Sunday, September 14, 2008

Oil Prices Sag, Pump Prices Soar, Companies In The Driver's Seat

Hurricane Ike might have caused some supply problems, so prices at the pump jumped over the weekend. Where regular gas last week in Milwaukee was $3.79, it was $4.09 Saturday.

But wholesale prices are falling because Americans are driving less and the supply system in tankers and storage tanks is full worldwide.

There is such a surplus of oil on the market that some OPEC members want the cartel to cut production because the wholesale price is now 30% off its summer peak of $147-a-barrel, and still declining.

Yet pump prices even pre-Ike had not yet reflected the steadily falling wholesale price and generous supplies.

After the hurricane season gives sellers the excuse they need to manipulate the price, cold weather will be used to explain spiking heating oil prices, along with increased natural gas prices, too.

Normally, winter gasoline prices fall as summer driving stops, but this winter we will hear the oil companies say they are converting more refining capacity to produce additional home heating fuel (which will not come down in price), creating a gasoline shortage and a higher pump price.

And don't get giddy about the resoures alleged to be under Alaska and off Florida and California.

By the time those supplies come in, if at all, they will be destined for the world market, and what remains here will reflect the increased price of exploration, piping, refining, shipping and international demand.

Oil and gas companies are not in business to sell you and me their products as cheaply as possible.

Just the opposite. Our best options to influence prices are conserving on a daily basis, and electing politicians who will promote conservation, mass transit, and all things relevant to alternative fuels


Michael Pereckas said...

Inventories are high? The EIA was reporting 188 million barrels of gasoline pre-Ike, the lowest inventory since 2000 and nearly the lowest in 20 years, and roughly two days consumption above the estimate of minimum operating level. Doesn't sound like a big cushion with large amounts of refining capacity offline. Who's reporting high inventories?

James Rowen said...

The EIA is reporting surpluses:

Michael Pereckas said...

Crude oil prices have been trending down, and crude oil stocks have not been low, but you can't put crude oil in your car. Look at the gasoline stocks graph in the current This Week In Petroleum
With something like a quarter of US refining capacity shut down at the moment, that downward plunging line doesn't look encouraging.