There’s a lot of finger pointing going on with regards to the glut of oil and gasoline prices rising. Yes, gasoline is directly tied to oil prices. According to the EIA, 19 gallons of gasoline are produced out of every 42 gallon barrel of oil.
Gasoline prices have been trading in sync with oil for most of 2014. Only recently has this trend broken with gasoline prices diverting itself from oil’s downward price path. Since mid January gasoline prices have gained over 40 cents per gallon. Both markets are exhibiting extreme volatility as gasoline prices traded inside a 12 cent range during yesterdays’ (Wednesday) trading session. Gasoline prices closed at $1.91 per gallon which was a few cents from the day’s high further widening the price differential between crude oil and gasoline. US gasoline averaged $2.12/gallon in January which was the lowest price since April 2009.
Gasoline prices are increasing…Who or What is to Blame?
Is it the oil companies fault that they are experiencing refinery accidents forcing additional plants to slow down gasoline production? A lot of people are speculating that these accidents occur every time gasoline prices drop below $3 per gallon in California and closer to $2 per gallon across the nation as an excuse to charge higher prices.
Perhaps it is the end of the winter schedule when the refineries close for maintenance and to reformulate the gasoline in preparation for the hotter summer months ahead. Reformulation usually adds an extra 20 cents per gallon for most states. California is an exception as they have an extremely stringent pollution policy which costs about 40 cents more per gallon.
Perhaps it’s due to the largest United Steel Workers Union’ strike in 30 years. Workers are striking at various oil refineries across the nation including Motiva Enterprises which is the nation’s largest oil refinery in Texas that carries a crude capacity of 600,000 barrels a day. These refineries account for 20% of the national production. The negotiations are being held up over whether to replace contractors hired for specialized jobs with union members.
Perhaps it’s the cold weather freezing the transportation corridors on our nation’s rivers and lakes. Many of these passageways are frozen solid. Refineries depend on lubrication oils to operate their machines. 90% of the Great Lakes are frozen over and are blocking most traffic and supplies needed by these refineries to continue processing oil into gasoline.
Or maybe the fault lies with terror groups like ISIS who make it their mantra to surprise and shock others with their destructive and frightening acts of violence.
I question what (if any) catalyst will send gasoline prices back up? The month of March may just possibly be one of the more volatile months for gasoline and oil prices. Both commodities have spent the last several weeks consolidating and waiting for fresh news to either continue the upwards trend or to reverse the trend downwards.
Many industry experts are reporting record levels of gasoline supplies and they speculate that prices will level off closer to $2.50 per gallon nationwide. There is unfortunately all the above mentioned threats that are pricing in supply uncertainty and volatility into the gasoline market. Outside of all these reasons for the increase in gasoline prices are the dependable cost break down for each gallon of gasoline. The main costs to produce gasoline are:
- The cost of crude oil (54%)
- Refining costs and profits (6%)
- Distribution and marketing costs and profits (20%)
- Taxes (20%)
- Wars, disputes, supply disruptions, poor weather, strikes, refinery shutdowns, greedy bastards from the oil companies who just want us to pay more, you can add your opinion to this last item 😯 None of these unpredictable factors and events are priced into a normal market….when was the last time you remember having a normal gasoline market?