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Who’s To Blame For High Gasoline Prices?

May 25, 2018

Who’s To Blame For High Gasoline Prices?

Fuel Pump

As retail gasoline prices rise to $3 per gallon across the United States, gas prices are a hot political topic in Washington once again, with the Democrats hoping to slam Donald Trump for causing pain at the pump and Republicans trying to shift blame back on their opponents.

High gasoline prices have long presented dangers for politicians, particularly for those in power when prices rise. The debates often make for great political theater, although they typically fall far short on the substance.

The spike in crude oil prices in 2008, during the heat of the presidential election, popularized the “drill, baby, drill” slogan and also led to calls from both Senators John McCain and Hillary Clinton for a “gas tax holiday” – a temporary suspension in federal gas taxes.

During the Arab Spring in 2011, and the outage of oil supply in Libya, prices spiked again. Republicans blamed former President Obama for high prices, charging that his refusal to allow more drilling caused prices to rise. His release of oil from the strategic petroleum reserve also came under criticism. Years later, when prices crashed because of the oil market downturn, Obama took credit for low gasoline prices.

We haven’t heard much about gas prices since 2014, but with WTI over $70 and gasoline back to $3 per gallon, suddenly it is a hot topic again.

The Democrats held a press conference on Wednesday in front of an ExxonMobil gas station in Washington to blast the Trump administration for high gasoline prices. “It’s time for this president to stand up to OPEC,” Senate minority leader Chuck Schumer said. That was accompanied by a letter by several top Democratic Senators asking Trump to “pressure” OPEC to “increase world oil supplies in order to lower prices at the pump during the upcoming summer driving season.” They noted that the run up in gas prices could cancel out the benefits of the tax cuts from last year.

…click on the above link to read the rest of the article…

Why Lower Gasoline Prices Are Not Stimulating Economy

January 27, 2016

Why Lower Gasoline Prices Are Not Stimulating Economy

Chart In Focus

Fed officials and financial news reporters are collectively wondering why the economy seems to be slowing down, even though lower oil and gasoline prices ought to be a stimulative factor.  If consumers are spending less of their money on gasoline, then they ought to have more to spend on other stuff, or so goes the reasoning.  So why is it not working?

The problem is one of magnitude, and most analysts fail to take the time to do the math.  So at the risk of boring you with arithmetic, let’s look at some important numbers, with a bit of back-of-the-envelope math.

The EIA publishes data on consumption for a variety of energy products, including gasoline.  In November 2015 for example (the most recent month for which there are data), Americans consumed gasoline at a rate of 358 million gallons per day.  The 12-month average is 360 million gallons.  That sounds like a really large number, but when you realize that there are roughly 322 million resident Americans, that works out to 1.11 gallons per day for every American.

The chart above shows the trend for that data.  The high prices of just a couple of years ago sent people into dealerships to buy Priuses, Volts, Teslas, and other electrified cars to avoid paying high gasoline prices.  But the falling prices for automobile fuel are making consumers eschew those more efficient choices, and consume more gasoline.  They are also consuming more diesel, which is not part of these computations, but it is nevertheless a real factor.

Looking at the math, if the price of gasoline drops from $3.00 to $2.00 (round numbers to make the math easier), that means an extra $1.11 in your pocket every day, assuming you are the average man, woman, and child in America.

…click on the above link to read the rest of the article…

How Tories Dumped Your Interests at the Pump

October 6, 2015

How Tories Dumped Your Interests at the Pump

Oil is cheaper by half. So why don’t feds try and deliver savings to drivers?

Oil prices have plunged by 50 per cent since last year, but you would never know that looking at what people are paying at the pump. What gives?

Don’t ask the Conservatives. They halted the department in charge of telling us how much their Big Oil backers are profiting from those market-defying high prices.

When will the feds return to the business of revealing just how much we are getting screwed? The day this election is over, they say.

It’s a prime example of preemptory political damage control, and here are the details:

There is a quaint term in the oil refining business called the “crack spread.” This is the profit margin between the cost of buying crude oil and the retail price of produced gasoline. The “crack spread” keeps widening as Canadian consumers as they shell out almost as much per litre even though crude oil prices are roughly half what they were a year ago.

According to research by economist Robyn Allan, this yardstick of gas pump profit margins ballooned by 87 per cent above the 14-year industry average of 17.7 cents. Canadians buy over 43 billion litres of gas per year, so this year’s yawning crack spread adds up to big money for refiners. Canadians are on track to shell out over $5 billion in extra money to the oil industry in 2015 due to this apparent price-gouging at the pumps.

And what is the Harper government doing to protect Canadian consumers from such predatory profiteering? Making sure you don’t hear about it. Natural Resources Canada (NRCan) regularly publishes their Fuel Focusreport every two weeks detailing gas prices and refinery margins. That was until last summer.

…click on the above link to read the rest of the article…

Oil prices are down, gasoline prices are not. What gives?

July 24, 2015

Oil prices are down, gasoline prices are not. What gives?

It’s a good summer to be selling gasoline, not a great one to be buying it

In mid-February, the price of oil hovered around $50 US a barrel, and a litre of gasoline cost, on average, $1.01 Cdn.

This week, the price of oil is hovering around $50 a barrel and the average price of a litre of gasoline is $1.22. A few small things have changed over that five-month period: the Canadian dollar is lower by about three cents; Alberta has added a four cent tax to gasoline bought in that province.

But the big difference is that refineries are making a killing this summer.

Refining margins are the difference between the cost of crude oil and the cost of wholesale gasoline.

‘We’re at that part of the summer where demand for gasoline is never going to be stronger.’ – Stephen Schork, Schork Report

Both Canadian and U.S. refining margins are running at seven- and eight -year highs. In Canada last month, the refining margin was 27.7 cents per litre according to data compiled by Michael Ervin of the Kent Group.

“We’re at that part of the summer where demand for gasoline is never going to be stronger,” said Stephen Schork, editor of the Schork Report, which is focused on commodities.

“We’re at the height of the northern-hemisphere peak-demand season.”

Demand for gasoline is high

Demand for gasoline is indeed very high this summer. According to the U.S. Energy Information Administration, gasoline demand is nearly seven per cent higher than it was a year ago. That’s a significant increase.

Refiners are going full steam right now, at over 90 per cent capacity, in order to keep up with demand.

 

 

The Confessions Begin: Goldman, BofA Warn Crude Crash Will Have Negative Impact On GDP, Earnings

January 13, 2015

The Confessions Begin: Goldman, BofA Warn Crude Crash Will Have Negative Impact On GDP, Earnings

The plunge in oil prices is unambiguously good for the US economy

– Virtually every “pundit” with a business suit, who collected a $200 CNBC appearance in the past 3 months

A week ago we showed that, using Gallup polling data, the crude crush has clearly led to a “spending surge” among US consumers: whereas a year ago all US consumers spent $96 per day, this December, with crude and gasoline prices roughly half off, Americans spent a self-reported whopping, drumroll, $98 per day.

Worse, as is well-known the biggest marginal beneficiary of low gas prices are not wealthy US consumers, for whom the elasticity of gasoline (and crude) prices is irrelevant, but poorer households, those making under $90,000 a year. It is here that the spending spree was an even more unprecedented $1 more, from $84 a year ago to $85.

…click on the above link to read the rest of the article…

 

The Gasoline Price Myth

January 3, 2015

The Gasoline Price Myth.

“If you repeat a falsehood long enough, it will eventually be accepted as fact.”

In the financial markets and economics it is a common occurrence that the media and commentators will latch on to a statement that supports a cognitive bias and then repeat that statement until it is a universally accepted truth.

When such a statement becomes universally accepted and unquestioned, well, that is when I begin to question it.

One of those statements has been in regards to plunging oil prices. The majority of analysts and economists have been ratcheting up expectations for the economy and the markets on the back of lower energy costs. The argument is that lower oil prices lead to lower gasoline prices that give consumers more money to spend. The argument seems to be entirely logical since we know that roughly 80% of households in America effectively live paycheck-to-paycheck meaning they will spend, rather than save, any extra disposable income.

As an example, Steve LeVine recently wrote:

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What Low Oil Prices Mean For The U.S. Economy

November 25, 2014

What Low Oil Prices Mean For The U.S. Economy.

For the last 4 years, the national average retail price of gasoline in the United States stayed within a range of $3.25-$4.00 a gallon. But that all changed this fall, with U.S. consumers now paying an average price of $2.82.

72 Month Average Retail Price Chart

This usually is the time of year when gasoline prices tend to be at their lowest. But the current U.S. price of gasoline is exactly what we’d predict given the long-run relation between the price of gasoline and crude oil. There’s essentially no seasonal component in the price of crude. In other words, if crude stays at its current value (namely, Brent at $80), the lower price of gasoline is here to stay.

The current price of gasoline is 80 cents/gallon below what it has averaged over the last 3 years. Last year Americans consumed 135 billion gallons of gasoline. That means that if prices stay where they are, consumers will have an extra $108 billion each year to spend on other things. And if the historical pattern holds, spend it they will.

…click on the above link to read the rest of the article…

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