Fuel Price Inversion

[Tom]

Hi Howard,

Yes, I've known your name for a long time. That's really why I clarified my message with "and for the benefit of lurkers".

BTW I had no issue with any of your postings. Like Betty, I appreciated the benefit of your industry-specific experience. But I was concerned that your comment "I'm also sorry I posted anything at all"  might have meant that you felt you were being attacked, which of course you weren't.

And the people that post here are the best, but I think that is true of most RVers.

Agree 100% and I've often said that this forum would not be what is today without the wonderful members we have here.

 

[Don Jensen]

Actually I am in favor of high oil prices. When the price of crude is high it makes it lucrative to find new ways of squeezing that last drop of oil out of the ground. We get creative and resourceful. We will be motivated to find alternative sources of energy because, guess what, there will be big money involved as a reward. Being creative and inventive, now there?s something we as a nation need don't you think?

Also, personally, I am a big fan of buying all we can from the Arabs. Run them out of oil, use theirs first. And for gosh sakes don?t sell, lend, or show them our technology. We need to start protecting our own interests! ;D

Howard

I agree.  If we can get the price of oil up high enough many forms of alternative energy become viable.  An additional benefit would be less world strife.  Virtually every war since the late 1800's have been about oil in some way. 

Don

 

[carson]

I would be in favor of someone starting a new thread on 'Alternative Energy', just for cars, trucks, RVs, Buses, Locomotives, etc. (Transportation arena only).

There is a lot of expertise, common sense and debating-power on this great forum.

    Re Ethanol, some examples: Why corn primarily. Many other sources that would not impact the food supply and its cost.  My biggest fear is soil depletion over time.(some countries of yore have found out the hard way). It takes a lot of energy and money to produce chemical fertilizers. Where does that fit into the economic picture, etc.

carson FL 88.0F

 

[dingodog]

Boy, you guys are doing a lot of whining about some cheap gas. The price of gas up here in Canada today is about $4.30/gal - and we export oil. Granted, a third of it is in various taxes. In Europe, gas is closer to $7.50/gal in places.

Just imagine what our price of gas could be if we didn't send all our oil to the US. But don't worry, we'll still sell it to you.

The world's better off with higher gas prices anyway. The more expensie it is, the more motivated people are to reduce their use of it, find alternative fuels, etc. and as a result the cleaner our air will be and the better our environment will be to go camping in.

 

[Shayne]

Just looked at Flying J gas prices and it's hard to believe that Phoenix FJ has the cheapest GAS for FJ's in the country.  It s shocked me because its cheaper that any of the other station s on the west end by 6 cents and that hasn't happened since I've been out here. 

 

[blueblood]

A lot of replies to my original post, but not one to the point I was trying to make. Yes, fuel has gotten very expensive, IMHO the pricing problem is not gouging by the oil companies but the lack of investment in new/additional refineries. There are approximately half the number of refineries operating today compared to 20 years ago. The lack of adequate and predictable supply causes these fuel pressures.

However, my post was about the difference in price between gas and diesel, and how diesel went from about 30-40 cents a gallon more than regular to 40 cents a gallon less. That swing is one that doesn't make sense to me.

Bernie - a lot of things happened simultaneously. We lost an unprecendented seven gas refineries to fire and maintenance issues while gas usage was rising for summer travel. They have been running these refineries very hard and skipping routine maintenance and the piper has to be paid. In addition, workers are tired from excessive overtime and making mistakes. We had decreasing diesel usage as both truck and railroad usage dropped a fair amount. The good news is that two refineries are coming back on line today which will increase gas supply shortly with the large one in Whitting IN being most important. Imports and exports (yes, we are exporting these) of gas and diesel fuel is another important factor but for another time.

 

[BernieD]

Leo

And if we had as many refineries as we had 20 years ago, these outages wouldn't have had the same impact.  Its just that the oil industry hasn't invested what it should have to maintain supply consistent with the growth in demand.

 

[hleap]

Its just that the oil industry hasn't invested what it should have to maintain supply consistent with the growth in demand.

Part the problem is government controls and regulation, which I agree there should be a certain amount of. However, between the EPA, OSHA, Endangered Species Act, etc. etc. it's so expensive to build and maintain a refinery. And I'm sure want to make sure the market is there before they build one. In the last 15 years I have seen too many small/medium sized refineries dismantled because they were out of compliance and it was too expensive bring them up to standard.

 

[blueblood]

Leo

And if we had as many refineries as we had 20 years ago, these outages wouldn't have had the same impact.  Its just that the oil industry hasn't invested what it should have to maintain supply consistent with the growth in demand.

The no refineries built for 20-25 yeares is an often reported statistic which implies there was a need for more when the facts are entirely the opposite. Beginning in early 80's oil prices surged and demand fell causing over capacity. Then oil prices suddenly fell and demand recovered for a few years before nose diving again. I was with FMC during the 80's and we had a company manufacturing  components for drilling and we were impacted in same manner. We expanded and built two new plants in TX in early 80's only to have to not only close them but even our old plants as well. Over 50 refineries were sold since 1983 and a Jacobs Consultancy study using the sales price of the refinery as a percentage of replacement cost shows the impact of over capacity and low operating margins. In the late 80's national oil companies from outside the US paid about 60% of replacement cost to buy a US refinery. By 1991 it had fell to mid-30's and by 1995 to less than 10%. During this same period about 25 refineries were closed - mainly independents. Low operating margins coupled with need to make major investments for environmental requirements  made these plants uneconomical. The study points out a case where Chevron had to make a major investment in a waste water treatment facility in Port Arthur, TX and then sold the entire refinery just after completion of the water treatment facility to Clark for less than the cost of the investment in the waste water treatment plant. Internal memos secured during Congressional hearings showed internal oil company memos were all focused on how to reduce capacity to improve operating margins. These were rational discussions in light of the existing situation at the time. There were many other things going on in the environmental area that impacted decisions but no need to comment on them here since they are well known. The uncertainty of the future with regard to alternative fuels makes it highly unlikely any major investments in new refineries will go forward soon. There have been two recent announcements of new refineries to be built but both are reportedly having trouble finding investors willing to risk the capital in this situation. Time will tell.

 

[bross]

Bernie is right, If we had as many refineries today as we had 20 years ago we would be a lot better off. The problem is that 20 years ago gas was cheap and refining margins were low. This resulted in very low refining profits and no incentive for reinvestment by the oil companies. The result was refinery closures even with increased demand for finished products. Today we are trying to operate the same old remaining refineries at maximum capacity with the same old equipment. Any problems cause shortages that drive up finished product prices.

I have worked in the maintenance department of a refinery for more than 30 years and in that time I have never seen margins close to what they are today.  You could say that the high price of fuel today is the result of the low cost of fuel in the past.

At the same time, the oil companies need to get off their duffs and reinvest some of those huge profits back into the refineries to insure reliable operations in the future. The problem is that there is no incentive for managers to spend money on maintenance or invest in updated equipment. In the short term, maintenance costs and reinvestment drives down profits and most managers today are not in it for the long haul. Their goal is to show huge profits under their watch and reap the large bonuses that go along with that. They are more than happy to let the next guy worry about the future.   

At the refinery I work in our operating budget for this year is about the same as it was back in the 1980's. Back then the refinery was lucky to break even for the year, this year things will be a little different on the profit side but not much different on the investment side.