Fuel Prices Soar on Speculation, Refining Shortage, Switchover

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  1. CK5

    CK5 WhooHoo! Administrator Moderator

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    Fuel Prices Soar on Speculation, Refining Shortage, Switchover

    Web source: http://www.washingtonpost.com/wp-dyn/content/article/2006/04/20/AR2006042000594.html

    The Battle Over the Blame for Gas Prices

    Firms Cite Supply Issues, Deny Abuse


    By Steven Mufson
    Washington Post Staff Writer
    Friday, April 21, 2006; Page A01


    When Severin Borenstein drove by a Shell station in Orinda, Calif., yesterday morning, the price of unleaded gasoline was $2.99 a gallon. When he drove by five hours later, the price was $3.10 a gallon.
    Borenstein has a better grasp of why that happened than most. He's a professor of business and public policy at the University of California at Berkeley and is director of the University of California Energy Institute.

    "The oil side is one piece of this. The refining side is another piece of this," he said.
    Oil prices are soaring, with the price of crude at more than $70 a barrel on world markets and 37 percent higher than a year ago. That works out to more than $1.7o a gallon, more than half the cost of a gallon of regular unleaded gasoline.
    The next biggest chunk of the cost of a gallon of gasoline is the cost of refining, which is now about twice the average levels over the past five years. And that has sparked controversy over whether oil refiners have been gouging consumers by holding back on expanding capacity to gain more power over prices.

    The oil companies deny those allegations, but what's not in dispute is what's happening at the gasoline pumps.
    "What's going on is just a continued reflection of the worsening supply-and-demand balance, and when you get into a tight market, small changes can cause big price movements," said Borenstein, explaining the rising price of crude oil.

    He added that the reasons for fatter refining margins were not so clear. "This is the time of year when that number always goes up, but it has gone up more than usual," Borenstein said. "What we're seeing is that refineries are making huge profits. We have not been building refineries, demand continues to grow, and supply is not keeping up with it."

    For most consumers, the high prices have been a bit of a puzzle. When oil prices spiked last year, many of the reasons seemed temporary: hurricane damage in the Gulf of Mexico and unusually low inventories of crude oil and gasoline. This year, inventories have mostly been rising since January and hurricane season is still months away. (Yesterday, the American Petroleum Institute said crude oil inventories dipped slightly but still stood 6.7 percent higher than the year before while gasoline stocks fell to 4 percent below the level a year earlier.)

    In the absence of a clear explanation, members of Congress have jumped into the fray. "These major oil companies have hooked their hose up to the pocketbooks of American citizens and are sucking money from ordinary Americans into the treasury of the giant oil companies," said Sen. Byron L. Dorgan (D-N.D.), a member of both the Senate Commerce and Energy committees. Sen. Charles E. Schumer (D-N.Y.) on Tuesday called on the Federal Trade Commission to make sure the major oil companies weren't intentionally keeping refinery capacity offline to jack up prices. He cited a 5-percentage-point decline in refinery utilization rates.
    But the American Petroleum Institute responded sharply. "Any charge that oil companies are intentionally driving up prices ignores the very obvious fact that refinery capacity has been lower because the industry is still in the process of recovering from the extensive damage caused by Hurricanes Katrina and Rita last summer," the API said in a statement. "It is a fact that three refineries remain closed since the hurricanes. The combined capacity of those refineries is 804,000 barrels per day -- or about 5 percent of U.S. refinery capacity, the same amount Senator Schumer mentions."

    One indication of the Gulf of Mexico refinery problems was the price of gasoline, which is usually cheaper there than on the East Coast. Currently, the price of gasoline is running about 15 cents a gallon more in the Gulf region.
    Major refiners say that the shortage of capacity in their industry has been years in the making and, because of the long time it takes to build refineries, will also be years in the fixing. For years, it was a low-margin, capital-intensive business. Investors shunned refining companies, and many refineries were put up for sale at relatively cheap prices or closed.

    "The curves have crossed, and [profit] margins have improved," said Bruce Smith, chairman and chief executive of Tesoro Corp., a large independent refiner. "Only by improving margins do people have enough to invest in new facilities."
     
  2. J.E.E.P.

    J.E.E.P. Member

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    Good info

    Seems like good information but still does'nt look good for prices coming down.
     
  3. J. Delaney

    J. Delaney Well-Known Member

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    I still think it's crap. There's no reason for the byproduct of gasoline production to be MORE expensive than gasoline! Everyone knows diesels are more effecient than gas engines, why don't they lower the price of diesel to get people driving the more fuel effecient diesle powered vehicles instead of these stupid hybrids?
     

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