Less Oil Production and Higher Gasoline Prices, Why?
Why Less Oil Production and Higher Gasoline Prices?
I mean the obvious answer is Demand is outstripping Supply. Oil companies and refineries are not the charitable type either. No oil/natural gas pipeline would have helped either.
Digby had the answer up on Hullabaloo (15th) which I read first so credit goes there first. Digby did reference Dean Baker at CEPR (14th) which I am reading right now to add his comments momentarily. And we do have our own experts at Angry Bear in the form of New Deal Democrat and RJS. Both offer excellent commentary and detail on oil and gasoline manufacture and production.
Anyway, here is the story from CEPR:
Trump demanded that Saudi Arabia cut back production back in 2020. According to Trump, he worked out a deal where OPEC producers would all agree to reduce their output. The reason we now have high oil prices is that they have not returned their production to pre-pandemic levels. Hey, by the media’s standards of what makes a politician responsible for an event in the world, this is practically airtight.
It’s more than a bit bizarre that Donald Trump literally boasted about getting oil producers to cut production, but somehow President Biden is held responsible for high gas prices.
I find it very easy to imagine that Trump and Jared persuaded the Saudis to do this for this very purpose.
I wonder why Democrats aren’t pointing this out?
“High Gas Prices Are Donald Trump’s Fault” – Center for Economic and Policy Research (cepr.net)
“Who caused high gas prices?” – Digby’s Hullabaloo (digbysblog.net)
Was it that long ago that we had oil tankers serving as floating storage? Oil shortages, new production, oil glut, production slowdown seems to be a recurring theme. And the prices go up and down again, and repeat. The first one I remember was the oil embargo when Nixon was president.
Covid-19 was a shock no one expected. Sudden demand drop and now a surging demand as people try to make up for years of not going. Prices would rise even without production cuts, just like they always do before long weekends. And we have seen just how stupid things can get when you don’t cut production when there is a surplus of oil.
I thought the goal was to match production and demand such that a slight excess of demand would allow a slow steady increase in prices. It seemed to work that way for a long time, at least from the consumer point of view.
Is going to MTO auto meant to cut inventory costs or maximize prices? I can remember oil refining being as high as 95% too. If people would drive the speed limit gasoline usage would drop as I wrote previously and prices decrease That Biden is being blamed for this increase in prices (which is down in many places) is ridiculous . . . malicious.
I would probably use malicious instead of ridiculous.
we have had what must be as bad a backwardation in the oil futures markets as we’ve ever had…right now, the contract for May 22 oil is at $106.98; the contract for May 2023 oil is at $92.62 a barrel
the one year price spread has been backward, in the $20 range, for several months now….as a practical matter, that spread means that no one wants to hold oil today that will be worth less tomorrow….ie, who in their right mind would pay a $107 a barrel to store oil on a tanker today when it’s expected to be worth less than $93 a barrel a year from now?
Does the nation make a profit when it releases oil from the SPR? Does it take a loss when it pays more for oil than what it is worth a couple of months later? Has the release of oil from the SPR served a purpose today? Are we supposed to consider profits and losses when considering national security?
i don’t know the specs on the current 1 million per day release, run, but i’d have to assume there’s a profit involved, because they aren’t just going to give that oil away, and prices were lower when they filled it….but past SPR releases have involved loans, with the company taking the oil from the SPR after a hurricane for instance expected to eventually return a like quantity once their related Gulf production is restored…
the White House press release provided few details, but my guess is this 1 million bpd release is meant to offset the loss of Russian oil, both for the US and Europe…remember that the administration’s first frantic moves were to try to get Venezuelan oil and even Iranian oil back on the market to cover that? recall that Russian Urals is a medium heavy sour crude, and for refineries that were built to use that crude, one has to find an equivalent grade to replace it, or do some expensive blending of other grades to match it…the SPR is 60% heavier grades, so i’m assuming that’s why they’re pulling it out…most oil we get from shale is sweet and light, typically more expensive, but worthless when one is trying to replace Russian oil losses..
My questions were for a reason.
Are you old enough to remember the first time the Saudis were holding our feet to the fire? I think they were surprised at our reaction. I do not believe they expected us to cave. We did and the rest is history.
After all we released and “you” said we are going to release 6-months more of oil. It is strategic inventory and planning. We didn’t go to China and asked for more or any place else. It did not come over by boat. We pulled this out of reservoirs.
What would the cost have been if we did not have it? An economy that was collapsing and a bunch of idiots running about in their too-big, too-often, too-fast, and too-noisy Raptors and Rams whining about their freedoms.
Hey, the plan worked and we need to fill that reservoir up again for when the Saudis again try to screw us over. The cost is insignificant when compared to the US economy collapsing.
What I am trying to say (badly) is this is all as it ever was, for my lifetime at least. Regardless of the actuality, the media will blame the president, and if he is a Democrat, he will get far more public blame than if he were a Republican. If the problem is generated by GOP actions of policy (e.g. Trump demanding production cuts) it still won’t matter, because that will be conveniently forgotten when the story of high prices is told.
Reason and logic do not apply to anything anymore, for a large percentage of the people. All the reports and analysis will be looked at by people concerned with the reality of the situation, but they are a tiny minority who can easily be ignored. Fact and fiction are now interchangeable on the cable news, and increasingly on the nightly news.
And the general public still believes that they are being gouged somehow on the price of gas.
Hmmm. If less petroleum is being produced, it follows that less ‘petrol’/gasoline will be sold, and less revenue generated. The way to product the same (if not more) revenue under such circumstances, it would seem that fuel prices have to increase. The reality these days seems to be that if even a hint of scarcity appears, fuel prices fuel prices have to go up, to keep Big Oil happy. Fu** ’em. Drive less!
first thing i noticed on that article was the date – April 30 2020…US WTI oil prices had just gone to negative $40 a barrel as everyone kept producing despite global Covid lockdowns, & we had so much oil piling up at Cushing OK they virtually had to pay buyers to haul it away…
since then the Saudi / Russian led cartel has kept global oil supplies limited and driven up prices….i just sent you my writeup on the latest OPEC report, which covers that whole bloody history and all their agreements to cut supplies, run…& it’s already posted at the usual place…
I will read your info again. This is supply chain stuff mingled with politics and business. On my second cup of coffee.
Thanks for the additional information.
run, here’s my paragraph, sans about 20 links, on the Russian/OPEC production cut agreement sequence that is included with my writeup on the OPEC March oil market report…for context, global production was around 100 million barrels per day, so they start out by removing 10% of the oil from the market…
Did you ever think of using paragraphs two, three, or four and make this really, really good. You have some great stuff here. If I had not been writing on this stuff a decade or so ago, I would be lost somewhat.
I am a numbers guy. I see manufacturing material flows, cost model parts, and make supply chains work. One of my bosses told my youngest sun that when I told my boss something and after I left, he would look it up to see if I was correct. The Germans and Japanese never screwed with me and the Koreans would lie to me (which I knew).
You have a good conversation going on here. Keep it up.
On 06 April 2022, executives from BP, Shell, Chevron, ExxonMobil, … were called before the House Oversight Committee in re the current high gas prices. They all pleaded innocent to the charges that their companies were gouging consumers; placing the blame for the increases on the laws of economics, which of course aren’t really laws at all. Insisted that supply and demand, sometimes called ‘the market’, not them, dictated the price of gasoline. Which, too, of course, was a lie. Supply and demand, and ‘the market’, are but figments of economists’ imagination. In reality, it was that old ‘whatever the market will bear’ rule and greed that were at play, with, perhaps, a little price elasticity thrown in. Whatever the market will bear is the time-tested, market-approved way of determining prices wherein the price of a product or service is increased until profitability declines, then lowered to find the profitability sweet spot. At best, the supply and demand curve can be used to explain the after the fact of it all; maybe.
(w/ sincerest apologies to Congresswoman Katie Porter, CA)
—In billions —
Total Profits = (Profit/Unit Sold) x Units Sold
Total Profits = $2/gal x 100 = $200
Let’s say that the cost of crude oil makes up 60% of the price of a gallon of gasoline. If on January 22, the average price at the pump was $3.32 /gal and crude went up 21% we would expect the cost of producing a gallon to go from (0.60 x $3.32 = $1.99/ gal) to $1.99/gal x 1.21 = $2.40/gal; an increase of $0.41/gal. We would expect the price at the pump to go to ($3.32 +$0.41 = $3.73/gal. In actuality, the price went to $4.32/gal and stayed even after the price of crude went down 15%. That’s excess profits of at least $0.59/gal x 11 billion gals/month = $6 billion dollars/mo extra profits these companies are extracting from consumers’ pockets at a time when consumers are being asked to sacrifice for the sake of Ukraine, the Nation. They increased dividends and bought back shares with the profits while consumers sacrificed.
Don’t say there is nothing /Congress can do. Within the week after the hearings, the pump price of gasoline was down $0.20/gal.
the oil companies were accurate in what they told Congress, Ken; they have little control over prices for oil, gasoline, natural gas, or any other products they’re involved in; those prices are set on NYMEX in New York, where the daily electronic trading of oil contracts exceeds the physical movement of oil around the country by a hundredfold…
oil companies are price takers, just like farmers have to take whatever the price is for their corn or soybeans that’s been set on the commodity exchanges…
the congressional hearings were great theater, but i really hope they weren’t evidence of complete ignorance on the part of the congresscritters as to how the energy markets work..
btw, markets work both ways; here’s the most recent Haynes & Boone Oil Patch Bankruptcy Monitor:
there were over 250 oil and gas bankruptcies in the six years the report covers, most circa 2015-16 after OPEC flooded the markets with oil to try to put shale out of business, & then again in 2020, after the Covid lockdowns drove oil market prices below $0
Ken, i got carried away on addressing the price of oil in this comment, which is what the rest of the thread was about, and neglected to address retail pump prices….but i came back later and added the comment below with data from the PPI, ie.,”seasonally adjusted margins for fuels and lubricants retailers rose 22.7%” so yes, there was some profiteering on the retail side…which begs the question (for me anyhow) is how many retail outlets are company owned…google leads me to what’s admittedly a biased source:
but i assume that’s close to correct…so for the most part, big oil was not profiting from that March mark-up at retail…
i assume Katie Porter’s math on oil vs gasoline is accurate (btw, i was reading following Porter a dozen years ago when she was blogging with Elizabeth Warren on “Credit Slips”, which is still going strong)…to find out what all was behind all of that, one would have to check the NYMEX prices for gasoline and oil on the dates given (those prices don’t necessarily move in tandem), a chore i’m not about to undertake right now… but even if none of that gasoline price increase was related to retail, it wasn’t the oil companies doing…are oil companies making obscene profits? sure they are. so tax those profits and distribute the proceeds to those who need to drive to work…but don’t blame the oil companies, or Trump, or Biden, or even Putin for something that is Wall Street’s doing (and the fault of other international markets)…it’s like i tell my dog, you’ll never catch that squirrel if you’re barking up the wrong tree…
Thanks, rjs. Had me worried. BTW, that was me pretending to be Katie. I’m not nearly as good, but looks to me like the gouging was at the refineries; will do a little more research. I think that with the volume down, the stations may have been making less.
The rack price for refined product is one of the key wholesale price points in the fuel supply chain.
The rack price is the price of gasoline or diesel, loaded onto a truck at the distribution terminal, ready for delivery to end users or retail stations.
The rack price embeds all of the costs and margins of supplying fuel from the terminal, including terminal fees, final blending with ethanol (if done), cost of additive packages, and contract premiums/discounts specific to individual supply contracts (e.g., branded vs unbranded).
Just how much do oil refiners make in California? Only the owners of the five refineries in the state know.
They control 96% of gasoline sold in California, according to the California Energy Commission. But every driver in the state can find out how much refineries are making if Senate Bill 1322, the California Oil Refinery Cost Disclosure Act, gains traction in Sacramento.
California state Sen. Ben Allen, a Democrat from Los Angeles, said the bill would require the refineries to report their profits every month. Its time for transparency, he said, because “costs at the pump in California are inflated compared to neighboring states” yet it’s a “big black hole when it comes to data” about why it’s so costly.
“We ask the oil companies on behalf of California drivers: Let’s end the games of smoke and mirrors. Open your books and show the public your true costs of doing business,” Allen said.
Allen was joined at a Friday press conference by consumer activist Jamie Court, president of Consumer Watchdog.
“California has been an ATM for oil refiners for too long” said Court, “the pain at the pump is real. When truck drivers have to fill up at $5 to $7 a gallon we all pay more for the goods they are carrying to stores”.
Court says consumers should know that the fossil fuel industry in California “isn’t paying what they say they are paying” for oil and “its time to pull the curtain back.”
I would wonder about taxes per gallon. Not that they are wrong.
Materials, Overhead, and Labor in order of costs and left to right.
again, oil refineries have no control over the crack spread, ie the difference between their cost for crude and the price they receive for gasoline or other products; that’s why they sometimes lose money on high gasoline prices, or make big profits on low prices…
that said, yes let the public know what their profits are…i am always in favor of as much information being available as possible…
if there’s gasoline price gouging going on, my synopsis on March producer prices that run put up on AB this morning might give us a clue where to look:
we can also quote what the BLS says about that:
i found a comment i made over at Econbrowser on a post by by Dr. James Hamilton titled Oil prices and inflation during the initial post invasion oil price run up…i am removing most of the links so that it will post here..
rjsMarch 14, 2022 at 6:13 pm
WTI closed at $103.01 today, down another $6.32 from Friday, and it had briefly traded under $100….you should all be able to tell from this oil price graph that it was priced just over $90 two weeks ago, ran up a record $24.09 in one week to $115.68, then hit $130.50 last Sunday before tumbling back to below $100 earlier today…
in comments at Angry Bear last week i pointed out that the oil companies have no control over the price of oil, that they have to take the price set by speculators…John Kemp, senior energy analyst at Reuters, keeps track of trading in oil by hedge funds each week…here’s what they were doing before the price run-up began:
their “net long” position of 731 million barrels is interesting, because as i’ve previously reported, our commercial supplies of crude oil in storage fell to 411,562,000 barrels on March 4th….that means that hedge funds were holding 178% of all of the oil that was available…
so what happened after that? as John Kemp documented earlier today:
so it appears the hedge funds have been on the winning side of both the price runup and its recent drop….but it’s important to recall that futures market trading is a zero sum game, and oil companies trying to set their own positions in the middle of all that trading were most likely losers…
Are those “your” paragraphs? CDS and naked or countering CDS.
John Kemp’s articles at Reuters are blockquoted, run, the rest is my commentary…i’ll send it to you with the original links, as posted…
John Kemp’s articles at Reuters are blockquoted, run, the rest is my commentary…i’ll send it to you with the original links, as posted…
Great news here in Massachusetts!
Last week it seems gas prices were up around $4.75 per gallon.
This week, they are more like $4.25.
Now we call all get back to pointlessly driving around!
I am reminded of an observation made by local wise-guy HD Thoreau some decades ago upon observing bustling masses of commuters into Boston at the Concord train station, wondering why all such people were in motion. Why wasn’t just staying close to home good enuf for them. Hang around Walden Pond maybe?
i cover the EIA’s monthly drilling and productivity report (most recently out Monday) and have wondered why there haven’t more well completions with higher oil & gas prices (completions = fracking, which is when production starts)….this tweet explains…