Once again, the price of a gallon of 87 Octane is being advertised all over the place as costing what I used to always pay for a basic burger/fries/softdrink meal. In November. Chilling!
It isn't pleasant, but it's life. There's nothing anyone can do about it, folks. It takes all of us to do something about it! Sadly, all of us collectively form a metaphorical large moving vehicle. Large moving vehicles have one common trait: it takes a long time and a lot of effort to change their speed or direction!
The price of crude oil is a considerable chunk of the price of a gallon of gasoline. But it's only half of the cost. Other products derived from the scores of petroleum grades are actually impacted far more. Asphalt could be a prime example. I've heard that jet fuel, which is almost entirely kerosene with a few minute additives, is also much more encumbered by the commodity price of crude oil, much to the disgust of airlines.
Oh, yes. Oil is a commodity. Another concept so few people seem to understand. It's not a lot different than corn, soybeans, gold, or silver. Something is worth what someone else is willing to pay for it, as most of us are aware. Look at it this way: Say you own some land, and something of value is discovered on it. You OWN the land, meaning until you sell it, give it away, or die, you have the rights to the use of the land and everything that's on it. Someone else had those rights before you bought it, and someone else will have them after you've left. But for now, it's yours to do more or less whatever you want with. Natural resources come from lands owned by a whole bunch of people. How much should these people receive for the value of the material taken from their land? This is why commodities are traded. Whatever prices are negotiated by the various brokers are ultimately the precedent for what they're worth at the time. How are those prices determined? Simple. It's whatever the parties involved in the transaction agree to, just like any other business deal. But, nearly always, that price will be arrived at in consideration of how valuable the object of the deal is. How badly does the buyer want it? If it's plentiful and there's a huge quantity on hand, more of it isn't going to be worth much. If there isn't so much lying around and it's selling as fast as it can be bought in the first place, then it's worth quite a bit.
Keep in mind that some grades of crude oil aren't good for much. Crude from Saudi Arabia is like that. It's a grade of 'heavy crude', similar to mud, but 'ickier'. I guess it makes all right tar and asphalt, but is absolutely miserable for gasoline and solvents. Oil elsewhere is far better for that purpose; the price you hear quoted is specifically the negotiated price of West Texas Intermediate Crude scheduled for delivery several months in the future. This is part of the reason Saudi Arabia was and is so important to determining the price of crude oil. There isn't much demand for heavy crude, relative to other grades. The Saudi oil fields generally pumped far below their maximum capacity. If the price got high, the Saudis could start pumping more and 'dump' a bunch of heavy crude on the market, devaluing the rest of the world's supply of oil on hand. Or, they could just hold up for a while and drive the value up. After all, there is some demand for heavy crude and someone has to supply it to meet the need!
Right now, global total consumption of oil is at approximately 50%. Half of the crude oil is gone. There's a lot left to recover from the earth. The problem is, aside from the fact that what remains will be increasingly difficult to reach, that we can't use that crude oil in the ground. Obviously, it's in the ground. We're up here. It's got to be pumped out, first. That takes equipment, and it takes time. Right now, what equipment there is is pumping just about around the clock. We're sucking it out as fast as we can. You can't put crude oil in your car. Okay, I guess you could literally put it in your car, and make a total mess of the upholstery. You cannot utilize it as fuel, though. It takes a careful, specific refining process to extract useable gasoline from petrolum and then it must be blended with the appropriate other petroleum distillates and other chemicals used as additives to create a product your vehicle will tolerate. Again, it takes equipment and time. All of the refining equipment is working almost all the time. So, there's "X" amount of useable gasoline available for use in the very near future, referred to as 'inventory'. If there's a lot of inventory, the price is low. If there's not a lot of inventory, it gets very pricey indeed. We can't boost inventory by refining more oil into gasoline. We're at the maximum limit already. It all comes down to demand. The more we use, the less there is available to sell to us so we can use it.
Supply and demand should be familiar to anyone who took a basic economics course in high school, which is required in my home state of Iowa and probably a number of others. This shouldn't be too tough to comprehend. If you have a lot to sell, lowering the price as far as you can should, all things being equal, cause a lot of people to show up to buy from you. Great! Until, that is, you don't have so much to sell. Remember, if you run out of product, you can't sell anything, and you make no money whatsoever when that happens. You need to get people to stop buying so much so you can ensure you still have something left to sell to the people who really need whatever it is you've got and are compelled to pay more to get it. Easy: raise the price! It usually works. Most products face what is known as 'elastic demand', which is what I just described. When it's cheap, it sells. When it's expensive, it doesn't. Find a happy medium and all is well. However, gasoline, food staples, and a few other of life's essentials are 'inelastic'. It's not that no one seems to care when the price goes up - everyone grumbles loudly about it. The problem is that they think they need it and proceed to begrudgingly cough up the extra cash to buy it just the same. The idea is that hopefully enough people will take the hint that maybe they need to quit wasting the product or using it unwisely. In the case of gasoline, when the price goes way up, the purveyors are doing their best to try to get a bunch of us to quit taking unneccesary road trips, cruising on Saturday night, and doing other generally frivolous things that consume valuable fuel so there's enough to go around for everyone who needs it. If it causes a few people to decide it's time to start bicycling or walking a lot more, that's exactly what they want. If enough people do it, the price will fall in accord with the lessened demand so they can maintain sales at the naturally occuring 'point of equalibrium', that happy middle ground they seek.
One person cannot make a difference in the price of gasoline, unless you're a terrorist who manages to destroy a critical piece of the distribution infrastructure, which most certainly will not make the price any less. It's a lot like voting. It takes millions of 'one persons' doing what they can to make a difference.
So what are you planning to do about it today?
The TiGor
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment