Anyone who drives, which covers pretty much all of us, has noticed the rapid decline in gasoline prices that has taken place over the past month. To those whose mindset is governed by the image of the greedy oil company, this makes no sense at all. To those of us who understand how the market works, though, it makes perfect sense:
Oil traders, who once fretted that tensions between the United States and Iran would spill into oil markets, now discount the chances of any conflict. And as political anxieties have faded, the fundamentals of the market — a plateau in demand and rising oil inventories — have moved to the forefront.
Yesterday, even suicide bombers attacking Yemeni oil facilities failed to inflame oil markets. While oil installations weren’t damaged, the mere attempt over the summer might have sent prices soaring. Instead, the price of crude on the New York Mercantile Exchange settled up just 11 cents yesterday, at $63.33 a barrel, finishing down 4.5 percent for the week and down 20 percent from the July peak.
While still at a historically high price, crude oil is the cheapest it has been since March. Spot market prices for wholesale gasoline have plunged by more than 90 cents a gallon since Aug. 2.
(…)
In the United States, summer glitches in the gasoline supply chain — caused by companies dropping one additive and switching to ethanol — have disappeared. Now, with ethanol supplies and oil inventories growing and the summer driving season over, refining margins have collapsed from a peak of about $26 a barrel to around $6 a barrel. According to Friedman Billings Ramsey Group Inc., refinery margins fell 21 percent last week alone.
“This is a gasoline story,” said Verleger, an independent analyst who discounts political tensions as a factor in oil prices. He argues that gasoline shortages pulled up crude oil prices and weren’t pushed up by them. Now, he said, swelling gasoline stocks are pushing crude prices down.
In other words, the bubble is bursting.
September 18th, 2006 at 3:31 pm
I agree, but I still wonder about some of those gas stations where a tanker can drop a 1000 gal load at 9am, and before anyone even pumps a gallon, that underground stock in the tank can jump $0.10 just because someone in the middle east farts at 9:15am. Things are even worse with the advent of the digital price sign where a few months back, one could sit there in the parking lot and watch the price rise with the temperature. I am for a free market, but I think the average Joe on the street would appreciate the economics lesson if the stocks could at least be tapped a bit before jacking the price.