Oil Down to $65 a Barrel!

Discussion in 'Et Cetera, Et Cetera' started by Principessa, Oct 31, 2008.

  1. Principessa

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    Happy days for gasoline retailers and consumers

    By Myra P. Saefong, MarketWatch
    Last update: 7:31 a.m. EDT Oct. 31, 2008

    SAN FRANCISCO (MarketWatch) -- Consumers tend to notice that gasoline prices drop much more slowly than they rise, but that's not necessarily price gouging at play -- at least not on the retail end.
    And this time around, prices have actually managed to drop faster than they climbed.
    Prices for the fuel at the pump have dropped every day for the past six weeks, according to data from the Oil Price Information Service. They stood at $2.547 a gallon Thursday, down a sizable 38% from the record high of $4.11 in July.
    It took retail gasoline prices about four months to make the $1 climb from $3 to $4 in February to June of this year. But it took only seven weeks to drop back down from $4 to $3 in early June to late July.
    Then again, while gasoline prices dropped from their record level in July, crude has also fallen about 55% from its record price that month of more than $147 per barrel.
    So while the market sees an unusually quick decline in retail gas prices, consumers cannot ignore the fact that the change in prices is not proportional to the drop in oil.
    'Gasoline stations are clearly not the villains.'
    — Mark T. Williams, Boston University
    "Having experienced $4-per-gallon gas, most consumers are now very attuned to the cost of gasoline," said Mark T. Williams, a risk management expert and finance professor at Boston University. And a closer look at the pricing structure will offer a "better understanding of who is the villain here."
    "Gasoline stations are clearly not the villains," he said.
    A basic calculation for crude to retail valuation is that 42 gallons in a barrel of crude would translate into about 2.5 cents per gallon gasoline for every dollar in crude, said John Eichberger, a vice president of government relations for the National Association of Convenience Stores.
    "This is not a very accurate measure, however, because it is not a direct relationship -- it does not account for other products derived from a barrel of oil, nor for operating costs and profits," he said.
    Business wasn't so great
    What consumers spend on fuel isn't necessarily what gasoline retailers get.
    Williams said the cost of gasoline can be broken down into four distinct components: cost of crude oil, refining, taxes and distribution.
    To determine the price at the pump, "all we need to do is to add up these four components," he said. But "you only need to attempt to do this calculation once to realize that there are other factors which influence the cost of gas."
    Many consumers believe that major integrated oil companies own retail locations, said Eichberger. "About 55% are branded with contracts signed to sell fuel supplied by a refining company under that refiner's brand," he said. "The rest are privately branded and they often buy directly off the spot market."
    And as market traders may know, spot prices can be quite volatile.
    "Independents buy their gas from distributors that price it to the current spot market, whereas major brand stations tend to have prices that lag the spot market on the way up as well as on the way down," said Williams.
    So independent gas stations, "which felt the pain as wholesale prices skyrocketed last summer, are now using this recent price decline as an opportunity to earn back their losses," he said. "This is far from customer price gouging and is more of applying the basic business principal of charging what the market is willing to bear."
    Of course, most consumers don't quite see it that way.
    But consider this: NACS' industry data for 2007 shows the reported breakeven price on fuel sales to be around 14 cents per gallon on average, according to Eichberger.
    Credit card companies take 2.5% of the retail price, "so at $4 per gallon, 10 cents of about all plastic transactions [upwards of 85%-90% of purchases] went to the banks," he said.
    Retailer margins averaged 13.7 cents per gallon through the middle of September -- 3.86% of the average retail price of $3.549, said Eichberger, citing data from OPIS. Take away credit card fees of 8.9 cents and there's a net margin of 4.8 cents, he explained.
    "With this inequitable revenue split, many gas stations owners felt they were actually working for the credit card companies," said Williams.
    In July and August of this year, many U.S. gas stations were earning less than 4 cents to 6 cents per gallon, he said. That's part of the reason gas stations across the country were going out of business, he said.
    "While the cost and financing of the product they sold increased, the corresponding margins continued to shrink," he said.
    Sharing common ground
    So, maybe what's happening now to prices is actually good for consumers and most retailers alike.
    "Retailers typically make money as prices go down and lose money as prices go up," said Eichberger.
    The lower prices increase consumption as well as store traffic, said James Williams, an economist at WTRG Economics. There's "more money for coffee, sodas, chips and candy, which is where the real profit margin is."
    At the same time, consumers have been happy to see prices quickly fall back below $3.

    For now, the "bottom line is consumers are receiving a return on their investment," said Sean Comey, a San Ramon, Calif.-based spokesman from Chevron Corp. (CVXChevron Corp

    Demand for motor gasoline over the past four weeks was down 3.4% from the same time a year ago, with total petroleum product demand down 7.8%, according to the latest data from the U.S. Energy Information Administration.
    'By making the effort to conserve, [consumers] have helped reduce demand and it's paying dividends by helping to reduce prices.'
    — Sean Comey, Chevron Corp.

    cont.
     
  2. B_625girth

    B_625girth New Member

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    more accurately, oil is UP to $65 a barrel. it was at $62 a few days ago.
     
  3. exwhyzee

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    I just hope everyone doesn't celebrate by buying huge SUVs and moving 50 miles out of town.
     
  4. AG08

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    I agree completely. People have short memories. The price of oil and gasoline will go up again in the future. It's only because of the global economic slowdown that oil prices have fallen. The economy will eventually rebound and when it does global demand for oil will increase again and drive up prices. I have always driven a fuel efficient car. When the gas prices went nuts this summer, I cut out all unnecessary driving. It seems that a lot of people did this as there was a gasoline surplus this summer even though the prices were high. My commute to work is less than 30 minutes now and I want to keep it that way. I did the heinous commuting thing for 3 years (1.5 hours each way = 3 hours in the car/day) and NOTHING could get me to ever do that again. Aside from the cost of fuel and wear and tear on your car, the toll that long commute took on my emotional and physical health was unbelievable. I was constantly stressed out and angry, lethargic, sleep deprived and put on a ton of weight. When I see all of those cars on the highways trying to get into the city every day, I thank God it's no longer me. People need to evalutate what's important in life like I did. Either move closer to work or find another job. The long commute to and from the suburbs just isn't worth it to have a bigger house or a better paying job. I have lost all of that weight now, sleep like a baby and reduced my stress levels significantly. I no longer feel angry and lethargic all of the time. Change is possible as long as you are willing to make it happen. I did it and I have never regretted it. I only wish I did it sooner.
     
  5. Deno

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    I don't know why but to some this is a bad thing. I all ways thought it was the Arabs fault oil was so expensive but apparently speculation has more to do with it then they let us to believe. They need to remove oil out of the futures market and just set a price thats equatable.
     
  6. Baseballfan155

    Baseballfan155 New Member

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    It really is a relief at the pumps. In late August, the price per gallon here was hovering around $4.05 to $4.19 a gallon. Since then, it has just spiraled downward. I was actually excited when gas dropped below $3.00 a gallon. I remember last year, everyone was outraged by $3.00 a gallon, and now people are happy about it.


    It's as low as $2.38 here now, which is awesome. I haven't seen it this low here since it was $2.10 back in Feb. of 2004...
     
  7. Principessa

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    It's a Republican scare tactic to get people to vote for McCain. :mad: Clearly, if gas prices decrease under Bush, then they will continue to drop if McCain is POTUS. I heard a rumor gas prices may be as low as $1.00 a gallon by Thanksgiving.

    :lmao:
    ROTFLMAO :rofl:
     
  8. lucky8

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    Sorry, but this recent slump in prices proves demand is not to blame, and that speculators are. Oil isn't a hot commodity right now, which in turn has driven the price down. OPEC just agreed to decrease production to keep the price above $80 a barrell, yet prices fell the next day, supply/demand is yet to be a serious factor, even the Saudis admit so.
     
  9. bigdog83

    bigdog83 Member

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    this is what my friend believes.........i say who the fuck cares.........i enjoy saving an extra 30$ a fillup it comes to almost 350$ a month with all the driving i do i hope it goes even lower lol.
     
  10. B_FruitFly

    B_FruitFly New Member

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    Fuck, i still remember when gas was $1.50 a gallon and 20 to fill the tank.

    Thank god i own an Acura and need to buy premium petrol.
     
  11. AG08

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    No kidding! Speculation is based on future supply and demand. Speculators were betting on the fact that developing countries such as China and India with their massive middle classes would continue to consume more oil in the future as their economies were posting growth rates of over 10% and their people were demanding (and could afford) more and more luxuries that required oil to run (such as automobiles) and to produce goods. When the global economy started to tank, countries and people that rely on exporting became more cautious about spending because their biggest customers (such as the U.S.) were no longer in a buying mood. China is an exporting country. The Chinese have become fearful that they won't have as many people to sell to because of the global economic meltdown. This in turn causes a reduction in spending for consumer goods and a reduction in production capacity. Speculators didn't count on the global economic meltdown to happen and go as far as it did. This is why the cost of oil has dropped. When there is economic uncertainty, people are more cautious with their $$.

    Canada - Alberta, Saskatchewan and Newfoundland are dripping in oil. Alberta has proven oil reserves that rank it as the second largest oil reserve in the world outside of Saudi Arabia. Unproven, there is speculation that Alberta alone has MORE oil than Saudi Arabia. The U.S., China and India are our biggest customers. There is enough oil in Alberta alone to supply all of North America's oil demands for the next 50 years and that's just with the proven reserves. Despite all of this, Canadians were paying $1.40/litre and in some provinces even more. I don't think that anyone believes there is an oil shortage. Speculators count on th fact that the demand for oil will far outstrip capacity to meet the demand. In Alberta, the oil is trapped in the sand and it is a costly process to extract it. Oil has to be worth a certain amount before it is profitable to extract it from the sand. This is why when oil was at an all time high, Alberta was raking in the bucks, had the lowest unemployment rate in Canada (under 3%), is the only province in Canada without a provincial sales tax, and also the only province that doesn't have any debt and has managed to post a huge surplus every year. Anyone can see that the cost of oil has has nothing to do with the amount of oil that is available.
     
    #11 AG08, Nov 1, 2008
    Last edited: Nov 1, 2008
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