BK

Gasoline prices haven't dropped much

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(edited)

In my small town, gasoline is $1.63. In the nearby big city, I would guess I could find it for $1.55. This doesn't seem as low as it 'should' be relative to the crude oil collapse. What do you guys think it will go to?

Edited by BillKidd

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Well, the refineries will not be able to make a profit if it goes much lower and state and local governments will be losing a huge part of their revenue stream re taxes on gasoline...It won’t go much lower due to the price of crude...but don’t be surprised if the percentage tax increases.

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The crude oil is only one factor in gasoline prices.  Even if crude is free there are still taxes, cost of running retail outlet, delivery, refining...

We're in the same boat here.  Gas is always .20- .30 higher than other places, and we've barely dipped below $2 for unleaded.

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11 minutes ago, Douglas Buckland said:

Well, the refineries will not be able to make a profit if it goes much lower and state and local governments will be losing a huge part of their revenue stream re taxes on gasoline...It won’t go much lower due to the price of crude...but don’t be surprised if the percentage tax increases.

Democratic mantra...never let a crisis go to waste.

Updated: Manufacturer a crisis at every possible turn.

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(edited)

In Illinois, as of March 2020, the State + Federal tax on a gallon of gas was 0.72 cents.  Maybe we didn't read the fine print on those tax rates?  Maybe they said "unless the cost of refined gas passes below $X.XX per gallon, in which case the minimum of 0.72 cents per gallon (or whatever) will apply"?  Ha-ha!  You gotta watch the little basxxxds!

Edited by Dan Warnick
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Gasoline price at the pump is set by the gas station owners. Most won't sell at a loss, so the price is an increment over the price of gasoline in the last tank truck to arrive at that station... sort of.  prior the lockdown, gasoline pricing was (fairly) elastic: higher prices==less sold, lower prices==more sold. But in the lockdown, demand is not particularly price sensitive. It doesn't matter how low you price is, you aren't gonna sell much gas, so you may as well at least try not to sell it at a loss.

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I guess oil would not be $0 but what if it were... I wonder how much gasoline would cost? I know there's a lot of taxes but Douglas brought up a good point, the refineries have to make "x" amount of profit, else, not worth refining.

Whenever oil drops this low, I am always thinking of farmers because my dad was a farmer. Modern farms level their land and it's not cheap and fuel is a big part of it. When they level land they move dirt all over that parcel for days, weeks, months, depending on how big the parcel is and how unlevel it is. Around here, I see them, typically, level 40 to 160 acres in a parcel.

It's a good time to level land! Of course, most of it has been done by now. But they might dress it up every several years.

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(edited)

2 hours ago, BillKidd said:

When they level land they move dirt all over that parcel for days, weeks, months,

You can tell that is not Vermont .Take a foot off and you are down to pre-Cambrian rock!     

Edited by Jan van Eck
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4 hours ago, Douglas Buckland said:

Well, the refineries will not be able to make a profit if it goes much lower and state and local governments will be losing a huge part of their revenue stream re taxes on gasoline...It won’t go much lower due to the price of crude...but don’t be surprised if the percentage tax increases.

Upside for the gas refineries is they are getting the feedstock for essentially free.

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4 hours ago, Rob Kramer said:

78c/L in Canadum. 

It got as low a 0.59 in Edmonton for a bit.  Currently around 0.65

0.78 gets you premium

 

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(edited)

1 hour ago, BillKidd said:

I guess oil would not be $0 but what if it were... I wonder how much gasoline would cost? I know there's a lot of taxes but Douglas brought up a good point, the refineries have to make "x" amount of profit, else, not worth refining.

Whenever oil drops this low, I am always thinking of farmers because my dad was a farmer. Modern farms level their land and it's not cheap and fuel is a big part of it. When they level land they move dirt all over that parcel for days, weeks, months, depending on how big the parcel is and how unlevel it is. Around here, I see them, typically, level 40 to 160 acres in a parcel.

It's a good time to level land! Of course, most of it has been done by now. But they might dress it up every several years.

Farmers also get the purple gas to avoid a bunch of the taxes.  Good times for them.

Edited by Enthalpic

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It's kind of interesting, the price in Canada briefly went under the average price in California this month. First time ever that's happened.

Of course, there are some currency strength shenanigans at play as well, but the price @ the pump in Canada has seemed to go down more so than in the US.

 

ch.gaschart.gif

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8 minutes ago, Enthalpic said:

It got as low a 0.59 in Edmonton for a bit.  Currently around 0.65

0.78 gets you premium

 

I'll drive from ontario to come get it haha. 

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50 minutes ago, Enthalpic said:

Upside for the gas refineries is they are getting the feedstock for essentially free.

You only get it, for free or any other price, if you have a place to store it. Right now, storage space is worth more than crude: you charge people to give you crude. Unfortunately, you cannot empty your crude storage unless you have a place to keep your refined product. but that storage is also filling fast, because guess what? Gas stations are not purchasing gas. Why? because nobody can drive, so consumers are not buying gasoline. Almost as bad for diesel. Much, much worse for jet fuel.

Refiners make money on the "crack spread": the difference between cost of crude and the cost of refined products. The absolute cost is not relevant except as it affects the crack spread.

At the most basic physical level, refiners must cut production of product to match current consumption levels, or product storage will overflow. At the financial level, this shows up as a reduction of the crack spread until it becomes too low to produce product at a profit.

An under-appreciated fact: the entire production and delivery chain the being hit by a double whammy: a consumption crash of about 30%, and a price crash of (pick a number, all bad). Even if prices stayed (by magic) at pre-pandemic levels, revenues would have crashed by 30%. This is a catastrophic revenue loss for most businesses. But prices also crashed, let's say by 50%, so the total revenue loss is somewhere around 60%.

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In Denmark, premium unleaded is now $1.26. This price holds: cost of goods from refinery approx $0.20. Profit for gas station: $0.10. Tariff/taxes for Danish government: $0.70. Sales Tax on top (25%) $0.25.

So it doesn't really matter whatever the net price of premium is, because price at pump can never be lower than profit for gas station+taxes+sales tax. We're used to this and this is still the lowest price ever experienced when compared to salaries and other costs of living. Nobody would ever complain about it.

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