Thar she blows! The Spindletop gusher near Beaumont, Texas, in 1901.
Oil prices reached yet another record high today at $76 per barrel. Do you know why? Answer the following question:
Oil and gasoline prices are at record levels because:
a. The Iraq War
b. Instability in Africa and the Middle East
c. Extremely high demand and inadequate refining capabilities
d. A black cat crossed the street in front of the guy who sets oil prices.
If you picked any of the answers above you may be partially right or you may be as wrong as Teddy Kennedy in a Speedo. Now I am not an economist, nor do I play one on TV. But doesn’t it seem as if experts on the oil industry sometimes just pull an answer out of their ass when asked the reason for rising fuel prices? The latest hike is attributed to troubles in Nigeria and the escalation of military action by Israel. It could have just as easily been caused by a black cat though.
About a bit more than 5 miles — as the crow flies — across town from where I live sits the spot where the petroleum industry as we know it began. It started with the gusher at Spindletop on a cold day in 1901. Since that time, the area in which I live eats, breathes (no jokes please), and sleeps the petrochemical industry. Even in bad times, one would be hard pressed not to run into someone here who works at a place like Mobil-Exxon, Motiva, DuPont, Goodyear or for some business related to petrochemical refining.
With all the petrochemical plants here one might think, just off the top of one’s head, that gas prices would be cheaper here than in other parts of Texas. But that’s not the case. AAA said last week that the average price of a gallon of gas in the Beaumont-Port Arthur area was a hair over $2.77. But gas was cheaper in places such as the Austin-San Marcos area which are a ways from heavy refining activity. And the Houston-Galveston area, another place with a high concentration of petrochemical manufacturing, had the highest average in the state at slightly more than $2.92. Go figure.
Those prices don’t, on the surface, appear to make sense. However, not all of the petrochemical plants in the Beaumont-Houston corridor refine gasoline. But with the proximity to refineries it would seem gasoline would be a little cheaper. It all seems a bit illogical but that’s the petroleum biz. I have said before in this blog how it doesn’t make sense that an oil company can get thousands upon thousands of dollars from oil while my, admittedly miniscule, royalty share in a few wells nets me $10 a month.
The whole shebang is a mystery to me. And by shebang I mean life and vacuum packaging. But I think if you asked them for the unvarnished truth, some of the so-called “experts” who are supposed to know the ins and outs of the petroleum business would tell you that their analysis of pricing is largely a product of an educated guess. I guess a guess is a good as no answer at all, right? Maybe. Or maybe not. I really don’t know, so stop asking me.