Podcast Summary
Understanding the journey of a barrel of oil to find out who's profiting from high gas prices: The price of gas is influenced by multiple entities including oil companies, refineries, and gas station owners, and examining the journey of a barrel of oil can help determine who's manipulating prices to keep them high
The recent record-breaking profits for oil and gas companies have raised questions about who is responsible for high gas prices. While gas prices have reached all-time highs, causing inflation and financial burden for consumers, the industry's profits have also skyrocketed. The price of gas is a crucial number to monitor as it significantly impacts inflation, and various entities, including oil companies, refineries, and gas station owners, are under scrutiny for potential price manipulation. In an episode of Planet Money, the show delves into the journey of a barrel of crude oil, from its sale in the global market to the refinery and eventually to the gas station, to understand how much profit is made at each step. By examining the process in detail, the show aims to answer the question of who holds the power to keep gas prices high on purpose.
Impact of Crude Oil Price on Gasoline: About 60% of gasoline price is due to crude oil costs, determined through negotiations between refineries, brokers, and sellers, influenced by factors like gravity and sulfur content.
The price of crude oil has a significant impact on the price of gasoline at the pump. About two dollars and forty cents of every gallon of gasoline you buy is going towards paying for the raw crude oil. The global oil market functions like a complex web of phone calls between refineries, brokers, and oil sellers. The price of crude oil is determined through negotiations between these parties, and the cost can vary greatly depending on factors like gravity and sulfur content. The market is not a clear-cut exchange like a website, but rather a gossipy community where deals and prices are widely discussed.
Global Oil Market: A Highly Competitive, Interconnected System: The global oil market operates as a highly competitive system with prices being determined by supply and demand and the ability to transport oil efficiently, ensuring price parity and market balance.
The global oil market is highly connected and competitive, with prices being largely uniform around the world. Professional information services, or gossips, gather pricing data and sell it to brokers, who then facilitate transactions between buyers and sellers. The ability to easily transport oil via large crude carriers allows for price parity, as sellers will always aim to deliver to the highest bidder. This system ensures that price variations are temporary and that the market remains balanced. Brokers play a crucial role in facilitating these transactions, often resulting in a win-win situation for all parties involved. In essence, the global oil market operates as a highly competitive, interconnected system, with prices being determined by supply and demand and the ability to transport oil efficiently from one location to another.
Market Forces Determining Oil and Gas Prices: The market, including oil companies, buyers, sellers, and countries, influences oil and gas prices. The law of one price tends to hold for oil due to low transportation costs, but some entities can manipulate prices by controlling supply.
The market, specifically oil tankers, buyers, sellers, and even countries like Saudi Aramco and OPEC, plays a significant role in determining the price of oil and ultimately, gas. The law of one price, which suggests the same good should sell for the same price worldwide when transaction and transportation costs are zero, comes close to being true for oil due to its low transportation costs. However, some countries and companies, such as OPEC, which produces almost 30% of the world's oil supply, have the power to manipulate prices by withholding oil from the market. Economists like Ryan Kellogg focus on understanding the incentives that encourage oil companies to increase supply by closely monitoring rig counts, which indicate new oil supply. In summary, the market, not individual oil companies, holds the power to sway oil and gas prices.
Oil industry's rig count recovery: Despite oil prices surging, the oil industry's rig count is recovering slowly due to the time it takes to get rigs back into operation.
During the pandemic and the collapse of oil prices, the number of active rigs in the oil industry dropped significantly, leading to a halt in new oil exploration. However, as demand for oil increased and supply decreased due to geopolitical events, oil prices skyrocketed, making it profitable for companies to resume drilling. Yet, the process of getting rigs back into operation takes time, leading to a slower increase in supply than some may desire. It's important to note that there's no evidence suggesting oil companies intentionally held back on drilling to keep prices high. Currently, the rig count is on the rise, but it still hasn't reached pre-pandemic levels.
Impact of White House oil release on gas prices uncertain: White House oil release lowered gas prices by around 40 cents, but refinery profits and lack of new construction add to supply shortage and uncertainty
The release of oil from reserves by the White House and international partners has likely lowered gas prices by around 40 cents per gallon, but the exact impact is uncertain. Crude oil makes up $2.40 of the gallon price, and refining it adds about 65 cents. Historically, refining has not been profitable, but recently refineries have been making large profits due to reduced capacity after old refineries retired during the pandemic. The lack of new refinery construction based on current oil prices adds to the supply shortage, leading to higher prices. Overall, understanding the complex process of producing gasoline from crude oil and the current market conditions sheds light on the factors influencing gas prices.
The Future of Refineries and Gas Prices: The future of refineries and gas prices is uncertain due to conflicting signals about the demand for fossil fuels and the rise of electric vehicles and renewable energy sources, while various factors influence the cost of gasoline and its significant price variation from one location to another.
The current debate surrounding the future of refineries and the use of fossil fuels, particularly gasoline, is complex and uncertain. While there are signs that the world may transition to electric vehicles and renewable energy sources in the coming decades, there is still a need for refinery capacity in the present. However, the investment in new refineries is uncertain due to conflicting messages about the future demand for their products. Meanwhile, the price of gasoline is influenced by various factors, including the cost of crude oil, refining costs, taxes, and distribution and retail costs. These factors contribute to the significant variation in gas prices from one location to another. The $4 gallon mark is a significant threshold for gas station owners, as prices above this level can negatively impact sales volume and profitability.
Oil companies profiting from high gas prices: Despite unchanged production costs, oil companies are reaping substantial profits due to increased gas prices, with no immediate plans for a windfall profits tax in the US.
While gas station owners may not be the primary beneficiaries of high gas prices, it is the oil companies that are making substantial profits due to the current market conditions. The cost of producing oil has not significantly changed, but the price at which it is sold has skyrocketed. This difference in price is all profit for the oil companies. Some countries, like Britain, are considering implementing a windfall profits tax on oil companies to redistribute the profits. However, it is unlikely that such a tax will be implemented in the US anytime soon. The podcast also touched upon the economics of car theft and car buying, as well as the production of the podcast "Here and Now Anytime."
Understanding Trump's Legal Proceedings: Stay informed about Trump's legal cases with NPR's 'Trump's Trials' podcast, providing clear explanations and context in 15 minutes
Following the complex legal proceedings involving former President Trump requires dedicated attention and clear explanation. The trials, which include multiple state and federal charges, plea deals, witness testimony, and gag orders, can be difficult to keep up with. That's why NPR created the weekly podcast "Trump's Trials," which breaks down the biggest news from each of his legal cases and provides context for what it all means for democracy in approximately 15 minutes. By tuning in, listeners can stay informed about the latest developments and gain a better understanding of the broader implications.
