[LadyRuby]

Why have gasoline prices dropped so quickly although crude oil prices are high?
See for example:
Monthly spot gas prices in NY and monthly crude oil prices:
link and link

As shown in these tables,
May 2004 pump prices: $1.34 May 2004 crude oil: $40.27
Sept. 2005 pump prices: $2.13 Sept. 2005 crude oil: $66
Nov. 2005 pump prices: $1.47 Nov. 2005 crude oil: $58
So November 2005 pump prices were only 10 percent more than May 2004 although oil was selling at 44 percent more per barrel.
If you compare Sept. 2005 to May 2004, pump prices were 59% more, while crude oil was selling at 64% more.
What's up?

[Typhoon]

You shouldn't compare crude oil prices with refined product prices like that, because there doesn't have to be a direct correlation. For instance, in the aftermath of Katrina, gasoline futures on the NYMEX reached $2.46 per gallon. Spot prices in certain markets were even higher. This meant that pump prices exceeded $3 per gallon. Front-month WTI crude oil futures spiked to $70.85, but the magnitude of that spike was nowhere close to the magnitude of the gasoline spike. The reason is obvious: refineries were knocked out, which caused a squeeze on refined products. The price of refined products won't fall below the crude oil price because refining margins have to be sufficient. For the most part, however, different grades of crude oil and various refined products are traded independently, each with their own supply and demand fundamentals.

[LadyRuby]

$this->bbcode_second_pass_quote('Typhoon', 'Y')ou shouldn't compare crude oil prices with refined product prices like that, because there doesn't have to be a direct correlation. For instance, in the aftermath of Katrina, gasoline futures on the NYMEX reached $2.46 per gallon. Spot prices in certain markets were even higher. This meant that pump prices exceeded $3 per gallon. Front-month WTI crude oil futures spiked to $70.85, but the magnitude of that spike was nowhere close to the magnitude of the gasoline spike. The reason is obvious: refineries were knocked out, which caused a squeeze on refined products. The price of refined products won't fall below the crude oil price because refining margins have to be sufficient. For the most part, however, different grades of crude oil and various refined products are traded independently, each with their own supply and demand fundamentals.

[pip]

There you have it, a microcosm of the entire gouging debate.
Person 1: “The damn oil companies are gouging us.”
Person 2: “This is how the markets work….”
Person 1: “Numbers make my head hurt. The damn oil companies are gouging us.”

[mekrob]

Why do you ask a question but then dismiss the answer simply because it doesn't agree with what you want? If you are only looking for a certain outcome, then don't ask the question, just believe what you want to believe.

[JoeW]

Dear LadyRuby--To explain what was said above in the simplest words: Oil and Gasoline are different products. You can't fill up your car with crude.
Because Gasoline is made from oil, the price of oil creates a price FLOOR for gasoline--that is, a minimum price.
The market for gasoline is an independent market, however, and supply and demand for it dictate the price regardless of the crude oil price.But keep in mind that a gallon of gas can never be less than a gallon of crude because what supplier in their right mind would sell gasoline at a LOSS???
This is the only relationship between crude and its refined products--the price of crude creates a FLOOR for the refined product. Prices for refined products can and do go higher than the floor. The loss of refinery capacity after Katrina resulted in two things:
1) Less demand for oil, which is an input to refineries, and actually should cause a drop in crude oil price
2) Less supply of refined products like gasoline, which are the output of refineries, which should (and did) cause an increase in the price of refined products
Anybody who believes the entire nation was price-gouged based simply on the rapid rise in prices does not understand economics and should therefore be sentenced to 50 lashes with a wet noodle.

[SinisterBlueCat]

I can certainly understand LadyRuby's confusion...I often suffer from it myself, especially after reading a news article like this...
$this->bbcode_second_pass_quote('', 'E')nergy futures fell Thursday even as a winter storm hit the Southeast and after the government said the amount of natural gas in storage declined last week.
ADVERTISEMENT
Analysts said traders may have already factored in the possibility of cold weather and falling supplies, and that some decided to lock in profits.

[basil_hayden]

KY Jelly on my wallet!

[Windmills]

Gouging? Isn't that a socialist or communist term? I thought private businesses were allowed to charge whatever price the market will bear in a FREE market economy.

[aahala]

I think part of it has to do with the tongue lashing oil exces took from Congress a while part. Big oil had to explain the big profits and congressmen from the left, right and middle of both parties joined the bandwagon. Congress didn't pass anything THIS time.
Big oil knows if they show the kind of profits in the near future they have shown this year, Congress may lower the boom. In effect, they are on "secret, double probation".

[BitterSweetCrude]

I was watching TV here in Ohio and saw a Moveon.org ad attacking Rep. Pryce (I have no opinion of her). The ad tried to tie her to alleged price gouging by oil companies. I was not pleased to see this ad because I get really tired of the "price gouging" crap. Instead of spending their time attacking the oil companies, I wish they'd figure out that if 90% of your GOMEX production goes offline, your major oil port goes offline, nearly a dozen refineries get taken out, and pipelines are shut down that the price of gasoline will go UP not DOWN. Anyone who was watching the spot market for gasoline after the hurricaines saw it spike nearly a dollar in the week after Katrina.

More to the point, since we're getting close to an election cycle again (yuck yuck), I'd hate to see the energy issue turned into price gouging oil companies when there are fundamental problems (peak oil). Instead of looking for someone to blame, I wish one of these parties would wake up and smell the depletion curve. Oh well, I'm sure they'll be another inquiry by Congress this summer when gas prices hit $3+ again.
You can see the ads on the moveon.org website if anyone is interested.
I wish I hadn't given them money in 2004. Never again.

Thoughts?

[Novus]

I hope these "Price Gouging" advocates get their way and they put in place some price controlls. The shortages at the gas pumps will be sweet. Massive shortages where gas station after gas station is closed would have more impact on the American psyche then even $4 gas would. The sooner Americans are forced to stop driving the better.

[Geko45]

$this->bbcode_second_pass_quote('pstarr', 'm')oveon.org is another liberal special-interest whiney group obsessed with victims. I am so tired of that. On the other hand, these people are much better then conservative fundamentalist psychos.

[emersonbiggins]

From the subject line, I thought moveon.org was going after the flipping, bubble-blowing homeowners that think houses are meant to appreciate 50% a year; meanwhile the cost of living should go down. Whoops, guess I was wrong.

[jdmartin]

Why is it price gouging when you charge a 20% markup (say, $3 gasoline when your wholesale+taxes =$2.50) on gasoline but good business sense when you charge 100% markup on a Chinese blender, tv, t-shirt?

I see MoveOn as a "fight fire with fire" type of group. Some stuff is on the money, some of it is just damn goofy. It's unfortunate that you don't see anyone fighting the right-wing lunatic fringe with truth and figures instead of hyperbole and exaggeration.

[Leanan]

You know it's going to be like this, probably for years. No one is going to tell the voters the party's over. Certainly not in Ohio. The left will blame the price-gouging Big Oil monopoly. The right will blame tree-hugging environmentalists and greedy Arabs. The center will blame all of the above.

[Revi]

But this recent price rise is to be blamed on a new formula of gasoline pushed on us by environmentalists, isn't it? That's what I heard this morning. It has nothing to do with the fact that gasoline is trading on the world market for over $2.01 and oil prices are over $68 as of this morning.

[MountainHiker]

I work with a bunch of liberals and when I mention Peak Oil to them they think it's just another government or Bush family scam to keep prices high and them in power. Or they believe we'll just transfer smoothly to hydrogen or solar, or one of the other options that really can't scale to oil but offers some sense of hope.

So, I have no hope in either political party in the US or in the American people to stop deceiving themselves. I'm only trying to figure out how they'll act collectively when they finally realize the party can't go on forever since that concept is beyond any realization any have ever considered. My guess is most will opt for political systems that pretty much punish their ideological enemies while distributing the spoils to them. But that's just a guess.

[Revi]

I work with a bunch of Republicans and they think that peak oil is a liberal scam.

"There's plenty of oil out there. It's the enviros that won't let us drill for it. "
The more I think about it there is no political solution to peak oil. Just a bunch of silly games. We need to get somebody in there who can get us into the alternative energy economy. Or at least start us on the road to it.