Can someone please explain the price of gas to me?

[Masked Bandit]

From a layman's perspective, it seems that more or less, when the price of oil is up, the price at the pumps is up. When the price of oil falls to half it's value, the price of gas took a pretty healthy drop at the pumps as well. So why has the price of gas jumped ~20 cents / litre in the last week or two?

[codetrap]

Because greed.

[hampstor]

Originally posted by Masked Bandit
From a layman's perspective, it seems that more or less, when the price of oil is up, the price at the pumps is up. When the price of oil falls to half it's value, the price of gas took a pretty healthy drop at the pumps as well. So why has the price of gas jumped ~20 cents / litre in the last week or two?

There is a strike at a major refinery in the US.



The plants on strike account for 10 percent of U.S. refinery capacity. One site has curbed production and a full walkout of USW workers would threaten to disrupt as much as 64 percent of U.S. fuel output. Union leaders haven’t called a strike nationally since 1980, when a stoppage lasted three months. Shell and union officials began negotiations on Jan. 21 amid the biggest collapse in oil prices since 2008

http://www.bloomberg.com/news/articles/2015-02-03/shell-meets-with-u-s-oil-workers-union-as-strike-shuts-refinery

[Nitro5]

You see when oil drops they say that the price stays up for gas because they have paid a higher price for the for the oil that made the gas 'in the ground.'

But when oil goes up they raise the price right away because...winning?

[schocker]

Here is from NRC report via shell, crude price is just a small part of the price of gasoline:



1. What makes up the price of a litre of Shell gasoline?
Breakdown fuel cost

Four costs go into Shell's pump price: crude oil, taxes, refiner margin, and marketing margin.

Gasoline prices go up and down over time and vary from place to place, so the price breakdown for a litre of gasoline also varies.

40 - 55 per cent is crude oil costs (the raw material for making gasoline and diesel fuel)
25 - 35 per cent is federal, provincial and municipal taxes and the GST
10 - 25 per cent is the refiner's margin (the difference between what it costs to buy crude oil and the price refined gasoline sells for in the wholesale market which, in turn, is influenced by supply and demand)
4 - 6 per cent is the marketing (or retail) margin that covers retail stations’ expenses and profits.

Source: Natural Resources Canada Fuel Focus Reports, 2007-2008


They didn't include transportation though, I am guessing that is in the refiner's margin?

[lilmira]

because even the janitors working for O&G industry get paid more than others?

[jdmakkord]

I wonder if they purchase their fuel in USD? The weak dollar could be driving the prices up due to exchange.

[ExtraSlow]

Fuel is marketed much like any other commodity. Most of the stations in Western Canada are independently and locally operated. So the final sale price is set by some dude right hewre in cow-town. But that dude has a lot on his mind:
- How much he's paying for bulk fuel (this is where the price of oil, refinery strikes etc come in)
- What other retailers in his area are charging or likely to charge
- how his inventory level looks
- How much he's likely to sell in the next few days
- what his total profit will look like if he is 1c/L more or less expensive than his nearby competitors


In the end, profit from fuel is a pretty small part of the profit from running a gas station, they make more off the snacks, smokes, lottery and car washes.

I don't understand the fascination with the price of gas. We pay much higher markups on virtually every other item we buy in our daily lives. Groceries, clothing, toothpaste, yep yep yep. The huge proliferation of independently run gas stations ensures we have a very competitive market, and that it's virtually impossible for any kind of longer-term price manipulation.

[syscal]

Originally posted by codetrap
Because greed.



Originally posted by Nitro5
But when oil goes up they raise the price right away because...winning?



Originally posted by lilmira
because even the janitors working for O&G industry get paid more than others?

[Aleks]

Originally posted by ExtraSlow
Fuel is marketed much like any other commodity. Most of the stations in Western Canada are independently and locally operated. So the final sale price is set by some dude right hewre in cow-town. But that dude has a lot on his mind:
- How much he's paying for bulk fuel (this is where the price of oil, refinery strikes etc come in)
- What other retailers in his area are charging or likely to charge
- how his inventory level looks
- How much he's likely to sell in the next few days
- what his total profit will look like if he is 1c/L more or less expensive than his nearby competitors


In the end, profit from fuel is a pretty small part of the profit from running a gas station, they make more off the snacks, smokes, lottery and car washes.

I don't understand the fascination with the price of gas. We pay much higher markups on virtually every other item we buy in our daily lives. Groceries, clothing, toothpaste, yep yep yep. The huge proliferation of independently run gas stations ensures we have a very competitive market, and that it's virtually impossible for any kind of longer-term price manipulation.


This is a great explanation but greedy O&G companies including their baller janitors is a much better story.

[Canmorite]

I love how O&G gets the blame. O&G companies don't set the price of crude, or price at the pump. Gasoline is a commodity like crude, and is traded the same way. This isn't Venezuela with one company controlling everything, there's far too many producers in NA to 'rig' the price.

http://www.cmegroup.com/trading/energy/refined-products/rbob-gasoline.html

The crack spread has widened out because of strikes at refineries, which is great for refineries without striking workers. Interesting move by the USW and good timing on their part. Could you imagine the public outrage if they had striked when prices were $1.40/L?

[ExtraSlow]

What's interesting to me is that when anyone involved with the supply of fuel makes a profit, it's automatically "greed".
I assume that other industries don't seek profit for their employees or shareholders?

[lasimmon]

Isn't our gas refined in Alberta? Why would a USA refinery strike affect us?

[khanan]

What about OPEC? When do they come in the big picture?

[icky2unk]

Originally posted by Canmorite
I love how O&G gets the blame. O&G companies don't set the price of crude, or price at the pump. Gasoline is a commodity like crude, and is traded the same way. This isn't Venezuela with one company controlling everything, there's far too many producers in NA to 'rig' the price.

http://www.cmegroup.com/trading/energy/refined-products/rbob-gasoline.html

The crack spread has widened out because of strikes at refineries, which is great for refineries without striking workers. Interesting move by the USW and good timing on their part. Could you imagine the public outrage if they had striked when prices were $1.40/L?

Finally someone posted the RBOB price and not WTI.

[riander5]

Nickel shortage?

[ZenOps]

Originally posted by riander5
Nickel shortage?

Theres a conspiracy theory, how in the world is a finished round beaver worth less the the raw commodity.

But really, gasoline is a finished product. Wheat is $250 per ton today, but a one pound loaf of bread is hitting $5. Iron ore may have been $13 per ton a decade ago, but finished cold rolled steel can be as much as $1,000.

If you could put raw crude in your tank, it would only cost $310 per ton.

[ZenOps]

Side note: I'm liking the electricity desparity right about now (loosely linked to natgas price) 4 cents per kwh is outright awesome compared to the near 40 cents that Hawaiian welfare recipients have to pay.

[benyl]

Yeah, I would complain more about the 12 year low in electricity prices that aren't being passed on to customers.

[Thales of Miletus]

Because the people at Big Oil ensure that there is only enough refinery production to meet the demand. One refinery goes down and it causes a shortage.

This is called collusion and is why the rich are getting richer and the rest of the population is joining the serfs.

[killramos]

Originally posted by Thales of Miletus
Because the people at Big Oil ensure that there is only enough refinery production to meet the demand.

This is called collusion...

No its called good business :facepalm:

I think i need more than 2 hands to count the number of IQ points this guy is losing on a weekly basis :rolleyes:

[Brent.ff]

Originally posted by ExtraSlow
Fuel is marketed much like any other commodity. Most of the stations in Western Canada are independently and locally operated. So the final sale price is set by some dude right hewre in cow-town. But that dude has a lot on his mind:
- How much he's paying for bulk fuel (this is where the price of oil, refinery strikes etc come in)
- What other retailers in his area are charging or likely to charge
- how his inventory level looks
- How much he's likely to sell in the next few days
- what his total profit will look like if he is 1c/L more or less expensive than his nearby competitors


In the end, profit from fuel is a pretty small part of the profit from running a gas station, they make more off the snacks, smokes, lottery and car washes.

I don't understand the fascination with the price of gas. We pay much higher markups on virtually every other item we buy in our daily lives. Groceries, clothing, toothpaste, yep yep yep. The huge proliferation of independently run gas stations ensures we have a very competitive market, and that it's virtually impossible for any kind of longer-term price manipulation.

I'm surprised you don't see more gas stations dropping their price by ~5 cents a litre compared to their neighbor, just to get more people in the door. Do a 5 cent a litre drop, but don't allow pay at the pump so people have to come in.

[ExtraSlow]

Shell has a version of this, big air miles bonuses if you spend at least $5 in the store on non-fuel items.

[pheoxs]

Originally posted by Brent.ff


I'm surprised you don't see more gas stations dropping their price by ~5 cents a litre compared to their neighbor, just to get more people in the door. Do a 5 cent a litre drop, but don't allow pay at the pump so people have to come in.

Except as soon as you drop it, your neighbours do too. Then what, you all sell the same amount of gas at a lower price.

[carson blocks]

Originally posted by Thales of Miletus
Because the people at Big Oil ensure that there is only enough refinery production to meet the demand. One refinery goes down and it causes a shortage.

This is called collusion and is why the rich are getting richer and the rest of the population is joining the serfs.

It's not called collusion, it's called basic capitalism, it's simply supply and demand. Imagine for a second you were a productive individual who owned a company that actually produced something (I know, gigantic stretch here).

Let's call your company the 'Tales of Analingus synthetic phallus corp', and say you produce the biggest, blackest dildos on the planet. Would you choose to pay to produce way more product than you think there will be demand for, just to keep prices low because you're a goddamned philanthropist? Burn your capital on raw materials and labour just to have the veiny fuckers sit in a warehouse for months, costing you money to store them every single day until you were forced to unload them at a lower price to free up either space or capital? If you ran your business like that, your 'Tales of Analingus' corp would be broke in no time.

If you were a smart businessman, you'd try to guess just how many plastic peckers and rubber fists you'd have a market for and produce just that many, minimizing your capital usage, storage costs, deferring your labour costs until you could actually sell your product to connoisseurs such as yourself.

You claim to be such a smart guy, read some business books, bone up on basic business, supply and demand, lean manufacturing, JIT production, etc. All companies are in business to make money. Their shareholders demand returns, not cheap products for all, just to be nice. Just because it's a product we all buy and use doesn't make it evil to make a buck doing it.

[ExtraSlow]

Carson, you are looking at this all wrong. Refiners should build more refineries, and let them sit idle, just so that for the few weeks a year when other refiners are down for maintenance, you can ramp up and supply the market. Because profits don't matter, supplying the consumer matters.

[ExtraSlow]

Decent article about how poor the economics are for building new refineries.
http://www.macleans.ca/economy/economicanalysis/why-building-a-massive-oil-sands-refinery-would-be-a-bad-idea/

[ZenOps]

Its been suggested that oil and gasoline are for the most part, always losing money, even at $100 per bbl.

Yes, thats right - always losing money. Goverments heavily subsidize the pricing to keep people productive. For every barrel that is burned in a helicopter joyride, half of the money is spent by governments in ever increasing debts.

Spending three hours in a commute to and from work in major cities could also be considered completely wasted time each day. Not only that, the 20 million barrels of oil (3 million tons) that the US consumed today will not be useable for the future. At roughly $48 per bbl, the US spends approximately $1 Billion each day of which arguably most of it simply is used to move a 180 pound person from one location to another.

There does come a point where one begins to ask. Is it really worth it to send up a satellite if its going to cost $500 million each time? Is it really worth a Trillion dollars to send a man on the moon. Exactly what return on investment is achieved? Ego? Employing white shirt and tie wearing mathemeticians and physicists? What return on investment is there in building 40,000 nukes?

But: At least they finally got around to aluminum vehicles (Ford F-150) Seven hundred pounds less weight over the life of the vehicle is a step in the right direction in something that is 99.9% assured of being recycled at end of usefulness.

Of far more interest to me is the fact that the Canadian Crown has removed 3 tons of nickel each day for the last 12 years, 3 million tons of carbon per day is suprisingly easily replaceable and can shift a bit to provide another million tons per day without huge levels of disruption.

But once the nickel is gone, like gold and silver - it never comes back.

http://www.usdebtclock.org/ Total US per family debt: $732,614 of which arguably most of it is carbon debt. I have no doubt the US will attempt to pay it back at negative 1% interest rate over a period of seventy years (US will actually be paid money for every dollar they owe) Or at least for as long as they can convince the world that negative interest rates are not legalized theft from savers. Canada at 160% debt to GDP can also attempt negative interest rates.

The more you owe, the more you make - gotta love negative interest rates! I'd like to borrow a million dollars at negative 1% interest rate please yessir!

[R154]

Originally posted by carson blocks


It's not called collusion, it's called basic capitalism, it's simply supply and demand. Imagine for a second you were a productive individual who owned a company that actually produced something (I know, gigantic stretch here).

Let's call your company the 'Tales of Analingus synthetic phallus corp', and say you produce the biggest, blackest dildos on the planet. Would you choose to pay to produce way more product than you think there will be demand for, just to keep prices low because you're a goddamned philanthropist? Burn your capital on raw materials and labour just to have the veiny fuckers sit in a warehouse for months, costing you money to store them every single day until you were forced to unload them at a lower price to free up either space or capital? If you ran your business like that, your 'Tales of Analingus' corp would be broke in no time.

If you were a smart businessman, you'd try to guess just how many plastic peckers and rubber fists you'd have a market for and produce just that many, minimizing your capital usage, storage costs, deferring your labour costs until you could actually sell your product to connoisseurs such as yourself.

You claim to be such a smart guy, read some business books, bone up on basic business, supply and demand, lean manufacturing, JIT production, etc. All companies are in business to make money. Their shareholders demand returns, not cheap products for all, just to be nice. Just because it's a product we all buy and use doesn't make it evil to make a buck doing it.


10/10 for execution and style.

If that fucker was shorter it'd be in the sig.

[Feruk]

Originally posted by Thales of Miletus
Because the people at Big Oil ensure that there is only enough refinery production to meet the demand. One refinery goes down and it causes a shortage.

This is called collusion and is why the rich are getting richer and the rest of the population is joining the serfs.
Daily supply is pretty much the same. So if they're not selling it, and instead are ensuring they "just meet the demand", then where is all this excess oil disappearing to, Mr. Beyond resident genius?

[FraserB]

Originally posted by Thales of Miletus
Because the people at Big Oil ensure that there is only enough refinery production to meet the demand. One refinery goes down and it causes a shortage.

This is called collusion and is why the rich are getting richer and the rest of the population is joining the serfs.

No, its because the same unions you like to beat off are on strike. Still support them now that they are hitting your wallet?

Its also because margins are so ythin on refining and the so great to build one, no one is too keen to do it.

[ZenOps]

Gas pricing also depends heavily on government subsidy.

Venezuela mandated $0.09 per gallon for gasoline, or about two cents per litre. That does not make it a paradise however.

They do have an abundance of oil, and really - they are kind of pricing in rarity as *they* see it. Oil there is excess *each day* of half a million tons (I prefer to state tons nowadays to barrels because the perception of a barrel seems to get lost in translation) How much does a 50-pound copper coil with circulating refridgerant (air conditioning unit) go for in Venezuela? Thousands of US dollars.

http://www.bbc.com/news/world-latin-america-24883849

People here tend to laugh at 2 cent per litre gas and $8,000 breadbox air conditioner, but if you look at it from a tonnage mile high objective viewpoint - its probably a lot closer to what prices *should* be at if purely based on rarity.

The US is far more likely to "put it on the tab" than Canada. They put everything on tab on the US, paid trips to the moon, free food, hawaiian welfare, gasoline subsidies... I can imagine that if they do not introduce negative interest rates soon, each family in the US will be owing $1,000,000 in oustanding debts before the decade is out (which is probably about the time they will make it illegal to recind a US citizenship)

Will people pay back their debts, or will people just try to start WWIII to weasel their way out of it by killing the Khadafis of the world to whom they owe the money? Who knows, but a wise man once said "never a lender be" and "If I owe you a million dollars its my problem, If I owe you a billion dollars its your problem."

[Maxt]

Originally posted by ZenOps
Gas pricing also depends heavily on government subsidy.

Venezuela mandated $0.09 per gallon for gasoline, or about two cents per litre. That does not make it a paradise however.


http://www.bbc.com/news/world-latin-america-24883849



http://business.financialpost.com/2015/02/05/condoms-at-us755-show-venezuela-reeling-from-plunging-oil-prices/