Arkady Renko Posted August 12, 2005 Share Posted August 12, 2005 Why is it that problems with refining capacity are said to drive up the price of oil? Shouldn't this-if anything-do the opposite since the refining of oil is the bottle neck all things being equal, not the supply of the oil being refined? To me, it would only make sense that gasoline prices go up with refining problems, not oil. Could somone please explain this to me? Link to comment Share on other sites More sharing options...
Beerball Posted August 12, 2005 Share Posted August 12, 2005 I have no idea, but I did google your question (.02). oily linky Link to comment Share on other sites More sharing options...
Arkady Renko Posted August 12, 2005 Author Share Posted August 12, 2005 People just seem to take the refinery issue without explanation, and I am not sure why. Link to comment Share on other sites More sharing options...
bobblehead Posted August 12, 2005 Share Posted August 12, 2005 Why is it that problems with refining capacity are said to drive up the price of oil? Shouldn't this-if anything-do the opposite since the refining of oil is the bottle neck all things being equal, not the supply of the oil being refined? To me, it would only make sense that gasoline prices go up with refining problems, not oil. Could somone please explain this to me? 405947[/snapback] All I can think of is that the inablility to refine oil requires that the oil has to be stored, or bought in smaller quantities, or both. Thussly therefore semicolon, OPEC can squeeze the buyer with high costs per barrel for not buying oil in a volume and manner suitable to their liking. I've had it explained to me that oil companies do not care who they buy it from, or what the cost per barrel is, as long as the price is stable. A stable price allows the oil companies to make more accurate budgets for longer periods of time. Still, I can't see an oil company not raising the price of gas anytime they can get away with it. Link to comment Share on other sites More sharing options...
aussiew Posted August 12, 2005 Share Posted August 12, 2005 Where's AD when you need him? Link to comment Share on other sites More sharing options...
Wacka Posted August 12, 2005 Share Posted August 12, 2005 We haven't built a new refinery in about 20 years. They are running at near capacity. If one goes down because of an accident or repairs, the supply of gas gets constricted.Factor in that there are about 12 or so different formulations of gas for various areas of the country (due to EPA regulations). When one area of the country has a gas shortage, they can't just ship it over from another area. An example is California. When the supply is low in Nevada, they can send it to there because the restrictions in Nevada are lower. But if the supply in CA is restricted, Nevada can't send gas there because of the tighter restrictions. Link to comment Share on other sites More sharing options...
Arkady Renko Posted August 12, 2005 Author Share Posted August 12, 2005 We haven't built a new refinery in about 20 years. They are running at near capacity. If one goes down because of an accident or repairs, the supply of gas gets constricted.Factor in that there are about 12 or so different formulations of gas for various areas of the country (due to EPA regulations). When one area of the country has a gas shortage, they can't just ship it over from another area. An example is California. When the supply is low in Nevada, they can send it to there because the restrictions in Nevada are lower. But if the supply in CA is restricted, Nevada can't send gas there because of the tighter restrictions. 406112[/snapback] Fair enough, but how this explain why the crude oil price goes up when refining capacity is lower? Gas I can understand but gas is the product of refined oil. The price of beef doesn't go up because there is not enough McDonald's. Link to comment Share on other sites More sharing options...
stuckincincy Posted August 12, 2005 Share Posted August 12, 2005 Fair enough, but how this explain why the crude oil price goes up when refining capacity is lower? Gas I can understand but gas is the product of refined oil. The price of beef doesn't go up because there is not enough McDonald's. 406147[/snapback] As you know, there is rocketing demand in China and India (funny - we buy their stuff like mad, they use more oil to produce it for us). Currently, there is tremendous speculation in the crude market. Pension funds, IRA managers, insurance companies, banks etc are heavy into the spectulative and hedge funds, so I am told. So prices rise. You might recall the manipulation of the silver market in the 70's, when silver went from about 3 bucks an ounce to about 35 bucks as the Hunt brothers attempted to corner the market. It's an interesting story... http://www.gold-eagle.com/editorials_04/laborde012704.html Link to comment Share on other sites More sharing options...
socalfan Posted August 12, 2005 Share Posted August 12, 2005 I think a lack of refineries causes gas prices to increase ... not oil prices. Oil prices increase as a way for the world to shoulder the burden of maintaining dictatorships in places like the middle east and Iran. It's a type of foreign aid. Link to comment Share on other sites More sharing options...
eSJayDee Posted August 12, 2005 Share Posted August 12, 2005 Isn't it a case of simple supply & demand? Regardless of what limits the supply side, be it raw materials or pruduction capability, if the ability to produce a product at a given price level doesn't meet demand for it at that price, prices will rise. Since I can only assume that creating more capacity in refinering capability is a costly endeavor, and we won't create this capacity until it's economically justified, this situation will likely continue until something changes. Link to comment Share on other sites More sharing options...
JimBob2232 Posted August 12, 2005 Share Posted August 12, 2005 The problem with your premise is that people are saying gas prices are going up due to the lack of oil refineries. They are not sayign crude oil is going up due to lack of oil refineries. There is a difference. Crude oil is going up for other reasons. 1) Lack of stability in the middle east 2) Death of the king of Saudi Arabia 3) Increased consumption in the US and around the world 4) Lack of supply due to OPEC restrictions, etc, etc... With more refineries, the price of crude would still be the same as it is...but the price of gasoline would come down some due to increased supply. Hope this helps. Link to comment Share on other sites More sharing options...
col_forbin Posted August 12, 2005 Share Posted August 12, 2005 Crude oil is going up for other reasons. 1) Lack of stability in the middle east 2) Death of the king of Saudi Arabia 3) Increased consumption in the US and around the world 4) Lack of supply due to OPEC restrictions, etc, etc... 406161[/snapback] Better known as the "fear tax" we are all feeling at the pumps these days. Link to comment Share on other sites More sharing options...
JimBob2232 Posted August 12, 2005 Share Posted August 12, 2005 Better known as the "fear tax" we are all feeling at the pumps these days. Yep...and until we do something to become non-reliant on the middle east for oil...this is the way it will be. We have 2 options...1) Start using our resources to develop new forms of energy and process some of our natural resources in the meantime or 2) Work hard for a US-Friendly middle east. We are taking half a$$ed approaches to both. That wont cut it. For the record, #1 far outweights #2 Link to comment Share on other sites More sharing options...
erynthered Posted August 12, 2005 Share Posted August 12, 2005 Where's AD when you need him? 406095[/snapback] AD's vast information highway............. Sorry, couldnt help it. Just think about it before you get mad at me Friggin GG, check's in the mail. Link to comment Share on other sites More sharing options...
finknottle Posted August 12, 2005 Share Posted August 12, 2005 The price of oil - a raw material - is one factor in the price of the finished product, gasoline. It is not the only one. The price of oil effectively sets a floor price for gas. Problems in the production and distribution of the finished product (such as not enough capacity) can drive it higher. More refining capacity only ensures that the price is pushed towards the floor price. Link to comment Share on other sites More sharing options...
Arkady Renko Posted August 12, 2005 Author Share Posted August 12, 2005 I think a lack of refineries causes gas prices to increase ... not oil prices. Oil prices increase as a way for the world to shoulder the burden of maintaining dictatorships in places like the middle east and Iran. It's a type of foreign aid. 406158[/snapback] I think that is how it should work, but the talking heads always seem to claim that the price of crude oil goes up due to refining problems. Link to comment Share on other sites More sharing options...
meazza Posted August 12, 2005 Share Posted August 12, 2005 I think a lack of refineries causes gas prices to increase ... not oil prices. Oil prices increase as a way for the world to shoulder the burden of maintaining dictatorships in places like the middle east and Iran. It's a type of foreign aid. 406158[/snapback] since when is iran a dictatorship? Link to comment Share on other sites More sharing options...
socalfan Posted August 12, 2005 Share Posted August 12, 2005 since when is iran a dictatorship? 406209[/snapback] Since the mullahs threw out over 1000 candidates for seats in their national assembly. Link to comment Share on other sites More sharing options...
TigerJ Posted August 12, 2005 Share Posted August 12, 2005 Why is it that problems with refining capacity are said to drive up the price of oil? Shouldn't this-if anything-do the opposite since the refining of oil is the bottle neck all things being equal, not the supply of the oil being refined? To me, it would only make sense that gasoline prices go up with refining problems, not oil. Could somone please explain this to me? 405947[/snapback] They are two separate issues, but the price we have to pay at the pump is affected by both. If the price of oil goes up (due to increasing demand from competing countries like India and China) the price of gas will go up because gas is made from oil. When demand for gasoline exceeds our nation's capacity to refine it, the price of gas will go up independent of the price of gas. Refining capacity does not affect the price of oil. Link to comment Share on other sites More sharing options...
meazza Posted August 12, 2005 Share Posted August 12, 2005 economic theory dictates that there are depressions every 50-70 years the last one we had was in 1930's b4 that i believe there was one in the 1850's i believe with the way people are speculating that the next one could be very soon Link to comment Share on other sites More sharing options...
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