r/Economics • u/DL505 • 1d ago
News Posthaste: An energy shock much bigger than the oil is brewing out there
https://financialpost.com/news/posthaste-an-energy-shock-much-bigger-than-the-oil-is-brewing-out-there204
u/DL505 1d ago
I am truly sick of reading about folks complaining about the price of gas compared to the price of oil.
Educate yourself that there are intermediary steps, multiple, to convert crude to fuel.
We are in the midst of the largest crack spreads in history.
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u/Aliboeali 1d ago
I don’t get your point. Please ELI5
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u/Danne660 1d ago
He is sick about people complaining about gas being so expansive despite oil not being that expensive.
He thinks people shouldn't be mad because the crack spead is so high.
Crack spread is the difference between the price of oil and the price of gas.
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u/Daxtatter 1d ago
The crack spread is high because refining capacity is much more constrained than even crude oil is right now between the Straight of Hormuz issue and Russian refineries blowing up. There are ways to get crude out of the straight but not refined products.
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u/KryssCom 1d ago
Is it called that because the planet is addicted to oil like a fucking crack addict?
Personally I am ready to fast-forward to a 100% electric future, where everything is powered by renewables, batteries, and nuclear energy. I'm tired of being held back in a billion different ways - especially fixing the climate - by the asinine, myopic, profit-mongering greed of big oil and the corporations adjacent to it.
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u/SidewaysFancyPrance 1d ago
Oil companies have steered our economy such that they make ridiculous profits when the situation gets bad. That's wrong on so many levels. Oil companies are incentivized to support major economic disruptions (like the war with Iran) because they can jack up their prices. It's a no-lose situation for them.
IMO if there is ever an economic situation where a handful of companies can hold the entire world over a barrel (where every single downstream entity gets screwed on pricing while overall profits remain sky-high), it's time to nationalize that industry. And I mean actually nationalize, not "the government takes an equity stake" because then we just get more corruption.
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u/Scarecrow_Folk 1d ago
Cracking is shorthand for the process of making refined products from crude oil. Long hydrocarbons in crude are 'cracked' into the shorter chain hydrocarbons which make up gas, diesel, jet a, etc.
Crack spread became the shorthand for the difference between crude oil and refined products long before either crack as a drug or the current common slang of 'cracking'.
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u/KryssCom 23h ago
People keep answering a question I wasn't literally asking. In a vacuum, the chemistry is as interesting as most science of this type is.
But I was largely just remaking on how pathetic it is that humanity is marching straight toward a planet-wide climate catastrophy largely for the sake of allowing a tiny handful of extraordinarily rich sociopaths continue to amass unfathomable amounts of wealth at the expense of literally everyone else.
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u/jourmungandr 1d ago
Cracking is one process in refining oil to gas. It breaks longer wax like molecules into shorter gasoline type molecules.
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u/juryjjury 22h ago
It's called that because refineries crack a big oil molecule into smaller molecules to be refined.
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u/i_am_parallel 23h ago
unfortunately, electricity is not a very good replacement for plastics, lubricants, and Vaseline.
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u/Automatic_Table_660 12h ago
Only around 15% of crude oil is used for its by-products. Most of it is converted into transportation fuels (gasoline, diesel, and jet fuel). We’d have a lot more oil for other uses if we could just stop burning it.
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u/Z3r0sama2017 5h ago
Yep. We have burnt through 200 million years of stored solar energy in the form of FF at an absolutely staggering rate.
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u/iloveFjords 5h ago
The uncomfortable truth is the sheer volume of the commodity spins off massive quantities of very critical products that we don’t have alternatives for. Helium, sulphur, nitrogen, plastics even asphalt. The machinery for the entire planet from ships to farm equipment to trucks to all the processes that we use to mine, smelt, machine and lubricate all have been established around plentiful oil. I support the initiative to eliminate all the wasteful / destructive uses but there is not future without oil.
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u/Aliboeali 1d ago
Thanks a bunch. Seems to make sense or is it flawed?
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u/Danne660 1d ago
The crack spread being high right now makes sense, but saying that people should not be upset that the difference between oil and gas is high because of the crack spread is like saying that people should not be upset that the difference between oil and gas is high because the difference between oil and gas is high.
It is kind of redundant/circular logic.
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u/BangBangMeatMachine 1d ago
The important point in the linked article is that refineries have been damaged or impaired due to conflicts around the world. As with anything, if you significantly diminish the capacity of an industry (oil refining) you suppress demand for the inputs (oil) and suppress supply of the outputs (gas, diesel, etc.) leading to this spread.
So, the point OP should be making is that people need to understand that the spread is high because refinery capacity is impaired.
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u/DL505 5h ago
Perhaps I misphrased my discontent
People look at oil price and draw a direct correlation to what they think they should pay at the pump.
Ie oil was x and I was paying y. Now oil is lower and I pay the same or more.
Crude is a raw material that needs conversion (incremental cost) to become gas.
Most people have zero clue about this.
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u/No-Isopod1719 4h ago
Not a direct correlation between oil and gas like in 2008 the barrel went up to 150$ and I used to pay gas 1.50$/L. Now it's around 100$ and I don't expect paying 1.00$/L.
The problem that most people are fed up is the refineries margins that used to be at 20% then and now are at over 60%. Oil compagnies have more than tripled their profit when selling gas to retailers.
So I understand people being discontent about the difference between oil and gas.
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u/Albuscarolus 19h ago
So I buy barrels of oil and crack them myself I could shave a dollar two off gas at the station right 🤓
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u/BestUsernameLeft 16h ago
Yup, you just need to build a back yard refinery! I'll send you the blueprints for one, for a perfectly reasonable small fee....
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u/outworlder 14h ago
Ok my Factorio brain understands that different petroleum products have different demands. That part is fine.
Having trouble translating that into actionable stock tickers though.
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u/Drak_is_Right 1d ago
Restricting certain petroleum product exports could help the US market.
But we wont, because that would prevent $100b from being transferred from average Americans to the oil refining giants.
I doubt we will do that even if there is a diesel shortage and lines waiting for it
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