3-19-08 by dugan
It’s not bursting yet but there’s a little hole in the oil bubble today, with prices down more than $4 a barrel (about 10 cents a gallon) for crude oil today, to under $105 a barrel in Texas and the New York markets. Prices were down even more as the market for price speculation on May opened up after hours in New York, at under $103 (see up to the minute price at Bloomberg). It’s a bet on a continued drop. Given that U.S. demand for gasoline is down 1% and overall oil product demand is down 3.2% you’d think gasoline prices would fall as sharply as oil. But don’t take a bet on that.
As the AP story noted:
"Further depressing demand for oil was refinery activity, which fell by
1.2 percentage points last week to 83.8 percent of capacity, a sign
refiners are cutting back on production of low-margin gasoline.
Gasoline crack spreads — the difference between what refiners pay for
oil and make for selling gasoline — have dipped into negative territory
several times in the last week, analysts said."
Translation: Refiners are cutting back production of gasoline and other products to cut supplies and thus get their profits back up, no matter what happens to the price of oil.
So unless oil plummets by the tens of dollars per barrel, consumers will see only a downward creep at best while refiners keep cutting back until gasoline supplies are low enough to gain the profit margin they want.