aircooled said:
volvoclearinghouse said:
... Supply & Demand is a good basic tool for discussing markets, but it falls short here. I don't believe there is a shortage of fuel in the world. There certainly doesn't seem to be in the U.S. I can go down to my local Citgo and the proprietor will happily sell me all the 87 octane I can fit in my tank for $4.49 per gallon. I have not heard of anyone not being able to buy gas because there wasn't gas to buy....
First of all, I will say I completely agree with the sentiment, and I really don't get it either, but I have been assured that, stupid as it is (as I stated), it is supply vs demand.
We get really good examples of it all the time in CA. There is a refinery problem (there are only few in CA) and gas immediately jumps. Why does the price go up? There is NO actual shortage. I assure you, you can easily buy as much gas as you would ever want at any gas station. For whatever real world reason, the price jumps. I suspect some of it has to do with worries about future supplies and problems (futures), which still does not make sense, but I really don't know. But it happens, every time.
It of course get tricky when you talk about why there is a perceived supply shortage, and why there is less confidence in future supply. Not a simple answer there I am sure.
As noted, I have heard of the ACTUAL shortages reported in the Northwest (diesel), but I don't know if that trend has any potential to spread. I have heard the gas shortages of the 70's where not actual shortages either.
Honestly, if someone has something that explains how this "stupid" system actually works, that makes sense, I would love to read it, because it really doesn't make sense to me.
The best explanation I have is that it's something like the stock markets, where a lot of it is just pure speculation and emotion. Stocks go up and down every day, even if nothing noticeable changes in their business operations. A quarterly statement comes out every 3 months. But stock prices change every _second_.
Oil is traded similarly, except its a hard commodity, not a piece of a company. I still recall back in the black days of 2020, when oil prices briefly went _negative_. If ever there was a berkeleyed up market, that was it. "Here, buddy, want some oil? I'll _pay you_ to take it".
The way oil companies work can vary, too. Some play the spot game, trading at whatever the day's price is. Others buy longer term contracts. Think about a home heating oil supplier as a micro level example. Last year they might have offered to lock customers in at $2.89 a gallon. The customers are happy as heck come March when they need 100 gallons and are paying $2.89 a gallon while the price on the street is $4.29. The supplier eats it, though. But if prices had fallen, the customer would still need to buy oil, and would be stuck paying $2.89 even if the price on the street was $1.89.
I have been told it works this way all the way up to something the size of, say, a Chevron or a Connoco-Phillips.
That article about diesel shortages and reduced refining capacity was pretty illuminating. Much like other things, this country needs to do more infrastructure investment. We'll be feeling the effects of what happened in 2020-21 for 5 years on.
I will say, and again, not to get too partisan, the stimulous package had a lot to do with this inflation we're seeing. Even fairly progressive economists like Larry Summers are saying it was too much:
"a comparison of the 2009 stimulus and what is now being proposed is instructive. In 2009, the gap between actual and estimated potential output was about $80 billion a month and increasing. The 2009 stimulus measures provided an incremental $30 billion to $40 billion a month during 2009 — an amount equal to about half the output shortfall....In contrast, recent Congressional Budget Office estimates suggest that with the already enacted $900 billion package — but without any new stimulus — the gap between actual and potential output will decline from about $50 billion a month at the beginning of the year to $20 billion a month at its end. The proposed stimulus will total in the neighborhood of $150 billion a month, even before consideration of any follow-on measures. That is at least three times the size of the output shortfall. In other words, whereas the Obama stimulus was about half as large as the output shortfall, the proposed Biden stimulus is three times as large as the projected shortfall. Relative to the size of the gap being addressed, it is six times as large."
All that cash went somewhere- and now it's gone, but the prices are inflated to the new, higher, and now, non-existent demand.
