Why are gas prices going up so much?
August 05, 2012Get ready (as if we can do that), the price of gasoline is up and going higher. The market in crude oil, the largest cost-component in a gallon of gasoline, is trending upward. But it is worse than that. Indications are the Obama environmental policies will cause several refineries to shut down because, among other reasons, they cannot sell gasoline for enough to cover their costs. Those increased costs are a direct result of EPA regulations. As we have previously reported the Inquisiter: reported in March: "As if national and international problems were not enough, increasingly stringent EPA regulations and governmental rules have made it hard for some refineries to operate efficiently while still turning a profit."
"When combined with rising summer gas demand the closure of refineries is expected to push the cost of gas over the $5 per gallon mark by the time the summer months arrive."
The left-leaning The Hill reports part of the story. But as you read The Hill realize that the one that follows reveals how wrong this Elite Media Obama Spin Machine is. But here's how they explain the recent rise in gas prices:
Gas prices have surged in recent weeks and analysts predict they'll keep rising, creating fresh openings for GOP attacks against President Obama that had waned when prices dropped sharply. Click here to read the rest of that story.
The nationwide average for regular gasoline is $3.60-per-gallon, a 24-cent rise over the past four weeks, according to AAA.
Prices are well below the peak of nearly $4 in early April, a run-up that fueled constant GOP criticism of White House energy policies and threw Obama on the defensive. The frequency of political clashes over gas prices have tapered off since prices tumbled.
But several analysts told The Hill that costs at the pump are likely to continue their recent rise through August.
Friday brought fresh evidence that pump prices are likely primed for more increases in coming weeks.
U.S. oil futures prices, buoyed in part by the Labor Department report of 163,000 jobs created in July, jumped by over $4-per-barrel to settle at $91.40 in New York trading. Prices for European Brent crude, which some U.S. refiners use, also rose sharply Friday.
A continued rise in oil prices, which had fallen below $78-per-barrel for U.S. crude in June, would fuel what analysts say is already going to be some pump price increases on tap.
"I am expecting that over the next couple of weeks, gasoline prices are going to continue to drift up another 10 cents a gallon," said Andrew Lipow, president of Lipow Oil Associates. He predicts a peak in the range of $3.70 to $3.80.
Tom Kloza, the chief analyst at the Oil Price Information Service, sees prices in the $3.60-$3.75 range this month before easing back after Labor Day.
Several analysts predicted that prices will recede again in September as the driving season tails off and refiners are able to move away from more expensive summer blends, among other factors.
But that still leaves weeks for Republicans to try and lay rising pump prices at the feet of Obama and Democrats, even though experts say that federal policymakers have little effect either way on prices that are tethered to global oil markets.
Kirsten Kukowski, a spokeswoman for the Republican National Committee, said pump prices will be part of their political messaging, alongside other staples like jobs data. "We are going to be talking about every economic factor," she said.
The National Republican Senatorial Committee, meanwhile, vows to hit vulnerable Senate Democrats – such as Claire McCaskill (Mo.) – and Obama over the prices.
"The NRSC fully intends to highlight the disastrous effects President Obama's EPA has had on our nation's energy prices including their rejection of the Keystone Pipeline," said spokesman Lance Trover.
Now, here's really the "rest of the story." It was reported back in March by Bloomberg Businessweek. In 1902, Sun Oil, later Sunoco (SUN), opened a refinery in Marcus Hook, Pa., just south of Philadelphia. For its first few decades the facility refined Texas crude into gasoline. Eventually, it imported its crude from West Africa and other foreign sources. Marcus Hook, along with a second Sunoco plant and one nearby owned by ConocoPhillips (COP), came to account for half the gasoline, jet fuel, and diesel produced on the East Coast.
These Philadelphia refineries could play a crucial role in determining the price many U.S. motorists pay for gasoline this summer—not because they will be refining oil into gas but because they probably won't. All three are for sale, unprofitable, and outdated. Marcus Hook closed in December. ConocoPhillips's refinery went idle in September. If Sunoco can't find a buyer for its South Philadelphia refinery by July, it'll close that one, too. "Sunoco's Northeast refining business has lost nearly $1 billion over the last three years," says company spokesman Thomas Golembeski. In February, Hovensa, a joint venture between Hess (HES) and Petróleos de Venzuela, closed its St. Croix refinery, which alone processed some 350,000 barrels of oil a day, most of it for the East Coast.
Unlike their counterparts in the Midwest and on the Gulf Coast, most East Coast operations are built to refine only light, sweet oil such as Brent crude. Since this oil is largely imported from such countries as Nigeria, its price is heavily affected by global events. The Arab Spring and threats of Iranian oil disruption have driven the price of Brent from $94 a barrel to over $120 in the last year, costing the East Coast refineries dearly. Demand for gasoline in the U.S., meanwhile, is close to a 15-year low, so refineries have been unable to pass on all their costs to customers. True, gasoline prices have been climbing—gas in New York State will probably hit $4 a gallon soon—but not enough to keep these refineries profitable. "The golden age of East Coast refineries is over," says Fadel Gheit, an analyst with Oppenheimer.
With the Philadelphia refineries probably gone for good, longer supply chains will add 5˘ to 10˘ to the price of a gallon of gas on the East Coast this summer, says John Parry, an analyst with energy research firm IHS Herold (IHS). According to a Feb. 27 report by the U.S. Energy Information Administration, drivers in the Northeast will be hit the hardest. Gas would have to be trucked and trained in to make up for lost supply, says the EIA report: "Prices will need to increase" to cover the extra cost.
While refineries on the East Coast are dying, those in the Midwest and on the Gulf Coast are booming. Those refineries rely on another class of oil, West Texas Intermediate, a crude produced mostly in the middle of North America. That means the price of WTI is largely immune to the influence of international politics. The various blends of oil that fall beneath the WTI pricing umbrella are often heavier and more sour (higher in sulfur) than Brent, requiring different processing equipment, which the Midwest and Gulf Coast refineries have.
For the better part of the last 20 years, Brent and WTI have traded within $2 of each other, so there was little difference in the raw material costs between refineries across the country. That changed around 2010 when the price of WTI began falling due to the huge volume of new crude flowing from Texas, Canada, and North Dakota. By October 2011, WTI was trading around $75 a barrel, while Brent was at $100.
Refineries on the East Coast have limited access to WTI crude: Only one pipeline, the overtaxed 5,500-mile Colonial, connects the Northeast to Midwestern supplies. Plus, most Eastern refineries didn't spend the money to handle the cheaper sour crude coming from South America and the Canadian tar sands. "The East Coast never made that investment to process the sour stuff, and now they're paying the price," says Mike Leger, president of refinery consulting firm Turner Mason. HollyFrontier (HFC), meanwhile, which runs six refineries in Texas, Oklahoma, Kansas, Utah, and Wyoming, made $1 billion in profits in 2011.
Plans are now afoot to pipe an oversupply of crude in Oklahoma to the Gulf Coast, where it would be refined. That gas ultimately could make it to the Northeast. "This industry is going to quickly adjust in a year or two," says Ben Brockwell, a director at research firm Oil Price Information Service.
The bottom line: After losing millions, a number of refineries on the East Coast are likely to shut down, leaving drivers exposed to even higher gas prices. Click here to go to the original source.
Finally, as the economy improves and people have more money to spend the demand for gasoline will increase, pushing prices even higher than they have been in a depressed economy.
Commentary--Why in the world would the Obama Administration be following polices that increase the cost of refining gasoline and reducing the supply? This is so crazy that one has to wonder if the intent is not to cripple the American economy. As this is being written there are 92 days remaining before November 6, 2012.