Thursday, May 17, 2007

Gas Prices: Media Gets It Right

Finally, there is one reporter who gets it right on gasoline price movements.:
With crude prices down 25 percent from last summer, prices at the pump should be lower. Right?

In today's economy, though, that type of formula is out the window, a relic from the days when refineries kept crude stocks high during winter months and Americans didn't drive longer and longer distances to get to home, work and play.

Nowadays, pump prices are determined far more by supply and demand for gasoline than by how much traders buy and sell crude for on the open market.

Bravo. Spot on. 100% correct. And it gets even better:
"Forget everything you ever learned or ever read about the connection of crude oil prices to gasoline, because there is a disconnect today," said petroleum industry consultant Tim Hamilton. "All the price of oil does is establish a floor of what the price is going to be in the country."

"What's going to tell you the maximum price is going to be the supply of refined product," he said. "Supply of the finished product is short and the price is going up accordingly, and it's all profit for the refineries."

Other factors are at work. Geopolitical tensions, like the war in Iraq, political unrest in Nigeria and last year's nuclear tension in North Korea, also factor in. And this year's cold April caused a spike in demand, particularly in the Northeast, while seasonal changeover at refineries to meet reformulation requirements play a role as well.
All is not lost. Thank you Jeff Cox for getting it right.


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