R-Squared Energy Blog

Pure Energy

Why Gas Prices are Rising Again

Every time gas prices start to go up, my essay “Why Are Gas Prices Rising?” gets a lot of hits from Google searches by people looking for an explanation. Because the supply/demand dynamics have changed, that essay needs dusting off, especially in light of stories like this:

Pros puzzled by gas prices

Fuel industry pundits have been left scratching their heads at the recent jump in gas prices, which have increased despite plummeting crude prices.

“The nationwide average retail price of self-serve regular gasoline seems to be defying gravity this month,” according to American Automobile Association (AAA) Director of Public Relations, Geoff Sundtrom, “as it continued to rise in the face of sharply lower prices for crude oil and wholesale gasoline.”

Oil prices closed out at $34.78 per barrel last Friday, according to AAA, the lowest they’ve been since April 5, 2005, when the nationwide average retail gasoline price was $1.76 per gallon compared to Monday’s nationwide average of $1.842. Average nationwide prices jumped slightly to $1.848 on Wednesday. The statewide average is slightly higher at $1.851 per gallon. By this Friday, prices had risen to $46.47, according to The Associated Press.

First things first. Checking the EIA data, their numbers/trends don’t match up. Per the EIA, in April 2005 retail gas prices were $2.28 a gallon (Source) when West Texas Intermediate was trading at $52.98. In early 2009, retail gas prices (per the EIA) are at $1.84 with WTI hovering around $40. AAA is obviously using their own metrics, but a scan of the various EIA gas prices show a pretty consistent trend: Gas and oil prices both sharply down from 2005.

But, it shouldn’t surprise anyone that gas prices would be headed back up – even if oil prices are stagnant. Gasoline had over-corrected to the downside in relation to oil prices. In fact, crack spreads – a measure of the difference between the price of oil and the price of the products – did go negative in late 2008. That is unsustainable, and an indication that gas prices must correct to the upside (or refiners will start to cut production since they are losing money on every barrel). So why are gas prices rising? Because they fell too far. (Nobody ever seems to ask why gas prices fell so much in relation to crude oil; they only get excited when the opposite occurs).

There is another key factor to consider when comparing the behavior of gasoline and oil prices. I have seen them move in opposite directions on numerous occasions. Here is an example of when they might do that. Let’s presume that we have a glut of oil, but a refining bottleneck. In such a case, you would see little demand for oil, keeping the price low. But if refiners are having trouble keeping the gasoline market supplied, then gasoline prices will rise in relation to oil prices. This has taken place multiple times over the past few years, and can usually be understood if you watch the crude and finished product inventories reported each week in This Week in Petroleum.

Other factors that impact the price of gasoline include the strength of gasoline imports (primarily from Europe), and refinery utilization (both of which are reported weekly at the EIA). If gasoline demand is strong, and something happens to reduce the utilization number (e.g., hurricane), prices spike. If demand starts to slacken, you will see refiners start to dial back their utilization.

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January 27, 2009 - Posted by | EIA, gas inventories, gas prices, oil inventories, oil prices, twip

54 Comments

  1. Another possible mechanism: My understanding is that one of the reasons that the price of oil unwound so quickly is that, after the price started to fall, speculators found themselves required to take delivery of oil that they had planned to sell before maturity. The fact that these dudes had to sell out, at any price, so as to avoid having their office filled with crude oil (for lack of anywhere else to hold stock 🙂 is the reason that the price of oil dropped so fast once the drop began.

    1) Do you agree with that this mechanism is part of the reason why oil prices have acted as they have?

    2) If #1, then isn’t it likely that this effect happened independently for both gas and oil (since gas is traded as a commodity, much like oil).

    Comment by GreenEngineer | January 27, 2009

  2. Another possible mechanism: My understanding is that one of the reasons that the price of oil unwound so quickly is that, after the price started to fall, speculators found themselves required to take delivery of oil that they had planned to sell before maturity. The fact that these dudes had to sell out, at any price, so as to avoid having their office filled with crude oil (for lack of anywhere else to hold stock 🙂 is the reason that the price of oil dropped so fast once the drop began.1) Do you agree with that this mechanism is part of the reason why oil prices have acted as they have?2) If #1, then isn’t it likely that this effect happened independently for both gas and oil (since gas is traded as a commodity, much like oil).

    Comment by GreenEngineer | January 27, 2009

  3. I remember thinking it was nuts when wholesale gas went for 80 cents not long ago. It’s back around 1.10 now.

    The 30 yr. average price for oil is $29,adjusted for inflation. I realize it’s harder to find,but hasn’t that been the case since cavemen used it to slick their hair back? Oil was down $4 a barrel today. It just seems wrong for crude to be fetching $40 during a recession this nasty. I think the average during downturns is $19.

    Comment by Maury | January 27, 2009

  4. I remember thinking it was nuts when wholesale gas went for 80 cents not long ago. It’s back around 1.10 now. The 30 yr. average price for oil is $29,adjusted for inflation. I realize it’s harder to find,but hasn’t that been the case since cavemen used it to slick their hair back? Oil was down $4 a barrel today. It just seems wrong for crude to be fetching $40 during a recession this nasty. I think the average during downturns is $19.

    Comment by Maury | January 27, 2009

  5. tangentially related (receding horizons), CWT which Robert wrote a post on is *filing to go public*.

    Hard to believe

    http://www.retailroadshow.com/sys/launch.asp?k=74489096672

    Comment by westside | January 27, 2009

  6. tangentially related (receding horizons), CWT which Robert wrote a post on is *filing to go public*. Hard to believehttp://www.retailroadshow.com/sys/launch.asp?k=74489096672

    Comment by westside | January 27, 2009

  7. Maury-
    The average may be $19, but oil can spike down, as well as up.
    If you are paying monthly bills to keep oil in storage, and instead of making money you are stuck with accumulating bills, sooner or later you decide to dump.
    I think $10 on some crappy grades is on the horizon.
    There is a chance oil demand will never recover from this point. US demand is headed down, Europe headed down, Japan headed down, Thailand, Indonesia and Sweden chasing energy autonomy. And China is investing heavily in CTLs, and knows how to make PHEVs.
    The Mother of All Gluts, a tsunami of oil everywhere all the time, is coming.

    Comment by benny "MOAG" cole | January 28, 2009

  8. Maury-The average may be $19, but oil can spike down, as well as up. If you are paying monthly bills to keep oil in storage, and instead of making money you are stuck with accumulating bills, sooner or later you decide to dump.I think $10 on some crappy grades is on the horizon. There is a chance oil demand will never recover from this point. US demand is headed down, Europe headed down, Japan headed down, Thailand, Indonesia and Sweden chasing energy autonomy. And China is investing heavily in CTLs, and knows how to make PHEVs. The Mother of All Gluts, a tsunami of oil everywhere all the time, is coming.

    Comment by benny "MOAG" cole | January 28, 2009

  9. GreenEngineer,

    Have a look at http://commodities.thefinancials.com/ and check out some other commodity prices over the past 12 months, like for example aluminum, steel, copper, cattle, soybean oil, tin, zinc, and lead. Some pretty steep drops there as well.

    Does your mechanism also apply to all of these other commodities?

    Comment by armchair261 | January 28, 2009

  10. GreenEngineer,Have a look at http://commodities.thefinancials.com/ and check out some other commodity prices over the past 12 months, like for example aluminum, steel, copper, cattle, soybean oil, tin, zinc, and lead. Some pretty steep drops there as well.Does your mechanism also apply to all of these other commodities?

    Comment by armchair261 | January 28, 2009

  11. Does your mechanism also apply to all of these other commodities?

    Well, it seems likely to apply to any good which in which most of the trading activity is an effort to profit from arbitrage rather than an effort to actually buy or sell physical goods. Which, as far as I know, now describes virtually all commodities. So I’m guessing “yes”, and the graphs you pointed to would tend to support that.

    I would suspect that the trend not exist, or would reverse, for those commodities that happen to be highly valuable and compact (e.g. gold, silver). And the graphs at Commodity Library seem to show the price of silver and gold going up at about the same time everything else plunges (the money that isn’t eradicated in the drop has to go somewhere). The price then dropped a few weeks later, which I am not sure how to explain.

    Comment by GreenEngineer | January 28, 2009

  12. Does your mechanism also apply to all of these other commodities?Well, it seems likely to apply to any good which in which most of the trading activity is an effort to profit from arbitrage rather than an effort to actually buy or sell physical goods. Which, as far as I know, now describes virtually all commodities. So I’m guessing “yes”, and the graphs you pointed to would tend to support that.I would suspect that the trend not exist, or would reverse, for those commodities that happen to be highly valuable and compact (e.g. gold, silver). And the graphs at Commodity Library seem to show the price of silver and gold going up at about the same time everything else plunges (the money that isn’t eradicated in the drop has to go somewhere). The price then dropped a few weeks later, which I am not sure how to explain.

    Comment by GreenEngineer | January 28, 2009

  13. Prices for iron ore pellets:
    2007-01 78.00
    2007-02 82.00
    2007-03 91.00
    2007-04 95.00
    2007-05 100.00
    2007-06 102.00
    2007-07 102.00
    2007-08 125.00
    2007-09 151.00
    2007-10 170.00
    2007-11 180.00
    2007-12 185.00
    2008-01 180.00
    2008-02 196.00
    2008-03 191.00
    2008-04 186.00
    2008-05 178.00
    2008-06 177.00
    2008-07 183.00
    2008-08 150.00
    2008-09 109.00
    2008-10 62.00
    2008-11 71.00
    2008-12 77.00
    I don’t think there’s a futures market in iron ore pellets.

    I don’t claim to be an expert on all of this, but my hunch is that the same market psychology that gave us the dotcom and housing bubbles gave us the 2008 commodities bubble, and I don’t think that speculation in any futures market drove prices to extremes in those two cases. Maybe that same psychology led to the mechanism you describe? If so it seems a chicken and egg argument to me. My hunch is that futures trading fanned the flames, but was not the root cause of the bubble.

    Comment by armchair261 | January 28, 2009

  14. Prices for iron ore pellets: 2007-01 78.00 2007-02 82.00 2007-03 91.00 2007-04 95.00 2007-05 100.00 2007-06 102.00 2007-07 102.00 2007-08 125.00 2007-09 151.00 2007-10 170.00 2007-11 180.00 2007-12 185.00 2008-01 180.00 2008-02 196.00 2008-03 191.00 2008-04 186.00 2008-05 178.00 2008-06 177.00 2008-07 183.00 2008-08 150.00 2008-09 109.00 2008-10 62.00 2008-11 71.00 2008-12 77.00I don’t think there’s a futures market in iron ore pellets.I don’t claim to be an expert on all of this, but my hunch is that the same market psychology that gave us the dotcom and housing bubbles gave us the 2008 commodities bubble, and I don’t think that speculation in any futures market drove prices to extremes in those two cases. Maybe that same psychology led to the mechanism you describe? If so it seems a chicken and egg argument to me. My hunch is that futures trading fanned the flames, but was not the root cause of the bubble.

    Comment by armchair261 | January 28, 2009

  15. Armchair-

    From trough-to-peak, iron ore pellets rose less than 300 percent, on your chart.
    But crude oil futures rose nearly 1,500 percent, 1998-2008.
    I think the door is wide-open to the question of whether speculation and manipulation played a role in oil prices.
    And, as I stated, there are powerful players with a desperate need for higher oil prices. Russia, OPEC nations. They can cloak their activities through financial quislings, and they in fact hire high-powered public relations firms to do their bidding, and plant op-eds and news stories.
    Literally hundreds of billions of dollars are at stake in the crude oil business. If I were in charge of Russia, I would do everything in my power to jack up oil prices, including manipulating the NYMEX, running scaremongering websites, and hiring many skilled PR shops to plant stories and shift public opinion.
    That is what a Russian nationalist-patriot would do. Or an OPEC patriot. That is obviously in their national interest.
    I don’t think iron ore pellets have the same constituency. Hence, a much more muted run-up in prices.

    Comment by benny "MOAG" cole | January 28, 2009

  16. Armchair-From trough-to-peak, iron ore pellets rose less than 300 percent, on your chart. But crude oil futures rose nearly 1,500 percent, 1998-2008. I think the door is wide-open to the question of whether speculation and manipulation played a role in oil prices.And, as I stated, there are powerful players with a desperate need for higher oil prices. Russia, OPEC nations. They can cloak their activities through financial quislings, and they in fact hire high-powered public relations firms to do their bidding, and plant op-eds and news stories. Literally hundreds of billions of dollars are at stake in the crude oil business. If I were in charge of Russia, I would do everything in my power to jack up oil prices, including manipulating the NYMEX, running scaremongering websites, and hiring many skilled PR shops to plant stories and shift public opinion. That is what a Russian nationalist-patriot would do. Or an OPEC patriot. That is obviously in their national interest. I don’t think iron ore pellets have the same constituency. Hence, a much more muted run-up in prices.

    Comment by benny "MOAG" cole | January 28, 2009

  17. My understanding is that one of the reasons that the price of oil unwound so quickly is that, after the price started to fall, speculators found themselves required to take delivery of oil that they had planned to sell before maturity. The fact that these dudes had to sell out, at any price, so as to avoid having their office filled with crude oil (for lack of anywhere else to hold stock 🙂 is the reason that the price of oil dropped so fast once the drop began.
    With all due respect, Green E, that theory makes no sense.

    Explain how people who supposedly single-handedly drove oil prices to almost $150/bbl lost control overnight.

    Quit looking for a bogeyman! The markets for oil run on limited information (Thanks, OPEC!), making herd mentality that much easier to take root. There are no pills for that, unfortunately.

    And then, just when the thing got maxed out, it became obvious that we’re in a global recession.

    Watch for oil prices to rise as an early indicator of a world-wide economic recovery.

    Comment by Optimist | January 28, 2009

  18. My understanding is that one of the reasons that the price of oil unwound so quickly is that, after the price started to fall, speculators found themselves required to take delivery of oil that they had planned to sell before maturity. The fact that these dudes had to sell out, at any price, so as to avoid having their office filled with crude oil (for lack of anywhere else to hold stock 🙂 is the reason that the price of oil dropped so fast once the drop began.With all due respect, Green E, that theory makes no sense.Explain how people who supposedly single-handedly drove oil prices to almost $150/bbl lost control overnight.Quit looking for a bogeyman! The markets for oil run on limited information (Thanks, OPEC!), making herd mentality that much easier to take root. There are no pills for that, unfortunately.And then, just when the thing got maxed out, it became obvious that we’re in a global recession.Watch for oil prices to rise as an early indicator of a world-wide economic recovery.

    Comment by Optimist | January 28, 2009

  19. From trough-to-peak, iron ore pellets rose less than 300 percent, on your chart.
    But crude oil futures rose nearly 1,500 percent, 1998-2008.

    Er, you are comparing ten years of oil prices to only two years of iron ore data, Benny!

    Armchair makes a valid point: since there are no speculators in iron ore pellets, who drove up the prices of that commodity?

    I know Wall Street bankers make nice bogeymen, but the reality is that (even) they can only do so much damage. Which is quite enough, really…

    Comment by Optimist | January 28, 2009

  20. From trough-to-peak, iron ore pellets rose less than 300 percent, on your chart. But crude oil futures rose nearly 1,500 percent, 1998-2008.Er, you are comparing ten years of oil prices to only two years of iron ore data, Benny!Armchair makes a valid point: since there are no speculators in iron ore pellets, who drove up the prices of that commodity?I know Wall Street bankers make nice bogeymen, but the reality is that (even) they can only do so much damage. Which is quite enough, really…

    Comment by Optimist | January 28, 2009

  21. tangentially related (receding horizons), CWT which Robert wrote a post on is *filing to go public*.

    Hard to believe
    Amazing! And they are still flogging that demonstrably false energy efficiency of 85%! Even worse: they claim to able to process animal waste at a profit!

    Even their cheerleaders at Discover magazine are getting skeptical: A Missouri plant successfully turns practically anything into black gold. But profitability is another matter. Since when are lipids and fat-soluble amino acids practically anything? I guess since the average journalist understands so little chemistry, even if he works for a science magazine…

    And they raise another issue: Fuel quality was another challenge. Changing World Technologies‘ thick, tarry fuel resembles boiler-grade fuel oil. One prospective buyer insisted on what the company called “unacceptable pricing terms” for its relatively unproven product. In the end, CWT sold only 93,000 of the 391,000 gallons of fuel it produced and earned just 99 cents for each one. At the time, wholesale fuel oil distributors were raking in $2.50 to $3.30 per gallon. Even with the $1-per-gallon U.S. biofuels tax credit for every gallon sold, Changing World Technologies paid more for Butterball’s turkey offal than it earned back in revenue. (Accounting for all its operating costs, the company lost $5,003,000 in the first quarter of 2008, though operating at a loss is not uncommon or necessarily a very bad sign for a technology startup.) (Emphasis added)

    Comment by Optimist | January 28, 2009

  22. tangentially related (receding horizons), CWT which Robert wrote a post on is *filing to go public*. Hard to believeAmazing! And they are still flogging that demonstrably false energy efficiency of 85%! Even worse: they claim to able to process animal waste at a profit!Even their cheerleaders at Discover magazine are getting skeptical: A Missouri plant successfully turns practically anything into black gold. But profitability is another matter. Since when are lipids and fat-soluble amino acids practically anything? I guess since the average journalist understands so little chemistry, even if he works for a science magazine…And they raise another issue: Fuel quality was another challenge. Changing World Technologies‘ thick, tarry fuel resembles boiler-grade fuel oil. One prospective buyer insisted on what the company called “unacceptable pricing terms” for its relatively unproven product. In the end, CWT sold only 93,000 of the 391,000 gallons of fuel it produced and earned just 99 cents for each one. At the time, wholesale fuel oil distributors were raking in $2.50 to $3.30 per gallon. Even with the $1-per-gallon U.S. biofuels tax credit for every gallon sold, Changing World Technologies paid more for Butterball’s turkey offal than it earned back in revenue. (Accounting for all its operating costs, the company lost $5,003,000 in the first quarter of 2008, though operating at a loss is not uncommon or necessarily a very bad sign for a technology startup.) (Emphasis added)

    Comment by Optimist | January 28, 2009

  23. Well they finally did it. The jerks at The Oil Drum banned me for no particular reason. All I ever did there was a post a interestnig article from time to time and challenge some folks conventional wisdom. Robert, if you have any professional dignity you will start to seperate yourself from those people who do not tolerate opposing points of view. Cheers.

    TheAntiDoomer

    Comment by Anonymous | January 28, 2009

  24. Well they finally did it. The jerks at The Oil Drum banned me for no particular reason. All I ever did there was a post a interestnig article from time to time and challenge some folks conventional wisdom. Robert, if you have any professional dignity you will start to seperate yourself from those people who do not tolerate opposing points of view. Cheers. TheAntiDoomer

    Comment by Anonymous | January 28, 2009

  25. “If I were in charge of Russia, I would do everything in my power to jack up oil prices,”

    And yet prices are down $100+ and probably heading further south for the time being anyway. So apparently the guy in charge of Russia can’t do much to stop that. The downturn is costing him about $1 billion per day. If he can’t stop such a severe downturn, why should we assume he can create such a severe spike?

    Comment by armchair261 | January 28, 2009

  26. “If I were in charge of Russia, I would do everything in my power to jack up oil prices,”And yet prices are down $100+ and probably heading further south for the time being anyway. So apparently the guy in charge of Russia can’t do much to stop that. The downturn is costing him about $1 billion per day. If he can’t stop such a severe downturn, why should we assume he can create such a severe spike?

    Comment by armchair261 | January 28, 2009

  27. Optimist-

    I don’t have iron ore lellet prices going back 10 years, but it was a period of relative price stability. Anybody got the figs?

    Armchair–
    Yes, a global recession has knocked the stuffings out of the crude oil market. I contend that gathering conservation and substitution also played a role.

    That does not rule out the possibility that there was a concerted and successful effort to manipulate oil futures markets, 2004-2008.

    In fact, given that some powerful sovereign states derive most of their income from oil, would you not expect those states to manipulate markets, when possible?

    Comment by benny "MOAG" cole | January 28, 2009

  28. Optimist-I don’t have iron ore lellet prices going back 10 years, but it was a period of relative price stability. Anybody got the figs?Armchair–Yes, a global recession has knocked the stuffings out of the crude oil market. I contend that gathering conservation and substitution also played a role.That does not rule out the possibility that there was a concerted and successful effort to manipulate oil futures markets, 2004-2008. In fact, given that some powerful sovereign states derive most of their income from oil, would you not expect those states to manipulate markets, when possible?

    Comment by benny "MOAG" cole | January 28, 2009

  29. Robert, if you have any professional dignity you will start to seperate yourself from those people who do not tolerate opposing points of view.

    First off, sorry to hear of your banning. This is the first I have heard of it. You are more than welcome to post here, and you certainly wouldn’t be the first TOD refugee.

    If you notice, most of the contributors don’t spend too much time in the threads. The fact is, there is a vocal minority of nutters, and it seems like I have a penchant for drawing them out.

    My point is that the comment about ‘separating myself’ from the censors has been in progress for some time. People have different views on censorship, and I don’t spend much time posting in threads of those whose views are more tolerant of censorship. That is true of most contributors on the site.

    On the other hand there is a big audience to be reached there – which is why I am sure you spent your time posting there, rather than at a smaller site whose views may be more like your own. I don’t ask for anyone to be banned if they are critical of my essays. Most of the TOD staff feel exactly the same way. Those who post primarily in the essay commentary are not likely to be banned, but some areas are less tolerant than others.

    The point I am trying to make – and I am walking a fine line in making it – is that different people have influence over different parts of TOD. I can make a guess as to the circumstances of your banning, but I won’t. I will also continue to write essays for TOD, because I think people have been treated fairly in my threads – and I do want to reach that larger audience.

    To reiterate, you are always welcome here. I have only ever ‘banned’ one person, and I don’t think anyone would argue that it was unjustified.

    Cheers, Robert

    Comment by Robert Rapier | January 28, 2009

  30. Robert, if you have any professional dignity you will start to seperate yourself from those people who do not tolerate opposing points of view.First off, sorry to hear of your banning. This is the first I have heard of it. You are more than welcome to post here, and you certainly wouldn’t be the first TOD refugee. If you notice, most of the contributors don’t spend too much time in the threads. The fact is, there is a vocal minority of nutters, and it seems like I have a penchant for drawing them out. My point is that the comment about ‘separating myself’ from the censors has been in progress for some time. People have different views on censorship, and I don’t spend much time posting in threads of those whose views are more tolerant of censorship. That is true of most contributors on the site.On the other hand there is a big audience to be reached there – which is why I am sure you spent your time posting there, rather than at a smaller site whose views may be more like your own. I don’t ask for anyone to be banned if they are critical of my essays. Most of the TOD staff feel exactly the same way. Those who post primarily in the essay commentary are not likely to be banned, but some areas are less tolerant than others. The point I am trying to make – and I am walking a fine line in making it – is that different people have influence over different parts of TOD. I can make a guess as to the circumstances of your banning, but I won’t. I will also continue to write essays for TOD, because I think people have been treated fairly in my threads – and I do want to reach that larger audience. To reiterate, you are always welcome here. I have only ever ‘banned’ one person, and I don’t think anyone would argue that it was unjustified.Cheers, Robert

    Comment by Robert Rapier | January 28, 2009

  31. Easy Tiger Benny,
    There is a long way to go between suggesting that somebody would benefit from manipulating a given market, and proving something untoward happened.

    Just because certain entities (individuals, companies, countries, supporters of a given faith) make money (hand over fist) in certain market conditions does not prove anything, unsatisfying as it may be…

    Comment by Optimist | January 28, 2009

  32. Easy Tiger Benny,There is a long way to go between suggesting that somebody would benefit from manipulating a given market, and proving something untoward happened.Just because certain entities (individuals, companies, countries, supporters of a given faith) make money (hand over fist) in certain market conditions does not prove anything, unsatisfying as it may be…

    Comment by Optimist | January 28, 2009

  33. Optimist-
    Of course, you are right.
    What I always say is that I would expect oil-exporting nations to take advantage of the NYMEX, the media, any other tools available to game the system.
    It is in their interest to game the system. Some nations, such as Russia, are desperate for higher prices, and may actually collapse with lower prices.
    It is reasonable to expect Russia to manipulate crude oil prices, plant scare stories, fund a website or two, hire PR shops.

    Comment by benny "MOAG" cole | January 28, 2009

  34. Optimist-Of course, you are right. What I always say is that I would expect oil-exporting nations to take advantage of the NYMEX, the media, any other tools available to game the system.It is in their interest to game the system. Some nations, such as Russia, are desperate for higher prices, and may actually collapse with lower prices. It is reasonable to expect Russia to manipulate crude oil prices, plant scare stories, fund a website or two, hire PR shops.

    Comment by benny "MOAG" cole | January 28, 2009

  35. There’s only one thing Russia and OPEC can do which would raise the price of oil and that is reign in supply. They are all hoping someone else will reign in their supply.

    Comment by robert | January 28, 2009

  36. There’s only one thing Russia and OPEC can do which would raise the price of oil and that is reign in supply. They are all hoping someone else will reign in their supply.

    Comment by robert | January 28, 2009

  37. “That does not rule out the possibility that there was a concerted and successful effort to manipulate oil futures markets, 2004-2008.”

    But during that period OPEC production was up 14% (MEES, 28.3 to 32.2 mmbopd). Russian production was up about 19%. If these countries can manipulate markets, they probably aren’t very effective in doing so, and only then probably when demand is strong anyway. I don’t think even OPEC can make a silk purse out of a sow’s ear.

    Also I think if this were happening on the scale you suggest, we’d be hearing more about it. Someone would have talked. The book rights would be worth a lot of money. The larger the conspiracy, the more unlikely (and expensive to maintain) it is.

    Comment by armchair261 | January 28, 2009

  38. “That does not rule out the possibility that there was a concerted and successful effort to manipulate oil futures markets, 2004-2008.”But during that period OPEC production was up 14% (MEES, 28.3 to 32.2 mmbopd). Russian production was up about 19%. If these countries can manipulate markets, they probably aren’t very effective in doing so, and only then probably when demand is strong anyway. I don’t think even OPEC can make a silk purse out of a sow’s ear.Also I think if this were happening on the scale you suggest, we’d be hearing more about it. Someone would have talked. The book rights would be worth a lot of money. The larger the conspiracy, the more unlikely (and expensive to maintain) it is.

    Comment by armchair261 | January 28, 2009

  39. Armchair-
    Not sure there would have to be that many players. How many players need there be? Throw some laundered money at a website or two. Buy off a Simmons or a Kunstler by purchasing “consulting services” from them.
    Use PR shops to promote doomsters.
    Through LLCs or other legal cloaks, trade futures back and forth. The CFTC has already admitted it does not know the true origin of all trades.
    An MIT study concluded the 2008 price spike was speculative, but did not address the topic of manipulation.
    Suely, markets have been gamed in the past, and will again in the future. It is the nature of man.

    Comment by benny "MOAG" cole | January 28, 2009

  40. Armchair-Not sure there would have to be that many players. How many players need there be? Throw some laundered money at a website or two. Buy off a Simmons or a Kunstler by purchasing “consulting services” from them. Use PR shops to promote doomsters. Through LLCs or other legal cloaks, trade futures back and forth. The CFTC has already admitted it does not know the true origin of all trades.An MIT study concluded the 2008 price spike was speculative, but did not address the topic of manipulation. Suely, markets have been gamed in the past, and will again in the future. It is the nature of man.

    Comment by benny "MOAG" cole | January 28, 2009

  41. Benny,

    I do think it would take a lot of players. Traders are pretty sophisticated people and I kind of doubt that they would easily fall for such a plot. Buyers would be producing evidence to weaken seller positions, or they would have stopped buying and inventories would have built up. Lots of traders would have been getting strange buy and/or sell orders. Truly huge amounts of money would have to float around undetected. A Simmons or equivalent would talk. A PR house secretary would see a stray email.

    By the way, influential sources have come out both for and against the case for speculation as a driver. MIT says yes, the Economist says no, etc.

    Anyway, if this was going on, why did it take until the last few years for people to figure it out? Futures markets in oil have been going for 25 years or so now. We had flat prices for around 20 years in the 80’s through early 2000’s. Why no spikes then? And why not spike it up now, to, say, $80? And why did oil spike around the same time a lot of other commodities did? Were those industries also gaming the market, or was it just a coincidence? Are you claiming that wheat farmers or copper miners, and the governments that profit from them, are perfectly ethical, while oil industry players aren’t? It does seem reasonable that speculation played at least some role, at the very least in terms of providing market signals, but to me calling on a speculative plot as the major driver just doesn’t seem very logical.

    I think this is a case for Occam’s Razor. I guess I just don’t see why we need to call on such intrigue to raise prices. We don’t believe that thousands of realtors or lumber company CEO’s got together to pump up housing prices. We don’t believe that dotcoms took off because of some backroom plot. People follow trends and they want to make a quick buck. Others want to jump on the bandwagon. This is also human nature.

    Comment by armchair261 | January 29, 2009

  42. Benny,I do think it would take a lot of players. Traders are pretty sophisticated people and I kind of doubt that they would easily fall for such a plot. Buyers would be producing evidence to weaken seller positions, or they would have stopped buying and inventories would have built up. Lots of traders would have been getting strange buy and/or sell orders. Truly huge amounts of money would have to float around undetected. A Simmons or equivalent would talk. A PR house secretary would see a stray email. By the way, influential sources have come out both for and against the case for speculation as a driver. MIT says yes, the Economist says no, etc.Anyway, if this was going on, why did it take until the last few years for people to figure it out? Futures markets in oil have been going for 25 years or so now. We had flat prices for around 20 years in the 80’s through early 2000’s. Why no spikes then? And why not spike it up now, to, say, $80? And why did oil spike around the same time a lot of other commodities did? Were those industries also gaming the market, or was it just a coincidence? Are you claiming that wheat farmers or copper miners, and the governments that profit from them, are perfectly ethical, while oil industry players aren’t? It does seem reasonable that speculation played at least some role, at the very least in terms of providing market signals, but to me calling on a speculative plot as the major driver just doesn’t seem very logical. I think this is a case for Occam’s Razor. I guess I just don’t see why we need to call on such intrigue to raise prices. We don’t believe that thousands of realtors or lumber company CEO’s got together to pump up housing prices. We don’t believe that dotcoms took off because of some backroom plot. People follow trends and they want to make a quick buck. Others want to jump on the bandwagon. This is also human nature.

    Comment by armchair261 | January 29, 2009

  43. To theantidoomer:

    I was over at Peak Oil Debunked reading the comments after the most recent post. Something caught my eye that I think explains your banishment from TOD. I think this is what RR was getting at without coming right out and pointing fingers. Nate Hagens wrote “leanan has editorial privileges on DB (Drumbeat) and I trust her.” Nuff said.

    Comment by Ben | January 29, 2009

  44. To theantidoomer:I was over at Peak Oil Debunked reading the comments after the most recent post. Something caught my eye that I think explains your banishment from TOD. I think this is what RR was getting at without coming right out and pointing fingers. Nate Hagens wrote “leanan has editorial privileges on DB (Drumbeat) and I trust her.” Nuff said.

    Comment by Ben | January 29, 2009

  45. I’ve written a lot recently about the price of oil. It’s going down, and I think it’s going to go down even more. But that doesn’t mean oil is the answer to our longterm energy needs. It just means that this is the time to get serious about other energy sources.
    http://www.bloomberg.com/apps/news?pid=20601082&sid=a.s66cZPC1jY&refer=canada

    Meanwhile, a 2005 Harris survey found that three-quarters of all Americans (including 60% of Republicans) said that the environment must be protected regardless of cost. Translation: people want cheaper energy and a cleaner environment. Can we do both? We can and we should.

    But this is not only an energy and environmental issue we’re talking about. It’s a national security issue, too. Consider this:

    Today, 80 million barrels of oil are consumed per day throughout the world. How much of that does the US produce? Only 7.5 million. So where does the rest come from? It comes from tough neighborhoods of the world, like Russia, Iran, and Saudi Arabia.

    That’s not who I want to rely on for my energy supply. And that’s why now is the time to re-think alternative energy. The answer to our energy future? It’s blowing in the wind.

    -Randy Hill

    Comment by Randy Hill - Texas | January 29, 2009

  46. I’ve written a lot recently about the price of oil. It’s going down, and I think it’s going to go down even more. But that doesn’t mean oil is the answer to our longterm energy needs. It just means that this is the time to get serious about other energy sources.http://www.bloomberg.com/apps/news?pid=20601082&sid=a.s66cZPC1jY&refer=canadaMeanwhile, a 2005 Harris survey found that three-quarters of all Americans (including 60% of Republicans) said that the environment must be protected regardless of cost. Translation: people want cheaper energy and a cleaner environment. Can we do both? We can and we should.But this is not only an energy and environmental issue we’re talking about. It’s a national security issue, too. Consider this:Today, 80 million barrels of oil are consumed per day throughout the world. How much of that does the US produce? Only 7.5 million. So where does the rest come from? It comes from tough neighborhoods of the world, like Russia, Iran, and Saudi Arabia.That’s not who I want to rely on for my energy supply. And that’s why now is the time to re-think alternative energy. The answer to our energy future? It’s blowing in the wind.-Randy Hill

    Comment by Randy Hill - Texas | January 29, 2009

  47. With all due respect, Green E, that theory makes no sense.

    Explain how people who supposedly single-handedly drove oil prices to almost $150/bbl lost control overnight.

    Quit looking for a bogeyman! The markets for oil run on limited information (Thanks, OPEC!), making herd mentality that much easier to take root. There are no pills for that, unfortunately.

    Optimist,

    I don’t see how what you are saying is in any way incompatible with what I am saying.

    My only point was to try to examine how and why the price of oil went from $160/bbl to $40/bbl practically overnight. I guarantee that we didn’t see enough demand destruction quickly enough to account for the rapidity of the price shift. So that leaves us looking for other explanations, of which I proposed one. I didn’t mean to claim that the speculators were the sole, or even primary, cause of the high prices.

    Comment by GreenEngineer | January 29, 2009

  48. With all due respect, Green E, that theory makes no sense.Explain how people who supposedly single-handedly drove oil prices to almost $150/bbl lost control overnight.Quit looking for a bogeyman! The markets for oil run on limited information (Thanks, OPEC!), making herd mentality that much easier to take root. There are no pills for that, unfortunately.Optimist,I don’t see how what you are saying is in any way incompatible with what I am saying.My only point was to try to examine how and why the price of oil went from $160/bbl to $40/bbl practically overnight. I guarantee that we didn’t see enough demand destruction quickly enough to account for the rapidity of the price shift. So that leaves us looking for other explanations, of which I proposed one. I didn’t mean to claim that the speculators were the sole, or even primary, cause of the high prices.

    Comment by GreenEngineer | January 29, 2009

  49. Well they finally did it. The jerks at The Oil Drum banned me for no particular reason

    Comment by kraltvmp3 | February 1, 2009

  50. Well they finally did it. The jerks at The Oil Drum banned me for no particular reason

    Comment by kraltvmp3 | February 1, 2009

  51. Look.. put any spin on it you like, it is simple GREED!!! I can understand that when oil shot up over 140/barrel we paid through our nostrils, but when you look at the postings of profits there is a very skewed mathamatical calculation.

    Oil is below 40/barrel now, yet the price is on the rise. I’m sure we’re just get’n our usual screwing from big oil companies. They do not care. Diesel was always lower then regular gas for almost my entire life, then all of a sudden boom!! up it goes????? Amazingly here in NJ diesel, and heating oil for that matter *same but heating oil is dyed and dirtier* have dropped. While gas goes up, diesel comes down?? Who is anyone trying to kid????? Again.. GREED GREED GREED!!!!!!!

    Comment by Rick W2ICA | February 18, 2009

  52. Look.. put any spin on it you like, it is simple GREED!!! I can understand that when oil shot up over 140/barrel we paid through our nostrils, but when you look at the postings of profits there is a very skewed mathamatical calculation.Oil is below 40/barrel now, yet the price is on the rise. I’m sure we’re just get’n our usual screwing from big oil companies. They do not care. Diesel was always lower then regular gas for almost my entire life, then all of a sudden boom!! up it goes????? Amazingly here in NJ diesel, and heating oil for that matter *same but heating oil is dyed and dirtier* have dropped. While gas goes up, diesel comes down?? Who is anyone trying to kid????? Again.. GREED GREED GREED!!!!!!!

    Comment by Rick W2ICA | February 18, 2009

  53. Who is anyone trying to kid????? Again.. GREED GREED GREED!!!!!!!

    Rick, all companies are greedy insofar as they are trying to make as much money as they can. But you are kidding yourself if you think U.S. oil companies have much control over the price of oil and gas. That is set by the market; they are price takers, not price makers. Otherwise, profits wouldn’t be so incredibly cyclical. Who would give up $30 margins willingly? But margins on a barrel of oil have evaporated.

    OPEC has more control over prices, but there is enough spare capacity right now that they can’t seem to push the price back up. Give them time, and they will.

    RR

    Comment by Robert Rapier | February 19, 2009

  54. Who is anyone trying to kid????? Again.. GREED GREED GREED!!!!!!!Rick, all companies are greedy insofar as they are trying to make as much money as they can. But you are kidding yourself if you think U.S. oil companies have much control over the price of oil and gas. That is set by the market; they are price takers, not price makers. Otherwise, profits wouldn’t be so incredibly cyclical. Who would give up $30 margins willingly? But margins on a barrel of oil have evaporated.OPEC has more control over prices, but there is enough spare capacity right now that they can’t seem to push the price back up. Give them time, and they will.RR

    Comment by Robert Rapier | February 19, 2009


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