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Why has it taken so long for a reduction in price at the pump when crude prices have gone down, but was just the opposite when crude prices went up?
Answer:
What you are describing is typically known as the “rockets and feathers” phenomenon, which has been studied for many years. In September of 2011, the Federal Trade Commission issued a staff report with a lot of good information in it. First, is their finding that “Changes in crude oil prices have continued to be the main factor affecting gasoline price.”
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How can oil companies claim that increased gas prices are only the result of higher crude oil prices and government taxes when they continue to have record profits year after year?
Answer:
While gas prices have fluctuated, oil and natural gas earnings have remained in line with the average of other major U.S. manufacturing industries. This fact is not well understood, however, in part because reports usually focus on only half the story – the profits that are earned. Profits reflect the size of an industry, but they’re not necessarily a good reflection of financial performance. Profit margins, or earnings per dollar of sales (measured as net income divided by sales), provide one useful way to compare financial performance among industries of all sizes. The latest published data for the fourth quarter of 2011 shows the oil and natural gas industry earned 6.2 cents for every dollar of sales in comparison with all manufacturing, which earned 8.3 cents for every dollar of sales.
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What are intangible drilling costs? Why does the oil industry get to deduct these costs from their taxes?
Answer:
When energy companies drill they incur costs for things like site preparation and labor. No physical asset is received for these costs, and over time they have been termed as intangible costs. Typically, they represent 60 to 80 percent of the cost of the well – the remainder being the physical steel, pumps and casing that become part of the well. Companies have long had the option of deducting these costs in the year they are spent – similar to deductions enjoyed by other industries. For example, many industries are able to expense research labor and other costs under the research and development deduction, and computer software companies can deduct the costs of developing code. In fact, the administration has been promoting a provision to allow for the immediate expensing of all capital costs that meet certain thresholds.
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When will we run out of crude oil?
Answer:
If you ask an economist this question the answer would be “never.” As demand competes for a reduced supply, the price will rise, consumption will switch to alternative fuels and oil will continue to be used forever for functions that support its price. This answer is both technically correct and a cautionary tale about asking economists these types of questions. The practical answer is, well complicated.
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Why is heating oil more expensive than gasoline?
Answer:
Heating oil and gasoline are separate products and are traded in different markets, but the price for heating oil has been historically close to the price of gasoline. This is not surprising given that both heating oil and gasoline have historically tracked the price of crude oil.
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What role do oil speculators play in determining the price of gas? Should the government regulate oil speculation?
Answer:
Market fundamentals are behind recent crude oil price increases. As the economies of the world begin to recover from the recession, global demand for crude is increasing while global excess oil production capacity is shrinking. Furthermore, buyers of crude oil are also clearly concerned about instability in major oil-producing nations in North Africa and the Middle East.
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Why are gas prices going up when the price of crude oil is going down?
Answer:
U.S. refineries are pulling out all the stops to supply U.S. markets. They produced more gasoline last year than any year in history – even though U.S. demand for gasoline was down last year, and has continued to be down this year. According to the Lundberg survey, gasoline prices have followed crude oil prices down, as crude oil prices have stabilized, and some analysts feel that: “the downward trend should continue as long as crude oil doesn't fluctuate.”
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What percentage of the oil reaching the Gulf Coast from the Keystone XL would actually remain in America vs. being exported to places like China?
Answer:
99.7 percent of crude oil produced or imported into the United States is processed here and, although the United States is a net exporter of finished petroleum products, about 92 percent of on-road transportation fuel refined in the United States is used in the United States. However, refineries produce lots of products from a barrel of oil – gasoline, diesel, heating oil, bunker fuel and more – and they need markets for each. The majority – 79 percent – of energy products the United States exports are things like propane, ethanol and kerosene, which are produced in amounts that surpass U.S. demand.
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Why are we transporting oil through a pipeline to Gulf Coast refineries? Why not build new refineries closer to the source?
Answer:
It makes sense to transport Canadian crude to the Gulf Coast because the Gulf region is by far the leader in refinery capacity, with more than twice as much crude oil distillation capacity as any other U.S. region. In fact, the Gulf is home to five of the top 20 oil refineries in the world. According to the Energy Information Administration, there is one operating refinery in North Dakota compared to 45 refineries operating in Texas and Louisiana.
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Does it require more energy to produce oil sands crude than the development actually yields?
Answer:
No. According to the Canadian Association of Petroleum Producers, the oil sands process produces six to 10 British Thermal Units (BTU) of energy for every one BTU that goes into steam-assisted gravity drainage (SAGD), the primary method of oil sands extraction. Therefore, the overall energy yield of oil sands production far exceeds the energy that goes into producing it.
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