National Petroleum News (NPN) has been the independent voice of the petroleum industry since 1909 as the opposition to Rockefeller’s Standard Oil. So, motor fuels marketing and retail is not just a sideline for us, it’s our core competency.
Issue link: https://read.dmtmag.com/i/25410
A Federal Trade Commission investigation looked into the prices relative to gouging concerns, and as was usual with such investigations there was no finding of wrongdoing. As NPN covered in 2002, the report stated that the spike: “…appears to have been caused by a mixture of structural and operating decisions made previously (high capacity utilization, low inventory levels, the choice of ethanol as an oxygenate), unexpected occurrences (pipeline breaks, production difficulties), errors by refiners in forecasting industry supply (misestimat- ing supply, slow reactions), and decisions by some firms to maximize their profits (curtailing produc- tion, keeping available supply off the market).” At that point in time few realized how dramatical- ly the factors driving crude oil prices and the result- ant gasoline prices would shift. It has been a long time since issues like the relative rates of refinery uti- lization, or the “Balkanized gasoline supply,” or some regional disruption relative to a problem with a pipeline or refinery made notable headlines either in the national media or the pages of NPN Magazine. These factors are still relevant as contributors to volatility and regional price swings, but since about 2005 they have been completely overwhelmed by the dramatic increases in the price of crude oil. All motorists and undoubtedly most marketers and dealers would gladly exchange an average price at the pump of $1.50 with the occasional spike to $2 per gallon for the massive volatility and peak prices we see today. This two-part article will take a look at what has changed since 2000 and discuss in specific detail the opposing arguments that today’s prices either reflect natural market forces or are driven by spec- ulation largely linked to large investment banks, www.npnweb.com NPN Magazine index funds, “dark” swaps markets and a bunch of money in search of an outlet. Part one will focus on the functional changes that have taken place through globalization driven demand and a view of decreasing world supply that is driving the supply and demand argument. Part two will look at finan- cial regulatory changes and the argument that out- of-control speculation is driving excessive prices along with the legislative remedies that are now in the rulemaking process. SUPPLY AND DEMAND—CHINA AND THE DEVELOPING WORLD In the latest (Jan. 11, 2011) United States Energy Information Authority Short-Term Energy Outlook the administration expects the price of West Texas Intermediate crude oil to average about $93 per barrel in 2011. And for 2012 EIA expects WTI prices to continue to rise, with a forecast average price of $99 per barrel in the fourth quarter 2012. For gas prices, EIA expects regular-grade motor gasoline retail prices to average $3.17 per gallon this year and $3.29 per gallon in 2012. “We forecasted growth in world oil consump- tion this year of 1.4 million barrels a day compared with growth last year of 2.2 billion barrels per day in recovering from the recession,” said EIA Chief Economist Tancred Lidderdale in an NPN Magazine interview. “The 1.4 million barrel per day growth is similar to the growth of the first half in the last decade say from 2000 to 2007. The uncer- tainty is that all of the forecast growth is coming from the developing countries: China, India and the Middle East. And how strongly they grow is always going to be a significant uncertainty. A fore- cast stronger than that would lead to higher prices JANUARY/FEBRUARY 2011 15