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2008-10-23 Home Front Economy

US stocks, oil prices continue free fall

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Posted by Fred 2008-10-23 00:00|| || Front Page|| [11134 views ] Top

#1 That works out to gas at $2.12 a gallon ($65 a barrel / 40 gallons= $1.62 a gallon of crude, plus 50 cents a gallon processing and transportation). I saw $2.64 at the pump today, so we're still being overcharged about 50 cents a gallon as the overpriced stock is being used up.

A lot of refiners and wholesale crude purchasers entered into requirements contracts on the rising side of the bubble. I wouldn't want to hazard a guess as to the length of the impact or the portion of the total market but around here a number of producers locked in multi-year deals in the high 90s to low 100s on the way up. A couple of wholesale buyers here have already gone under as a result. Expect to see at least minor disconnects in the gasoline market caused by these sorts of problems between the wellhead and the pump for a while.

Posted by AzCat 2008-10-23 03:50|| 2008-10-23 03:50|| Front Page Top

#2 Don't forget to add two-bits or so for federal and state taxes, and another dime for regulations requiring local blends or additives that restrict supply or production.

Posted by rammer">rammer 2008-10-23 08:11|| www.blogoram.com]">[www.blogoram.com] 2008-10-23 08:11|| Front Page Top

#3 Just got back from Oakland CA and they are paying $3.49 a gallon.

And they have a refinery in Modesto that is 20 miles away. So I think AzCat may be on to something.
They are using FILO Accounting methods or something.

Posted by bigjim-ky 2008-10-23 09:48|| 2008-10-23 09:48|| Front Page Top

#4 Gas is dropping like a rock here in CO. Just fell under $2.70 at a couple discount places.

Posted by DarthVader 2008-10-23 10:59|| 2008-10-23 10:59|| Front Page Top

#5 2.57 at the cheapest pump in town just south of Boston. Down a buck since the price bump over Ike, which was about a six weeks ago. Ranges between 2.57 to 2.69.

Posted by tu3031 2008-10-23 11:04|| 2008-10-23 11:04|| Front Page Top

#6 That's about what we're paying in NKY. $2.58 or thereabouts.

Posted by bigjim-ky 2008-10-23 12:02|| 2008-10-23 12:02|| Front Page Top

#7 Fred, I can think of only three ways to get to $8 crude:
1) Massive new discoveries - highly unlikely.
2) Alternative energy development - likely eventually, but probably not before most of the oil is gone.
3) Total economic collapse - the only truly plausible way to get prices down that low, and I don't think we want to go there.

I'm still not driving a foot more than I have to. For one thing, who knows whether we'll have pay checks next month?

Always a good plan. I'm in the oil business and spent 1982-98 following it as something like 75% of my colleagues lost their jobs. I still drive as few feet as possible - good habit.

You indicate $2.64 is a 50 cent 'overcharge' (and I think your cost approximations are decent estimates): that works out to about a 20% margin - what margin would not be an overcharge? For once, a big part of the margin is going to the end marketers, who have been struggling to stay solvent for years. If they make 40 cents per gallon margin for the rest of the year they will likely actually make a profit for the year.

Posted by Glenmore 2008-10-23 13:50|| 2008-10-23 13:50|| Front Page Top

#8 DOE's breakdown doesn't differentiate between refining costs and profits (which it says is 17% of the retail cost). It also gives a distribution cost plus marketing and retail profits fraction of 10%.

(I suspect they don't really want you to know how little margin refiners have. I doubt anyone's getting rich at refineries; the corner gas station typically makes its profit margins off of soda pop).

See here, albeit with a grain of salt:

[http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/].

Posted by Tranquilized Mechanical Yeti 2008-10-23 14:02|| 2008-10-23 14:02|| Front Page Top

#9 Let's also not ignore that senior management's cut is figured in the operating costs and every transaction in the process from exploration, extraction, transportation, refining, transportation [part II] and distribution, not just general administration. That gets hidden in the 'overhead'. You think the senior management of the corporations pay is tied to market vagaries? Move that little accounting line from costs write off to the profit column and then see the change.

Posted by Procopius2k 2008-10-23 15:29|| 2008-10-23 15:29|| Front Page Top

#10 It's 3.40-3.50 here in Chicago, but I work in Wisconsin quite a bit, and it's 2.79 in a few spots.

Chicago has it's own refinery and special blends, and add in .25 or so just for more expensive real estate, and it's always more expensive here.

Posted by Don Vito Omeling5062 2008-10-23 17:28|| 2008-10-23 17:28|| Front Page Top

#11 Let's also not ignore that senior management's cut ....

Don't fall for the class warfare rhetoric, particularly with respect to oil. "Senior management" for about 85% of the world's production is really foreign governments. For the small slice of private oil that remains I doubt they had a tenth of a cent per gallon to your cost. Actually I'd be stunned if it was actually that much.

Posted by AzCat 2008-10-23 20:04|| 2008-10-23 20:04|| Front Page Top

#12 Passed a sign this afternoon for $2.39 just outside Richmond, VA. Sam's is probably lower, but I won't be by there to tank up until later in the weekend.

Posted by Barbara Skolaut">Barbara Skolaut 2008-10-23 20:57|| http://ariellestjohndesigns.com/]">[http://ariellestjohndesigns.com/] 2008-10-23 20:57|| Front Page Top

#13 ..for about 85% of the world's production is really foreign governments.

Just another form of 'senior management' or mismanagement. It doesn't cost that much more to crack oil in Houston than it does in Europe. The price difference is the direct government take. Throw in the 85% of the worlds government corruption exploiting that resource [like the Mexican model] and the senior management cut is very impressive.

Posted by Procopius2k 2008-10-23 21:48|| 2008-10-23 21:48|| Front Page Top

#14 right at $3.05 here in San Diego (away from the freeway high-price spots) for Regular Un-leaded

Posted by Frank G">Frank G 2008-10-23 22:50|| 2008-10-23 22:50|| Front Page Top

#15 $2.25 at a Sam's in Austin today

Posted by Sherry">Sherry 2008-10-23 23:17|| 2008-10-23 23:17|| Front Page Top

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