Oil Watchdog

9-11-08 by dugan

When a government thinks "regulation" is a dirty word, here’s what happens: The price of crude oil fell today to about $100 a barrel ($2.38 a gallon), yet gasoline spiked to a wholesale
price of nearly $5.00 a gallon around the Gulf Coast as Hurricane
Ike approached. But the hurricane is only half the story. U.S. supplies
of gasoline are near historic lows–just over a 20-day supply,
according to the latest federal data.
That magnifies any refinery disruption and zaps gasoline prices. A
government that won’t treat its fuel supply as a national security
issue just lets it happen.

Obvously, when oil prices keep falling despite OPEC reductions and
another hurricane, there’s plenty of oil. But if that oil isn’t being
refined into gasoline, all the oil in the world, no matter where it’s
drilled, won’t keep fuel prices down. So why allow more drilling if
America’s huge oil companies still control how much of it gets
refined? If Congress is going to lift coastal drilling bans, it has to demand
that the oil companies also make more gasoline, keeping average
supplies closer to 30 days.

I hope the people who bought that $4.50 and up wholesale
gasoline (as reported by the Oil Price Information Service)  get
burned, and that gasoline at the pump stays below $4.00. But we can’t
count on it, as OilWatchdog’s 2007 report on refinery price gouging shows. And the oil price report notes that major refiner Valero has already raised retail gasoline prices in some spots by 50 cents a gallon.

Refineries
have not operated at close to their peak capacity this year because
they’re trying to keep the price of gasoline up, even as drivers use
less of it. It’s been 15 years since the U.S. supply of gasoline on
hand averaged an ample 30 days, which insulated prices from huge ups
and downs.

Here’s the historical chart of U.S. gasoline supply, from the Energy Information Administration:

One interesting tidbit from the chart: at the right sideof the graph,
supplies spiked upward more than usual at the beginning of 2008, in
part because drivers were already cutting back on their driving but
that national trend hadn’t sunk in yet. So for a while gasoline
price increases didn’t fully match the jump in the price of oil. Now,
supplies are even lower than they were after Hurricane Katrina in 2005,
and the price of gasoline has not gone down nearly as much as the price
of oil. And as of today, even before the "Ike Spike," it was starting back upward, according to AAA.