No help for gas buyers -- or oil investors
Rising oil prices and increased refinery costs mean gas prices will keep going up. Yet record profits mean little to investors, since companies don't have a good place to reinvest the cash.
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Gasoline prices are likely to continue rising, and it's not just because crude oil prices have risen above $75 a barrel.
Oil refineries, which usually buy their oil at a price below that headline price, have seen their discounts virtually disappear. So the price they pay for oil is up twice -- once because the headline price of oil is higher and a second time because their discounts have just about vanished. You can bet that those two price increases will be passed along to anyone filling up at the gas pump.
Very little oil actually trades at the number that shows up in the headlines. That number represents the price of the futures contract, an option to buy oil in the future, on a specific grade of light sweet crude oil. So, for example, on July 16, when the headline number read $74.15 in the futures market, in the cash market the prices for two widely used benchmarks, West Texas Intermediate and Brent crude from the North Sea, traded at $74.16 and $79.73, respectively.
Oil prices vary widely from there. On the same day, two other U.S. grades of crude, Louisiana Sweet and West Texas Sour, traded at $80.26 and $70.06 a barrel, respectively.
That's a big swing from $80.26 to $70.06. About 15%.
Europe has its own grades with varying prices ranging from Forties at $80.53 to Urals-Mediterranean at $77.68.
And so does the Middle East. Crude from Saudi Arabia sells as Extra Light, which sold as of July 16, and Arab Light, Arab Medium and Arab Heavy, trading at discounts to the Brent benchmark of $3.20, $4.90 and $6.60, respectively, a barrel.
All together there are about 160 traded grades of crude oil, each with its own price.
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