Did someone say "crack?"

 

I KNEW I could depend on you for a snappy comeback. Do me a favor, will you? Stop responding to my posts and I won't come harass you while you're working at McDonalds any more. Deal?

 

What I find so interesting though is that the crack spread is getting larger and larger. When oil was at $60 a bbl, it was around 10% and now it's at almost 30% and I know it's not costing that much more to refine it than it was a few months ago. Airlines must have a big "sucker" sign over their heads.

 

Cold weather = high heating oil demand = high crack spread

 

 

The airlines have cancelled over 13,000 flight the past few days. What demand? Seems we're being gouged either way. Definitely needs to be looked into in my opinion.

 

As others have said, you have to refine the oil which costs money.

Petroleum (crude oil) is a mixture of hydrocarbons, basically chains of carbon atoms with hydrogen attached. The molecules come in different lengths, the shortest (with one carbon atom) is natural gas, then you get into your heavier gases (butane, propane, etc) and then liquids. Liquid fuels are actually mixtures of various chain lengths, the weight of the fuel is determined by the average carbon chain length. Diesel/Jet A/Kerosene are amongst the lightest of the liquid fuels, then gasoline, then heating oils.

As things get even heavier you get into lubricating oils, then grease, then tar (used for roofs and to make asphalt).

The refining (cracking processes) basically uses hot steam to boil off the shorter (lighter weight, more volatile) molecules from the base petroleum. As the stuff moves up the column, you pick off the weight of molecule that you desire. The heavier stuff stays lower...tar is at the bottom IIRC.

Once refined, the demand vs. refining output can cause price disparities between different products. Gasoline costs more at the pump than jet fuel, but you also have to account for the fact that it may have extra additives (ex. techron) and is sold in lower volume.

Because liquid fuels are a mixture of chain lengths, there is not a set amount of a particular fuel type in a barrel of crude. Since gasoline and jet A share a lot of the same length molecules, you can weight the process to produce more gasoline at the expense of Jet A or vice versa. If this is misaligned with demand you can get weird price disparities.

You could also weight the process to make more heating oil in the winter which might somewhat cut supplies of other products.

 

One thing the news outlets and most economists miss is that crazy dictators and unstable governments tend to under sell the market and lower prices.

The crazier and more unstable the regime, the more likely they are to need cash. They'll run to the first cash cow the have, natural resources, and dump them for the money to fix whatever problem they're in. It is a fact of life until the disruption gets so bad that the infrastructure no longer exists to produce the good that is sold. (Africa mostly)

An easy, recent, example of this cycle is Iraq. Saddam never played nice with the Arab cartel, he sold oil undercutting the prices of the Saudis and Iranians. IMHO a contributing reason we went to war was the pressure from the Saudi's to take him out of the market. The price of oil reacted to the disruption, the loss of supply and market manipulations making people in the oil business very, VERY rich for a time until the market corrected. The 2008 rise in the price of oil was a more severe economic shock than the effect of a doubling of tax rates here in the US (in really rough terms).

Smart politicians know who ever is in power in Egypt will run the canal, profitably generating cash for their administration and friends.

The US needs to learn that we do not necessarily need to play king maker. We need to play deal maker and let people run their own damn affairs.

 

Again, economics isn't your forte.

I have said this repeatedly to your posts over the years regarding fuel/oil. I say this because you refuse to educate yourself on how the price of oil is determined.

Until you do so, I will tease you because your whines are misdirected.

 

They weren't the only ones who got cheap oil. You can also include Germany, France, and Russia. And guess which three countries voted against UN Security Council proposed resolution by the US/Colin Powell in February 2003. Yep, you guessed it. Germany, France, and Russia. Things that make you say hmmmmm. It was about oil and ridding Saddam. Period.