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Official TCL 'what's your gas price in yer neck of the woods?' poll

  • It's below $4 a gallon! Time for me to get a Hellcat!

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so when I was complaining before that gas waa $1.72 per litre, in the last three to four weeks it has fallen back down now to ~$1.33. Seems really fishy why it keeps going up and down so much, and quickly.
The oil market is volatile due to geopolitics and opaque/laggy supply demand data.

Oil prices increased significantly in the first quarter due to less than expected domestic production and relatively small builds during what is normally "build season." Starting in April, the we saw strong U.S. inventory builds of both crude and refined products, which have continued even into the start of summer driving season. So oil was up $20 a barrel, and has now down almost $15 a barrel. But all that is really just spitballing, because any inventory data beyond the U.S. is mostly non-existant. The Saudis don't tell us how much they are producing or how much they have in storage, nor do the Iranians or Chinese. They can create the illusion if a glut/shortage by drawing or building their storage.

Then throw in geopolitics. Today, oil is up due to attacks on oil tankers in the Gulf of Oman. Tomorrow. it could be that the civil war in Libya starts causing production to shut in. Or, on the other side, the Saudis could announce they are going to flood the market to drive the shale companies out of business. Just about anything can happen.

And all that is just crude oil. Then you have the downstream (refining) side, where maintenance, regulatory requirements, accidents (such as the recent fires near Houston), and weather related shut-ins (such as the Midwest floods) all have an impact.
 

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Help me to understand why gas is so much more expensive in so cal? It hasn’t been under $4 in so long yet all these other states have far less expensive fuel. One of the few things I miss from living in Texas were the gas prices.
California has different blending requirements than most of the rest of the country, and therefore is a pretty captive market for refineries. Similar to state-specific emissions requirements. It dates back to the smog crisis in LA many decades ago and the state taking aggressive steps to try to combat it.

Real estate values probably push prices up further, as you are partially paying for the real estate the gas station is on.
 

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I think the geopolitics are a bit of a distraction. Crude inventories have been falling during build season despite strategic petroleum reserve releases. We are over 10% below the 5-year average for inventories at this time of year. All that is without any big geopolitical shocks.

The bottom line is that demand has surpassed pre-COVID levels but production both in the U.S. and OPEC+ is well below it. A war would cause a ballistic spike, but the fundamentals are really what’s driving all this. Don’t forget that oil prices were around or above these levels inflation adjusted for most of 2007-2014, so it’s not like current prices are anything remotely unprecedented.
 

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Mostly - but Biden is the one shutting down all the supply. That was literally part of his Day 1 executive orders and he's been consistent even through the last week when he shut down all domestic oil and gas exploration permit issuance - effectively ending all future fossil fuel extraction and limiting America to only existing oil and gas wells until they run dry.

Don't take it the wrong way of course, I think usage needs to go down but Biden's method has been to make gas too expensive. The correct method is to push for increases in CAFE so that relatively wealthy new vehicle buyers have to pay the premium to get more fuel efficient vehicles, which leads to the future's used cars being more fuel efficient too. He's just not smart and even when he's well intentioned (save the planet, reduce gas use) he goes about it the wrong way.
I explained this earlier, but this is simply a false narrative based on a misunderstanding of what Biden did. He most certainly did NOT shut down all domestic oil and gas exploration. The executive order halted new LEASING on FEDERAL lands. The vast majority of oil and gas production in the U.S. (~80%) is on PRIVATE land, which the order had nothing to do with. The vast majority of companies could easily expand their drilling programs on private lands and increase production if they wanted to.

Further, it did not prevent existing leaseholders from drilling the acreage they already have rights to. Most companies with extensive federal mineral leases had YEARS of leases already stockpiled. On top of that, this order ended up getting bogged down in the courts and the administration has actually issued plenty of leases during his administration. So nothing he did has anything to do with today's oil and gas supply/demand balance.

The reason why U.S. production is not up more from its COVID nadir is pretty simple: U.S. companies don't WANT to increase production. Their #1 priority is to generate cash to pay down debt, buy back shares, and up their dividends. Because that is what oil and gas investors are demanding right now after getting burned hard in the 2014-late 2020 period. If you don't believe why they aren't drilling, I invite you to look up some earning calls transcripts of major shale producers (EOG/DVN/COP/HES). You'll hear a lot of talk about shareholder returns, and not a lot about drilling bans.
 

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I just google maped my route to work on a bicycle, 48 minutes "mostly flat". Not too bad considering I only have to do this 3 or 4 days a week. If you factor-in the health benefits, it's a win win.
That used to by my commute (now a bit shorter). It’s sort of a big time commitment, but I was in fabulous shape. Bike commuting is a huge win if it works for your location.
 

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Tesla CEO Elon Musk said the US needs to increase its oil and gas output following Russia's invasion of Ukraine.

In a follow-up tweet, Musk noted that while it would be bad for his electric car company, sustainable energy solutions aren't immediately available quickly enough to offset limited Russian oil and gas exports.


There is a price at which oil companies will feel compelled to up production. Unfortunately, that price is substantially higher than today’s price.
 

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It's been going up continuously, but there's only so fast they can restore all the production they had to shut down during the pandemic, especially with the current administration reinstating the Paris Accord participation on the part of the United States. Granted, I'm in favor of reducing GHG production and fossil fuel usage as quick as we reasonably can, but in terms of ramping up production, you can look at the curve:




There's only so quickly they can bring all those oil wells back on line. It's not like they stopped, it's just going to take a while to get back to pre-pandemic levels.
The Paris accord has literally nothing to do with it. It’s a non-binding statement of intent that doesn’t have any actual law or restrictions that come with it. Nothing in it stops oil companies from increasing production.

It’s also not a question of wells coming “back online.” All conventional long-cycle wells (I.e. stuff like deep water off shore) that were remotely economic are already running, including old “stripper” wells that produce tiny amounts individually but collectively produce a decent amount. Long cycle wells can produce for decades, but usually take years to plan and take online because they are often in challenging locations unless you a Saudi.

Most U.S. production these days is from shale. Biggest growth area is the Permian basin in New Mexico and Texas. The way shale works is you have to drill constantly just to maintain production. You get a ton of oil in the first year or two, and it quickly declines. But it’s not like the old days when there was a question of whether you’d find oil at all. Shale wells pretty much always produce something, though some are better than others. So it’s more like a manufacturing process. You are constantly drilling just to keep production steady.

In order to increase production, you are going to have to drill more. Right now, oil companies don’t want to do that because it means blowing the CapX budgets that their boards just approved in January. The executives (and just about everyone else) are compensated based on cash flow and sticking to that capital budget. There’s no economic incentive to increase production.
 

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That's why I brought up the Defense Production Act. Fuel costs drive inflation for virtually everything there is and given that Putin called sanctions an act of war, this is a very fair and honest time to invoke the DPA to ensure that every oil production company is acting appropriately, as well as get congress to authorize emergency funding if that's what it takes. Doing nothing while we keep breaking inflation records and could be on the verge of a world war doesn't seem right. Trump got Ford to make ventilators under the DPA, surely Biden can get oil companies to make oil by invoking the DPA.
In theory. But oil isn’t like widgets in that you still need rock to drill and land rights to drill it. It takes teams of geologists and engineers to identify ideal locations. Some companies will have rock already, but others would need to buy drilling rights. Very difficult for the government to coordinate compared to mechanical devices.

Another problem is timing. If everyone starts drilling today like mad, it’s still a few months before you actually get more. That was a problem with the ventilator thing too. By the time we actually made more, it turned out we didn’t need any more.
 

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View attachment 167430

As far as I can tell from my research, for as much pomp and circumstance there has been over the idea, there is every bit as much oil & gas coming out of Russia as there ever was. It might have been sold to different places, but the actual global supply changed not one bit.

So the market drove up on fear, not a real shortage. Oil companies used the fear to increase their already record profits from the year. And now the former President's deal with OPEC to scale back production massively as COVID crashed the demand side is ending (the Deal ran April 2020 to April 2022) they (well, maybe not Russia) will; open the taps up again to better meet demand.

I suspect by early summer we will be back around $3.25 national average (87) which honestly is about right for the booming economy. It's also just high enough that it will keep interest in alternative energy up, but not so high that it drives people out of the highly profitable trucks and SUVs (which are themselves, far more efficient than 15 years ago).

Capitalism in balance? I guess.

All conjecture and guesses, from an art major, not an economist.
The closest thing to an oil monopoly is OPEC, which isn’t really “oil companies.” It’s sovereign states. The Saudis make considerably more oil than Exxon and Chevron combined. Collectively, the top 5 state-owned oil companies dwarf privately held ones (even more so if you consider Russian oil firms as arms of the state, which they effectively are).

OPEC, as a price setter, is really just the Saudis and the UAE. None of the others have much spare capacity. It’s debatable how much the Saudis have.

So no, there is no conspiracy by oil companies to raise gas prices. Oil companies are price takers, not price setters. They sell their oil on the global commodity markets, and will simply sell to the highest bidder. Oil companies haven’t been able to dictate gas prices since the days of Standard Oil.
 

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We are at the tail end of Trump's OPEC deal (links below, pick your favorite source).

The oil companies are already bringing wells back online and I think the non-Russia companies will be eager to take up the difference. While I don't think we'll see covid-crash low prices again (and we really shouldn't want that economically), we should get back to ±$3/gal national average before too long. Reserves can be filled when the price is right, as they always have been




Trump didn't make the OPEC deal. OPEC made the OPEC deal in their own best interests. There was truly catastrophic demand decline in the Spring of 2020 and they were at risk of being forced to curb production for lack of storage. But keep in mind that OPEC is basically just Saudi Arabia and the UAE, with everyone else as window dressing. The "everyone else" has basically no control over their production, and it's been declining due to lack of investment. Saudi Arabia does have some swing production, but it's a top state secret how much they really have. They can create the appearance of more than they have by drawing production or producing to the point of imperiling pressure on their wells by overproducing for a short time. Russia and the Saudis did reach an understanding after the initial price war, but Russian production is likely to decline markedly as the oilfield service companies and major international producers have left in the wake of the war. It won't go to zero, but it's going to take a big hit whether they like it or not.

U.S. wells aren't being "brought back online." Shale production doesn't work like that. We actually shut in very few wells in 2020. What happened was drilling activity ground to a halt. With shale production, the vast majority takes place in the first 2 years after completion. You have to continuously drill NEW wells just to keep production in place. Drilling has increased, but we are still at about 2/3 of the Pre-COVID well count and it hasn't exactly been rocketing up. Meanwhile, the reserve of DUCs (Drilled-uncompleted wells) has plummeted. Most U.S. producers are doing all they can just to maintain production.

The strategic reserve doesn't necessarily get filled when the price is "right." The U.S. government doesn't have a great track record in calling tops and bottoms (nor does anybody else). It gets filled when it needs to be filled. After the immediate Russia-Ukraine crisis passes, the stark reality that we've seen 8 years of low investment in exploration and a significant decline in Russian production is going to hit home. The cavalry likely isn't coming on oil production.
 

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Amazing how the price doesn't fall as fast as they gouged it up.
Uh... because there's not much reason for it to fall. U.S. oil companies don't set prices, they take whatever the market will give them. If they set prices, we wouldn't have seen negative oil prices in the spring of 2020.

Weekly Petroleum Status Report (eia.gov)

From this week's petroleum inventory report:

"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 8.0 million barrels from the previous week. At 413.7 million barrels, U.S. crude oil inventories are about 15% below the five year average for this time of year "

See also:

OPEC+ Missed Its March Output Quota By 1.45 Million Bpd | OilPrice.com

While we aren't buying Russian oil, India/China still are. But Russian production is going to drop nonetheless because the Western majors and oilfield service companies are all leaving. That impact is a slow burn over the course of years as Russia becomes unable to drill new wells and maintain production on existing wells.

Prices have ticked down a smidge because of the global strategic petroleum reserve releases. But all that can do is stop a short-term price spike. In the long term, releasing from the strategic petroleum keeps prices higher for longer because those reserves eventually need to be refilled.
 
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