Monday, December 22, 2008

Gaz

Gas prices in Pittsburgh are down more than 50% from their peak, and since gas stations usually seek to improve margins when prices are trending downward by reducing retail price more slowly than wholesale cost, we can assume the wholesale cost to stations is down even more. Now, the economic downtown has surely reduced global demand for fuel, but it hasn't reduced it that much. I would call this pretty conclusive evidence that boom-time speculation was substantially affecting the fuel market.

Posted by IOZ at 10:40 AM | email »
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11 comments:

the_system said...

Well, there's also the fact that gas prices always fall during the winter months, the potential for some of this to be delayed fallout from all the absurdity over the summer, the somewhat puzzling reality of the widespread belief that Barry O. is somehow less likely to start bombing Iran than the current administration, etc.

And, at the risk of channeling Knustler, it's not unreasonable to suggest that small changes in demand will (or even should) produce dramatic changes in price when you're operating as close to your maximum production capacity as the oil industry is (suspected to be) these days.

But yeah, the price of fuel is set by a future's market, yo, so color me unsurprised if it turns out that you and Pat Lang are right about this.

Speaking of Lang, his theory that OPEC is unable to exert any meaningful control over its members' output in the current climate is also a perfectly plausible explanation for the gas price nosedive.

12:02 PM
Leonard said...

boom-time speculation was substantially affecting the fuel market

Yes. Of course, speculation should affect the market price of goods; If people think that oil will be more expensive in the future, that's some evidence that conserving it today is a good idea. That's why (smart) speculation is socially productive. Whether this was smart though...

Me, I'm more given to a second explanation: people were treating oil as money, as a store of wealth. But oil, like most normal goods, makes a poor store of wealth. This episode shows that. The flight into hard assets continues, and oil appears not to be among them.

1:23 PM
Anonymous said...

yo, dicks, there hasn't been a "small drop in demand". global demand for oil has fallen off a cliff, and while our host wants to connect it to personal consumption, the real explanation has to do with stagnating growth in india and china, and massive overproduction when oil was 140 a barrell. blaming "boom-time speculation" is kinda dumb.

1:29 PM
NutellaonToast said...

Look, prices went up and then came down which proves whatever IOZ wants it to. There is nothing that could cause a rise and fall in prices other than what IOZ says because IOZ said it.

1:51 PM
JYD said...

global demand for oil has fallen off a cliff

if you can believe DOE numbers, fail.

(cf. World Oil Balance)

1:57 PM
JYD said...

oops.

2:02 PM
IOZ said...

yodicks anonymous is a good add. I think it's confused the drop in futures prices with an actual drop in demand for the commodity itself.

2:33 PM
BrianM said...

Nutellaontoast: Which is why we all read Ioz so religiously. He is our ORACLE, the sole locus of truth. Which status he regularly claims for himself.

2:44 PM
Mr.Fundamental said...

Nomnomnomnomnomnomnomwhatswrong?nomnomnomnomnomisgudoilznomnomnom.

2:47 PM
Anonymous said...

Hey Mr. Eye Oz,

Some Links to the NY Harbor RBOB. Sets Unleaded Regular Prices in the NE. If you got an interest in this shit.

Jan Futures;

http://futures.tradingcharts.com/chart/RB_/19

More furture prices;

http://futures.tradingcharts.com/marketquotes/RB_.html

BTW, Bridge of Sighs. Sigh.....

aemd

6:24 PM
Dunc said...

Perhaps it could be a wide variety of complex, interacting factors? ;)

2:18 PM

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