Crude Prices Up, But Gas Prices Are Down

The price of crude oil has been hovering around $70 a barrel for the last week; meanwhile gasoline pump prices in the U.S. and Canada are down by about a nickel a gallon or 1 cent per liter during that same time. The average price for a gallon of gasoline is $2.63 today per the AAA fuel gauge report. Montana’s gasoline prices are averaging $2.71, barely nudging down from the price a week ago.

If there seems to be no correlation between the two, it is because U.S. and Canadian refineries are just now running crude oil they purchased earlier this year. The typical shelf time in shipping from the well to the refinery is about six weeks and crude oil in the tank at the refineries is still at around $40 a barrel. So who do we blame? The greedy oil companies, those evil Wall Street speculators or is it just plain simple Gasoline Marketing 101?

Crude oil accounts for 55 percent of the cost of gasoline. The other big chunk is the federal, state and local taxes, which make up 24 percent of the cost. Then we add refining costs and profits of 15 percent to the cost of gasoline. Distribution and marketing costs made up the final 6 percent of the cost.

The Petroleum Marketers Association reports the profit margin at each local gas station of between 3 and 15 cents per gallon of gasoline.

Yesterday morning we waited for the release of the weekly Department of Energy's inventory statistics, which will give some direction to the market. Other factors may be at work as well with a myriad of glitches at U.S. refineries spooking the traders into shoring up their deals before the July 4th weekend. With just three trading days left in the week no one would knowingly get caught at the end of a short stick in keeping physical product flowing into their tanks.

Armed conflicts and threats around the world are receiving the usual buzz by the paper traders and one that is having an immediate affect is in Nigeria. That has resulted in almost 1 million barrels per day of crude oil being cut off from being shipped to the U.S.

The Shell Oil platform and shipping terminal in the Niger Delta was blown up by militants last weekend interrupting vitally needed crude oil from being loaded. The Nigerian government has desperately been trying to deal with the situation and has even offered amnesty to the dissidents if they lay down their arms.

Speculators are hard at work trying to make money by betting on any outcome. But the old adage that “For every winner, there is a loser” applies to the investment business just like it does in sports.

Disclosure: The writer has no investment in any of the stocks or commodities in this article.

Comments

[Gdub53:]

gas prices ARE NOT down

Jul 02 12:40 PM

[G. L. Turner:]

Let's see...The Major Retailers will raise their prices overnight at teh pump, reflecting the previous day's close...Yet, when the prices drop - RBOB, as drop a lot - almost 28 cents since Wednesday two weeks ago - the prices "CAN'T" fall, due to all the bs reasons listed above...

We saw a 5 cents drop last Sunday, and that's it! We are getting screwed at every turn...

Obama needs to break up the 3 oil mergers Bush and Cheny shoved through the Justice Dept. w/o review - In hindsight, anti-trust ahs viloated - just think - gasoline, had averaged at least double to triple the price that it was at the time of the merger, even when oil was low.
I'd say that qualifies as "violation of Anti-Trust"...another attribute of the Bush Legacy...
GT

Jul 02 06:24 PM

[Bob van der...:]

Gasoline prices at the pump have dropped almost insignificantly when compared to the spot market in the last two weeks. Pump prices did drop a nickel a gallon last week but the spot market dropped 20 cents per gallon at the same time. It is known in our business as the "Shoot up like a rocket, drift down like a feather" effect. Right now the the unbranded independent station owners, who can buy open rack gasoline, have margins of over 30 cents per gallon. Meanwhile the branded major oil company stations are netting about 10 cents per gallon. The inverse was true in the up market but these higher margins for the independent unbranded stations keeps the branded major oil company stations competitive. Otherwise we could be right at $4 per gallon right now.

Various newspapers are reporting that demand for the July 4th weekend is expected to be down and gas prices will therefore continue to go down as well. I am still holding to my prediction that the peak in gas prices will be reached by sometime in the middle of August at around $3.25 per gallon (give or take a dime) then start easing down again after Labor Day and by Thanksgiving we will see the $2 per gallon price on the pumps again.

Jul 03 08:27 AM