It was made obvious last week as RBOB went to $2.72 and fell back to $2.51.

RBOB gasoline opened last week at $2.69, fell back on Tuesday when crude fell below $100 then closed on Friday at $2.69 exactly where it opened.

As Robert points out below RBOB does not follow oil exactly and there is no reason to believe it should. The difference is called “The Crack Spread”. [This has nothing to do with Eliot Spitzer. ;-) ] You can actually trade futures and options on the crack spread. It is precisely because the crack spread varies from time to time that futures and options are traded on it.

Bottom line, absolutely nothing unusual is happening.

http://www.nymex.com/crack_spread_overvi.aspx

Ron Patterson

Thank you for this info. Very helpful.

''extended North Sea field shut ins''....

What extended North Sea field shut ins?

Just the usual summer maintenance shut downs.

Or maybe they think that the 1999 UK all time peak is just an anomaly.

Thanks Jeff. 7.7 percent is a far cry from the 4.5 percent that CERA came up with.

Ron Patterson

Just to let you know this fits pretty well with my sharp drop off model.

Sounds like the oil industry may be having serious decline problems that are not being talked about.

Same I really suspect with production.

In any case with my model things change fast enough that the collated data from the government can't keep up with the situation. Absolute worst case is a 1mbpd drop in production every 4 months.

That's very interesting!

EIA's March short term report was just released.
http://www.eia.doe.gov/emeu/steo/pub/contents.html

It said that "0.7 mbd of non-OPEC supply growth is projected in 2008, revised down by 0.2 mbd from the last Outlook. This change represents a revision to expected project schedules as well as a re-evaluation of decline rates at existing fields." Assuming that 0.5 mbd of this 0.7 mbd is biofuels growth, this gives 0.2 mbd growth in crude and NGLs. Undoubtedly further project delays will round this number down to 0 mbd growth.

Gross peak oil additions from wiki oil megaprojects 2008 is 4.1 mbd for crude/NGL.
http://en.wikipedia.org/wiki/Oil_Megaprojects/2008
However, only about 3 mbd of new production should occur since the 4.1 mbd refers to peak which can be delayed by several years.

Non-OPEC-13 crude/NGL production for 2007 was about 46 mbd. The adjusted EIA forecast non OPEC 13 growth of 0 mbd implies that the "EIA adjusted" non OPEC decline rate is 6.5% (3 mbd/46 mbd).

If the IEA's decline rate of 7.7% is used then non-OPEC-13 2008 crude/NGL estimate is 45.5 mbd, a drop of 0.5 mbd from 46 mbd in 2007. My latest forecast, updated for the recent EIA actual data, also predicts that non-OPEC-13 2008 crude/NGL is 45.5 mbd.

These propaganda bulletins by the IEA underscore its uselessness for the task it was designed for. Production in Russia has not stalled/dropped because of asset divestments. What drivel.

The mean age of oil fields is increasing simply because new discoveries are too small and too few. Oil field decline rates do not shrink or stay constant with age, they increase. So by mathematics, the mean decline rate in exiting world production centers is increasing. New production comes on stream intermittently so in some years the underlying decline becomes more apparent. The IEA is spewing nonsense just like CERA.

Of course, there are numerous stories about how this happened. In the short term, cars won, and the winners write the history.

In the long term, automobiles will prove to be an evolutionary dead end. The final word is not in. Probably not a conspiracy -- just mass delusion and stupidity. And cupidity.

opinions vary on this point, Robert, but it is what it is. Extreme and coordinated tactics where documented and proven:

http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy

The Great American Streetcar Scandal, also known as the General Motors streetcar conspiracy, was the sequence of events in which General Motors, Firestone Tire, Standard Oil of California and Phillips Petroleum formed the National City Lines (NCL) holding company, which acquired most streetcar systems throughout the United States, dismantled them, and replaced them with buses in the early 20th century

contributing causes did exist of course:

Most transportation historians, particularly economists, point to a number of factors that cast serious doubt on the notion that the National City Lines consortium was the primary driver of the failure of streetcar systems and the adoption of buses. These include financial considerations; congestion; political factors; road construction; and the nature of suburbanization.

http://www.lovearth.net/gmdeliberatelydestroyed.htm

Your "guess" is at odds with Kiashu's graphic above, which would suggest that about $2 out of a $3 price for gasoline is for the crude. Assuming that the crude delivered to produce gasoline sold in Jan 2008 cost $80/barrel(*) that would mean that every $10 in the crude price adds roughly $0.25 to the retail gasoline price, give or take. So (after adding back the $1 that goes to things other than crude) at $110 oil we might end up with roughly $3.75 at the pump sometime in the coming months. National US average, of course; in my neighborhood, that would mean $4.25 at the cheap station.

(*) $80 a barrel seems a decent enough rounded off average for the few months preceding Jan 2008. Note that if my guess is too low, then gasoline prices will increase less because of oil price increases. If my guess is too high, then gasoline prices should rise more.

US Petroleum Supply, Ethanol, and State of the Industry - API ...
According to API, “The figures cited here include gasoline that contains growing amounts of blended ethanol, amounting to well over 400000 barrels per day ...
www.eclipsenow.org/archives/561

"6. Ethanol
According to API, “The figures cited here include gasoline that contains growing amounts of blended ethanol, amounting to well over 400,000 barrels per day in 2007. If ethanol is excluded from the calculations, total domestic oil deliveries for the year would actually have shown a half percent decline.”
Analysis Based on EIA data, I would estimate US ethanol production would amount to 420,000 barrels per day in 2007, which is consistent with API indications. Last year’s US ethanol production amounted to 319,000 barrels per day, based on EIA data, so the difference is about 100,000 barrels a day. The 100,000 barrels per day increase during 2007 is about 0.5% of total petroleum products supplied of 20.7 million barrels a day."

Straight from API:

http://www.api.org/Newsroom/record-high-us-fuel.cfm

"The demand data includes an increase in the amount of ethanol blended into gasoline, which averaged more than 400,000 barrels per day. Excluding ethanol, which accounted for nearly five percent of all gasoline sales during the year, total domestic oil deliveries in 2007 actually fell half a percent. An estimated 6.7 billon gallons of fuel ethanol were used by refiners in 2007, some two billion gallons more than the 4.7 billion gallons required by law but more than two billion gallons less than the recently-passed requirement for 2008."

Wouldn't ethanol be included in blending components? (That is what I'm hearing from other analysts.)

Thanks. That makes a lot more sense now.

I see the shrinking crack spread more disturbing than price. How small can it get before small refiners stop refining and true shortages arrive? The Chinese commies can outbid us for crude and absorb a negative crack spread through say duties on exports or the sale of bonds. The big oil companies can ride out a negative crack spread on the back of their recent profits. Parts of the country at the end of the delivery chain and unable to buy enough fuel to make that last mile worth it may suffer the fate of Dakota farmers last fall. Crops may not get planted soon enough and today's $5.50 corn price may look like a bargain next fall.