Oil down $60 / Gas down 60 satang - what do you make of it?

[connda]

In July of this year WTI peaked at over $106 / barrel to just over $66 / barrel this Friday (I'm just using WTI as a benchmark. The slide in crude prices are compatible across the globe). Gas in Thailand is going down a massive 60 satang.

What do you make of it? I'd say incredible windfall profits for the local distributors of refined oil products. But (correct me if I'm wrong) the oil price is set by the government. So what gives?

[elgordo38]

In North America its "Making Hay While The Sun Shines"

[rickirs]

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In North America its "Making Hay While The Sun Shines"

No making hay in the USA. Gasoline pricing tracking close to oil pricing.;b++){var>

There is an irony in that the one of the major causes for lower oil prices is America's fracking program but when oil falls below a certain point, fracking becomes unsustainable ($50-$60bbl?) and oil prices rise again.

[Time Traveller]

Free market economies get to enjoy the lower fuel prices. And those countries where governments interfere with prices don't.

[Torrens54]

Maybe they have to get rid of the OLD Stock, for which they paid inflated prices and then the NEW lower priced product will come on the market.

Yeh....and "Pigs Fly" don't they?

[KittenKong]

As far as I know Thailand has a variable tax/subsidy on petroleum products that is designed to prevent price movements at the pump even if the price of crude or the value of the USD varies.

Looks like it's working.

[Soutpeel]

The cost of the feed stock may have reduced, but the cost of refining hasn't decreased, the crude price is only a small component of the overall cost of the refined product, if crude price drops 20% this doesn't translate into a 20% reduction at the pumps, further most petroleum products are bought on a forward contract type basis at a negotiated price, therefore over the short term decreases in crude price will not have real affect on the pump price, until the new contracts are negotiated

BTW the "oil price" is not set by the Thai government

Edited November 30, 2014 by Soutpeel

[rakman]

Global economic slowdown. Less demand for oil and derivative products.

[worgeordie]

Prices always come down slowly,go up quickly.

The oil business is a cartel,can screw us as

much and as often as they like.

regards Worgeordie

[Loptr]

Looks like the Saudis are paying the price for their obstinance at last weeks OPEC meeting...

http://www.zerohedge.com/news/2014-11-30/panic-selling-saudi-stocks-crash-bear-market-following-opec-decision

"Panic Selling" Saudi Stocks Crash Into Bear Market Following OPEC Decision

[daveAustin]

The cost of the feed stock may have reduced, but the cost of refining hasn't decreased, the crude price is only a small component of the overall cost of the refined product, if crude price drops 20% this doesn't translate into a 20% reduction at the pumps, further most petroleum products are bought on a forward contract type basis at a negotiated price, therefore over the short term decreases in crude price will not have real affect on the pump price, until the new contracts are negotiated

BTW the "oil price" is not set by the Thai government

The oil price ain't but they certainly fiddle with the price of petrol at the pump, which is what it's all about.

"if crude price drops 20% this doesn't translate into a 20% reduction at the pumps,"

Well it should even out over time once old stocks have cleared, unless refining a cheaper barrel somehow magically becomes non-linearly more expensive. I get the forward contracts concept, but it's all BS at the end of the day... you just watch how fast those contracts are spent once the price rises! The whole oil business is bonkers, from the overpaid people pulling it up out the ground who pick a spot and stand around all day, to the grubby oil bosses and the governments that fiddle the figures and tax the pump to the hilt. The world will be a better place once it's all gone and we're forced to draw our energy from appropriate sources.

[chris2004]

Pump prices have fallen a lot more than 60 satang. I remember paying 38.75 for 91 gasohol in June, it's 32.50 now.

[DinoSabanovic]

In my country we have "Kuna", 1 is roughly 5 THB.

Before 20 years 1 L of diesel was kuna before 5 years near 11 kuna.

If price of oil go up 10%, price at pumps go up 10%, if price of oil go down 10% price on pumps go 1-2%.

So now we have roughly 10 kuna for 1L of diesel.

Do you all remember when E20 was 25THB? Not log ago was near 37THB ! Now is 31-32THB

I'm not expert but some things defy logic.

[patekatek]

Due to the huge losses incurred by the "rice pledging scheme", miscellaneous corrupt projects, loss leader Thai Air, spending billions of baht on infrastructure road projects and many other unknown losses due to people like Polpot (Pongpat), I doubt we will see any significant reduction of Thai fuel prices ever. The billions of baht the government will be collecting from fuel taxes will undoubtedly be used to recover some of the losses endured during the Taksin regime.

That said, I have to admit that I do not know where the government purchases its' crude oil from. If they are stuck paying $100 or more per barrel due to some corruption contracts, it may take a long time to get the purchase price back down to a competitive price. Even if it does come down, I don't think the price consumers pay will reflect the true savings.

[maswov]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

In North America its "Making Hay While The Sun Shines"

No making hay in the USA. Gasoline pricing tracking close to oil pricing.;b++){var>

There is an irony in that the one of the major causes for lower oil prices is America's fracking program but when oil falls below a certain point, fracking becomes unsustainable ($50-$60bbl?) and oil prices rise again.

I think $80/bbl is the break even point.

Increased US oil production has had an impact on prices but the main reason for the drop is Saudi, without OPEC support, has reduced prices with no changes production.

[darhut]

Word on the street is the conventional oil boys are doing this to drive out the shale oilers who on average cost $80 barrel to produce. It won't take long to give them the message they can do this at anytime they please.

Big boy games. If you were heavily invested in shale oil I would be getting a little worried.

[apalink_thailand]

Maybe they have to get rid of the OLD Stock, for which they paid inflated prices and then the NEW lower priced product will come on the market.

Yeh....and "Pigs Fly" don't they?

Possibly but unlikely. The majors that have both UP and DOWN stream production capability are covering the shortfalls from low oil prices by being able to refine cheaper and therefore realise better margins. The smaller exploration companies and fracking companies without any downstream capability are suffering and don't have the comparable financial strength to weather the storm.

[Ulic]

A few connected powerful people making so much money, that is what I make of it.

[apalink_thailand]

The cost of the feed stock may have reduced, but the cost of refining hasn't decreased, the crude price is only a small component of the overall cost of the refined product, if crude price drops 20% this doesn't translate into a 20% reduction at the pumps, further most petroleum products are bought on a forward contract type basis at a negotiated price, therefore over the short term decreases in crude price will not have real affect on the pump price, until the new contracts are negotiated

BTW the "oil price" is not set by the Thai government

Interestingly enough, in the last quarterly report by Chevron, they did claim that the downstream business was helping to offset the effect of oil price drops so there must have been some effect on the ability to produce refined products cheaper.

[Strikerxxx]

Also in 2011 in west Tx. they discovered a reserve 30,000 feet down. They can drill to it but are trying to figure a way to pressurize it to get it to surface. It goes from Texas to Canadian border. It is the size of all known reserve's in the world today. The Permian basin has geared up to never stop pumping at this point. They don't like to see the price come down, but know eventually they will have the corner on the market. Notice that the US is trying to distance itself from Middle east, no longer dependent on that oil supply.

[kblaze]

Its worse than you think. The government is actually planning to raise LPG/NGV (and likely diesel too) prices despite the crude fall. PTT will benefit, but PTTGC will benefit even more as its input from PTT becomes cheaper while it is able to sell LPG/NGV at higher prices. It remains to be seen whether or not they will actually push it through given the potential public backlash.

[Pib]

As far as I know Thailand has a variable tax/subsidy on petroleum products that is designed to prevent price movements at the pump even if the price of crude or the value of the USD varies.

Looks like it's working.

Yeap, the govt varies the fuel tax (sometimes the govt calls it a subsidy whenever they lower the tax) on the products....usually lowers the tax when oil price is high and raises it when oil prices are low. As oil has been falling in price recently they have lowered the fuel prices little in order to build-up tax revenue to be used as a buffer when they need to spend that buffer to keep the fuel prices fairly stable.

Fuel prices in Thailand are still much lower than other places like in Europe where fuel taxes are much higher. See this link for worldwide gasoline prices per liter as of 24 Nov 14.

[Scouse123]

Word on the street is the conventional oil boys are doing this to drive out the shale oilers who on average cost $80 barrel to produce. It won't take long to give them the message they can do this at anytime they please.

Big boy games. If you were heavily invested in shale oil I would be getting a little worried.

They do say this regards the majority of oil players.

However, Iran, Nigeria and Venezuela need more than $80 to balance their budgets ( $90-$100) whereas Qatar and the UAE need less.($40-$50)

They say the present prices will force out the smaller players in shale drilling but these present prices will have a huge adverse effect for future exploration in the oil world around the Globe.

Let's see, another crisis in the Middle East caused by Iran , Iraq or similar ( Libya) and I think prices will hit $80 again soon. There is already severe unrest through ISIS, Boko Haram and Libya with all the tribesmen. Putin has gone too far to back down and the guy is unstable enough to cause further crisis and worries in Europe and beyond.

Edited December 1, 2014 by Scouse123

[VegasVic]

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Global economic slowdown. Less demand for oil and derivative products.

Actually this time around demand worldwide demand has not dropped, it is likely more a factor of increased U.S. production coupled with an organized effort behind the scenes to take vlad putin out to the woodshed for a good old fashioned spanking They can't put the screws to Putin forever, but I do have a feeling that this could last through the winter

[VegasVic]

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Maybe they have to get rid of the OLD Stock, for which they paid inflated prices and then the NEW lower priced product will come on the market.

Yeh....and "Pigs Fly" don't they?

Possibly but unlikely. The majors that have both UP and DOWN stream production capability are covering the shortfalls from low oil prices by being able to refine cheaper and therefore realise better margins. The smaller exploration companies and fracking companies without any downstream capability are suffering and don't have the comparable financial strength to weather the storm.

The price of oil would have to drop below $60/bbl for the fracking to come to a halt in the Bakken and Marcellus fields. It could happen but I rather doubt it as there are other producers worldwide that will feel the pain long before the boys in the Dakotas do I hope oil stays around $70/bbl, however I think by next summer we will be right back in the $90-$100 range again

[Pib]

Word on the street is the conventional oil boys are doing this to drive out the shale oilers who on average cost $80 barrel to produce. It won't take long to give them the message they can do this at anytime they please.

Big boy games. If you were heavily invested in shale oil I would be getting a little worried.

That $80 guesstimate is not close anymore .and shale oil production has got much more efficient. Scale and productivity improvements bring down costs.

Different North American shale oils have a different break even points from the $40 to $60 ballpark now days...and that is what I've been hearing over the last few weeks on news reports especially with the recent OPEC meeting causing a lot of discussion on the issue. If $80 was the average cost to produce shale oil all the shale oil operators would have went out of business and the current price of a barrel of oil would have never dropped way below $80 per barrel like it is now....heck, right now today WTI oil is going for a little below $65 per barrel and Brent oil down to almost $68.

See below chart on the break even point for shale oil....on the average it's now in the $50 per barrel ballpark.

[2fishin2]

Free market economies get to enjoy the lower fuel prices. And those countries where governments interfere with prices don't.

This is the truth. And also, everything else that the governement meddles too much in, ie rice and rubber.

[2fishin2]

Due to the huge losses incurred by the "rice pledging scheme", miscellaneous corrupt projects, loss leader Thai Air, spending billions of baht on infrastructure road projects and many other unknown losses due to people like Polpot (Pongpat), I doubt we will see any significant reduction of Thai fuel prices ever. The billions of baht the government will be collecting from fuel taxes will undoubtedly be used to recover some of the losses endured during the Taksin regime. That said, I have to admit that I do not know where the government purchases its' crude oil from. If they are stuck paying $100 or more per barrel due to some corruption contracts, it may take a long time to get the purchase price back down to a competitive price. Even if it does come down, I don't think the price consumers pay will reflect the true savings.

You mean the Thai government

[Kasset Tak]

As far as I know Thailand has a variable tax/subsidy on petroleum products that is designed to prevent price movements at the pump even if the price of crude or the value of the USD varies.

Looks like it's working.

Yeap, the govt varies the fuel tax (sometimes the govt calls it a subsidy whenever they lower the tax) on the products....usually lowers the tax when oil price is high and raises it when oil prices are low. As oil has been falling in price recently they have lowered the fuel prices little in order to build-up tax revenue to be used as a buffer when they need to spend that buffer to keep the fuel prices fairly stable.

Fuel prices in Thailand are still much lower than other places like in Europe where fuel taxes are much higher. See this link for worldwide gasoline prices per liter as of 24 Nov 14.

Yea, look at that list. The most expensive country, Norway... And they even have their own oil production that covers their needs and more!

So the tax is a big part, but all countries need tax revenue to pay for things like healthcare, education and infrastructure.

[Leung Falang]

Word on the street is the conventional oil boys are doing this to drive out the shale oilers who on average cost $80 barrel to produce. It won't take long to give them the message they can do this at anytime they please.

Big boy games. If you were heavily invested in shale oil I would be getting a little worried.

It helps to clarify "doing this" to mean OPEC continues at normal production levels and understands that as the price falls, shale production will begin to contract as well as production in tar sands. It seems the price drop began with recession fears in Europe and a slow down in China.