Energy,  Sound Money,  Uncategorized

Gas Prices May Drop in Short Term, But Will Likely Stay High

Written by 

f9f48f4a72c98a3c017aa28d197feb13_SNoting that gasoline prices have risen by 45 cents per gallon since the first of the year, the U.S. Energy Information Administration (EIA) reiterated various causes of the rise in prices (currently $3.75 per gallon at the pump nationwide), such as planned (and unplanned) refinery maintenance that took much refining capacity offline, political concerns emanating from the Middle East, and changes in the demand for refined product globally. However, due to completion of refinery maintenance and additional overseas oil shipments on their way, EIA said it’s seeing signs of easing in those prices in the near future. As a cautionary note, EIA mentioned, any increase in supply or capacity may be offset by higher prices for summer gasoline blends and increased seasonal consumption come springtime.

EIA also elaborated on another cause of rising prices: an increase in something called “gasoline crack spreads” — the difference between the price of crude oil and the price of the products extracted from it including gasoline, aviation fuel, heating oil, and kerosene. The pressure on spreads late last year resulting from the price of gasoline hitting its lowest price in December couldn’t be sustained, according to the EIA, and had to come back to more normal levels. At one point, the price of gas at the pump was below the price of crude oil itself, setting in motion the rebound in those spreads and resulting in higher gasoline prices. The EIA wrote:

Throughout much of November and December 2012, gasoline crack spreads were very low, and in some cases negative (a barrel of gasoline worth LESS than a barrel of Brent crude). As a result, retail gasoline prices were lower than one would typically expect given prevailing crude oil prices, with the lowest price of 2012 reached in EIA’s weekly survey on December 17.

There was at least one other major reason: governmental interference in the flow of refined products overseas. The EIA used “politically correct” language in its explanation:

While U.S. gasoline exports have also increased in recent years, the United States was still a net importer of gasoline in 2012. Generally, over 80 percent of U.S. exports of total gasoline are produced and shipped from the Gulf Coast, while the vast majority of U.S. gasoline imports enter the country along the East Coast.

In other words, while the United States still imported gasoline from abroad, those imported prices were higher than they otherwise would have been without government’s intervening. Here is how the EIA adroitly explained it:

Constraints on product pipelines between the Gulf Coast and the Northeast regions and the limited availability and expense of vessels permitted to move product between U.S. ports, which must be built, maintained, and flagged in the United States and employ U.S. crews, limit the amount of petroleum products that can be moved economically [read: profitably] from the Gulf Coast to the Northeast. [Emphasis added.]

It was more profitable to sell American gasoline abroad than it was to sell it to American consumers, due to those regulations which limited exports from the Gulf Coast to the Northeast ports. Continue reading @ The New American

Related Posts:

Leave a Reply