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It'a serious question.

One answer is that this is all a speculative bubble, so all oil-related products go up as soon as there is reason for one of them to go up.

My theory is that the market is so tight that any refining capacity which is lost effectively means that the oil that would have been processed by that capacity is lost as well, which means more shortages dow nthe road. The markets don't react to the temporary drop in demand for oil, but to the expected future extra demand that this will mean as the missing volumes of gasoline keep putting pressure on the demand side  later, in addition to the demand then.

Maybe HiD, who knows the downstream world better than I, has a better answer.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Aug 18th, 2005 at 05:38:45 PM EST
[ Parent ]
It may also be about different qualities. Light crude is easier to refine, so when refinery capacity is limited, demand for light crude increases. The average/reference price (light/heavy mix) then also rises. When there is plenty of spare refinery capacity, heavy oil is (almost) as good.

If this theory is correct, it should be possible to discern a refinery capacity crunch by the divergence of light/heavy crude price. I don't know if that is the case now, and five minutes of google didn't tell me anything.

by jobh (jbh@lupus.ig3.net) on Thu Aug 18th, 2005 at 06:30:19 PM EST
[ Parent ]


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