Gas prices

[triplenickel]

Crude oil and refined product are very different animals. They are, however, both commodities and traded as such. As commodities, they are subject to the laws of supply and demand. There is a glut of crude right now (i.e. supply is high) so the price is low. There is a shortage of refined product now because of various refinery issues and the fact that demand is increasing as we move into the travel season - thus the price is high.
While there may, at times, be situations where the commodity prices of crude and refined product move together, it obviously doesn't happen all the time as we see now.

Where is the shortage?

 

[bigbruce]

Where is the shortage?

North America. Following from WANE.com

"DeHaan noted that In the last two weeks, a rash of refinery problems has pushed up wholesale prices significantly: an explosion at a California refinery, unexpected cold-related shut downs along the East Coast and Great Lakes, and maintenance that’s beginning at other refineries across the country. If that wasn’t enough, throw in the transition to cleaner, more costly blends of gasoline and declining gasoline inventories, and it’s a bleak picture.

DeHaan said while the massive spikes on the West Coast will likely slow over the next week, “increases will persist country wide, and the general upward trend will likely remain in place for 6-8 more weeks before motorists see declining prices ahead of Memorial Day weekend as maintenance work wraps up and the transition to summer gasoline concludes.”

 

[rjs]

North America. Following from WANE.com

"DeHaan noted that In the last two weeks, a rash of refinery problems has pushed up wholesale prices significantly: an explosion at a California refinery, unexpected cold-related shut downs along the East Coast and Great Lakes, and maintenance that’s beginning at other refineries across the country. If that wasn’t enough, throw in the transition to cleaner, more costly blends of gasoline and declining gasoline inventories, and it’s a bleak picture.

DeHaan said while the massive spikes on the West Coast will likely slow over the next week, “increases will persist country wide, and the general upward trend will likely remain in place for 6-8 more weeks before motorists see declining prices ahead of Memorial Day weekend as maintenance work wraps up and the transition to summer gasoline concludes.”

thats all mumbo jumbo for away to screw us over... and sound like they have a reason to do it !!!

 

[triplenickel]

North America. Following from WANE.com

"DeHaan noted that In the last two weeks, a rash of refinery problems has pushed up wholesale prices significantly: an explosion at a California refinery, unexpected cold-related shut downs along the East Coast and Great Lakes, and maintenance that’s beginning at other refineries across the country. If that wasn’t enough, throw in the transition to cleaner, more costly blends of gasoline and declining gasoline inventories, and it’s a bleak picture.

DeHaan said while the massive spikes on the West Coast will likely slow over the next week, “increases will persist country wide, and the general upward trend will likely remain in place for 6-8 more weeks before motorists see declining prices ahead of Memorial Day weekend as maintenance work wraps up and the transition to summer gasoline concludes.”

That's all well and good but where can people not get fuel? Where is there not enough? If there's enough to go around does that constitute a shortage?

 

[bigbruce]

That's all well and good but where can people not get fuel? Where is there not enough? If there's enough to go around does that constitute a shortage?

I frankly don't think this is the place to try and teach a course in Economics, supply and demand and commodity pricing - but I'll try. It's kind of like oranges. When there's a big frost in Florida that kills the orange buds, the price of oranges goes up. Supply is restricted and only people who can afford to pay the price get oranges. There's enough for people who can afford the price - others go without oranges. So it goes with gas - people who are prepared to pay the price will do so. Some won't and will use less fuel. In other words, there's enough oranges or fuel for the people who are prepared to pay the price. It's the people who can't afford to pay the price who will feel the impact of the shortage.

 

[Gypseas]

Well put bigbruce

 

[searun]

$1.06 in Kamloops yesterday when I was passing through from ski trip. Diesel was $1.16. Get back to the Island to $1.20 for gas and who knows for diesel...criminal.

 

[Birdsnest]

I also believe that 30 years ago companies made a product and sold it at a average fair markup for profit. This is not how it is done now. Everything is marked up not based on a fair/reasonable standard percent markup but on what the maximum they can get, period, maximizing profits.
In the US prices are generally up to 25% less. They have a larger population which controls market prices far better that what we do here in canada. And our canadian dollar constantly fluctuating also screws us constantly as consumers. To put it blunt we as Canadians suck at shopping effectively as a collective consumer group. We are so nice and sorry all the time that we just eat $#!! pretty much everything we consume/purchase. Part of the problem I think. Buying Fuel is no different from buying socks in these respects.

 

[rjs]

we in BC have the highest average price in Canada !!!

http://www.albertagasprices.com/Prices_Nationally.aspx

 

[searun]

Now its all clear, the closer you get to Alberta the cheaper the cost of fuel. Kamloops is cheaper because its closer to Alberta than Vancouver Island, makes perfect sense. I guess the oil companies are nailing us with a secret luxury tax for living in paradise.

 

[AlK]

Sheer greed by the oil companies.

 

[Aces]

Well they have us over a " barrel ". And yet we have chosen to operated recreationally an object that does not use that expensive fuel in an efficient way.

If you don't like it buy a sailboat, I refuse to let the price of fuel ruin my day or my life.

 

[ziggy]

Seems that with the price of crude dropping but the price for the finished product at the pump still high, its time we built more refineries. Canada is missing out on the value added part of the equation!

 

[finaddict]

I frankly don't think this is the place to try and teach a course in Economics, supply and demand and commodity pricing - but I'll try. It's kind of like oranges. When there's a big frost in Florida that kills the orange buds, the price of oranges goes up. Supply is restricted and only people who can afford to pay the price get oranges. There's enough for people who can afford the price - others go without oranges. So it goes with gas - people who are prepared to pay the price will do so. Some won't and will use less fuel. In other words, there's enough oranges or fuel for the people who are prepared to pay the price. It's the people who can't afford to pay the price who will feel the impact of the shortage.

All well and good Bruce, but there is a variance in your lesson that also needs explaining. Two issues remain; the inelasticity of the products and the availability of substitutes.

1. Gasoline is a product of inelastic demand (demand remains essentially constant regardless of price) and there are few substitutes ......(yet).

2. By comparison, Oranges is less inelastic and there are many substitutes (other citrus fruits) available. Personally I am not convinced of the shortage of refined products has created the need for the price inequities in Western Canada. It does seem that in the past whenever there has been a drop in the price of oil, there is also an instant response of refineries exploding or down for repairs and maintenance.

But I also understand that shortages will never show up at the pumps by specific brand (i.e Shell, PetroCanada, etc) . The retail arm of each of the major oil companies works completely independently of the refineries divisions. With the exception of branded fuels (special products such as Shell's "V" or Chevron's special fuels), all the refineries sell all of their other non-specialized or blended fuels to whomever needs it. So any 'shortages' are spread throughout the entire industry. Clearly I don't have the answers, just a lot of questions......;-)

BTW, you are right, this is probably not the place for an economics lesson.

 

[bigbruce]

Now its all clear, the closer you get to Alberta the cheaper the cost of fuel. Kamloops is cheaper because its closer to Alberta than Vancouver Island, makes perfect sense. I guess the oil companies are nailing us with a secret luxury tax for living in paradise.

More likely the closer you are to a Costco with a gas bar. Costco price in the Comox valley is $1.14.

 

[bigbruce]

All well and good Bruce, but there is a variance in your lesson that also needs explaining. Two issues remain; the inelasticity of the products and the availability of substitutes.

1. Gasoline is a product of inelastic demand (demand remains essentially constant regardless of price) and there are few substitutes ......(yet).

2. By comparison, Oranges is less inelastic and there are many substitutes (other citrus fruits) available. Personally I am not convinced of the shortage of refined products has created the need for the price inequities in Western Canada. It does seem that in the past whenever there has been a drop in the price of oil, there is also an instant response of refineries exploding or down for repairs and maintenance.

But I also understand that shortages will never show up at the pumps by specific brand (i.e Shell, PetroCanada, etc) . The retail arm of each of the major oil companies works completely independently of the refineries divisions. With the exception of branded fuels (special products such as Shell's "V" or Chevron's special fuels), all the refineries sell all of their other non-specialized or blended fuels to whomever needs it. So any 'shortages' are spread throughout the entire industry. Clearly I don't have the answers, just a lot of questions......;-)

BTW, you are right, this is probably not the place for an economics lesson.

Research has shown that the price elasticity of gasoline is less than zero (http://economics.about.com/od/priceelasticityofdemand/a/gasoline_elast.htm) which suggests that there will be some drop off in demand following an increase in price. Such a drop off, however, may not be manifested in people not using gas at all but by reducing their consumption (and cost) by adjusting their driving habits, cutting out non-essential journeys or by buying more fuel efficient vehicles.

In other words, they are not substituting apples for oranges because apples are cheaper than oranges, they are simply eating fewer oranges.

Economics class over for me.

 

[triplenickel]

I frankly don't think this is the place to try and teach a course in Economics, supply and demand and commodity pricing - but I'll try. It's kind of like oranges. When there's a big frost in Florida that kills the orange buds, the price of oranges goes up. Supply is restricted and only people who can afford to pay the price get oranges. There's enough for people who can afford the price - others go without oranges. So it goes with gas - people who are prepared to pay the price will do so. Some won't and will use less fuel. In other words, there's enough oranges or fuel for the people who are prepared to pay the price. It's the people who can't afford to pay the price who will feel the impact of the shortage.

Great explanation, thanks I get it now.

 

[Cuba Libre]

More likely the closer you are to a Costco with a gas bar. Costco price in the Comox valley is $1.14.

Today its $1.11.9

 

[Homer]

To me gas prices on the Island are run by crooks. I say bulls&$t to shortages, refineries being down or that hey are converting to summer gas.

Why is gas cheaper in Whitehorse Yukon 104.9 than in the Comox Valley.Edmonton this morning is as low as 78.9

 

[sammyslabber]

Supply and demand...economics 101;you could buy stocks in http://www.valero.com/default.aspx