Oil Companies Doing Their Job

[cardcounter0]

Oil Companies Doing Their Job.

On June 4th the average gas price for regular reached $2.07 per gallon. Crude oil prices were $34 a barrel.

Currently, crude oil prices are $46 a barrel. The average gas price for regular is $1.88 a gallon.

Using the June 4th ratio, gas prices should currently be $2.80 per gallon. Enjoy it until November.

[lu_hawk]

That's not how it works in real life. But a good effort on the conspiracy theory.

[nicky g]

Yeah, but when they catch Bin Laden 20 minutes before polls open, that should help oil prices fall. /images/graemlins/shocked.gif

[cardcounter0]

Not how what works? You mean the price of gasoline isn't related to the price of crude oil? Oh, yeah -- it also has something to do with supply and demand also. Aren't the summer months like August when every one takes vacation and stuff right before school? Isn't this the time of high demand?

Of course, the oil companies control the supply side. I predict after the November elections, and it surprisingly gets cold for winter, there will be a severe shortage of heating oil.

[playerfl]

you are forgetting two very important things.

-taxes are a significant part of gas prices

-price of spot oil today is not what the oil companies paid for what they are selling today. The gas being sold today was bought months ago when prices where cheaper.

[lu_hawk]

You're missing the point, of course gas prices are related to oil prices. But you can't use some ratio of where crude was trading and what gas was selling for and then say well oil is now at X so gas should be at Y. There are many other factors and there are also time lags. So no, it does not work that way and all you have left is a conspiracy theory.

[nicky g]

"all you have left is a conspiracy theory. "

You say that like it's a bad thing.

[cardcounter0]

Hmmm... Interesting theories.

"-taxes are a significant part of gas prices"

So what gas taxes have gone down since June?

"-price of spot oil today is not what the oil companies paid for what they are selling today. The gas being sold today was bought months ago when prices where cheaper."

So why was gas over $2 in June, since the crude price months before then was less? And why is the price lower now since the price of crude has continued to go up?

[cardcounter0]

"There are many other factors..."

Yes. Exactly. Care to speculate what the pump price of gasoline will be AFTER the election? You know, in November, when the demand for gas is lower?

I bet I can make an accurate prediction.

[playerfl]

my gas taxes are lower because I live in florida and they eliminate the state tax in august which makes a big difference.

the price of oil fluctuates wildly and the long term average price is more important than what it sold for 3 months ago.

you are oversimplifying and the real world doesn't work according to your theory of how it should work, which is the tell tale sign of a marxist.

[lu_hawk]

First you should read about how capitalism and more specifically price-taker markets actually work.

Gasoline futures actually do trade on the NYMEX along with crude oil futures. It is funny because the futures prices are falling into November and fall faster after November. And if you compare crude oil prices to retail gasoline prices you will see a correlation, if oil doubles over a period of two years or something like that then retail gasoline will probably be up a similar amount. But over shorter periods of time the correlation begins to lessen. You can look it up.

We have two logical options here:

A) Everybody in the gasoline food chain(drillers, refiners, distributors, retail stations) are engaged in a massive conspiracy to keep the price of gas low to help Bush in the election. They are doing this at great personal cost to themselves BTW, because according to your theory they could sell gas for much more if they chose to.

OR

B) You are wrong.

[The Armchair]

MSNBC's analysis (http://www.msnbc.msn.com/id/5725894/) does a good job of explaining the factors that contribute to this anomoly.

I'll paste part of it:

[ QUOTE ]

First off, U.S. gasoline refiners have been operating at near-record levels -- nearly 94 percent of capacity -- in recent months, so gasoline stockpiles have easily accomodated the demand.


“We had such great prices and great (profit) margins for refiners that they ran as hard as they could in the second quarter and produced a tremendous amount of product -– one of the strongest quarters ever,” said Jacques Rousseau, an oil analyst with Friedman, Billings Ramsey & Co. in Houston.




Higher gasoline prices earlier in the year also damped down demand for gas. Now, with the summer driving season winding down, gasoline dealers have lots of gas to sell, which is helping to forces prices lower. The nationwide average price of a gallon of regular unleaded has fallen from more than $2 per gallon in May to an average of $1.80 to $1.90 per gallon during the past 6 or 7 weeks.



[/ QUOTE ]

That'd mesh with the Department of Energy's Primer on Gas Prices (http://www.eia.doe.gov/neic/brochure/oil_gas/primer/primer.htm).

You can put your tinfoil hat away whenever you'd like.

[cardcounter0]

Care to make a prediction of the retail price of gas after the election?

Seems using logic and market forces, since demand will be lower and refineries can continue to produce more, the price should be even lower than now, right?

[cardcounter0]

"Everybody in the gasoline food chain(drillers, refiners, distributors, retail stations)"

Recently with the Texaco/Mobil/Exxon/Shell type mergers, and the partnerships with Saudi Partners (ARBURSTO), etc. What exactly is this chain? The major oil compaines are partners or the drillers, they are the refiners, the distribution is to their retail oulets (the old independent mom and pop gas station is rapidly getting run out of business by the corporate franchise). So who is there to be in a conspiracy with?


I didn't see your prediction for the retail pump price of gas after the election.
/images/graemlins/confused.gif

[lu_hawk]

It wasn't a prediction, it was the actual prices for the futures contracts. But seriously you need to learn how a price-taker market works and how it makes your ideas ridiculous. But you wouldn't care about that.

[cardcounter0]

Flordia State Tax doesn't account for the lower National Average, which is the prices I used.

Yes, I am greatly oversimplifying the price. I am sure it is a much, much more complex quadratic formula with 27 variables to corelate the price of crude with retail pump prices.

However, you are in a high demand period, the price of crude has risen steadily upward for 6 months, and yet gasoline is cheap.

What is your prediction for retail gas mid-November after the election?

[cardcounter0]

I still didn't see a number in your post. Couldn't you use the future market to hone your estimate?

Hint: a prediction of the price would probably contain one of these characters: 0123456789

[ddollevoet]

The price of gas in mid-November will depend largely upon whether or not countries in the Middle East restrict production between then and now.

All thing being equal, the gas prices will be similar to prices today, less a small inflation factor.

Oh, by the way. Gas prices, when adjusted for inflation have been decreasing for the last 80 years.

http://www.cato.org/dailys/05-13-04.html

[The Armchair]

The article I linked to -- which you apparently didn't bother to read -- suggests that prices are about to go up, and probably significantly.

[lu_hawk]

I will post the futures prices going out 6 months but the NYMEX market must be part of the conspiracy as well so these probably don't mean anything.

Wholesale futures $/gal: (please note before you say the numbers are doctored, wholesale always is MUCH lower than retail.)


SEP 04 = $1.3090
OCT 04 = $1.2970
NOV 04 = $1.2760
DEC 04 = $1.2400
JAN 05 = $1.2460
FEB 05 = $1.2425

I got the numbers from the Bloomberg, but they are also possibly a co-conspirator so I don't know how much you can trust this data.

[ddollevoet]

[ QUOTE ]
The article I linked to -- which you apparently didn't bother to read -- suggests that prices are about to go up, and probably significantly.

[/ QUOTE ]

This article makes no such claim that prices are about to go up. Did you read it?

Rather, it states that gas prices have been trending downward for the last 80 years and offers some suggestions as to how the prices could be pushed even lower by adopting an energy strategy that is less dependent on Middle Eastern countries.

[cardcounter0]

Hawk59 using capitalism and more specifically price-taker markets and futures says the price will be lower.

ddollevoet using a middle east supply side approach says the price will be about the same (adjusted for inflation).

Armchair using MSNBC and a DOE pamphlet says the price will probably be higher, and probably much higher.

Any one else want to predict the price of retail gas after the November elections?

>>>>>>

Myself, using the tin-foil-hat method, thinks gas will continue lower, actually dipping below $1.80 until November 20th, when it will rise very dramatically to $2.20

[adios]

You're right the price of oil has nothing to do with supply and demand.

[lu_hawk]

I don't know if the price will actually be lower, right now the curve going out is inverted on wholesale gas meaning that the market is predicting it will decrease over time. however, the entire curve has been shifting up.

What I do know is that the price will be driven by supply and demand, not by a conspiracy to keep prices low for Bush. The big oil companies would not be able to do it if they wanted.

[cardcounter0]

Okay, hawk59 might want to revise his prediction. I can't tell. It seems we have curves going out. Wait! Make that an inverted curve going out, but we also have an entire curve shifting up.

So the inverted outgoing upward shifting curve ball method, says that the lower price of oil we are currently seeing is an illusion.

The Oil Companies would be unable to make the price of oil lower before than election, so the lower prices we are seeing are, are, are ..... Would you like to borrow my tin-foil hat?

[lu_hawk]

OK now you're being annoying. The price will depend on supply and demand, that is all. Any other ideas are silly. End of story.

[vulturesrow]

He never made a prediction, was merely trying to point out to you the complexities of the market price for a volatile commodity such as gasoline. His discussion of the curves makes perfect sense to anyone with a degree of knowledge about economics. It was already pointed out what the source of the currently low prices are. I cant quite figure out what you are confused about.

[cardcounter0]

vulturesrow using advanced economic knowledge claims it is impossible to venture an estimate of the future price of gasoline, because it is a complex volatile commodity.

He will be disqualified from the race, but could get a position in the Bush Administration, as he can't see or predict how current actions or conditions could possibly effect the future.
/images/graemlins/grin.gif

So far we have:
1) price could go up or down, maybe.
2) price is going down and has always gone down.
3) price is going up.

and of course, my very specific below $1.80 over $2.20 by end of November.

[MMMMMM]

cardcounter0,


Highly sophisticated and very deep pockets from all over the world trade gasoline futures on the NYMEX. If prices get too far out of line, even if U.S. companies are unnaturally pushing them down, the differential will likely be noticed and bargain hunters will snap up the bargains to be unloaded later at a profit.

Your conspiracy theory regarding prices which trade on huge world markets doesn't hold much water. Manipulation can only work to a certain extent and then the larger market forces take over--and nothing can stop the larger market forces.

Now, you might well be correct that gasoline prices will rise a great deal in November. If you are pretty sure that this is true then the thing for you to do is to buy gasoline futures on the NYMEX, and/or buy call options on gasoline futures, and make a killing when prices rise greatly. Heck you might not have to work for the rest of your life if you are tremendously right on this.

[cardcounter0]

I'm sorry, I didn't see a prediction for the post-election retail price of gasoline in your post.

You can't participate in the race if you won't enter the starting gate.

As far as your deep pocket trading strategy goes, I don't think it really matters to future traders if the price goes up or down. All that matters is that it MOVES. They can make money in either direction on every tick.

[MMMMMM]

I don't have a prediction for the price after November. I don't study the gasoline futures market. If forced to guess, however, I would guess that it will be about whatever the gasoline futures for that time are trading for right now.

Also, it isn't just futures "traders" who study these markets. It is companies in the oil and gas industries, hedge funds, and even governments--note the plural. The former USSR itself was a very savvy and tough trader in certain commodities markets.

What you need to understand is that deliberate manipulation can only affect things to a certain extent and after that it fails due to larger market forces. When George Soros "broke the Bank of England" by fading their interventionist tactics of trying to prop up the British Pound, he was basically saying that the market was larger and more powerful than the Bank of England. He was right and profited something like a billion dollars on that coup--and the BOE ended up taking it up the wazoo.

So if the oil or gasoline companies are trying too hard to force the price of the market in any certain direction, they ultimately will take it up the wazoo too. But hey, that's YOUR chance to become a millionnaire--if you are right.

[cardcounter0]

MMMMMM if I understand correctly, using the large government trader theory, is saying the price after the election will be lower than it is now, if I am understanding the outgoing upward drifting inverted curve model of the futures market as presented earlier.

Is this close?

[riverflush]

cardcounter...

With all due respect this is one of the more ignorant posts that I've seen on 2+2. You need to pick up a WSJ on your way out tomorrow morning, that would be a good start.

The world oil market does not work the simplified way you think it does.

Sometimes I wonder why I read down the entire post, it must be some sort of neurosis that I have or something.

(cue X-Files music)

[adios]

Out months on oil futures were around $25 a barrel for August 2004 a year ago if memory serves. Today oil is over $48 a barrel, go figure.

[cardcounter0]

Sorry, I did not see a price prediction in your post based on your ignorance-need-a-wall-street-journal theory.

[cardcounter0]

According to economic experts on this board, the future market is controlled by large Government entities and other very savvy traders, there is NO WAY they could of been that far off. Such numbers could possibly suggest some type of market manipulation. Would you like a tin-foil hat?

[MMMMMM]

I'm honestly not quite sure what you are asking, but let me try to clarify what I am saying.

There are lots of huge and very sophisticated traders in these markets. Any large enough player, or consortium of players, can push prices somewhat in one direction if they buy or sell enough, or temporarily manipulate things like production somehow.

Ultimately, though, the larger market forces take over. The market finds its own level eventually. And if some players are too aggressively trying to manipulate prices in one direction, they take the risk of other players--or even the bulk of the market itself--taking a contrary position because others will perceive that prices are somehow skewed. So if gasoline companies were acting at the behest of Bush to manipulate prices, they would be taking a huge risk because other world players might be expected to spot the inequities in the market and take advantage--to the manipulators' detriment.

So if you believe strongly that prices are going in one direction--and your target price is significantly away from the market's estimated price for that future date--you could potentially make a great deal of money by betting correctly in these markets.

Now of course such bets carry risk, and you always have to pay some sort of spread or commission to enter a position. So I am not seriously recommending that you do this, because most small traders just lose money and are usually wrong and bet poorly as well. But hey, maybe you are right that prices will be way out of line with the market's current estimates come November or December. So... bet away if you care to! ;-)

[cardcounter0]

Sorry, but once the wheel is spinning you need to be quick with your bets. I have you down as prices slightly lower than now. Do you wish to change your prediction?

I understand what you are saying about long term forces, but we are talking about a very specific short term time period -- the few weeks following the election.

[adios]

[ QUOTE ]
But hey, maybe you are right that prices will be way out of line with the market's current estimates come November or December. So... bet away if you care to! ;-)

[/ QUOTE ]

And that's what makes a market, it's the American way /images/graemlins/smile.gif.

[lu_hawk]

mmmmm,

Why bother? This thread has just degenerated into cardcounter making a fool of himself.

[MMMMMM]

My bet is that price, however some reasonable range for standard deviation should be allowed. Consider my bet akin to betting on one number on the roulette wheel but include the two numbers closest to it on the wheel also.

[ddollevoet]

I concur.