[NonToxic]

Since there are some smart folks on here and the market is not my thing. I cannot answer this. Any help?


Consider this.....both markets, in fact the whole energy complex, moves in sympathy with each other.

If the object of an entity, person, group or consortium, was to effectively raise the price of fuel then creating higher market prices for the primary resource for fuel which is oil would make sense.

If there is only a shortage of unleaded gas then why is oil making lifetime historic highs? Simple. Buyers are paying more tomorrow than they are today. Why? Because no one is selling at the lower price.

I understand refineries are running at capacity but they were last year too, and the year before. As a matter of fact they were running at capacity 3 or 4 years ago when you were able to buy gas for around 65-70 cents a gallon for a few weeks. That was when they were BLEEDING all of their stored product down because it was cheaper to sell it off rather than store it.


My theory is that the oil companies are making their record profits from the high priced gasoline and other end products at this point because they are processing oil they purchased a year or more ago at lower prices and the huge gap in difference is where the profits are from. This may not continue. As the forward contracted crude futures price (the ones they obtained in the past at lower prices) catches up with the current spot delivery price and the oil companies have to pay big for what they wil be refining, either their profits will drop or we will be paying $5.00 a gallon and they will maintain their profit margin.

OR, the market will top and retrace, the justification for the higher gas prices will go away, and the situation will return to slightly more sane levels (although 2-3 buck a gallon gas will probably be here to stay) and the oil companies will maintain a fairly high profit margin because they still will be making more or a percentage than before which was their objective to begin with.

If the oil companies were struggling to keep profitable, which is what would seem logical given the high cost of crude, I wouldn't be saying any of this.

ALSO- on the demand thing- ANY commodity can appear to be in short supply IF all of the available positions for delivery are taken and that delivery actually occurs. In other words, oil companies could be buying all of the product regardless of the price and raising the benchmark. WE ARE THE WORLD LARGEST CONSUMER. Anything done buy this nation (our oil companies in this case) has a greater impact on commodity pricing than any other nation on earth and this includes China. If our oil industry was cornering the market on oil, then it would appear that oil was scarce everywhere.

[dhfenton]

I think the missing piece to your idea is that the oil companies often own their own wells and refineries. The spot market for oil is for those national companies and the like that only own wells and sell thier oil to others. So the oil on the market is being bid to higher levels by increased demand. The oil giants cost of production and refining hasn't changed; but the price they can charge at the pump has. Thus they benefit with greater profit. They may also have long term contracts with fixed prices for their marginal oil needs, much as you say. Those contracts will escalate over time; but they should make up the difference at the pump, so I don't see it cutting into their profits all that much.

There was a line from an old movie I remember vaguely from around the oil ebargo of the early seventies. It involves a junior oil exec spouting off something about the Saudis plotting fake oil shortages, and his boss says something to the effect of "We are the Saudis, you idiot." It was a line for comic effect in the movie; but it might have some relevance today. The oil companies sit back and complain about the cost of crude, when in fact they own much of the crude and stand to profit handsomely.