is that by devolving "growth" down to a numbers game (as is done on ALL the financial news networks) you end up guaranteeing a "verbal recession" in my view...if not the real thing. Here is a specific example: why do we Americans drive cars that are the size of battle tanks? "The answer is esoteric." And by that i mean "the esoteric always trumps the practical" in a product line that is nothing but utility in the economic sense (ever try and sell your used car? i rest my case.) So what gives? "Because i'm a man and i need ten tons of steal under foot" that's what gives. Ridiculous. HOWEVER! "Growth oriented" indeed. In short "you have to include the human factor" and in so doing "you create waste" and by definition "in waste you have business cycle based upon simple affordability." Ask yourself this: why doesn't austerity work? And of course the answer is the same as to why the Soviet Union collapsed: you have to leave room for "that which we aspire to." In a nutshell "that is growth." In this sense "spending is irrelevant"--"provided you can afford" and most importantly "determine who pays."

Tue, 03/13/2012 - 02:05 | 2249672 surfersd
surfersd's picture

I think you missed the point .... by ...... That Much ...... In your bizarro world of energy somehow the world price of oil is irrelevant. Understand Mr. Pelosi that the crude that the US refiner utilizes to make gasoline, I know you thought gasoline game out of the ground already refined, is set by the world a "supply demand function" . If the refiner doesn't pay the world price then he won't even be able to produce enough gasoline to export (solving your concern regarding exports) unfortunately he will reduce the supply in the US causing those pesky prices to go up no matter what.

Shucks, don't you hate how that happens. You are a pinhead and worse still you vote.

 

 

Mon, 03/12/2012 - 22:54 | 2249433 odatruf
odatruf's picture

I don't think you understand the law of supply and demand...

Tue, 03/13/2012 - 02:13 | 2249676 FeralSerf
FeralSerf's picture

I think he's referring to his supply and his demand that he shouldn't need to pay more than $3.50/gal because he's an American.

If he would just get an auto that got twice the MPGs, then he could pay $5/gal and it would be just like paying $2.50. I wonder if he's thought of that.

Mon, 03/12/2012 - 22:46 | 2249416 Lednbrass
Lednbrass's picture

So when we hit $3.50 (itself highly variable by region) we just close the refineries and lay everyone off instead of the company seeking markets elsewhere because domestic demand is half of what it was a few years ago?

I cant help but think this would have some unpleasant and unintended consequences.

Tue, 03/13/2012 - 00:52 | 2249619 taffy
taffy's picture

canada, pipeline? XXX your government spoke.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mon, 03/12/2012 - 22:35 | 2249385 nah
nah's picture

its the economy stupid

Tue, 03/13/2012 - 05:40 | 2249751 disabledvet
disabledvet's picture

NO! "it's growth in the economy." And for that "you're going to need to be smart."

Mon, 03/12/2012 - 22:30 | 2249375 r101958
r101958's picture

....and yet again, nobody here mentions that oil is a finite resource. It is always something else at fault but definitely not the thing that has been staring at us in the face for the last 20 years.

Tue, 03/13/2012 - 05:48 | 2249754 disabledvet
disabledvet's picture

YES! And yet "the United States is the world's biggest consumer and has some of the world's lowest prices for it." How is this possible? FAILURE come with SUCCESS! There is indeed "a market for oil"...unlike any other product on the planet. How we've ended up with THREE prices for same goo is a FAILURE of policy--in my view not because we need to have "one price" but because "we need to have one LOW price." The left uses oil as a policy goal ("raise the price of oil, force people into public transportation"). BAD idea since public transportation is VERY expensive to begin...and raising the price of oil doesn't make public transportation less so...indeed it may make ANY transportation "prohibitively expensive." I would argue "we need cost reduction first"--and that is an ENGINEERING problem first and foremost and not a "fuel problem" at all. Indeed..."fuel is DIRT CHEAP right now"--yet we are...ahem..."paying up the nose for it." Recession oriented economic policies is why in my view. "Can be fixed at any time" since "you the taxpayer owns Detroit."

Mon, 03/12/2012 - 22:20 | 2249361 hwwesq3
hwwesq3's picture

It's very, very easy to lower gas prices 30-40% in the next month.  The CME did it in 2011 to silver and gold.  Just have the CME/NYMEX raise margins on oil and gas futures, day after day after day and contracts will be dumped in a panic.  Just like they were for silver and gold.  Note that silver and gold haven't recovered yet.  All of this is possible because gas consumption has been falling and falling each of the last two years.

Mon, 03/12/2012 - 23:24 | 2249510 Clinteastwood
Clinteastwood's picture

+++1

Mon, 03/12/2012 - 23:08 | 2249472 Hedgetard55
Hedgetard55's picture

+55

 

Actually if Uncle Ben raised the FFR to 1% that would crash the price of oil back to $40 per barrel in a day (stox and bonds implode also).

Mon, 03/12/2012 - 22:13 | 2249352 Bicycle Repairman
Bicycle Repairman's picture

Thank god, that although all kinds of other markets are rigged, the "global" market for gasoline is a free market.  LOL.

Mon, 03/12/2012 - 21:41 | 2249258 Chuck Walla
Chuck Walla's picture

Gee, Obama could have built the Keystone where we could get oil from nearby friends, but instead chose to continue to get oil from far away enemies. And to think in 2008, he pledged to cut our dependence on Venezuela and the like, yet, when the moment arrived, his re-election was far more important than any stupid pledge.

 

I'm feeling better that he "cares" about me, unless he gets a whiff of a few hundreds, then I'm yesterdays promise.

Mon, 03/12/2012 - 21:33 | 2249252 Hulk
Hulk's picture

Finally, the technical miracle that TMoslely has been waiting for:

http://www.dailymail.co.uk/sciencetech/article-2113539/AIRE-mask-uses-lung-power-charge-mobile-phone.html

Cigarette lighter adapter for the Chevy Volt due out early next year...

Mon, 03/12/2012 - 22:55 | 2249438 Flakmeister
Flakmeister's picture

If it works on hot air TM will be able to unfairly benefit....

Mon, 03/12/2012 - 21:22 | 2249224 adr
adr's picture

Place a massive tariff on exported petroleum products. China wants it, make them pay for it. What is refined in America should stay in America and it is time for protectionism once again. Sure cutting off China will cause big problems with US debt and the resulting default will send America into a massive  decline for a short while. However the infrastructure that still remains in America will allow us to rebuild as long as the zombie banks and the Fed are taken out. Perhaps the default will kill off the bloated federal government as well and allow strong states to rise again.

The state militias would be able to keep out the undesirables from zombie socialist states like California and perhaps we could start going down a better path. If we don't do something drastic now there will be no America worth saving in as little as ten years.

Even with a massive tariff forcing gasoline production to stay in America, there will still be billions of dollars to be made. China at this moment can not refine enough gasoline to fuel their economy. Let Iran and Russia try to build up enough to bail out China if US exports are taken away, it will take years to bring enough refineries online. What will happen is a total collapse in oil prices down to $20 a barrel within weeks so that the tariff imposed price becomes affordable to foreign buyers.

We really don't need the billions in Chinese made consumer goods to run our economy. The garbage really just benefits Wall Street, not the population. Without Chinese crap Americans would be forced to produce goods for our own consumption once again. For a few more years there will still be enough skilled tradesmen left over from the glory days to teach workers how to manufacture again. If we wait to long that knowledge will be lost.

Like Iceland, we need to say FUCK YOU to the rest of the world and realize what is important is the future of our country. Not the health of some multinational bankrupt bank.

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