[Fot] Stations of yesteryear

[Michael Porter]

On 3/29/2013 1:35 PM, BillDentin at aol.com wrote:
> In a message dated 03/29/2013 12:28:21 PM Central Standard Time,
> kaskastner at gmail.com writes:
>
>
>> Remember also that the US was paying the arabs $5 buck for a barrel of
>> oil, not $91. (although I guess the amount are the same with the inflation)
>>
> Kas...
>
> Interesting observation, and if my high school 'ratio' math still works, if
> it was .299 a gallon for gas when oil was $5.00 a barrel, shouldn't we
> expect to pay $5.442 now?  I just filled my tank for $3.799 a gallon.  All
> things being relative...maybe we should not be complaining.
>
>

The problem is, as usual, more complicated than that.  First, if one is 
looking for a standard of measurement based on inflation and the cost of 
a barrel of oil, then one has to exclude changes in federal, state and 
local taxes.  Then one has to get the actual numbers more or less in 
line with the reality of the time frame, and then do some data smoothing 
to eliminate the peaks created by temporary shortages (the 1973 and 1978 
embargoes and withheld shipments, for example) and oil prices affected 
by predatory speculation (such as the $147/bbl spike recently).  You get 
something like this:

http://inflationdata.com/Inflation/Inflation_Rate/Gasoline_Inflation.asp

If we're talking about prices being affected in large part by Saudi 
Arabia, it's important to get the numbers in the timeline correct, 
because the establishment of OPEC price controls after 1973 changed the 
pricing schedules considerably.  Saudi oil was routinely purchased by 
the refiners for a wellhead price before shipping of $1.50/bbl, until 
the 1973 embargo.  Within six weeks of the beginning of the partial 
embargo by SA, that price was $6/bbl, and within four months, was 
$10/bbl. That alone is a 660% increase in the crude price in less than 
half a year.  At the beginning of the embargo, gas prices jumped from a 
nominal $.30/gal to $.60/gal, and stabilized in the low .50s/gal until 
the 1978 oil shock, where the price increased to ~ $2.25, adjusted for 
inflation.

Finally, one needs to look at crack differentials (price of all refined 
products combined per bbl of feedstock vs. crude oil feedstock price per 
bbl), which have been rising and, as well, understand that the NYMEX and 
London spot prices are more an indication of crude price trends in the 
market, rather than an actual current price paid by the majors, all of 
which tend to lock in production rates and prices for extended periods 
at prices lower than the spot market.  Going by crack differentials, the 
gross profits of the majors and inflation-adjusted pricing, gas prices 
are currently quite a bit higher than the historical average.


Cheers.

-- 


Michael Porter
Roswell, NM


Never let anyone drive you crazy when you know it's within walking distance....