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Low oil prices are not translating into low gas prices

Braaq

Braaq

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I was actually wondering about this, nice to finally find out why.

The economy is in tatters. Oil prices are plunging. So why are gasoline prices closing in on $2 a gallon again?

The national average price for a gallon of regular gasoline was $1.97 Sunday, according to the Oil Price Information Service (OPIS) and AAA. That's up 22% since pump prices hit a five-year low of $1.61 on Dec. 30.

Oil prices, despite a Friday rally, have fallen about 16% over the same period.

A big reason for the disparity: refiners. Beset by weak consumer demand and losses on gasoline sales, oil refiners have scaled back production since late December. The average utilization rate at U.S. refineries was 81.5% as of Feb. 6, the lowest in 17 years, not including hurricane-related slowdowns, according to the Energy Information Administration. As recently as early December, refineries were running at 87.4% of capacity.

Refineries typically shut some units for maintenance this time of year. But many are trimming output because demand is anemic. That tends to rile consumers who view low gas prices as a small silver lining in a dismal economy. But go easy on the poor refiner, analysts say.

"If you're losing money on something and you're producing at 90%, you're going to cut back," says OPIS chief oil analyst Tom Kloza.

"If there's no demand, … there's really not a whole lot of point to making extra gasoline," says Bill Day, spokesman for Valero, the largest independent U.S. refiner.

Such cutbacks are common in other industries, Day says. Still, Kloza says, "They probably overtweaked it a bit."

But, Kloza says, that's likely because refiners didn't slash production enough the last quarter of 2008. Back then, while the global energy market — which sets crude prices — was weak, U.S. demand for gasoline was even more feeble. Wholesale gasoline cost several dollars less a barrel than crude oil, and refiners lost money on every gallon they sold. They offset their losses with profits on diesel fuel. Now, refiners are earning about $17 a barrel, says analyst Phil Flynn of Alaron Trading.

Another reason for the apparent disparity: While the nation focuses on benchmark oil prices, such as Nymex, other types of crude, such as Brent or Maya, trade about $10-a-barrel higher, Kloza says.

Don't worry yet about $4 gasoline. If high profit margins persist, refiners will ratchet up production, Day says. Kloza says gas prices likely will head toward $2.50 a gallon through March. But they'll soon stabilize and drift down again, Flynn says.
 
lifterdead

lifterdead

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The is a BIG disconnect here. Americans shouldn't be getting cheaper gas. If anyone in the government had any foresight, they would've taxed the hell out of gas 20 years ago. 4$ gas = fair.
 
Tech

Tech

Ron Paul FTW
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The is a BIG disconnect here. Americans shouldn't be getting cheaper gas. If anyone in the government had any foresight, they would've taxed the hell out of gas 20 years ago. 4$ gas = fair.
high taxes on gasoline is the problem.....not the solution.

over 43 different taxes are imposed on the production and distribution of gasoline by various levels of government.
 
lifterdead

lifterdead

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high taxes on gasoline is the problem.....not the solution.

over 43 different taxes are imposed on the production and distribution of gasoline by various levels of government.

So, the solution is to keep a finite resource that we have limited access to cheap and easy to consume? Cheap gas has more or less driven the complete collapse of mass transit in America and encouraged over-development of car-dependent suburbs. Even though oil is cheap now, the price will be rebounding soon and it will likely be followed by a supply crunch. All of our massive infrastructure that is dependent on cars/cheap gas will suddenly seem like a bad investment. Had the US placed higher taxes on gas over the past 30 years it could've encouraged the development of more mass transit and energy efficient transportation. Instead, we're going to see sudden spikes in gas prices causing economic woes again and we won't have any viable alternatives.

That being said, I hate taxes in general. Even without high taxes to protect mass transit and such, I'm sure the invisible hand will take of the situation sooner or later, albeit in a painful manner.

PS- I'm kinda drunk this morning.
:soapbox:
 
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