Manipulating oil futures for profit

[oboe]

From an article on MSNBC today, about oil hitting an all-time high:

BP shut a hydrotreating unit in its 420,000 barrel-per-day refinery in Whiting after an explosion, the company said. The hydrotreater lowers the sulphur content of crude oil and distillate fuel. That lifted NYMEX September gasoline to a new contract high of $1.35, soaring 5.19 cents, before last trading at $1.3450, up 4.69 cents. It traded as low as $1.2905. Prompt gasoline hit an all-time high $1.47 on May 20.

Does it bother anyone else that a single company can have this much impact on oil prices?    Do you guys see how easy it would be now for an unscrupulously led energy company to begin manipulating oil futures prices for profit?    Or do you guys feel comfortable that all energy company scandals are behind us, or that the SEC is now powerful and committed enough to keep these companies on a short leash?

[Sixpence]

I think of Enron, how they shut down generators to lower supply. Meanwhile, there are rolling blackouts.

[JBA]

We have debated this before.
But having said that, a large part of the problem is not enough refineries. We have half as many as we did in the 70's during the oil embargo days, if you’re old enough to remember, we were also importing about 40% less oil then. We have a NIMBY (Not In My Back Yard) problem in this country. Compound that with the 21 different blends (mandated by the government for specific areas of the country) They are non transforable from one area to another, and requires the refinery to shut down for cleansing before the production of another blend can start.

There is an oilman (meaning someone in the business) here in the BBS. Maybe he can add to this and clarify.

[Charon]

We have debated this before.
But having said that, a large part of the problem is not enough refineries. We have half as many as we did in the 70's during the oil embargo days, if you’re old enough to remember, we were also importing about 40% less oil then. We have a NIMBY (Not In My Back Yard) problem in this country. Compound that with the 21 different blends (mandated by the government for specific areas of the country) They are non transforable from one area to another, and requires the refinery to shut down for cleansing before the production of another blend can start.

There is an oilman (meaning someone in the business) here in the BBS. Maybe he can add to this and clarify.

The blends issue is certainly relevant. But the capacity issue is of the industry's own choosing. After deregulation in 1981 the industry broadly realized it had too much capacity leading to oversupply. Immediately there was a broad effort to shut down marginal refineries and improve the capacity on the existing refineries (fewer producing more).

It has been fine tuned to the point where we're at 98 percent capacity during the peak spring and summer months. Any disruption and standard supply/demand market factors take over leading to higher spot market prices. The blends issue makes it harder to shift local supplies to help meet local shortages and needs to be addressed.

The NIMBY issue is real, but I doubt the oil industry would be in any hurry to build one in the first place. It's not in the best interests of the shareholders.

Charon