Snow and Diesel

It may all be a big scam but in the Northeast and Midwest, they switch over the refineries to summer fuel blends in the spring. That cuts production of all fuels during the transition and drives up prices.

Supply and demand is a theoretical construct that assumes a perfect market. Perfect markets have never existed. Even with Rockefeller he shipped oil with the railroads but forced the railroads to charge his competitors more to have their oil shipped. He had a price advantage by his leveraging his clout with the railroads who needed his business.

Recently with the GM bailout, Mitt Romney and his business partners threatened to close down Delphi which would have shut down GM for years unless the feds agreed to a $4 billion dollar purchase price for the stock they had bought months earlier. Romney used Delphi to extort billions from the taxpayers so again there is no perfect market.

In California when there were multiple independent refineries the "off-brand" gas sold for 30-50% less than that from the "majors" like Texaco and Union 76. Now there are only two companies operating in California and not surprisingly the price for fuel is as high as you will find in the nation.

No corporation wants a free and open market as it gets in the way of maximizing profits regardless of what it takes. This is human nature and greed is more of a force than people are comfortable to admit and so we pretend that everyone plays nice.

"...I thought that I had a handle on oil supply/demand, ..."

I've been saying for the last 25 years that the rules of supply and demand do not apply to fossil fuel. (and really, any fuel now!)

I've always said, the manufactures (or whoever that is), will continue to make profits, regardless. If demand goes up, prices go up. If demand goes down, prices still go up, because "they" are going to get their profits at any cost to us consumers.

If demand went to virtually nothing, the price of a single gallon of gas would probably reach a million dollars, (and I feel for the poor soul that has to pay that) because the manufacturers (again, whoever that is) is still going to get their Christmas Bonus (figuratively speaking).

For what it's worth, here in Central Indiana, prices jumped again over the last few days. Diesel is running about $4.25 - $4.29 right now and gas is $3.75 (as of last night).

Supply and demand ... yea! We live in a disillusioned world. Whoever came up with that hog-wash! Must have been a 1940's economist pipe-dreamer!

...I thought that I had a handle on oil supply/demand, commoditization of, and why prices for crude (and, refined products therefrom) went insanely out of touch with reality and the consumer market.

I was so far wrong, it was embarrassing.

I would suggest everyone concerned with oil and derivatives pick up a copy of: "Oil's Endless Bid; taming the unreliable price of oil to secure our economy", by Dan Dicker, 2011, John Wiley & Sons (publishers).

What you ask about (diesel, and fuel in general) is in the realm of what is called, "crack spreads" ("...the relationship between crude and refined products"). Crack spreads of 3:2:1 ratios were used to to represent more the reality of refining crude to usable fuels from the 1980 to the end of the '90s; but more recently, trading of the FUEL (or, in the trading lingo: cracks) became more important than the ratio of crude to cracked products, and recently, a 1:1 SIMPLIFIED crack spread started being used (which absolutely DOESN'T represent the reality of refining. When refining, a general number representing the ratio of cracked fuel product one can derive from "a unit of sweet crude oil" is: for every 3 units of sweet crude oil, roughly 2 units of gasoline (3:2) are derived; and for every 3 units of sweet crude oil, roughly only 1 unit of distillate diesel (thus 3:2:1) is generated. Thus, in this book, it is pointed out HOW MUCH MORE IMPORTANT gasoline is in the refining process, than the distillate diesel, thus the twice as important fact that gasoline (sales) is TWICE as significant to refiners than diesel (gasoline is twice as widely produced as diesel). Now you understand how insignificant diesel distillate is in the big scheme of things from the refiners.

OK...FUEL market trading: according to the author, fuel traders always maximize their positions, especially during times of strong demand (like summer; and extremely or exceptionally cold periods during winter, and during time of huge economic pushes globally). With this in mind, and understanding that say, going long in a time of heavy demand, the MOST IMPORTANT time to attempt to drive up "settlement prices" is at the end of the day (the closing: settlement prices at the end of the day are used to "universally value ALL OPEN POSITIONS, thus the end of day prices are the most significant price for traders (these are the benchmark priced printed in the newspapers at end of day). So, if you can drive the price up (or, down) at closing, a few traders can wield a tremendous psychological pressure on the fuel market (inside the rules, AND LEGAL). This is where an outsized influence by a few traders can create unreal fuel prices in relation to the "normal range of settlements during the day, before the 2 minutes at closing". In the end, customers mostly just want to capture "the FINAL settlement prices", by doing an MOC (common market on close). After customers were burned by MOCs, the exchange created another trade called the TAS (trade at settlement), but TAS gave a huge edge to the floor traders (close to the action) rather than leveling the playing field. Floor traders would create a situation where the TAS lots they sold (earlier committed to sell) in the day have to be matched with the TAS lots bought late in the trading day (inspiring advantageous settlement: you've helped jack up)...so the writer shows that it is impossible "to level the playing field among participants in ANY free market". So, the uncontrolled oil market and distillates trading rolls along...

Anyhow, I suggest reading this book. It is fairly complex (far more involved than I attempt to synthesize above, as a hack amateur in the energy commodities market), and requires great concentration; but if you really what to know just how the uncontrolled energy market is destroying our economy and delaying/killing recovery, do find a copy...

Silver-

$3.69 at Murphy Express in Tullahoma, TN. It was $3.49 at Kroger and Home Depot (they sell fuel here) for months.

Diesel is running about $3.69 here today. We don’t use fuel oil here for heating. It’s all natural gas for urban homes, propane for most foks living out in the sticks.

Paid $3.36 today at Kroger in Galveston

I remember the days of paying $5.00/gallon for diesel in '07/'08, which was right after I bought my truck and first trailer. The sticker shock of $140 fills was tough to swallow until I put it all in perspective; if I can afford to buy luxuries such as a big truck and trailer just purely for recreation, I can afford the fuel to put in it.

Even a $0.50/gallon price spike only works out to an additional $35 per 1,000 miles at 15 MPG. We all know diesel prices will settle down after the cold snap is over (or gas prices will shoot up to match them!).

I get a kick out of my friends with gassers bragging about how cheap gas is compared to diesel during the winter, but then they get real quiet in the summer when the prices equalize or gas shoots higher; all the while I'm averaging a steady 15 MPG and they are getting 10. :)

Stefonius wrote:
A lot of the homes in the northeast are heated with #2 fuel oil, which is basically dyed diesel fuel. With this cold weather, demand has gone up quite a bit. My supplier is having a hard time getting enough to fill his contracts. If I had to guess, I'd say that the higher prices in the NE are probably due to the cold.

EDIT: It also doesn't help that Governor Corbett raised taxes on diesel and fuel oil by almost 14¢ per gallon on January 1st.

And as I understand it, there are more increases due in the coming years. :(

My local filling place, Cumberland Farms, went for $3.919 to $4.309 in about a week. I get a 10c discount by using a mobile pay app. Only time I go elsewhere is to Shell, and that is when I get at least 30c off in grocery rewards from Stop and Shop (Giant foods).

I agree, this spike is due to home heating oil prices. Last report, which may have gone up, home heating oil was at $4.08 a gallon. I remember when my mom paid 69c a gallon in the late 80s and early 90s.