Sorry, But for You, Oil Trades at $250 a Barrel.
The culprit is the refinery margin and the consequences are huge for global inflation…
If you are the owner of an oil refinery, then crude is trading happily just a little above $110 a barrel – expensive, but not extortionate. If you aren’t an oil baron, I have bad news: it’s as if oil is trading somewhere between $150 and $275 a barrel.
The oil market is projecting a false sense of stability when it comes to energy inflation. Instead, the real economy is suffering a much stronger price shock than it appears, because fuel prices are rising much faster than crude, and that matters for monetary policy.
Refined oil products have risen between 30% and nearly 140% since Russia invaded Ukraine in late February, compared to less than 15% for crude.
To understand why, let’s examine the guts of the oil market: the refining industry.
Wall Street closely monitors the price of crude, particularly a grade called West Texas Intermediate traded in New York. It’s a benchmark followed by everyone, from bond investors to central bankers. But only oil refiners buy crude — and therefore, are exposed to its price. The rest of us — the real economy — purchase refined petroleum products like gasoline, diesel and jet-fuel that we can use to run cars, trucks and airplanes. It’s those post-refinery prices that matter to us.