<DrumBeat: July 9, 2008 The Oil Drum DrumBeat: July 10, 2008>

206 comments on Why isn't the price of gasoline even higher?

Comments can no longer be added to this story.

| Show without comments | PDF version

Robert Rapier on July 9, 2008 - 10:20am Permalink | Subthread | Comments top

Here is the key. When refinery utilization has some room to increase, and demand is soft, it is very difficult to maintain margins. There is always someone there to fill a supply gap if necessary. That is one big difference from a year ago that has kept margins soft. Inventories got very low last year, and there was no additional supply to keep them from falling to record low levels. Therefore, price rose to (then) record levels.

The other factor is that - at least the last time I checked - gasoline imports were much stronger this year than a year ago. That's what kept inventories from falling through the floor this year.

Comments can no longer be added to this story.
Gail the Actuary on July 9, 2008 - 11:09am Permalink | Subthread | Parent | Comments top

Glad to hear your comments. You are a lot closer to the situation than I am.

I think the stronger imports this year are related to the relatively low demand for gasoline from Europe etc. that I mentioned, at least partly because of the continued switch to diesel.

Clearly US refinery utilization has been coming down for several years, providing the extra refineries to compete to fill the supply gap.

Comments can no longer be added to this story.
Neil1947 on July 9, 2008 - 7:51pm Permalink | Subthread | Parent | Comments top

Gail,
The Chinese are buying up diesel to run stand-by generators because of power shortages.The recent earth-quake has made the very tight electricity availability even worse because of hydro dam damage. SE Asia, and possibly middle east refineries sell of surplus gasoline to Australia, and probably US and rest of world.
Until China can build enough nuclear and coal power plants to supply electricity diesel will remain at a premium. India's new refinery that is designed to use heavy crude may also ease diesel shortage when it comes on line later this year.
If US has to go to rationing, better to be on gasoline as many essential services will get the diesel first. Also increases in CAFE standards should mean more a reduction in gasoline use. Fast tracking real big improvements in CAFE( INCLUDING SUV'S AND LIGHT TRUCKS)could really hold down to some extent further gasoline price rises.

Comments can no longer be added to this story.
Gail the Actuary on July 9, 2008 - 10:09pm Permalink | Subthread | Parent | Comments top

I think you are right about the Chinese and diesel for backup generators. I think we are seeing more of that in other parts of the world.

I agree with you, too that rationing of diesel is likely to leave little for the regular driver.

I don't think CAFE standards are going to be all that important. They phase in too slowly. The economy will be in such poor shape by the time they become effective that there will be few new cars built. People are already sufficiently frighted by the high prices of gasoline that they are looking for higher milage cars, and I expect that to have a fairly big impact now and in the near future. The changed attitudes is likely to do more, quicker, than CAFE ever could.

Comments can no longer be added to this story.
ChrisN on July 10, 2008 - 9:42pm Permalink | Subthread | Parent | Comments top

Gail: That is basically my read of things too. Increased imports of finished gasoline to the US have depressed prices here and put the hurts on domestic refiners. As I understand it, you can generally get more gasoline than diesel out of a barrel of oil, and the US consumes 43% of the world's gasoline, so we're basically the beneficiary of the rest of the world trying to refine a sufficient amount of diesel to power themselves. I wrote two articles addressing this, and much credit to Robert for my education along the way:
High Gasoline Prices Are Here to Stay and The Big Picture on Q2 2008, Part 1

Comments can no longer be added to this story.
Gail the Actuary on July 10, 2008 - 10:32pm Permalink | Subthread | Parent | Comments top

I heard today that some of the US refineries have been trying to add cracking capability, so they have more flexibility in what they produce, but have had difficulty in getting the EPA to approve the changes. This leaves them tied with less flexibility.

Comments can no longer be added to this story.

206 comments on Why isn't the price of gasoline even higher?

Comments can no longer be added to this story.

| Show without comments | PDF version