The American public has been told for 100 years that prices are controlled by supply and demand. What if that is not true? The implications for how we treat the rich are enormous. Yet the energy market, one of our largest ever, is pointing to the idea that there is no relation between supply and demand.
Oil producers running out of storage space
Glut caused by world slowdown leaves the world awash in crude
NEW YORK – Supertankers that once raced around the world to satisfy an unquenchable thirst for oil are now parked offshore, fully loaded, anchors down, their crews killing time. In the United States, vast storage farms for oil are almost out of room.
As demand for crude has plummeted, the world suddenly finds itself awash in oil that has nowhere to go.
It’s been less than a year since oil prices hit record highs. But now producers and traders are struggling with the new reality: The world wants less oil, not more. And turning off the spigot is about as easy as turning around one of those tankers.
So oil companies and investors are stashing crude, waiting for demand to rise and the bear market to end so they can turn a profit later.
Meanwhile, oil-producing countries such as Iran have pumped millions of barrels of their own crude into idle tankers, effectively taking crude off the market to halt declining prices that are devastating their economies.
Traders have always played a game of store and sell, bringing oil to market when it can fetch the best price. They say this time is different because of how fast the bottom fell out of the oil market.
“Nobody expected this,” said Antoine Halff, an analyst with Newedge. “The majority of people out there thought the market would keep rising to $200, even $250, a barrel. They were tripping over each other to pick a higher forecast.”
Now the strategy is storage. Anyone who can buy cheap oil and store it might be able to sell it at a premium later, when the global economy ramps up again.
The oil tanks that surround Cushing, Okla., in a sprawling network that holds 10 percent of the nation’s oil, have been swelling for months. Exactly how close they are to full is a closely guarded secret, but analysts who cover the industry say Cushing is approaching capacity.
There are other storage tanks in the country with plenty of extra room to take on oil, but Cushing is the delivery point for the oil traded on the New York Mercantile Exchange. So the closer Cushing gets to full, the lower the price of oil goes.
YET the price of gasoline continues to go up…How is that possible? Prices in Springfield went from $1.75 to current price of $1.99 in a day. This article is a month old BUT:
Gasoline prices continue to rise
Pump prices rose 20 cents since January; above $2 a gallon in three states.
NEW YORK (CNNMoney.com) — Average gasoline prices rose 1.7 cents Friday, according to a daily survey of gas station credit card swipes.
The price of gas rose to a national average of $1.816 a gallon from $1.799 a day earlier, according to motorist group AAA. Prices were higher than the $1.667 a gallon reported a month ago, but lower than the $3.044 a gallon gas was selling for on the same day last year.
Gas prices have risen for the past three days, according to AAA data, and are nearly 20 cents higher than they were on Jan. 1.
Gas prices initially rose last year, following a resurgence in the price of crude oil, gas’s main ingredient. But as concern about falling demand for oil sent crude prices down more than $6 a barrel this week, the drivers may be in for a decline in gas prices as well.
“The American consumer is still staying home,” said Geoff Sundstrom, fuel price analyst at AAA.
“There’s absolutely no reason why the price of gasoline should be as high as it is,” he said.
No reason what so ever.