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on failures of capitalism [Mar. 25th, 2005|09:24 am]
[Current Mood |confusedconfused]

What I don't understand:

Why are crude oil prices climbing on a refinery fire? In the theory in my head, the refinery takes crude oil as it's input, producing gasoline and other refined products as it's output. If it is hobbled from purchasing crude oil, there should be an increased market supply, since output it usually consumes is now available. Therefore, crude oil prices should fall, because of decreased demand, while gasoline prices rise, because of decreased supply.

Can you explain it?

[User Picture]From: delascabezas
2005-03-25 02:31 pm (UTC)


the economics is sound in your idea, but, essentially, all the product refined from the barrels were "lost" in that fire, suggesting a shortfall in refined oil products on some localized scope. this means that there will be a greater demand to fill that gap, and potentially a buying glut while the plant is out of business, so other refineries can fill the gap.

this is how the spin doctors preach it. this is not what i think makes full sense.
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[User Picture]From: hbergeronx
2005-03-25 03:45 pm (UTC)

Re: heh

Yeah, that's obviously mythology. Refinery capacity is an essentially fixed number: if other refineries could fill the existing demand for refined product on an ongoing basis, the price impact on oil futures should net out to zero, save net oil supply "lost" in the fire, which should represent an infintesimal fraction of total world supply.
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[User Picture]From: yesthattom
2005-03-27 04:14 pm (UTC)
The real issue is that we're low on refineries. We use 100% of their output, and actually need much more.

There are no new refineries being built in the US. No new ones in the last decade.

While everyone blames OPEC for controlling the price of oil. the real problem is the U.S. gas companies controlling the price of gas... by not building more refineries. They have a good deal going on... they stopped building refineries which brings up their profits, and blame the problem on the environmentalists which makes you look bad for wanting to not die of black lung disease.
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[User Picture]From: hbergeronx
2005-03-28 06:17 pm (UTC)
I understand why gasoline prices skyrocket on the event. What I don't understand is why *crude* prices skyrocket. It doesn't make "economic" sense to me.
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