Saturday, May 26, 2007

More on the Price of Gasoline at Your Pump

An interesting article in Friday’s (5/25/07) Wall Street Journal discusses the US gasoline market and some the pressures are the price.

. . . . Now, with gasoline topping an average of $3.20 a gallon nationwide, OPEC officials say they see no reason to open the oil spigot wider.

OPEC's new attitude reflects a tug of war in the global oil patch over how the profits from a barrel of oil are divvied up between the world's producers -- which develop oil deposits and pump oil -- and its refiners -- which process it into fuels like gasoline.

In recent years, the balance in the world's oil-supply system has shifted, giving the refining industry more power and more profit.

This time, OPEC says, the world has ample oil supplies. The cartel's members contend gasoline prices have climbed particularly fast in the U.S. because refining capacity is tight, imports from Europe are down, and U.S. inventories have tumbled.

. . . . OPEC officials say that if they pump more oil and depress world oil prices, U.S. gasoline prices might remain high, and the result would be even wider refining margins. In essence, OPEC would be putting more money into the pockets of refiners while its own revenue would be hurt by declining crude prices. . . .

. . . . The U.S., which imports nearly 65% of its oil, can't make enough gasoline it needs at home. It relies on imports for about 14% of its supply, and routinely imports the fuel from Europe. But tight gasoline supplies in Europe have kept the U.S. from buying as much as it would like from across the Atlantic. . . .

. . . OPEC began cutting its crude production last fall after prices for oil eased to close to $50 a barrel. As a result of the cuts, oil prices quickly rose again. Yesterday, oil closed at $64.18 a barrel on the New York Mercantile Exchange, down $1.59. In London, Brent crude, which has gained increasing prominence as a benchmark for oil prices, rose 12 cents to $70.72 a barrel. . . .

Let’s face the facts, if you worked for OPEC and believed in maximizing your profit you would do exactly the same thing.

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