Why CNN’s explanation of why $80 oil won’t mean $3 gas makes no sense

From CNN (I know, I probably should not bother).

Despite oil prices recently hitting a record high of over $80 a barrel, experts say it’s unlikely retail gasoline prices will move much higher than the current national average of just below $2.80 a gallon.

“Gasoline season is over, we’re going into low demand time,” said Stephen Schork, publisher of the industry newsletter the Schork Report.

Schork also said the switch to winter blend gasoline should act to keep the price down, as winter blending components aren’t as expensive as cleaner-burning summer blends.

Cool. Gasoline season.

It is true: when thinking about oil prices, one can separate “oil” oil (say, crude) from heating oil:

CNN commodities

And see that heating oil is (so far) not surging the way crude has, nor does it seem to be attracting speculation (all of their futures are up). However, cruising through this month’s Oil Watch Monthly, I see only two countries whose production is increasing – Russia and Brazil, and I just don’t see them exporting a hell of a lot to the US, anytime soon.

After that, what can we observe? A CNN article related to the first says US stocks are higher than other averages for this year. If we consider motor gasoline stocks (i.e. refined for the market that pays for the stuff by the gallon) EIA would disagree:

Oil Watch chart 10

I also note that 2007’s trend is a mite late on turning around, relative to previous years – didn’t CNN say that gasoline season was over? On the argument that the cheapness of blends will counter the increasing price of crude:

Oil Watch chart 2

Then there’s the overall argument that “gasoline season” is over, and/or that we’re coming into belt-tightening times, slowing down demand. If anyone producing oil truly sees declining demand ahead, I’ve yet to see evidence of it. Returning to our numbers, we see evidence of a trend we should simply take for granted: as fast/much as oil production declines

Oil Watch chart 4

oil exports will do so faster/more

Oil Watch chart 12

and we’d just better get used to that. OPEC’s demand for its own product doesn’t look like it’s going anywhere that helps us:

Oil Watch chart 0

Those increases make up, on glancing, more than the million barrels per day extra that we’ve been screaming at OPEC to produce for us (meaning, produce and export).

Related to this is an interesting post over at the Oil Drum. It covers a lot of very interesting issues, such as OPEC versus non-OPEC growth, incentives for investment in excess capacity and just who is supposed to pay to maintain it (since we’re clearly not). Also one about Lord Oxbrough, former chairman of Shell UK, patiently explaining that global oil demand will outstrip supply within twenty years as production hits plateau, and that the oil price could hit $150 in the long term.


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