Because the demand has not abated. The use of diesel is much steadier than gasoline, those who use it tend to be commercial users who have an easier time passing the cost on to their customer.

Simple, no?

 

I will give it a go.

Prices are set by a mixture of private and public (exchange) transactions.

Spot prices are instant exchange prices at any given point in time and are so volatile that people in the supply chain seek to protect themselves by buying futures (paper from exchanges) or buying volumes of physical fuel (private bulk contracts).

So when the traders believe that future demand will outstrip supply the price goes up because the traders on the buy side are all competing to ensure they have secured enough for clients. When the perception is that demand will shrink the price collapses because the traders on the supply side want to ensure they can off load.

This is why market sentiment is so important to commodity prices.

The effect of the markets is amplified by speculators who seek to see the future. They simply buy if they think the price will go up and sell sell for a profit if it does or a loss if it does not when the trade is settled. They sell short (sell volume they do not have and buy it later to settle the trade) if they think it will go down. They then buy at the lower price to settle and make a profit or at a higher price and make a loss.

Short selling of financial stocks was recently suspended because of the accelerating effect it has on the downturn of stocks. The effect on commodities is the same.

So the price has fallen because people believe demand will fall.

The price went up because of massively increased demand in emerging markets which was taking place during demand growth in established markets. You may not think these boom economies have reduced demand but they are massive exporters to the West and our demand for their manufactured products will fall due to the recession thus their fuel demand will fall. That is being factored into future prices.

The tax argument is not as invalid as you may think, unless it was specific to USA, in many European countries including the UK we have had fuel price escalators and carbon levies imposed increasing the tax take.

The lack of tax in the USA causes the huge volatility as the change in the commodity price is significantly reflected in the consumer price. In the UK where a massive % is tax the volatility is lower because the commodity price is a much lower % of the consumer price.

The Oil Co's were slammed when it went up and now slammed when it goes down.

It has nothing whatsoever to do with the election of BO. If anything it could be claimed that it is as a direct result of the mismanagement of the economy by the current governments that has led to the recession. That said recession is relative, if we had not had all of the debt fuelled growth in the first place we would not be in recession now. If our economies shrink by 2% for a year our two it will only knock off a fraction of the growth we have seen over two decades.

BTW the price is still way above long term average and more than double what it needs to be for Oil Companies to make a satisfactory return on investment. Oil Co's just act like you and I they sell their product for what people are prepared to pay. If you sold your house you would sell it for what the market would pay not what it cost to build plus a fair margin.

 

Thank you MM, a voice of reason.

I would only add that it is the consumer who must bear part (if not most) of the blame. If the politicians were not pandering to the "must have it all, must have it now" mentality, we wouldn't be seeing as severe of a problem.

 

Isn't that price gouging? After all there is no shortage of diesel. Its proof that if consumers conserve in one area of fuel the oil companies and distributors just raise their prices on the essential fuel, which actually costs less to refine. It at the same time makes all consumers including the ones who have taken steps to conserve or are even walking to pay more for everything else. Again monopolized essential product subject to price gouging no matter what the consumer does.

 

No Stumbler, it is supply and demand, pure and simple.

The production of diesel is quite different in the US, low-sulfur standards and demand exceeding 90% of capacity has kept the product at the higher prices. BTW, the cost of producing #2 in US is not cheaper in the US.

Home heating oil demand has also kept the overall demand for #2 very high.

 

Just read this on the BBC (full article here). It shows why fuel demand is expected to fall in China.

Companies in two Chinese provinces, Shandong and Hubei, have been told they must seek official consent if they want to lay off more than 40 people.

The order highlights the Chinese authorities' concern over mounting job losses.

As China's main external markets plunge into recession and export orders shrink, layoffs have multiplied in the country's big manufacturing regions.

In Shandong alone, nearly 700,000 people have lost their jobs this year.

In southern Guangdong, tens of thousands of firms have closed, sparking off reverse migration to the countryside by redundant workers.

China's economic growth has slowed sharply this year to around 8 percent - high by world standards, but much less than the double-digit figures seen for years.

If the one-off boost from the Olympics is factored in, even that number may be further reduced.

Drastic wage cuts

China's manufacturing index contracted dramatically in October, indicating an abrupt slowdown.

 

That's all well and good, MM...but I didn't hear anyone forecasting this drop in gasoline prices a few months ago. At that time, everyone was saying that demand for oil in China and India would keep rising. Evidently, nobody saw the current economic collapse coming. And that was my point: beware of those who would predict the immediate future, or purport to explain the recent past.

Now, I did NOT venture an opinion on whether any of this is good or bad. Personally, I would prefer gasoline prices to remain high -- in fact, I would advocate for a tax structure that would KEEP them high. But when I said that the tax on gasoline had not changed for many years, I was referring to taxes in the United States.

 

I agree that the mainstream media did not give coverage to those forecasting a fall but Bloomberg did, I saw Jeroen Van der Veer former CEO of Shell predict that it could reach $25 per barrel this year.

One other thing you can bet on, nobody will be thanking the speculators for driving the price down.

We have that tax structure in the UK I have been advocating it for the US for years but usually get a very negative response.

You wouldn't see it months ago the accelerating effect of speculation causes these swings to happen very quickly as described in this post.

 

Do you recall any forecasts that the price would increase rapidly before it did??? I don't remember any in the mainstream media. Many in the financial world foresaw it and booked. The economic collapse was forecast very clearly as the commodities skyrocketed, the current situation in Asia was predicted crystal clear, lose customers, lose momentum.

[/quote]

IMO, I cannot fathom any politician advocating a major increase in fuel taxes, it will take a long time to ease them in. Particularly since our government spent many decades suppressing fuel prices.

 

Okay, tenguy, if you're so smart, what's going to happen to gasoline prices in the next 90 days? The next year? The next two years?

 

ROFLCOPTERS tenguy. You're going to sit there and try to tell me about refining oil into products. Gasoline is diesel that is much more refined. It would take about a gallon and a half of diesel to refine it into gasoline. Its all separated by pressure and heat. There is no possible way it is more expensive to refine diesel then it is gasoline.

Here's the real reason. People can cut back on their gasoline consumption, but a nation that moves 60% of their goods and products cannot cut back on diesel. Again gouging the price of an essential product.

 

In regards to the AP Article, they commented on searching for new fossils fuels, which would still only be a temporary fix to any immediate problem as fossil fuels are finite, and sans eons of pressure and heat and appropriate environmental stimulus difficult to replenish.

If I recall correctly, during the worlds fair when the diesel and gasoline engine's where introduced the diesel engine was initially made to be run off vegetable oil (Which can be grown indefinitely, and the gasoline engine made to run on alcohol, which as a product of bio-mass could be refined indefinitely.

So let's keep ignoring that option, which may require admitting a fault in current prohibition laws, and keep digging around for more of the same.

In regards to the price change:
Oil=$150 then, and $50 now.. (est. per barrel cost as per the AP article.)

If mcdonalds sold a #1 combo meal for $5 and then $15 and then $5 again... Where EXACTLY did that extra $10 dollars go... Especially in regards to the producers who didn't recognize a shortage in beef or potatoes?

Who cashed those checks?

As far as supply and demand go: I don't NEED pokemon trading cards to maintain the flow of goods and commerce. So if the pokemon trading cards raise dramatically in price we as a global society may continue without any damage done.

HOWEVER

People will by gasoline and diesel because they HAVE to, so for such a critical commodity to inflate and then deflate so dramatically means that the $10 extra dollars for the #1 combo you could have lived without will most assuredly be paid because there is no other options, thus insuring some kind of excessive profit to someone.

So if the OPEC guys are saying," Hey, we've got the fucking oil, there isn't any fucking shortage, WTF?" Then one might be led to think that the actual producers of the oil aren't seeing this $10, so seriously... Where did this money go?

And if that is common market practice, to overcharge and create false demands and shortages in order to bilk extra nickels and dimes out of people who have no other real options but to pay your prices for your goods, then the market needs to change, and the dependancy on those specific goods should seriously be re-evaluated.

It's like uhh... FIAT currency VS. the Gold standard. The major flaw with the gold standard is that an individual or organization can corner the gold market and set it's prices as it see's fit.

Actually that's the same fucking problem. With the gold standard ANY wealthy someones could corner the market, whereas with the fiat system a very select group of people ALWAYS has the market cornered.

And in my opinion, to profit of at the expense of others in this fashion is... well... It's just mean, and selfish, and good game to you sir, for playing the game to such a knife at the throat level.

After all, you personally didn't EVICT the people from their homes, or personally reach into someone else's wallet to prevent them from being able to afford their food or medication on their fixed retirement incomes during this fiasco so I'm sure you'll sleep well, but in a sense you did. You are perhaps in the same league of entrepreneurs as the Enron executives.

Convenient for you then, that you are in the "right".

 

"You can shear a sheep many times, but skin it only once."

Just testing the blades.

 

Sorry Stumbler but you are very, very wrong here, low sulfur diesel cannot be distilled from just any crude, nor can it be derived at just any refinery. Low sulfur #2 diesel is more expensive to produce than gasoline because of the crude that is used and the refining methods required. Many refineries which produced diesel before the standards were implemented are either incapible to produce it or do not have the crude grade readily available. They have switched their production to high sulfur distilates such as asphalt. This has hamstrung the available domestic #2 production, forcing us to import more of it from Canada, Venezueula and the Virgin Islands.

You may be proficient in the field but you're clueless at the refinery.

One report stated that low sulfur #2 production costs were $0.54 / gallon higher than the old #2 costs.

 

I can tell you and you can nail me to the post if I am wrong. Nobody on the mainstream media is indicating a further 20% retrenchment ($40 per barrel) but there are two people on this forum that know for a fact that projects below that level are being cancelled. Stumbler is the other one. I say that with certainty and I haven't even spoken to him. This is our game, we have played since we were kids, we sit on opposite sides of the table, but the rules never change.

 

Since my crystal ball is cracked I cannot predict what the price of gasoline will be over the next 90 days.

But I can predict that the consumption of gasoline will hold steady or be reduced slightly. This should result in a fairly steady retail price, with influences of weather being the most important factor.

As far as the price of crude, my sources indicate that demand will remain constant, but remember that we were experiencing significant growth over the last decade. Therefore, I would predict that the May and June futures will be trading at $62-66 in January.

 

I predict that the gas prices will go up again and everyone will start screaming for drilling in Alsaka and electric cars again. The last time that happened, was 30 years ago when I was a kid. Luckily, we didn't have a depression to deal with back then like we do today.

By the way, here's a company, Tesla Motors, that makes an electric sports car that will drive 240 miles on one charge. The cost is on the order of $100K. Tesla is one of the few car makers that is still getting by.

http://www.teslamotors.com/

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Detroit Needs a Miracle

by Megan Barnett Nov 3 2008
Tesla raises new debt while General Motors gets snubbed by the feds. One more sign of the ugly times.



What does it take for a car company to be able to tap the debt markets for capital these days?

Being the manufacturer of a $109,000 electric car, evidently.

Tesla Motors, the startup carmaker backed by the hugely successful internet entrepreneur Elon Musk, raised $40 million in convertible debt to help boost its dwindling cash position. Tesla, which has delivered 50 of the luxury electric cars so far this year, was forced to tap the debt markets after plans for an initial public stock offering were foiled by the economic crisis. Private commitments for the $40 million include most of Tesla's major existing investors.

Meanwhile, General Motors, maker of the $13,000 Chevy Aveo, among others, was denied access to capital from the Treasury Department under its $700 billion banking bailout plan, according to the New York Times. The automaker had requested $10 billion in government financing to help it merge with the equally troubled Chrysler. Instead, the administration plans to offer $25 billion in low-interest loans to Detroit's Big Three to help finance manufacturing of fuel-efficient cars.

Moreover, Bloomberg reports that, in October, Ford, G.M.A.C., and Chrysler were shut out of the bond market for auto-backed loans for the fifth consecutive month. Last month, $500 million worth of auto bonds sold, compared to $9 billion in the same month last year. If the automakers can't finance loans, they won't sell cars.

It's a sordid tale of two car companies: G.M. and Tesla. In an economic recession, it would seem that cheap cars would be in higher demand and astronomically luxurious autos would be hurting.

For its part, Tesla hasn't been immune from the downturn. It just happens to have willing and wealthy investors who continue to believe in it. Last month, the company cut nearly a quarter of its full-time workers and delayed production of a less-glitzy $60,000 electric car.

And, let's be honest here, a $40 million loan for G.M. would likely be gone after one week's worth of health-insurance payments. General Motors doesn't need $40 million to survive. It needs a miracle.

And October sales figures won't help that miracle play out anytime soon. U.S. sales of light trucks and vehicles at G.M. fell by 45 percent over last year. Ford's fell by 30 percent.

 

Oh Christ on a crutch tenguy, I'll tell you what since you're williing to buy that I've got some low sulfur oil leases out here that I'll sell you cheap and they'll make you a millionaire.

Now pardon me while I talk to someone who does know something.

Nope I can't deny that. We started hearing more than a year ago that they were going to start cutting back, but now it looks like its going to be industry wide in both oil and natural gas. $40 a barrel seems to be the hoped for bottom but it could go lower. I think remember it going clear down to $10 a barrel when it crashed in the early 80's.

In most ways its the same old boom and bust cycle. As as example out here they went after natural gas so hard they have now out drilled pipeline capacity.

But I'll confess to you something I've alluded to elsewhere but you can appreciate it. I think the speculators and the run they put on oil this past year was a new element, and I think it caught both the oil companies and OPEC by surprise and was out of their control. It was kind of like a choke washing out. Everything was going good and pressure was building and then all of sudden it just took off with no way to control it and all the pressure has bled off. Now all they can do is shut it in and hope it doesn't die.

Buy them then tenguy.

 

I'll take a stab . . . consumers will continue to pay whatever price is posted, consume fuel at approximately the same rate they do now and complain about it.

 

Nice try, dipweed. It is very obvious that you do not know shit about the refineries end, read up and come back when you are educated.

Guess time will tell, I say $62-65, you say $40, let's see who is closest.

How does one buy oil futures for May and June to be issued in January during November???

Guess we'll add commodities trading to your ever expanding areas of in-expertise.

Yep