Who bought gas on May 15th?

[Cowboy89]

Originally Posted by BlackArcher101

But does raising the prices actually decrease demand for gas that much? I don't see everyone parking their vehicles and biking everywhere. Businesses aren't about to cut down their consumption as well.

If you check out the gasoline inventories for the US refining Padd's they are responsive to large increases at the pumps. There are people who are at the low margin for income and thus driving is a bit of a luxury for them. They stop driving in periods like this. There are logistics people in many companies that adjust shipping methods based on fuel costs. Airlines drop some of their less popular routes. People like you or I might not drive across the country for vacation and choose to go somewhere closer. There are plenty of examples. It doesn't add up to a huge chunk overall but it alieviates some of the difference in demand from the winter season and the 'summer driving season.' This is why the price needs to come up significantly to make any sort of an impact. It needs to be enough of a deterrant for the marginal consumer's fuel usage to get rethought.

[Maritime Q-Scout]

Originally Posted by BlackArcher101

But does raising the prices actually decrease demand for gas that much? I don't see everyone parking their vehicles and biking everywhere. Businesses aren't about to cut down their consumption as well.

obligatory first year economics, being a prick, responce:

raising prices lowers quantity demanded, but it would effect demand at all.



Seriously though, I don't know if the price increase would really change quantity demanded of gas at all, I would think fuel today would be fairly inelastic.

[Thunderball]

Originally Posted by Cowboy89

The price increase around May long is a reflection of a lot of things. Summer driving season is one of them increasing demand for the product. Another is the fact that what you put in your tank is different in March than what goes in around May. The refineries switch up to a summer formula in April. While this is being produced inventories of 'winter gas' are being liquidated at lower prices at the pumps during March and early April (usually) while they build up an inventory of summer gas. When the summer gas hits the stations they are no longer trying to rid themselves of inventory thus the price is automatically higher with the same demand levels.

Refineries have never been running with as high capacity as they do now in the 2000s so when the summer driving season hits there isn't enough gas available at a 80 cents a litre price. Since you've hit the wall as far as supply the price needs to go up to lessen demand. Since gas prices are fairly inelastic when talking about only a 5 cent a litre increase/decrease it actually needs to go up by 20-30 cents a litre to make any sort of a dent on demand. Yes the oil companies can still make a profit at 80 cents a litre, but then due to the demand there wouldn't be a reliable supply of gas at the pumps in the middle of July. Would you prefer 80 cent gas but waiting in multi-hour long lines or would you prefer $1.16/ litre and available when you need it?

Yes oil and gas companies are profitable now but if you look at historical refining margins, they were really low and sometimes negative in the 1980s and 1990s (ie refiners losing money to sell you gasoline at the market price). It works both ways, see the forest from the trees.

You could either take my word for it or you could demonize me as the son of lucifer because I work at an oil company and only spout out propaganda to continue lining my pockets and to stop you from saving the environment by actually making it more difficult for you to continue to pollute in high levels.

Pretty much. Only thing is, Gasoline is not quite as supply and demand as products like fruits, automobiles, etc. That is not to say that it isn't at all. Its more like Alcohol and Cigarettes. People will buy it at nearly any price... they'll just complain about it more, the habit doesn't change a whole lot. Whereas, if lemons become too expensive, demand drops off, and people buy limes, oranges and grapefruit. If gasoline rises, people bitch, and thats about it. Your allusion to winter/summer blends and refining capacity are definitely spot on though.

Refining capacity here really hasn't been boosted in the past 20 years... thats part of why the price of fuel doesn't mimic the price of crude oil.

[Slava]

"Refining capacity here really hasn't been boosted in the past 20 years... thats part of why the price of fuel doesn't mimic the price of crude oil."

And why would you increase the capacity? Even though the demand has obviously outgrown the production there is no onus on the oil industry to increase capacity; you just raise prices.

[Cowboy89]

Originally Posted by Thunderball

Pretty much. Only thing is, Gasoline is not quite as supply and demand as products like fruits, automobiles, etc. That is not to say that it isn't at all. Its more like Alcohol and Cigarettes. People will buy it at nearly any price... they'll just complain about it more, the habit doesn't change a whole lot. Whereas, if lemons become too expensive, demand drops off, and people buy limes, oranges and grapefruit. If gasoline rises, people bitch, and thats about it. Your allusion to winter/summer blends and refining capacity are definitely spot on though.

Refining capacity here really hasn't been boosted in the past 20 years... thats part of why the price of fuel doesn't mimic the price of crude oil.

Agreed about the cigs and alcohol part and that's why the gas price increase needed to curb demand is as substantial as it is. It has to be enough that large enough amounts of people on the margin no longer can afford to use gas in the quantity that they use it.

[Thunderball]

Originally Posted by Slava

"Refining capacity here really hasn't been boosted in the past 20 years... thats part of why the price of fuel doesn't mimic the price of crude oil."

And why would you increase the capacity? Even though the demand has obviously outgrown the production there is no onus on the oil industry to increase capacity; you just raise prices.

If I'm Imperial Oil... I don't. Not until we are losing money by not having enough capacity, which isn't really a danger right now.

On the other hand, if I'm the Alberta Government, and want to ease the pressure on the pumps, win some left-leaning votes and make some money on an investment that can eventually be sold for potentially more than it cost to build and operate... I might consider building a refinery or two.

[Slava]

Originally Posted by Thunderball

If I'm Imperial Oil... I don't. Not until we are losing money by not having enough capacity, which isn't really a danger right now.

On the other hand, if I'm the Alberta Government, and want to ease the pressure on the pumps, win some left-leaning votes and make some money on an investment that can eventually be sold for potentially more than it cost to build and operate... I might consider building a refinery or two.

I guess that is what makes the whole thing so frustrating. We run into the same thing every year and there is really only one solution; more refinery capacity...which leads to the last few comments.

[Cowboy89]

Originally Posted by Slava

"Refining capacity here really hasn't been boosted in the past 20 years... thats part of why the price of fuel doesn't mimic the price of crude oil."

And why would you increase the capacity? Even though the demand has obviously outgrown the production there is no onus on the oil industry to increase capacity; you just raise prices.

If building a new refinery were that profitable then it would be built. Only now after a few years of margins being above $10/bbl does the economics work. The problem with this industry is the extreme capital intensity needed to build one and the long amounts of time (5-7 years to build in Alberta). It's easier to just buy one on ala Husky buying Valero's Lima OH refinery. That being said there are new refineries and refinery expansion projects being contructed right now as we speak to be online by 2010. Shell is building a new refinery in Ontario, Edmonton refineries are being retrofitted, etc.

[Thunderball]

Originally Posted by Cowboy89

Agreed about the cigs and alcohol part and that's why the gas price increase needed to curb demand is as substantial as it is. It has to be enough that large enough amounts of people on the margin no longer can afford to use gas in the quantity that they use it.

By then, you're talking European prices... $2/L still wouldn't break my bank cause I drive a newer, more efficient car, and that goes for all people who can afford newer, more efficient vehicles, or have the financial wherewithal to own an expensive (and still relatively efficient compared to older model vehicles) vehicle. However, if I'm driving a clunker... paying $160+ every weekly fill up hurts a lot (especially compared to $100 every two weeks in a more efficient car), and might force people into transit, cycling and walking. Thankfully, unless Kyoto rears its ugly head, thats not gonna happen.

[habernac]

Originally Posted by Thunderball

....some money on an investment that can eventually be sold for potentially more than it cost to build and operate... I might consider building a refinery or two.

the problem there is that no one wants one of these things in their backyard.

No, I didn't fill up yesterday. I gave up our second vehicle a year and a half ago to save money. I've been bike commuting to work for over 3 years now (or taking the bus when I'm injured/unmotivated) so I'm definitely not using as much gas. Hopefully more people can do the same.

[Cowboy89]

Originally Posted by Thunderball

By then, you're talking European prices... $2/L still wouldn't break my bank cause I drive a newer, more efficient car, and that goes for all people who can afford newer, more efficient vehicles, or have the financial wherewithal to own an expensive (and still relatively efficient compared to older model vehicles) vehicle. However, if I'm driving a clunker... paying $160+ every weekly fill up hurts a lot (especially compared to $100 every two weeks in a more efficient car), and might force people into transit, cycling and walking. Thankfully, unless Kyoto rears its ugly head, thats not gonna happen.

My comments weren't speaking to long-term fluctuations in prices but rather why prices go up in May every year. Demand doesn't need to be brought down 25-50% to meet supply in the near-term but rather mere quarter percentage points because the pumps will run dry if gas were to be sold for 80 cents a litre today. The supply and demand curves are not a linear relationship but rather has elements of exponetial features at the extremes. Empirical evidence rather than anecdotal there.

[ken0042]

Originally Posted by Cowboy89

Demand doesn't need to be brought down 25-50% to meet supply in the near-term but rather mere quarter percentage points because the pumps will run dry if gas were to be sold for 80 cents a litre today.

I appreciate your insight; but to me it just seems like corperate spin. Last night on the news when they said that gas has gone up 30¢ since the start of the year, I did a double take. The thing is; the gas companies have just been doing these little increases a few cents at a time to (what it seems to me) just pad the bottom line. Each fill costs me a buck or two more; which per $40 fill isn't much. But then before I know it that fill which used to cost me $36 now costs $45.

The thing of it is; I can tell you exactly how much I will pay in June for natural gas. Why can't gasoline have a stable price like that- or at least have us know when the price will be going up? To me the big difference is the fact that every driver owns a gasoline storage unit; whereas very few homeowners have a natural gas storage unit.

[BlackEleven]

Originally Posted by habernac

the problem there is that no one wants one of these things in their backyard.

No, I didn't fill up yesterday. I gave up our second vehicle a year and a half ago to save money. I've been bike commuting to work for over 3 years now (or taking the bus when I'm injured/unmotivated) so I'm definitely not using as much gas. Hopefully more people can do the same.

I'm with you. I've started biking to work and taking the bus when its raining/cold. I've also started biking to the grocery store and carrying the groceries home in my backpack. It's certainly not as easy as taking the car and I can't get as much in one trip, but I enjoy the exercise. The only time I use the car is if I can't get easily get to where I'm going using public transit. It's been about 3 months since I've filled up with gas now. I used to fill up about 3-4 times a month.

[Ironhorse]

It in order to get to my work (19 kms one way), I can either:

a) spent 85 minutes one way on public transit
b) ride my bike on a path that does not remotely exist for the route I would need to take
c) take my car

I'm sure a lot of people are in the same boat as me.

[Locke]

Originally Posted by Ironhorse

It in order to get to my work (19 kms one way), I can either:

a) spent 85 minutes one way on public transit
b) ride my bike on a path that does not remotely exist for the route I would need to take
c) take my car

I'm sure a lot of people are in the same boat as me.

a) What public transit? They are going to be a distant memory any second now
b) And probably get hit by a driver who is rage-crazed over the price of fuel when you decide you have to ride on the roads
c) Drive the 10 minutes and likely save your sanity and your life.

Personally, I'm going to drop out of school, quit my job and move to Venezuela to be a rural-based economy expert who runs a dirt filling station. I will fill anything you like with pure, rich, grade 'A' Venezuelan dirt. Bring it on "Big Oil!"

Locke.

[TheyCallMeBruce]

Here's a question I pose to SUV and v8 owners. Are you looking to trade for a more economical vehicle? If not, what would the price of gas be before you come to that point?

[TurnedTheCorner]

Originally Posted by ken0042

I appreciate your insight; but to me it just seems like corperate spin. Last night on the news when they said that gas has gone up 30¢ since the start of the year, I did a double take. The thing is; the gas companies have just been doing these little increases a few cents at a time to (what it seems to me) just pad the bottom line. Each fill costs me a buck or two more; which per $40 fill isn't much. But then before I know it that fill which used to cost me $36 now costs $45.

The thing of it is; I can tell you exactly how much I will pay in June for natural gas. Why can't gasoline have a stable price like that- or at least have us know when the price will be going up? To me the big difference is the fact that every driver owns a gasoline storage unit; whereas very few homeowners have a natural gas storage unit.

You store your own natural gas? Interesting...I assumed you meant you had a fixed price contract on your natural gas. Which no matter how it compares to the current market, several traders made a margin on before it came to you at a locked in price anyway.

I shudder to think of the complexities and BS that would be introduced if consumers could choose fixed price gasoline contracts.

[Kerplunk]

Originally Posted by Ironhorse

It in order to get to my work (19 kms one way), I can either:

a) spent 85 minutes one way on public transit
b) ride my bike on a path that does not remotely exist for the route I would need to take
c) take my car

I'm sure a lot of people are in the same boat as me.

This pretty much sums it up for me. A one hour one way trip on public transit, or 15 minutes on the road.

I'd get a more economic car (although $45 every 2 weeks to get to work isn't too bad), but there's the little thing of cost that comes into play. They are still too expensive for my budget.

If the gas companies would just stop gouging the market everyone would be happy.

[SeeGeeWhy]

Originally Posted by Cowboy89

The price increase around May long is a reflection of a lot of things. Summer driving season is one of them increasing demand for the product. Another is the fact that what you put in your tank is different in March than what goes in around May. The refineries switch up to a summer formula in April. While this is being produced inventories of 'winter gas' are being liquidated at lower prices at the pumps during March and early April (usually) while they build up an inventory of summer gas. When the summer gas hits the stations they are no longer trying to rid themselves of inventory thus the price is automatically higher with the same demand levels.

Refineries have never been running with as high capacity as they do now in the 2000s so when the summer driving season hits there isn't enough gas available at a 80 cents a litre price. Since you've hit the wall as far as supply the price needs to go up to lessen demand. Since gas prices are fairly inelastic when talking about only a 5 cent a litre increase/decrease it actually needs to go up by 20-30 cents a litre to make any sort of a dent on demand. Yes the oil companies can still make a profit at 80 cents a litre, but then due to the demand there wouldn't be a reliable supply of gas at the pumps in the middle of July. Would you prefer 80 cent gas but waiting in multi-hour long lines or would you prefer $1.16/ litre and available when you need it?

Yes oil and gas companies are profitable now but if you look at historical refining margins, they were really low and sometimes negative in the 1980s and 1990s (ie refiners losing money to sell you gasoline at the market price). It works both ways, see the forest from the trees.

You could either take my word for it or you could demonize me as the son of lucifer because I work at an oil company and only spout out propaganda to continue lining my pockets and to stop you from saving the environment by actually making it more difficult for you to continue to pollute in high levels.

Nice write up!

The market will do what it needs to work. Prices too cheap = chaos for the masses and lost profit for the producer; prices too high = chaos for the masses and lost profit for the producer. The answer is always somewhere in between.

Best part of your post was noting the 5 cent flex and how an impact on demand only comes about at the 20 - 30 cent range.

[SeeGeeWhy]

Originally Posted by Kerplunk

This pretty much sums it up for me. A one hour one way trip on public transit, or 15 minutes on the road.

I'd get a more economic car (although $45 every 2 weeks to get to work isn't too bad), but there's the little thing of cost that comes into play. They are still too expensive for my budget.

If the gas companies would just stop gouging the market everyone would be happy.

Pardon my french, but bull.