Gas Prices

[GoinAllTheWay]

Anyone who drives a vehicle has not doubt seen an increase in the price of gas yet again. Thing that drives me bananas is the reasons they list for gas prices going up.

Just noticed this article on shaws website about the recent spike in prices.

http://start.shaw.ca/start/enCA/News...c=n050127A.xml


The thing I don't get is how some events can cause prices to climb up. In the article it list various reasons ranging from decreased production to decreased reserves and then they mention the kidnapping of some oild field workers. HTF does a kidnapping drive prices up? Why are the reserves in the states down? Why does a 15k barrel/day decrease force prices up? I realize that less product = higher prices but 15000 barrels?

So they list off the above reasons but don't clarify things like WHY are the reserves down, WHY is production being cut, HOW does a kidnapping affect oil prices?

This kind of thing drives me nuts, some of those reasons just sound like an excuse to jack up prices. It blows me away just how easily gas prices can be pused up, seems like a rumour is all it takes to start raising pump prices.

Drives me crazy.

/rant off

[TurnedTheCorner]

Things like kidnappings and such affect prices due to pure market speculation - the speculation being that this type of insecurity could potentially affect supply or delivery of the commodity.

There's definitely a premium built into the price by speculative traders. It is frsutrating.

[GoinAllTheWay]

Originally Posted by TurnedTheCorner

Things like kidnappings and such affect prices due to pure market speculation - the speculation being that this type of insecurity could potentially affect supply or delivery of the commodity.

There's definitely a premium built into the price by speculative traders. It is frsutrating.

And that is what pisses me off the most, speculation. Something COULD happen, not sure, but we are going to jack up the prices anyways. Why not wait to see if it will in fact create a problem before raising prices? It's so much like the stock market. Prices can raise and fall based purely on speculation or rumour.

[Ironhorse]

Didn't Exxon post a profit of 9+ Billion USD in the first quarter of this year, their largest ever?

[TurnedTheCorner]

It's exactly like the stock market - the commodities are bought and sold just like stocks. So unfortunately, speculation drives up the commodity price. Which drives up the refniery prices. Which drives up the consumer prices.

It certainly does suck.

The story does mention that production was cut because of the kidnapping. The kidnapping led Chevron to shut down an oil station, which reduces it's ability to pump oil. Hence the 15K reduction.

My understanding of the market for the past year is that supply/demand are very tight - even a small supply reduction is not absorbed by the market very well, especially with ever growing demand domestically and abroad. The high prices give companies more incentive for E&D, which help address supply side issues somewhat. But with the demand increasing constantly, it's a high wire act.

[DuffMan]

Weather definitely effects the price.
ie. summer is coming, so watch it go from $1 now to $1.19 in a month or so to ??? during the holiday months.
The $1 now is only to ease you into it. The real butt raping has yet to come.

[Slava]

I can't believe it either. When the prices were set to go down a few months ago it took longer here (Calgary) because they said we had the more expensive gasoline in the system. Its funny how that logic is lost as soon as the prices are set to go up though?

Not to turn this political, but shouldn't there be a collusion investigation here?

[Ironhorse]

Originally Posted by TurnedTheCorner

My understanding of the market for the past year is that supply/demand are very tight - even a small supply reduction is not absorbed by the market very well, especially with ever growing demand domestically and abroad. The high prices give companies more incentive for E&D, which help address supply side issues somewhat. But with the demand increasing constantly, it's a high wire act.

Not to mention the fact that building another refinery is not always the most effective solution for the Oilco's -- it can be more profitable to sell their product at a high price in a artifically created "high demand / low supply" market. I could be wrong, but I don't believe any refineries of significance have been built in North America over the last two decades...

[TurnedTheCorner]

Pretty sure you're right about the refineries. There must be some money to make in that business, but you're probably right in that any money made by refining is probably not as much as the profit caused by the run-up in crude and gas prices.

[Bobblehead]

http://www.calgarygasprices.com/

And there have been many investigations into collusion in gas prices, but unless you can prove they got together and planned to raise the price of gas there isn't really much they can be charged with.

When I lived in Ont, one year I drove to Ottawa for Canada Day. Around the same time there were some MPs talking about collusion and why does the price of gas always go up around long weekends. I noticed that when driving that at about 100km before I got there the price of gas dropped. I thought that was kind of fishy.

It is very difficult for the Competition Bureau to prove price fixing or collusion. They are required to prove intent, and that is tough.

[Bingo]

I just don't see collusion. I see a world market and heavy Canadian taxation setting the bar for 95% of gasoline prices, and the other 5% is the war ground between gas stations. Within five minutes of my house I have a Petro Can at 1.03 and a Mohawk at 1.00, both within that 5% of battle space.

Mohawk wants the business and is willing to give up profit to drive up volume. If they colluded they wouldn't do that.

Kind of like electronics ... buyers for the Future Shop, Best Buy and SoundsAround, Visions, etc all pay about the same thing and that's why you don't see much more than a few bucks between their products, but they're not colluding either.

Gasoline is a commodity and as TTC pointed out, speculation that stocks will go lower (inventory) creates the desire to buy the commodity and go long. When this happens offers pull away and the market lifts. Market lifts and gasoline goes up in value. The 2007 spring gasoline stocks are well below the past two Springs and that can only play out in pricing.

Is what it is. I've never understood why this one staple/commodity creates so much emotion compared to things like produce almost doubling at times for the exact same reason (hurricanes wipe out oranges in Florida and the inventory is gone).

The recent increase in gas prices cost me about $7 a fill on a 90 liter tank.

[The Unabomber]

Originally Posted by TurnedTheCorner

Things like kidnappings and such affect prices due to pure market speculation - the speculation being that this type of insecurity could potentially affect supply or delivery of the commodity.

There's definitely a premium built into the price by speculative traders. It is frsutrating.

Speculation such as "the summer is coming and people go out of town and we have them by the balls", that kind of speculation............that works well for the oil companies. There could be a disaster in October/November but we will se the gas prices drop.

[TurnedTheCorner]

lol @ Unabomber. There definitely is that kind of price reaction, but that's more to do with an increase in demand IMO. No doubt prices rise in the summer, but that's because more people are on the road and taking longer trips for vacation.

No doubt there is some "stick it to 'em" mentality though. See the prices rise before every long weekend, like clockwork. That's a response to anticipated demand, I guess.

[GoinAllTheWay]

Originally Posted by Bingo

Is what it is. I've never understood why this one staple/commodity creates so much emotion compared to things like produce almost doubling at times for the exact same reason (hurricanes wipe out oranges in Florida and the inventory is gone).
The recent increase in gas prices cost me about $7 a fill on a 90 liter tank.

I understand what you are getting at Bingo but I think the reasons for produce getting more expensive are far more realistic. You wont read any reports about how a grape picker got kidnapped so therefore grapes are going up in price.

I don't think produce prices are quite as easily swayed as gas prices are, they are certainly far less prone to pice increases due to speculation.

[burn_baby_burn]

Obviously we all want to pay lower prices for fuel. But how many people here have drastically cut down on the amount they drive because of fuel prices? Price is driven by demand.

[GoinAllTheWay]

I think the theme of this thread is that gas prices are driven by a hell of a lot more than just demand.

I do agree with you though, it's not like I drive less due to higher prices. Not yet anyways. It has certainly made me think about what vehicle to buy next though.

[MarchHare]

Is what it is. I've never understood why this one staple/commodity creates so much emotion compared to things like produce almost doubling at times for the exact same reason (hurricanes wipe out oranges in Florida and the inventory is gone).

For many people, buying gas is part of the cost of living -- much like how people complain when their rent goes up. Not everyone has access to public transportation or the ability to walk/bike to work. If orange prices double, people have the choice to buy apples or grapefruit instead. If gas prices go up, everyone is forced to pay them as there's no alternative.

Since I don't own a vehicle, I watch this issue unfold with a small sense of amusement. I know this doesn't apply to everyone, but I think anyone who owns a large SUV when a smaller vehicle would suit their needs just as well has no right to complain about the price of gas. In Europe, where gasoline prices are much higher, the population has adapted and for the most part drive smaller, more fuel-efficient vehicles. North Americans should follow that example.

[Slava]

I understand where some of you are coming from in terms of the price being driven by demand and looking at smaller/no vehicles as an option. I actually don't disagree. Unfortunately for me, there is no option to drive/not drive as a function of my profession and the clientele I serve.

I don't mind paying for gas. I just can't stand being lied to; when the price of gas rises for basically no reason at all or for a reason that should not affect the market the same day as it happens it's called gouging.

[burn_baby_burn]

Originally Posted by MarchHare

In Europe, where gasoline prices are much higher, the population has adapted and for the most part drive smaller, more fuel-efficient vehicles. North Americans should follow that example.

For the most part you are right. But things are more spread out in NA. Especially in Western Canada. Europe is pretty compact in comparison. 100km would be a huge trip in Europe. Over here it is an hours drive.

[CaramonLS]

Originally Posted by GoinAllTheWay

I think the theme of this thread is that gas prices are driven by a hell of a lot more than just demand.

I do agree with you though, it's not like I drive less due to higher prices. Not yet anyways. It has certainly made me think about what vehicle to buy next though.

Price of Crude Oil

consumer's willingness to pay

long term sustainability of the industry


Most Oil producing nations want to maximize profits, but want to do so without the risk of killing the golden goose. Economies such as those in the Middle East are almost exclusively based on the commodity price of Crude Oil. A dollar drop can have devestating effects on their economies. They do this by manipulating the supply. Oil shooting up to 80 dollars a barrel would be nice in the short term effects, but everyone has a breaking point and those nations recognize this. Think back to the Oil shocks. In the US they really started to introduce regulations on gas guzzling cars in the hopes of reducing their dependancy on Oil. These nations have an interest in keeping prices at a sustainable level.

Oil companies could probably make more money if they decided to double the price. More people would probably still pay in the short term, but it would absolutely crush the long term sustainability of the industry. Their goal of course is to make as much profit as possible, and they are doing that. They just tend to push the envolpe in this respect.

They know what they can get away with. So does the May long weekend actually put severe strain on the oil refineries? Of course not. They fully expect and anticipate the boom. But people are still going to drive and not going to do anything about it. So why not raise the price.

As far as events producing short term price increases? Those are pretty much just excuses given that Oil is on the futures market, (I'm not a market expert so someone can correct me, but I believe it is sold in 1 month, 3 months, 6 months, 12 months intervals). They have a long term impact on price, but shouldn't do much in the short term. It sure is a nice excuse to raise the prices though.