Monday, September 12, 2005

Oil and Gasoline Confusion

by Bill McBride on 9/12/2005 06:48:00 PM

A Reuters article, "Oil sinks back near $63", quotes Gary Ross, chief executive of U.S. energy consultancy PIRA Energy, saying:

"U.S. gasoline data over the next few weeks will show the effect of high oil prices on demand."
His statement is inaccurate. Gasoline data will show the effect of high gasoline prices on demand. Even with spot oil prices over $60, gasoline demand was still robust until Hurricane Katrina shut down several major refineries causing a supply shock for refined products.

The Financial Times makes a similar mistake:
"One factor driving up [crude oil] prices has been the inability of consuming countries to increase refinement capacity."
It is very possible that limitations on refining heavy and/or sour crude have increased the spread between different grades of crude (see Sweet and Sour Crude). However, a general constraint on refining capacity would lead to lower crude prices, not "drive" up the price of crude oil.

This confusion seems to be widespread in the financial media.