Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Oblomov who wrote (66993)	8/5/2005 12:21:24 PM
From: energyplay	Read Replies (1) of 74559

Hi Oblomov - I don't understand it well either, but it happens enough that I think there is a real mechanism at work. Assume the end gasoline demand is constant and non-elastic. Which tends to be close to true short term. So that gasoline need will be met from another refinery, maybe in Europe, South America, or Asia. The crude that was intended for the closed refinery or it's equivalent has to then be shipped to Europe. That takes time, and the crude in those ships is not on the market for the 2-3 weeks it takes the ship to travel. From the point of view of a refinery in Europe which might be operating at 70% capacity, they have an immediate incentive to buy crude, even at a slightly higher price, so they can supply the gasoline demand. That's the best reason I can think of. If Elroy Jetson or Douglas Fant or someone else wants to talk about what really happens, that would be welcome.

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