TELECOM Digest OnLine - Sorted: Re: Web Site Error Rocks Global Oil Markets

Re: Web Site Error Rocks Global Oil Markets

John Mayson (john@mayson.us)
Fri, 1 Jun 2007 19:04:35 -0500

On Fri, 1 Jun 2007, John Mayson wrote:

> On Thu, 31 May 2007, Reuters News Wire wrote:

>> World oil prices jumped briefly on Wednesday after a television station
>> in Tulsa, Oklahoma -- the No. 62 U.S. media market -- posted an
>> erroneous story about a refinery fire on its Web site.

> Someone explain something to me.

> Why would the price of a raw material go up due to a refinery fire?
> It'd be like the price of wheat rising on news of a fire at a Wonder
> Bread factory. I could see the price of gasoline rising, but not oil.

> John Mayson <john@mayson.us>
> Austin, Texas, USA

> [TELECOM Digest Editor's Note: Not really, since there is a more than
> ample supply of wheat with which to make more bread, but oil is a
> somewhat more limited substance. And, refineries do more with crude
> oil than simply make gasoline. How about all sorts of 'petroleum-based'
> by-products? PAT]

Let's say we have 10 refineries and each can handle 10 barrels of oil per
day (this is a very simplisitic example). So everyday the market sells
100 barrels of oil to the 10 refineries. One of the refineries goes
offline. Now the market can only supply 90 barrels, but still has the
capacity to supply 100. My understanding of supply and demand would say
the price should fall since the supply remained the same, but the demand
fell.

However on the opposite end of the refinery, I could understand the
price of GASOLINE rising because the supply fell 10%.

John Mayson <john@mayson.us>
Austin, Texas, USA

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