Serious question about oil price during summer 08?

Question

During the summer gas inventories were falling while crude inventories were rising.

Question

What actually caused the inverse reaction? Was it speculation that ran oil prices high which created a phenomena that led to refiners cutting back production so they wouldnt loose money? Reason im asking is because MAstercard , during the peak of the summer reported that gas consumtion was down 1% from 2007 year. Anyone have input?

Answer 1

I believe the answer you are looking for lies in what is called the "crack spread"



Cracking in this case refers to the refining of crude oil into its refined products. As oil is refined the complex oil molecules are "cracked" into smaller molecules. You know them are kerosene, gasoline, Diesel fuel, ect. The crack spread is the difference between the price of crude oil and the price of the refined products it creates. If a barrel cost $100 and the refined products that can be created form it is worth $140, the crack spread is the difference this case $40.



From what I recall the crack spread surged in early 2007 to very high levels and collapsed through 2008 crossing into negative territory for the first time in at least 20 years in oct 2008. As the profitability of creating distilled products dropped dramatically refiners slowed the making of finished products. If they are not using the oil and refining it, oil inventory surges and price drops. I feel the price for finished products exceeded the price consumer were willing to pay lowering margins, and lowering consumption for the first time in many years, this squeezed the margins for refiners causing a collapse in finished goods pricing.



If crack spread goes too low, how do refiners make a profit? If it cost $15/bbl to refine and spread is only netting $10, refiner loses $5 for every barrel refined. So why make any finished product? This caused gasoline invetory to fall, and oil inventory to surge. If we are not making finished products and the raw material is still being produced there should be a surge in raw material inventory and decline in finished goods inventory.



So I believe you are correct, oil when to high, and refiners could not make a profit at those levels, because they could not sell their finished products at that high of a price.



see article and chart

http://ftalphaville.ft.com/blog/2008/10/...

Answer 2

properly our surplus have been given depleted because of the fact of liberal spending after 9/11. The conflict did no longer finally end up figuring out to purchase itself. Oil costs led to the credit crunch and all of the earnings this twelve months from that hedge became wiped out as quickly as oil dropped. The federal reserve and its socialistic device to systematically scouse borrow the wealth of the human beings became constantly a factor to our decline. This has plenty to do with sub top loans and predatory lending. They print money to non-public loan us against our increasing domicile values! yet understand they have dropped so humongous debt with no longer something to coach for it. Oh however the inflation is accumlated and saved interior the federal reserve to maintain loaning us and the cycle keeps. the seven hundred billion bailout which historians will describe because of the fact the 2d great heist of the bush regime (first became Iraq)

Answer 3

I wrote on this extensively last year. Sorry, I am not going to reconstruct the many pages on this subject. See my post history for details on this question.



60 Minuets was late to the story.

Answer 4

60 Minutes had a good segment on this last Sunday,