price per barrel vs gas prices

I wonder if this is happening in other parts of the country, or if anyones noticed. Here in CO the price of gas has been steadily decreasing the past 2-3 weeks,down app. 15 cents, while of course everyone knows the price per barrel of oil has been soaring. I dont ever remember seeing this happen before, and my only conclusion is that the fix is in with the oil companies to keep gas low to help Bush, at least till after the election.

So has anyone else noticed this happening where they are, or maybe its just in potential swing states.

•  Yeah, it's odd

  Gas price are down between 8-12 cents here in DC as crude prices hit record levels.

  by glukupikron on Tue Aug 10, 2004 at 02:10:01 PM PDT

  •  Prices down in Upstate New York too

    I was just thinking about this as I came in to work today. It seems odd that prices are falling when crude oil per barrel is at record highs. Earlier in the year, as soon as per barrel prices went up, the price at the pump when up. Do you think the oil companies are keeping a lid on prices to benefit the oil men in the White House?

    by pox vopuli on Tue Aug 10, 2004 at 02:18:30 PM PDT

    •  yeah, I

      saw gas for $1.90 here in Syracuse, and it was way above $2.00 just a little while ago.  This same thought came to me just yesterday.  Well, I guess this could be one possible bush dirty trick that I can live with for now.  

      by ryharrin on Tue Aug 10, 2004 at 02:22:58 PM PDT

  •  Well DC wouldn't be considered a swing state.....

    even if it was a state.  Gas could be a dime a gallon in the District and Bush would still lose it.

    by AndyS on Tue Aug 10, 2004 at 02:45:20 PM PDT

  •  Not odd -- It's no surprise at all

    While mogas and crude have a high degree of correlation (since it takes crude to make gas), the refining margin and pump price have their own supply/demand situations.

    This spring, there was an unprecedented fear/hype that we'd run out of mogas this summer.  The gas/crude spread hit $15-16/bbl or 35 cts.  Typical winter time value is $3/bbl and maybe $7/8 in the summer.  So we had $8/bbl(say 20 cts) to drop on gas just to get to a normal summer price relative to crude.

    The summer gas season didn't have any big supply disruptions so price has faded down to more typical levels.  API/DOE stock levels are more than sufficient and rising instead of falling which is more typical for gas in summer.

    Also, after Sept 1 mogas demand starts to drop (end of vacation season).  Speculators and wholesalers will have to lose the extra length they've been holding as insurance.  They also like to lower tank levels as the RVP change for winter starts passing through the system.  (Winter gas is more volatile than summer so that cars will start in cold weather).

    Others point out that pump prices are quick to rise and slow to fade.  That's the nature of a not too competitive market.  Dealers hate to lose $ on existing stocks but are all too happy to take a quick markup.

    by HiD on Tue Aug 10, 2004 at 04:20:49 PM PDT

•  gas prices down in nj

  not a swing state

  by ZoBai on Tue Aug 10, 2004 at 02:11:18 PM PDT

•  Down in MI

  But we're a swing state and our gas prices have been lower, relative to how much HIGHER they've been in recent memory, throughout this campaign season.

  by emptywheel on Tue Aug 10, 2004 at 02:17:08 PM PDT

•  Oil prices are always for futures contracts...

  For anyone who understands the commodities markets, this is intuitive.  For the rest of the human race it simply means this:

  In the commodities markets, traders bid prices for the right to take ownership of commodities at a certain date.  Commodities consumers generally look to purchase these futures on the open market and must pay the balance of their margin when they take possession.  Right now, the Oil prices we are seeing are for September delivery.  This means that when Gas supplier start taking delivery of the crude at these prices, we will see the price increases reflects after that oil hits the open market.

  So in a way, this is bad for Bush since we will all see rising prices at the pump come mid September through October.
  

  by Dan Torres on Tue Aug 10, 2004 at 02:19:10 PM PDT

  •  i hate to argue with ya dan

    but every time in the past when I have seen the price per barrel go up, there is almost a simulataneous rise in prices in the pump, usually within a day or two. It has been my past observation that there is no lag time, which has always perplexed me, but I just chalk it up to greed.  So though I know what you're saying about futures, and how they should work, reality has not shown that thats  the way it has worked.

    by mickey on Tue Aug 10, 2004 at 02:36:46 PM PDT

    •  Usually true

      One quirk with the oil industry is that usually when the futures prices go up, the gas price immediately goes up.  The answer to this conundrum is actually very simple; if I'm an oil company, the higher I can push my price without the Feds cracking down on me, the more money I make.  When gas prices shoot up immediately following an oil price spike, the increase in gas prices is pure profit, but the FCC won't crack down on it because the oil companies can blame the price spikes on the oil price increase (they say that htey need to build up capital to purchase the higher-priced oil or something like that).  

      What it really comes down to is that the rapid gas-price hikes are usually really profit machines for the oil companies.  They spike the price rapidly with most oil price increases, then they bleed the gas prices down slowly when oil starts dropping.

      Why this price increase has broken the pattern is anyone's guess.

      by balta1701 on Tue Aug 10, 2004 at 02:45:36 PM PDT

      •  Various

        Most stations are owned by the dealer.  He gets the extra markup, not the oilco.

        Pattern isn't broken.  Mogas futures started crapping out weeks ago.  Pump prices just now starting to fade (not here in Hawaii, still stuck at $2.50/gallon on our island).

        Refiners are already whining about margins and their stocks are dropping.  This time of year, after mogas season but before heating oil demand ramps up, they can get pretty badly squeezed by high crude prices.  They're still operating at 96% so the margins aren't negative but they are no longer getting the huge markup on gas.  

        by HiD on Tue Aug 10, 2004 at 04:29:51 PM PDT

  •  To add to what mickey says

    It's not like prices were dipping a month ago, when the oil we're currently putting in our tank was being priced.

    There is so much consolidation of oil refining and retailing in this country that it is not AT ALL implausible to suppose that big oil is helping out two of its own. In fact, if they were to lower their margin on gas for two months, it would barely make a blip in the record profits they're currently experiencing. So if you're an oil guy, and by cutting your profits for a short period you can assume you might get access to drilling domestically, in places where you have been previously been forbidden, and probably with large subsidies from the federal government, wouldn't you make the decision to take the termporary cut?

    by emptywheel on Tue Aug 10, 2004 at 02:45:19 PM PDT

    •  bit of tin hat -- sorry

      mogas prices are set in a faily open market with a lot of players (except on the West Coast).  The only way oilcos could hold down price would be to run their refineries at higher rates to glut the market.  The refining co's without upstream drilling operations have no incentive to give up profit.  

      This year, they all ran as full as they could and still made record profits.  They aren't overproducing to hold down price.  They're making all the hay they can as the sun is really shining.

      It's really hard to complain they are gouging all summer and when the price drops as we go into winter complain they are manipulating the price lower to help Bush.

      by HiD on Tue Aug 10, 2004 at 04:36:19 PM PDT

•  Prices Will Be Going Back Up....

  ...If the high price per barrel holds.

  Another thing to think about is heating oil, a petroleum byproduct. Many northeastern states still use this as their primary source for heat in the winter. With the election in November, people could be buying heating oil at the same time they're voting. It could be a factior in New Hampshire, Maine, Pennsylvania, & maybe Ohio.

  by Rimjob on Tue Aug 10, 2004 at 02:28:41 PM PDT

•  24 cents down at my gas station

  In Columbia SC.  I also think that this has to do with 1) the inevitable later-in-the-summer slide after driving season hits its peak.  The run-up occurred because of a sort of "perfect storm" of gas price factors- normally, these high oil prices take a month or two to work through the system.  Don't expect them to get any lower though, and yeah, I wouldn't be at ALL surprised to see them go up in November

  by tubalefty on Tue Aug 10, 2004 at 02:30:10 PM PDT

•  Some 'light' reading on gas price fluctuations

  Just some background info to help the discussion.  I'm sure this is just one of many papers on the topic of gas prices, but here is one from a doctoral candidate at penn-state, written in 2002, analyzing the gas price spikes in 2000-2001.  I just started reading this, so I don't have anything to add at the moment.  

  Here's the link to this paper.

  Market Fragmentation and Gasoline Price Shocks: An Investigation
  Barry Posner*
  Department of Energy, Environmental and Mineral Economics
  The Pennsylvania State University

  Page 8 has some information relevant to this discussion:

  3.0 The Economic Model
  Classical microeconomic theory tells us that in a perfect market, a large number of suppliers will behave as price-takers, and will drive prices down to the long-run average cost (LRAC). As markets become smaller, and the number of suppliers decreases, suppliers begin to develop market power, or the ability to charge prices above LRAC.
  The CAA gasoline provisions have fractured the US gasoline market from one largely homogeneous market to several smaller, differentiated ones. At the same time, the number of refiners in the US is shrinking. According to the above theory, these
  conditions should combine to increase price above LRAC. How can market power be modeled in this context?

  The price of gasoline is strongly affected by the price of crude oil. A quick analysis of the spot market prices of crude oil (17) and regular-grade conventional gasoline (18) reveals that crude typically represents about 70-80% of the refiner's cost of gasoline, and is by far the most price-volatile of all inputs. A simple regression of gasoline spot price on crude spot price (from June 1986 through December 2001) reveals a relationship of the form:

  Gasoline Price = 4.2 + 1.12 x Crude Price, where prices are in cents per gallon. This equation has an R2 value of 0.86, reflecting a high degree of correlation between the two prices. It is more revealing to look at the difference between crude prices and gasoline prices. The price of crude oil and the taxes levied on gasoline do not change with demand, and thus are assumed to be exogenous. We wish to examine the endogenous part of the cost of gasoline - the price with crude costs and taxes excluded.

  I refer to this difference as the gasoline markup, which is the main focus of attention in this study. The markup must cover a wide variety of costs. The Oil and Gas Journal(OGJ) tracks refiner and retailer margins, and Spletter and Starr, in the OGJ (19) have identified the following cost components:

  Refiner costs: crude oil transportation (FOB location to refinery); crude oil inventory and storage; chemicals and catalysts; blending component purchase and storage costs; energy inputs (natural gas, electricity); labor costs;
  marketing costs; corporate taxes; refiner profit.

  Distributor costs: transportation (refinery to terminal); terminal operations expenses (labor, energy, rent, income taxes); inventory and storage costs; additive costs (methanol); blending costs; distributor profit.

  Retail costs: transportation (terminal to retailer); storage; labor; energy costs; rent; maintenance; retailer profit.

  Clearly, many costs must be borne by the margin between crude cost and tax-out retail price. Of the above components, many are fixed in the short run: there are no significant short run changes in chemical and catalyst prices, equipment costs, rents or wages.

  Energy and transportation costs can vary according to the price of crude, but it is hypothesized that the swings in the markup are created by firms with market power exercising that asset: the markup goes up as demand increases and supply decreases.
  Gasoline has a low short-run price elasticity of demand. Several authors, including Archibald and Gillingham (20), Puller and Greening (21), Molly (22), Kayser (23) and Rao (24) have shown that the short run elasticity is between -0.01 and -0.08. Assuming a median value of -0.04, this means that a 10% increase in the price of gasoline will result in reduced demand of 0.4%, or that a doubling of price will lead to a consumption drop of only 4%. This fact is well established and guides refiner and retailer behavior: they know
  that price increases related to demand increases will not invalidate those demand increases: a stable equilibrium arises at a higher priced supply-demand intersection.

  It is hypothesized that the price of gasoline, net of taxes and crude prices, should be correlated to market power, and market power will be proxied by the size of a given gasoline market. This study shall attempt to define whether price shocks, which are assumed to be exercises of market power, are correlated with the size of the market. That is, has the balkanization of the national gasoline market led to a meaningful increase in market power?

  by LionelEHutz on Tue Aug 10, 2004 at 02:37:58 PM PDT

  •  Interesting Senate study for the same period

    I've lost my link, but the Senate did a really interesting study for the same period. IIRC they had some subpoena power. And they were able to show that there were a large number of factors that prevented has prices from working anything like a true market.

    Look for Carl Levin's name to find the study--he was one of the sponsors of the study; he was trying to figure out why MI paid so much more than all but the West Coast for its gas.

    by emptywheel on Tue Aug 10, 2004 at 02:48:13 PM PDT

    •  Michigan

      suffers from being at the end of the supply lines.  The refining surplus area is the USGC.  There are a bunch of pipelines up into the midwest but by the time you get to MI there are damn few players and not that many ways to resupply the market.

      Makes for an easy place to just choose not to compete very hard or not at all.  No trader is going to spend much time figuring out ways to arbitrage gas into Michigan to capture the extra profit.

      Same situation on the west coast.  Few players, remote to re-supply markets, special specs reducing fungibility of the product, lack of 3rd party terminals to import through etc.  FTC should never have allowed BP to buy Arco and Amoco or Exxon/Mobil or later Chev/Tex.  

      by HiD on Tue Aug 10, 2004 at 04:44:33 PM PDT

      •  Pretty much what our senate concluded

        (although they also looked at ownership of individual gas stations, etc).

        But that doesn't explain why MI is now relatively better off than it has been in 3 years. I'm not complaining, but I realize it doesn't make sense given the structure of the supply chain.

        by emptywheel on Tue Aug 10, 2004 at 04:55:11 PM PDT

•  Exxon

  Exxon, in yet another record-breaking quarter (of what, 7 or 8 in a row?)reported billions in profits that translated to record profits per barrel.  
  Over $10 per barrel profit.  
  So they can afford to buy the presidency and deliver lower prices at the pump, all this while crude futures soar.
  But don't be fooled, next month you WILL see the results of this month's high futures prices and Dubya will cry that it's all Clinton's fault.

  by nofundy on Tue Aug 10, 2004 at 02:42:57 PM PDT

•  Consumer confidence

     Consumer     Gas
      Confidence   Prices
  Aug      -        1.87
  Jul     106       1.89
  Jun     103       1.92
  May      93       1.92
  Apr      93       1.78
  Mar      88       1.71
  Feb      88       1.63

  I was going to make a comparison.  Not so much corelation it seems.

  by Preston on Tue Aug 10, 2004 at 03:47:08 PM PDT

•  Possibly the wrong correlation?

  Take a look at the chart in this post at MyDD:

  Dated July 3, 2004

  by kate petersen on Tue Aug 10, 2004 at 04:55:33 PM PDT