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The Forum > Article Comments > Increasing demand for refined products will increase oil prices > Comments

Increasing demand for refined products will increase oil prices : Comments

By Dan Steffens, published 2/2/2015

If gasoline prices remain low until this summer, we should see a sharp increase in the number of Americans that decide to take long driving vacations this year. We do love our SUVs.

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I've never understood why people are so interested in making predictions about the near term fuel price. The reality is that you can't change what the price is, so don't worry about it. Just accept the fact that the price will change.

The only time that being able to predict the future price becomes important is:
1) when you are thinking about buying a new car, it may be a consideration. However, it shouldn't be the main factor because the extra that you pay in fuel over the life of a car doesn't overwhelm the differences in price due to a car's brand, extra features and life long insurance, service/maintence costs.
2) if you're in a situation where you buy fuel in very large quantities (1000's of litres) at a time that you use gradually over a longer time (such as a few months as opposed to a week)
Posted by thinkabit, Monday, 2 February 2015 10:09:19 AM
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People are interested because whether they realise it or not the
economy is adversely affected by high prices.
The high prices do affect peoples wallets and what is left in it by
next pay day.
Lower prices affect that but more importantly they do boost the economy.
However the current price has already cost many thousands of jobs in the US.

The price inevitably will rise again and may cycle again, but if it
does not it will settle at a median high price that will wind down the economy.
Posted by Bazz, Monday, 2 February 2015 10:30:12 AM
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Bazz: the point I'm making is that you can't do anything about the price. Even knowing what it is going to do future doesn't give any benefit to most.

Beside that, on the whole, a large increase in the at-the-pump petrol price wouldn't cause the massive, destructive effects to the economy that people claim.

Let's do the numbers:
Using these 2012 statistics from the ABS : http://www.abs.gov.au/ausstats/abs@.nsf/mf/9208.0 : the total fuel consumed was about 32,000ML of which 57% was petrol and 38% was diesel. So if the current at-the-pump price of about $1.10/L petrol and $1.30/L diesel *doubled* to $2.20 and $2.60 respectively than that would be an extra: $(32GL*0.57*$1.10/L) + $(32GL*0.38*$1.30) = $35.9B over a year.

The Australian economy's GDP is $1.525trillion (2014- from wikipedia). So the percentage of the extra cost to GDP would be about $36B/$1.5T*100% = 2.4%

Now, 2.4% is the grand scheme of things is not a great deal compared to other potential disruptive events-- such as large international currency fluctuations. Indeed, if you say that the average person works 50hrs a week than 2.4% is equivalent to 72 mins or about 15mins each day (for 5 days) which is less the time wasted by a lot of workers with coffees, Facebook/Tweeting/general internet, chatting to colleagues, etc.

Note, it should be remembered that these sums above were for a *doubling* of price and that this is a very generous assumption. It is unlikely for such an increase over the next few years.

PS: I acknowledge that impact of increasing the petrol price is not just a simple case of subtracting the cost from the total economy but is a bit more complicated than that-- eg: if someone decides not to drive to the shops one less time a week to save fuel then they won't spend the money at the shops that they would otherwise have. But these figures do give you a good indication of the impact.
Posted by thinkabit, Monday, 2 February 2015 11:43:12 AM
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I have a different view which will see The Saudis ramp up production for all they're worth. The goal being to make tight oil uneconomic,thereby protecting/maximizing the returns of the Saudis.

I also believe that the development of the Saudi rivaling Edmonton oil province, will flood the market with even more cheap oil, and force those who can afford to compete, do so for all they're worth.
And just to protect or increase market share! Gather ye rosebuds while ye may!

As for U.S. citizens taking a nice long summer break roaming around on gridlocked highways; you think that's in play?

I mean I can see the allure of a train trip through the heart of the Rockies i.e., and possibly for less than you'd shell out for fuel on a gridlocked highway!

Given the recent massive economic downturn and some still barely recovering from it, I think most Americans will be busy retiring debt or just consolidating their financial positions.

And those with their big SUV's are more likely to be intending doomsday prepers, rather than financially willful money wasters!?

Perhaps when Edmonton is on stream and pumping out oil at around $13 USD a barrel, there could be some justifiable belt loosening and long overdue vacations; just don't expect very much of it to be done on grid locked highways!

And if that sends a few oil speculators to the wall, well not before time! Given the economic harm they've already accomplished; endlessly forcing prices way beyond a natural cost.

I mean if it costs $3.00 to pump a barrel out of the ground, then surely a $10.00 profit margin is no bad thing, but particularly, if you can pump out up to a million barrels a month or better!

For mine, we would be better served developing viable alternatives, and be still relying on them and ever increasing production outcomes; long after all the viable oil wells have dried up! We just need the capital to do that!
Rhrosty.
Posted by Rhrosty, Monday, 2 February 2015 11:47:49 AM
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What I find so disgusting with this stuff is that there are people like Dan who think it is bad that some yanks might, with lower oil prices, be able to jump in a car, & go see a bit of their country.

Surely this is no worse than thousands of greedy elites, jumping on a plane & jetting off to yet another big climate jamboree. It is pretty obvious which group is the most honest & deserving, & it sure aint the climate change gravy train riders.

It definitely can't be worse than some damn fool academic getting their ship caught in ice that is not supposed to exist, all at tax payer expense, with their rescue using enough fuel for a hundred thousand driving holidays.

Come on Dan, if you think we peasants have got it too good, for god sake say so, rather than feeding us all this twaddle, to try to put us back in our place.

So get used to it Dan, we are not going back to never going more than a few miles from our place of birth. What's more, we are getting heartily sick of people telling us we should
Posted by Hasbeen, Monday, 2 February 2015 12:52:46 PM
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Thinkabit:
Your arithmetic is interesting. So our fuel cost is 4.8% of GDP.
Doesn't sound much does it, I just wonder why it can have such a
dramatic effect as it had in 2008.

As the WTI price is around US$48 I think we will be lucky to get just
a doubling in price.
You are right we cannot control the price and much to their surprise
neither can OPEC.
Saudi could increase the price by cutting back supply but they can no
longer force it down because they have peaked.

Rhosty;
Many of the Saudi wells are pumping up to 50% water as they
have been pressuring their wells with sea water.
They are believed to be at the limits of their capability.

I have tried to find any reference to these new Edmonton oil fields,
just articles about their existing fields.
Can you give me a reference if readily available ?
Posted by Bazz, Monday, 2 February 2015 3:26:40 PM
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