... you can find Crude Oil news at The Oil Drum ... mixed in with a wide range of Peak Oil and New Energy Technology news, some of it at a very high level of technical sophistication ... and also that special post-apocalyptic Mad Max spice that sometimes enters into the discussion threads.
This week's This Week In Petroleum, in particular, has a very cogent discussion on understanding what is going on with gasoline prices ... and how the decline of gasoline prices last fall is one of the principle driving forces for the rise in gasoline prices that we are going to be experiencing over the next few weeks to months.
Overcoming adversity
1 minute ago
6 comments:
This sentence caught my eye:
With strong demand outside the US on the back of global economic growth and a weak dollar, the era of abundant US oil supply augmented by willing international sellers is dead.
Assuming there is a "weak dollar" policy, it appears that there is an unintended consequence in weakening the U.S. ability to bid for oil and gasoline. Care to comment?
The weak dollar doesn't just affect the ability to secure petroleum supplies. It also affects being able to secure any and all products which must be imported. The unintended consequence is a persistent inflation which the Fed can't ignore. The Fed can't cut rates because it will just lead to higher inflation for all of those imported items which we don't make domestically anymore - like clothing, elctronics, in addition to oil and gas. No Fed rate cut means no stim to the economy means continued malaise means Publican disaster in 2008. Guess which way the Fed finally jumps at the end of this year?
viziervic,
Thanks for responding. I did not intend to suggest a weak dollar policy's only effect has to do with oil. I was only trying to point out the irony that severe problems in gasoline supplies would result from a policy meant to stimulate business for large corporations.
gasoline shortages have nothing to do with currency values. The US has had the highest prices for gasoline in the world at the wholesale (pre tax) level for decades in order to attract imports which have made up 10-20% of our usage for decades. The price in the US will rise to whatever price is necessary to either stunt demand or attract imports.
Part of the problem I'll guess is the severe backwardation. No trader wants to float a cargo into a market getting ready to pull back sharply if/when the local refiners get back up and running. This is one reason the US West Coast can stay well above the USGC for months. It takes about 3 weeks to get a cargo loaded and sent west and if forward prices are much cheaper, it takes big balls to speculate that prices will roll up to meet the prompt instead of fading down to the future price.
The "shortage" stems from very high demand, a refining system that didn't grow as fast as that demand over the last 5 years, US specs becoming more and more difficult for foreign refiners to meet, foreign demand picking up giving those foreign refiners alternative markets to sell into etc. Add a spate of refinery fall downs heading into peak season......
First, we don't have an explicit weak dollar policy ... we have a weak dollar because we have a currrent account blowout and a weakening economy that is less attractive for both financial capital inflows and for direct foreign investment.
Second, its true that we have strong demand and weak refining capacity ... but if the dollar was stronger, a smaller increase in US spot prices would attract more gasoline imports ... with a weak dollar, we need a more severe shortage to attract the same level of gasoline imports ... and at the same time, the market for refined gasoline is tighter than it was, say, a decade ago.
oil trades in dollars almost exclusively. Any foreign refiner will of course fill local demand first if it is higher priced in dollar equivalent than what a trader is willing to pay for bbls to arbitrage to the USA. But if there is any spare capacity, the US is the target market. With these margins, no one will be running less than 100%. Mogas is $25/bbl over crude!!!!! They ran full a decade ago when it was $6/bbl.
A stronger dollar might provide a tad more incentive, but good grief. No one is turning down a $25/bbl crack if there is any way they can push out US spec gasoline.
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