by John Yantis
15-09-05
The cost of gasoline is determined by oil futures traders who shout prices at each other in the pits of the New York Mercantile Exchange during the day and quietly make deals electronically overnight.
Michael Burdette calls it a nearly 24-hour-a-day automated auction where prices
can rapidly change as the trading floor hums on every piece of energy data it
can get its hands on.
"At all times, there’s a continual action going on," said Burdette, a senior analyst with Energy Information Administration, a division of US Department of Energy.
"This is one reason why I try to hammer home the point that everybody thinks the
oil companies raise gasoline prices. They don’t set gasoline prices. The market
sets gasoline prices, and it is every bit as much a matter of bidders driving
the price up that they’re willing to pay because they’re competing to buy scarce
product as it is sellers holding back and raising the price they want to get.
The bottom line is in any kind of auction, it’s kind of going both ways."
Everybody from oil producers and refiners to big consumers and speculators
get in the action.
"Sellers can be refiners and importers who are bringing in product or producing
product and have it available for sale, and on the buying side, you’ve got
traders and marketers who want to purchase product so they can turn around and
sell it to somebody else," Burdette said. "The speculating folks that are also
in the market can be in on either the buying or selling side because they’re
constantly either taking long or short positions simply depending on whether
they think the price is going to go up or down."
It’s a process that fascinates and frustrates David Cowley of AAA Arizona.
"I’ve had guys tell me they have a hard time justifying more than $ 4 or $ 5 to
get a barrel of crude out of the ground," he said. "We’re paying $ 63. How do
you figure? I’ve always wanted to see if I could come up with $ 65, even
including a $ 15 terrorism fee that I include in everything we think about. I
just struggle to get to our current price and an awful lot of it is just nothing
more than speculation. At some point, you just have to say this $ 10 or $ 12 is
nothing but pure profit to somebody whose never going to take possession of the
oil. They are just making money."
Speculators can be anyone who has the money to buy futures contracts or options in them, Burdette said. "Oil really isn’t any different than wheat, corn, gold or platinum.... They’re all traded that way."
Oil changes hands a number of times from its purchase to the gas tank and the
price normally increases with each sale. About 70 % of the gasoline in the East
Valley comes from California and 30 % from Texas. Most of the oil that
California’s 13 refineries use to make the Valley’s gas is produced in
California and Alaska. About 30 % of it is foreign oil that is shipped from as
far away as Australia and as close as Canada.
Gasoline the Valley gets from Texas is refined in New Mexico and Texas using oil mainly from domestic fields. A small percentage comes from oil pumped in the Middle East and shipped to the Gulf Coast for refining.
Big oil companies, under contract with petroleum-rich countries, discover and
drill for crude. The oil is shipped by pipeline to a coastal area where it is
stored. The companies, either using their own or leased ships, load the oil at
an off-shore platform and transport it to refineries in the United States.
Oil is unloaded and run through a pipeline to an offshore port where it is pumped onto land and stored. All of the stages are costs reflected in the amount a refiner is willing to pay for a barrel of crude. Currently about a third of the price that you pay at the pump goes to the refiner.
Once refined, gas is shipped by a pipeline to a marketing and distribution
terminal in Phoenix where the terminal, or "rack" price is determined by the
truckload. Additives that can cost consumers 5 cents to 7 cents a gallon are put
in by oil companies that promise better engine performance.
A truck hauls it to a gas station that pays a wholesale price. It is put in
underground storage tanks for use by motorists.
In Arizona, state and federal taxes add 37 cents per gallon. The latest figures
show the retailer get about 26 cents a gallon.
Source: www.eastvalleytribune.com