Have You Heard The News?
January 12th, 2007 | by Craig |The price of unleaded has dropped almost 15 cents in the past week. At least here in Montana, it has.
Have you heard any news about it?
Me either.
Oh. Wait. I just looked at Google News, and found a few stories along the lines of this one in the LA Times.
Here’s the headline: “Fuel prices still up as oil falls”
Here’s the first graf: “Unseasonably warm weather pushed oil prices to their lowest levels in 19 months Wednesday, but the inconvenient truth for California motorists is that gasoline prices haven’t fallen in tandem.” [Emphasis mine. Interesting how that phrase keeps popping up, yes? –Ed.]
But, then, the headline from an unknown (to me) publication, Los Angeles Business, says: “Gas prices drop for second-straight week”.
An interesting quote from the second article:
“Oil industry analysts say that the severe drop in crude oil prices does not have as big an impact on California prices as it does in other states because of our limited sources of refined gasoline,” Auto Club Spokesperson Carol Thorp said in a statement.
Hmmm…I wonder why that could be.
I wonder indeed.
5 Responses to “Have You Heard The News?”
By Walter Greenspan on Jan 13, 2007 | Reply
The MSM, as well as much of the business media, gets it wrong: crude oil does NOT determine the price of gasoline (and heating oil and the other distillates made from cracking the crude molecule), but rather it’s gasoline (and heating oil and the other distillates), adjusted for the refining margin (the crack spread), that determines the price of gasoline.
Additionally, they report the current wholesale price of crude oil and the delayed average retial price of gasoline, as they are too dense to understand that the same exchange that provides them with the price of crude oil also trades the wholesale price of gasoline.
In about 3-1/2 weeks, gasoline prices have declined almost 28¢/gallon, that’s a decrease of 16% from its mid-December price peak and below the price that existed prior to the recent elections in November.
At the end of yesterday’s (Friday, January 12) trading, wholesale prices (gasoline and heating oil is in $/gallon, combined product value, crack spread and crude oil is in $/42-gallon barrel and natural gas is in $/mmBtu) were:
……………Tuesday…..Friday……net………….%……
…………….Dec 19……Jan 12….change…..change..
Gasoline…$1.7106…$1.4320…- $0.2786…- 16.3%
Heating oil
…………….$1.7187…$1.5036…- $0.2151…- 12.5%
Combined Product
Value………$71.98……$61.35….- $10.63….- 14.8%
Crack Spread
…………… $ 8.83…. $ 8.36….- $ 0.47…- 5.3%
Crude oil…..$63.15……$52.99….- $10.16…- 16.1%
Natural Gas
……………..$7.198…….$6.601…..-$0.597…- 8.3%
The above calculation of the crack spread (gross refinery operating margin) assumes that each 42-gallon barrel of crude oil yields 25.2 gallons of gasoline and 16.8 gallons of heating oil and other distillates, such as jet fuel.
Also, please note that retail gasoline prices tend to be at a $0.75 to $1.25/gallon premium to the wholesale gasoline price as traded on the New York Mercantile Exchange, which would mean that a wholesale price of $1.43/gallon would indicate a retail price of $2.18 to $2.68, depending on where in the U.S. the retail pump might be located.
Anyone can easily monitor the gasoline, heating oil and crude oil regular session futures prices on the New York Mercantile Exchange (because these prices are available at no charge, they come with a 30-minute delay) by going to:
Gasoline futures prices
http://www.futuresource.com/quotes/custom.jsp?us=rnrb
Heating Oil futures prices
http://www.futuresource.com/quotes/custom.jsp?us=rho
Crude Oil futures prices
http://www.futuresource.com/quotes/custom.jsp?us=rcl
And, in case you would like to see Natural Gas futures prices:
http://www.futuresource.com/quotes/custom.jsp?us=rng
You can monitor the electronic over-night session by removing the “r” from each symbol (example: remove the “r” from “rnrb” to get “nrb” to get the symbol for the electronic over-night price quotes for gasoline).
By Walter Greenspan on Jan 13, 2007 | Reply
The last word in the opening paragraph in my immediate preceding comment should be crude, not gasoline:
The MSM, as well as much of the business media, gets it wrong: crude oil does NOT determine the price of gasoline (and heating oil and the other distillates made from cracking the crude molecule), but rather it’s gasoline (and heating oil and the other distillates), adjusted for the refining margin (the crack spread), that determines the price of crude.
By Dani on Jan 17, 2007 | Reply
Thanks, Walter. This isn’t something one hears about in the media because it implies that we are not necessarily held hostage by oil-producing nations. Supply and demand theory requires one to consider demand (gas and heating oil, etc.) after all, doesn’t it?
If tomorrow, we overcame our “oil addiction,” what would happen to the price of crude? My guess is it wouldn’t be $60 a barrel.
And, taking Craig’s comments into account, there’s a great deal that goes on between supply and demand, as well.
By Walter Greenspan on Jan 17, 2007 | Reply
You’re welcome, Dani.
And, in the two trading days since Friday’s close, wholesale gasoline is down another nickel (just before today’s close) at $1.38/gallon.
This would indicate a retail price of $2.13 to $2.63, depending on where in the U.S. the retail pump might be located.
By Kirk Dooley on Jan 19, 2007 | Reply
The local paper here in Mesa, AZ (the East Valley Tribune) has a section called “The Vent,” where folks call up a phone number, leave a message on an answering machine, and if the comment isn’t libelous or contain some of George Carlin’s “Seven Words You Can’t Say On Television” (at least back then), it gets printed on the op-ed page.
Today (1-19-2K7), we have this gem: “Do you ever notice that when the price of gas goes down five cents, a refinery catches fire?” (Wish I’d thought of that one. Don’t know who did — all comments are sans names.)