Quote:A news article that I read, indicated that from the time oil is brought up from the ground in the Middle East, shipped to this country, refined, and then available at the gas pump is approximately 30-45 days, but when any kind of 'shortage' is seen as potential, the gas prices shoot up immediately, even though that actual shortfall is still to be felt.... That's the fault of the gas companies...as well as the Wall Street speculators that are bidding up the prices of crude...
When that anticipated shortage doesn't happen to the degree forecast, the price of gas does not drop until the shipment is secured and in the refinery, ready for delivery...
Not exactly OT. It's a popular misconception, but the prices really are driven by supply and demand as perceived by by those in the market.
First, there are two basic commodities markets that are constantly confused with each other, even by supposed financial "experts" (TV finance reporters etc) who may know something about the stock market but rarely have a good understanding of the commodities markets.
The real or "spot" market is for oil that has already been pumped. The daily "spot" price of oil is determined by supply and demand. If supply does not cover the demand, there will be more people bidding for the oil and the price will go up. There is very little "speculation" in this market, since it is for a real, material, product, and speculation would require (expensive) storage of the product, which would likely price the speculator out of the market.
Then there is the FUTURES market. This is a (mostly) theoretical market for oil that hasn't been pumped out of the ground yet, and might not be for a year. The "futures contract" price, contrary to common wisdom, has little to do with the (spot) price of real, already pumped oil, that's for sale today, in fact just the opposite. The real or "spot" price is the first and primary factor affecting the futures price. The calculation of what the buyer or seller thinks the price of oil will be in 6 months STARTS with what the spot price of oil is TODAY.
Very few futures contracts are ever "exercised" (have actual oil delivered). Almost all futures contracts are balanced or cancelled out before their "due date". In other words the contract owner will typically cancel out one contract to buy oil at a given price in a given month with another contract to sell oil at the same price in the same month. The "oil" in that case never existed, it was a theoretical or potential sale of oil sometime in the future, and the contractual obligation to buy or sell oil to or from someone was cancelled out by an opposite contract.
While the "speculators" get all the attention in the futures market, it's real purpose is to act as a buffer or "price insurance" for both suppliers and users. Without those "speculators" that "future price insurance" market wouldn't exist, the daily "spot" price for everything from timber to soybeans to oil, would fluctuate wildly, and markets would be chaos.
Where there IS price crossover between the two markets is mostly in the "close in" contracts, those contracts that are for oil that will be pumped in a month or two.
Let's say you have a refinery. You might have enough crude in storage to keep your operation running for a couple of weeks at most (bulk storage of oil is very expensive). You regularly bid on (spot market) oil that's in transit and that can be delivered in time to keep your supplies up.
When Egyptian pipelines are disrupted and oil to Europe is diminished, European refineries start bidding against you and the price of that oil goes up. Prices for your refined product (gasoline, heating oil, etc) go up very quickly because the price you are paying on the spot market have gone up.
Now you see Libya, Tunisia, etc on fire and you think "crap, if this spreads to Saudi the price of crude in the near future will skyrocket". Besides the futures contracts you might normally own as "insurance" (those 3-6-12 months away) and that you would normally wind up "balancing", now you as a refinery owner decide you had better prepare for the worst case and you buy oil futures contracts for delivery 1 and 2 months out.
Those "close in" contracts are going to be expensive since every other refinery owner is making the same calculations you are, and are also bidding for against you, but if oil today is selling today for $100 and your calculation is that if Saudi oil is disrupted in the next couple of months oil will go to $200, it makes sense to buy some oil for delivery 2 months from now at $150.
Here's the deal. If the Mideast calms down and prices fall next week on the "spot" market, you will still be contractually obligated to buy that more expensive "2 month out" oil, because it will be too close to (economically) "balance" it with an equal/opposite contract. In that instance, your oil supply for the next couple of months is going to be more expensive than if you were buying it all on the daily "spot" market, and since you have to cover your costs or go out of business, the price you charge for your refined products will remain high until your expensive buying obligations end.
You as a (nasty "Big Oil") refinery owner get slammed by the Dems and the media for price gouging because when oil prices went up, prices at the pump went up almost immediately, but when oil prices went back down, there was a lag of a month or more before prices came back down.
Reality is that there are very good reasons for the lag, and in fact "Big Oil" has been investigated literally dozens of times by extremely hostile congresses and administrations, and NOT ONCE have they been found guilty of price gouging.
That's a very simplified explanation of a very complex market, but might give you some idea of what really goes on.
If you want to place blame, put it on the folks who have made it necessary that we have to import 70% + of our oil from countries that are NOT our friends, and who have nationalized oil industries. That's not Big Oil, Wall Street, or "speculators", it's the greenie weanies, the earthers, and the liberal/progressive politicians they own.