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Why Fuel Is So Cheap in Denver
Topic Started: Feb 26 2012, 09:11 PM (242 Views)
Stoney
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Right now, the United States has a big glut of crude oil sitting in the middle of the country, and no easy way to move it. The combination of surging production from Canada's tar sands and North Dakota's Bakken region has overwhelmed the existing pipelines to the Gulf of Mexico, where it would ordinarily be refined and shipped onto the global market. As a result, the price of American and Canadian crude oil is trading at a steep discount to varieties from elsewhere in the world. After all, with fewer potential customers, oil buyers can dictate friendlier prices. West Texas Intermediate, which is traditionally considered a benchmark variety of crude used to price other types, is selling for about $106 a barrel. But according to Oil Price Information Service analyst Tom Kloza, oil from North Dakota has recently been selling for around $83 a barrel. Canadian crude has been trading for even less.

"I've never seen anything like it, this kind of [price] diversity," Kloza told me.

The big beneficiaries of this strange situation have been refiners in the West and Midwest, who get cheap oil, while refiners on the coast have had to continue importing the most expensive varieties from abroad. According to the EIA, before 2011, refineries in the Rocky Mountain region paid about $3 less per barrel of oil than the national average. By November of last year, they were paying $16 less. Those discounts get passed on to drivers in places like Denver, where gas is currently averaging $3.12 cents a gallon.


I guess more domestic supply works.
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Corky52
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Stoney,
Only reason is the oil can't be moved to the world market, minute you open the transport prices in the area will rise. Gee I wonder why???????




:smoker:
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Stoney
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Right, but that doesn't change the fact that an increase in supply diminished prices. Yes, it would be less so if the coastal refineries were able to handle the supply.

It also points out that free markets can work. The refineries could have easily used your argument to keep their prices high.
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Corky52
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Stoney,
Only a limited market, not a free market.

Also you have to wonder how soon the oil will simply be left in the ground rather than being sold? Limited pumping would raise the price and save the oil for later sale at a much higher price.

Market anomalies are a wonderful thing to watch.


:smoker:
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Stoney
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I don't see any reason to think a limited market isn't a free market.

If they're making money on the oil they'll keep pumping and maybe it'll keep coming down to a point where they make money and can transport it further and still make money. A free market will seek that level.
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Corky52
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Stoney,
Oil will stay in the ground when the longterm money is better than the short term money, that is the free market. Price in Denver will not go up, might go down a bit till equilibrium in small market is reached and longterm it makes more sense to hold than sell. Key is that oil does not have to be pumped to have value and does not lose value due to spoilage, costs nothing to leave the oil where it is.



:smoker:
Edited by Corky52, Feb 26 2012, 09:56 PM.
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Stoney
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But leaving the oil where it is does not produce income. I would agree that some would look at it as long term investment instead of income and leave it. Maybe some would agree with you that oil is on the way out and sell it while its still high.

That's why central planning doesn't work. There are too many variables involved.
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Corky52
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Stoney,
I don't want central planning, only a truly free energy market that can't be manipulated and doesn't have favored players.

:smoker:
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Stoney
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Corky52
Feb 26 2012, 10:11 PM
Stoney,
I don't want central planning, only a truly free energy market that can't be manipulated and doesn't have favored players.

:smoker:
We're on the same page there for sure.
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