Archives For Oil

Oil Prices Are Dropping…

October 4, 2011

Oil prices appear to be the lowest they have been over the last year:

I just wish gas prices would drop just as quickly. If my memory serves, when the price of oil surged earlier this year to $114 per barrel, gas prices surged to around $3.60 per gallon (around where I live anyway). Now oil prices are down to around $76 per barrel (a 33% drop). If gas prices decreased the same amount, we would be paying $2.40 per gallon instead of the $3.20 we are currently paying (an 11% drop).

I saw this article on MSN: Why You Should Love $5 Gas.

Some of the author’s (questionable) reasons:

Fewer people will die. Fewer people on the road meand fewer people will die.

Higher prices will lead to lower prices. Theoretically the government will open up the floodgates and more oil will be produced. Hasn’t happened yet (as far as I know).

End of wars because they’ll be too expensive to fight. Interesting…

We’ll starve despots out of existence. Wow. Gas prices are high because oil prices are high. Worldwide demand for oil is high. If the U.S. doesn’t buy oil from despots, they’ll simply sell it to China or India. We aren’t going to starve anyone out of existence.

People who make more money can ride out the surge in gas prices. It’s the people at lower income levels who don’t want to hear how high gas prices are a good thing.

Yesterday’s WSJ had a little article about gasoline futures. They explained that gasoline wholesale prices were back below $3/gallon due to easing concerns of flooding along the Mississippi River.

One thing I learned from the article is that retail gasoline prices are typically about $.70 higher than the wholesale level. They quoted the price for reformulated gasoline blendstock (RBOB) at around $2.93, which would put retail prices at around $3.63 a gallon. I paid $3.749 this morning.

Regardless, I have a feeling that any price drop is temporary.

One thing in the article that I think is a misprint is this (bold mine):

Worries that the floods would disrupt gasoline production pushed the RBOB contract as high as $3.39 a gallon last week. That sent gasoline’s premium to crude oil soaring to an all-time high above $40 a gallon.

The premium, called the “gasoline crack,” has since plunged to below $26 a gallon. That means smaller profits for refiners.

I’m not sure, but I think those should read “$40 a barrel” and “$26 a barrel.”

I was going through my email and found a link to this interesting interview with Peter Schiff, author of one of my favorite books from last year, How an Economy Grows and Why It Crashes*. I thought this question and answer was interesting:

Question: So, with a more thoughtful and sober monetary policy from the central banks like the Fed and others, you’re suggesting that maybe oil demand wouldn’t be as high?

Schiff: Well, if you went to an auction and everybody had $100, nothing would sell for more than $100 because nobody would have more than $100. If you gave everybody $1,000 and you auctioned off the same merchandise, it would sell for more money because the people that are bidding have more money to bid.

And that’s what’s happening. All the central banks are printing money, and now that money is there, that money is chasing oil. They’re not pumping as much oil as the central banks are printing money. The supply of money is growing much faster than the supply of oil, so therefore the price of oil has to rise. That’s what’s going on.

The ironic thing about it is the Federal Reserve is likely to respond to higher oil prices by printing even more money, claiming that the higher oil prices will slow the economy. And they think that what they need to do is stimulate to offset that. And of course, by doing that, that just means oil prices will rise even faster, because then there will be even more money. The process will continue, on and on.

There’s no mention in the interview of speculation. Interesting.

*Affiliate Link

Crude oil is now down nearly $20 per barrel from its recent highs. As a guestimate, I would say it’s down about 21% from its high this year.

The real question is: how long can we continue with subdued inflation? I read a front page article in today’s WSJ about how inflation is at a 44-year low. The WSJ claims this is a “sign that high unemployment and excess production capacity are holding down wages and prices in much of the developed world.”

I also found this little tidbit from the article interesting:

“Wednesday’s U.S. inflation report offered evidence that retailers are holding off on price increases, even though prices of raw materials ranging from lumber to cotton are rising amid strong demand from Asia.”

Eventually prices have to rise.

Rant: Oil and Gas…

May 17, 2010

This is a short rant.


Oil peaked recently at around $85 a barrel. Now it’s back down below $70 a barrel. Yet, gas prices are almost exactly where they were when oil was at $85 a barrel.

The first thing we hear when gas prices rise, is how the price of oil has risen. Yet, when the price of oil drops gas prices seem to take forever to come back down.

Those are some sticky prices.

AFM reader, LOL, asked an interesting question on my post linking to an article about oil prices. His question:

“Is it really oil (up 3%), natural gas (up 8%), copper (up 4%), stocks (up 2%) and everything else going up — or is it really that the dollar is falling (down 1%)?”

It’s thought that the massive runup in the price of oil was linked to the U.S. Dollar falling against the Euro.

I did a little research and found a chart that plots the price of oil against the price of the Euro. As you can see there is a correlation between the two but is it enough to link the two? I’m not sure. I’m NOT an expert on this stuff but thought it would make for something interesting to look at. Here’s the chart (click to see a larger version):

The Price of Crude (right axis) vs. The Euro (left axis)

The Price of Crude (BLUE right axis) vs.
The Euro (GREEN left axis)

From it’s low of around 1.25, the Euro has rebounded to around 1.44, an increase of 15%. From it’s low of around $44 to it’s recent price of $71 per barrel, oil has increased 61%. Granted, a lot more goes into the price of oil than just exchange rates. Supply and demand is the main factor. I also don’t think we can dismiss speculation from the equation. I just can’t believe that last year’s huge rally was due to supply and demand.