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thompsonx -> RE: Gas prices are going down (6/11/2012 8:25:21 AM)
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quote:
ORIGINAL: MasterG2kTR
quote:
ORIGINAL: DarkSteven
Lemme sum up rob's views:
The demand for oil has dropped because Europe's in the toilet and in no position to buy much, as well as China. The producers hadn't counted on that and we now have a glut, hence the drop.
I'm not sure I'm buying that. Prices skyrocketed to $4 a gallon on 2008, and then dropped like a rock. At the time, speculators were blamed, not supply and demand.
I actually just finished a research paper for my economics class on the prices of gasoline with a particular focus on 2008. There were several key factors involved at that time none of which involved speculators (ok, to a small degree they were involved).
A couple years earlier the US and Europe agreed to move to a low sulfur emission diesel known as ULSD. The target inception dates were 2005 and 2009 respectively. The US incurred very little change in demand for gas and diesel. However Europe urged consumers to purchase diesel powered vehicles prior to the inception.
You're wondering what diesel has to do with the price of gasoline, right? Diesel fuel is produced from heavy sour crude. So how did this affect the price of light sweet crude? The impact comes from the production capacity of refineries; add to that economic policies in Europe that encouraged consumers to purchase diesel-powered vehicles rather than gasoline-fueled cars. The newly created demand for ULSD caused a reduction in production of gasoline, thereby causing a sustained increase in price.
While this was taking place China was building the Olympic Village for the 2008 games and also ramping up it's industrial muscle. China had also implemented price controls which made it unprofitable for small refiners there (referred to as teapots) to operate and caused them to shut down. This meant that China had to import higher-quality diesel supplies from the international market. This squeezed diesel supply even more.
The end of the 2008 Olympics added further downward pressure to diesel prices. China had accumulated stocks to assure adequate supplies. These stocks were released, reducing demand. Use in Europe also started to decline as the recession took hold there.
The sudden reversal of market trends took pressure off of the diesel market putting relief on refineries to produce more gasoline again, but by this time the U.S. economy was already well into it’s decline and the world economy was beginning to slump as well. As a direct result of these factors supply was ample and demand for fuel in general was down. This put prices for fuel into rapid decline.
If one looks at the price of fuel in the months just before a presidential election one notices the same thing. The price goes down.
In the months before the last presidential election the price of fuel was about 1.50 per gal.
In those months I purchased 5000 gal of fuel. I am still holding about 1200 gal. When the price hits 2.00 I will start buying again. I expect that to happen by september.
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