Given hurricane Katrina's impact on our gasoline supplies, why hasn't the federal government taken action to assure America's oil refinery capacity? Today's New York Times reports that an "invisible hurricane" of mechanical breakdowns at oil refineries around the country has pushed-up gas prices 50 cents, to over $3 a gallon. Analysts reveal that a third of the country’s 150 refineries have reported operational disruptions since the beginning of the year. As this website has pointed out, the U.S. refining industry is hamstrung by a patchwork of state regulations that make shifting supply nearly impossible. The industry says the laws and questions about maintenance schedules put it in a no-win position. “Refiners want to keep running in today’s economic environment,” said Charles T. Drevna of the refiners association. “But when they shut down they are accused of gouging the system. When they don’t, they are criticized for overrunning their facilities.”
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Well, justifying high prices because of “short” supplies would be a little more believable if those “short” supplies occasionally caused gas station lines and shorter gas station hours, like in past shortages. Are we expected to believe that they can continuously and perfectly adjust the price to fit the supply? I don’t think you can even do that in an economics class room.
What do you expect in the land of BANANA and NIMBY ?
Do you think the price of gasoline has anything to do with the dollar in free fall against most other currencies ?
The free ride is over.
As far as what you seem to be asking for? No worries, soon to debut near you.
Blaming the oil companies is silly.
Iraqi’s are making gasoline from stolen oil in garages. Apparently, it’s not rocket science. Anyone who believes that it’s the oil companies at fault is welcome to start their own refinery and get in on the mad profits!
we are getting scammed-read record profits from oil companies(in all of history)- if you take the tax off Europe’s gas prices they’re actually paying less-what do the big airlines do most the time when one raises prices? the others do too–same with the refineries-they dont have to charge what the market thinks might happen on the futures market but in the 90s most smaller oil companies merged into larger ones now theres about 5 big ones–just like the airlines they follow the lead in pricing–this will hurt the u.s. economy because it will be cheaper to make goods in foreign countries –on top of that mandating 10 percent ethanol besides destroying the enviroment also artificially raises prices because they cant keep up with demand. what happens when theres a dust bowl again? high food prices ,high energy prices, causing a recession–all while the oil companies and countries like iran laugh to the bank.we need nuclear power big time.
Gotta love eco-weenies, NIMBYs and other invertebrates who insist on blocking new refinery construction only to turn around and bitch about the high energy prices that result from capacity no longer being able to keep pace with demand.
Limiting development of new refineries in the US also causes another problem. It means refineries get built overseas.
Not a problem, until the government of the host nation decides to manipulate the refinery and/or product for political gains.
It is bad enough that Saudis have us by the short hairs. Can you imagine if we also allow third-world dictators govern the refineries?
Gotta love eco-weenies, NIMBYs and other invertebrates who insist on blocking new refinery construction only to turn around and bitch about the high energy prices that result from capacity no longer being able to keep pace with demand.
Well, the “eco-weenies”, as you so delicately put it, often support higher fuel taxes in order to raise the net sales price and to encourage lower consumption. It’s really the middle-class, both blue and red state, Democratic, Republican and in between, who are complaining about rising fuel prices, because they have tended to buy gas guzzlers, so rising fuel prices hurt them were it counts.
There seems to be a misunderstanding here. There a couple of basic reasons why the US has a problem with refinery capacity:
— Refineries were not a profitable business when oil was $10-15 per barrel, so nobody bothered building them in the US for quite some time. Now that oil is $70 per barrel, it’s once again a profitable business, but you can’t just build new refineries overnight, these are large projects that require money and time to construct.
–Every state sets its own refining standards, so US refineries produce fuel that cannot be sold everywhere across the country. For example, California has several refineries that produce fuel that cannot even be sold in California — that fuel gets shipped to other states, instead.
One way to get a bit of modest relief for fuel prices would be to simply develop a single standard for all fuel sold in the United States, so that refinery capacity could be redirected wherever it is most needed, and regional supply shortages could be minimized. Better yet, form an agreement with Canada, so that the supplies could freely cross the border under NAFTA without any regulatory issues to prevent it.
since the early seventies theres only been one permit requested to build a new refinery-why would they want to any way? it will lower the price of gas:) and for standardizing fuel blends -why did gas go up here in Minnesota during hurricane Katrina when our blend was different than the southern states, and our oil comes from Canada-a dirty blend thats hard to refine-we don’t ship it south -the oil company raised it because they new people assumed we share oil with southern states–we don’t-they point to the futures market and say see thats market value-yes but not for this area,it was unaffected by the hurricane and they don’t refine the sandy oil and we get up here.
forgot to add the refinery im speaking about was paying 4 dollars a barrel at the time
There aren’t enough refineries; and there is little spare capacity to utilize. The US has been a long-time importer of fuel for years; mainly because refiners are either unable to improve existing process plant or make new refineries.
Multiple comments embedded below.
@John: Supply is tight. The US DOE EIA shows that refiners are operating at about 91% utilization per their “US Weekly Supply Estimates” report. The pricing mechanism for gas is controlled primarily by the NYMEX RBOB contract. Price movement on the RBOB is reflected at the pump within 3 or 4 weeks; adjusted regionally for EPA- and State-regulated blends and local refinery capacity.
@hippo: Sure, the price of commodities when measured in EUR, CAD, JPY, or GBP is inflated, but not by that much as when counted in USD. The economic explanation is that the USD economies are facing huge inflation, reflected in the foreign exchange rates. Some economists say there is a lot of inflation baked-into the US economy already reflected in commodity prices; and I expect that those inflation pressures will show in the US economy over the next 18 months.
@stuntnun: No-one prohibits you from buying stock in oil companies and getting in on their profits thereby avoiding getting “scammed”. Though, one study I read shows that publicly-traded oil company operating profits over the past 40 years are below the average for all equities. Even the last 5 years: ExxonMobil at 9% has a lower average profit margin for the last 5 years when compared to other companies, like Microsoft (27%), McDonalds (11%), and Procter & Gamble (12%). No one seriously says that McD’s is gouging you for a BigMac, or P&G for a box of Tide. Also, the price of fuel in MN is only partly determined by local availability. Again, the pricing of the RBOB commodity contracts is the primary control of the price of gasoline in North America. MN’s supply of fuel is contiguous by way of reformulators and pipelines to North American supply; so any supply disruption over “there” will affect everyone in North American.
Once again Pch101 is right on the money. There are upwards of 300 formulations for gasoline in this country and it can change from one county to another. California is the biggest offender. Simple mandating that all the supply of gasoline meet ONE standard in this country would save us all the most money and way quicker than any other solution like building a refinery that can take anywhere from 5-10 years to complete.