Stop Blaming Oil For High Gasoline Prices

Tim Iacono If you've been wondering why gasoline prices have been so high lately with crude oil trading at only $66 per barrel, the answer can be found at the refineries.

This week's TWIP (This Week in Petroleum) from the Energy Information Administration has some interesting commentary and, as always, abundant charts to tell the story of how retail gasoline prices have fallen for the second consecutive week, down five cents to $3.16 per gallon.

First, it should be clear that this is not an oil problem. U.S. oil inventories, the biggest raw material cost for gasoline (duh!) have been at or above the range considered normal for this time of year. There is no oil problem - that will occur sometime in the future, maybe soon, we'll see.

Yet, prices at the pump remain near record highs, particularly here on the West Coast where special formulation requirements and higher taxes almost always result in higher prices.

Lucky us - at least there's no big brown cloud hanging over the Western U.S. (except sometimes in Phoenix) like the one hanging over parts of developing Asia .

Gasoline stocks are way down, though they've been recovering dramatically in recent weeks as indicated by the current slope of the red-dotted line below. It turned ultra-steep last week in an attempt to make up for lost time and keep up with demand from the summer driving season that just started.

Have the refineries suddenly finished all their yearly maintenance work and flipped all the right switches to boost production?

Production has improved in recent weeks but it remains below levels from December of last year - refinery utilization for this time of the year is still below the levels of the last three years.

The downward price pressure (if you can call retail prices falling from $3.30 per gallon to $3.16 per gallon price pressure) comes largely from an increase in gasoline imports which have reached new multi-year highs.

And of course demand continues to increase, current levels of consumption for this time of year again at all time highs despite the higher prices.

Remember what a big deal it was a couple years ago when when gasoline stations couldn't find enough number 3s to put up on their signs out at the curb?

With the precarious balance between the supply and demand for crude oil combined with aging refineries, it seems only a matter of time before there is a new crisis - finding enough number 4s.

Comments

[insideoil:]

And so it is that the US consumer pays the price of refusing to allow construction of more US based refineries. Others have taken the chance to invest - and will now reap the benefits. Stop squealing and pay up, or go without the big SUV's and gas guzzling motors. You could always think about dropping the very onerous emmission limits on diesel vehicles - rather than exporting the stuff back to Europe.
The solutions are there - but it seems the pain is not geat enough yet to get the US consumer to make the changes that need to made. Quit blaming others - you only have yourselves as consumers to blame ( en masse).

2007 Jun 10 03:27 AM

[Saildog:]

This is not the whole story, the devil is in the detail - as always. This article presents the US as a single homogeneous entity with uniformity of supply stretching from one shining sea to the other.

The US is split in two by the rockies and so this theoretically fortunate situation bears liitle resemblance to on the ground reality. On average the article is correct. Someone much wiser commenting on "average" once asked me if my head was in a freezer and my feet were in a fire; would I be comfortable? - on average?

So it is with gasoline. West of the Rockies is well supplied, even the South East is not too badly off, but the North East was virtually in crisis, down at one point last week to 11 gallons per citizen last week. And things are still realloy tight.

Next time get more detail from the EIA.

2007 Jun 12 01:14 AM

[dcappe10:]

Good article…I am interested in possibly investing in the oil sector and would like to suggest a report that caught my eye.

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Enjoy…Cheers!

2007 Jun 15 05:10 PM

[sikarskie:]

We as Americans were dumb enough to elect Republicans over the last 8 years...me included. Just follow the monies...Oil mergers...follow the profits...Pharmacuetic... their own policy to make record proifits...Banking industry...record profits..Middle class not even represented..got a few good judges!!!

2007 Jun 24 10:18 AM

[Rob Lane:]

My friend works for a refinery and he told me the oil tankers are staged in the Atlantic waiting fort the price to keep rise. I believe him, i believe the greed of the fuel companies, I think we are in a master plan by the Bush admin. to create a economic war that will create a 2 tier socoity, the rich and poor. The middle class will pay the ultimate price. The signs are all around us you just have to do the math. Perhaps if someone holds some ceo's or vps of the fuel companies hostage maybe they will wake up. I don't believe in stooping to Bin Ladden tactics but America needs to get organized. First we sold all our factory jobs to forgen countries,americans sell out to all the forgen car companies, this is the result of forgetting Pearl Harbor. Who cares if the cars are assembled here, the money goes out of the us anyway. George Washington spoke of taking care of home in his fair well address and it was ignored. Time to say the hell with being the world savior, save our selves and fix this country before it destroies itself! Close our borders and protect #1 for a change. Sorry America needs to be CLOSED!

2008 May 17 12:12 AM