rockin'robin

The U.S. has lost nearly 5 percent of its refining capacity in the past three months, as a handful of old refineries have shut down


The average price of gas is up more than 10 percent since the start of the year, a point repeatedly made during Wednesday’s Republican Presidential debate. Predictably, the four GOP candidates blamed President Barack Obama for the steep increase.

Actually, the President doesn’t have that kind of pricing power. The more likely reason behind the price increase, though certainly less compelling as a political argument, is the recent spate of refinery closures in the U.S. Over the past year, refineries have faced a classic margin squeeze. Prices for Brent crude have gone up, but demand for gasoline in the U.S. is at a 15-year low. That means refineries haven’t been able to pass on the higher prices to their customers.

As a result, companies have chosen to shut down a handful of large refineries rather than continue to lose money on them. Since December, the U.S. has lost about 4 percent of its refining capacity, says Fadel Gheit, a senior oil and gas analyst for Oppenheimer. That month, two large refineries outside Philadelphia shut down: Sunoco’s plant in Marcus Hook, Pa., and a ConocoPhillips plant in nearby Trainer, Pa. Together they accounted for about 20 percent of all gasoline produced in the Northeast.

[Also see: The over-40 mpg club: Overachievers that beat EPA fuel economy ratings]

This week, Hovensa finished shutting down its refinery in St. Croix. The plant processed 350,000 barrels of crude a day, and yet lost about $1.3 billion over the past three years, or roughly $1 million a day. The St. Croix plant got hit with a double whammy of pricing pressure. Not only did it face higher prices for Brent crude, but it also lacked access to cheap natural gas, a crucial raw material for refineries. Without the advantage of low natural gas prices, which are down 50 percent since June 2011, it’s likely that more refineries would have had to shut down.

The U.S. refining industry is being split in two. On one hand are the older refineries, mostly on the East and Gulf Coasts, that are set up to handle only the higher quality Brent “sweet” crude—the stuff that comes from the Middle East and the North Sea. Brent is easier to refine, though it’s gotten considerably more expensive recently. (Certainly another reason for higher gas prices.)

Then there are the plants able to refine the heavier, dirtier West Texas Intermediate (WTI)—the stuff that comes from Canadian tar sands, the deep water of the Gulf of Mexico, and the newer outposts in North Dakota, which just passed Ecuador in oil production. These refineries tend to be clustered in the Midwest—places such as Oklahoma, Kansas, and outside Chicago. While the price of Brent crude has closed at over $120 a barrel in recent days, WTI is trading at closer to $106. That simple differential is the reason older refineries that can handle only Brent are hemorrhaging cash and shutting down, while refineries that can handle WTI are flourishing.

[Also see: 10 Places Where a Gallon of Gas Is More Expensive Than in the U.S.]

“The U.S. refining industry is undergoing a huge, regional transformation,” says Ben Brockwell, a director at Oil Price Information Services. “If you look at refinery utilization rates in the Midwest and Great Lakes areas, they’re running at close to 95 percent capacity, and on the East Coast it’s more like 60 percent,” he says.

This is primarily why the cheapest gas prices in the country are found in such states as Colorado, Utah, Montana, and New Mexico, while New York, Connecticut, and Washington, D.C., have some of the highest prices.

Angry About High Gas Prices? Blame Shuttered Oil Refineries - Yahoo! Finance

Deafness

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TWA

Demand for gas is at a 15 year low? and yet the price of gas is MUCH higher than it was 15 years ago. Anyone else see what the problem is here? Ridiculous. Even when we do what basic economics should dictate: decreasing our use in gas to put relief on the supply line (i.e. low demand should = lower prices) Oil companies have us by the balls. Bullshit price fixing.

TXgolfer

Welcome to the global economy. It's a shame the refineries can't find a cheaper source for crude.

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TWA

In many cases, the refineries are also the suppliers, but not always. Still, oil drilling and refining has only increased in the last 15 years. And yet demand is even lower? I have not heard of there being any problems in the supply of oil in the last 15 years, aside from a little hiccup known as the Iraq war, which was quickly settled as far as its impact on oil production goes.

TXgolfer

With gas supply problems can happen at 2 levels. Sometimes it is crude.....sometimes it is refining capacity. Twice a year we go through supply problems with gas just due to switching between winter and summer blends.

Besides some would argue that oil prices in the control of foreign nations is a supply problem all by itself.

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Foxrac

Beside of demand and supply, especially issue with refineries, I think that tension with Iran has contribute on gas price. Iran loves to play others about how strong is their country.

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DeafCaroline

Rising Demand for Oil Spells More Price Pain - WSJ.com

CrazyPaul

That's one of the reasons why President Obama and ex-President Bush talked about HYBRID, HYBRID and HYBRID to avoid depending on gas too much. In the future, we will have alot of new hybrid vehicles than before. Just wait and see. Time changes, thus things change. That's part of our life.

deafdrummer

(picks up spoon and taps on crystal goblet several times) May I have your attention please? (takes off black glasses with tape at the bridge)

I did a "back of the envelope" comparison of unleaded gasoline and gold every few years from 2000 to 2011 from two sources to do a quick and dirty calculation, as I have to get to bed pretty soon. I knew that I would be the first to reply with this answer. Why gold and gas or gold and oil for that matter? It is a known fact that oil and gold are relatively stable to each other, but for our purpose, the price of gas affects us more directly. Consider the following;

I pulled data from two sources - Historical Gold Charts and Data - London Fix and http://www.randomuseless.info/gasprice/usa.txt The data on the gas price comes from USA cities average. I'm laying it out like this:

Year; Price; Price of gold; How many gallons 1 ounce of gold would buy

2000 1.50-1.75 275 157

2003 1.66-1.91 350 210

2006 2.45-3.21 600 183

2009 2.03-2.91 970 333

2011 3.34-4.19 1500 357

Note that this means that gold was at a bottom of 157 gallons per ounce of gold in 2000 and went up to 210 gallons in 2003, but never saw 157 gallons again. I'm using the higher gas price to divide into the price of gold to get the number of gallons per ounce. So in REAL terms, in REAL money, gasoline is the cheapest it's ever been in the new century, buying you 357 gallons with one ounce of gold, in spite of the fact that gasoline is already on its way up and we're nowhere out of winter. Gold is over $1770 as we speak, and is projected to rise even higher in the next few months. Your dollar IS the problem.

Any questions, post 'em!

Beowulf

I've known for years that gold prices are rigged. Here is one site that partially explains: The Gold Cartel at Work

Something's got to give before long, if you know what I mean.

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TXgolfer

Wait, but you invest in gold, right?

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Beowulf

Just in futures. I do not buy physical gold.

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TXgolfer

Ok....But still, if it's rigged.

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DeafCaroline

oohhh...

Beowulf

Yeah. It's a good time to go long on gold for two months, then go short. Billionaires will be made, hah.

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deafdrummer

Bwahahaha! Oh, I know what you mean!! Imagine what happens if the gold cartel get taken down a notch with CFTC's ruling on swaps and position limits, and the other gold exchanges start pulling away demand with the guarantee of physical metal backing the shares!

James Turk is the man... He believes that gold/silver will be much higher by the end of March, especially if Greece defaults before the 20th. I'm more of the opinion that silver will trade $30-50 until the end of the year and finally get above that range around April 2013, and not before then. After that, it might trade up to $85-95 before crashing again down to about $45-50 roughly a year later. It's also known that the shorts in the gold/silver market go from peak to peak about 2-3 years apart, making money in both pricing directions like an ocean wave generator. As I said, it remains to be seen what happens when CFTC finally starts enforcing position limits. Read my post here to remember what I was talking about - THose of You That Love Obama - we'll see.

Also look at Santa (Jim Sinclair).

deafdrummer

Only really good day traders would be able to stomach the roller coaster it presents. Have you tried silver?

Not for me because I don't have the money for it.

Beowulf

Yep. I am always buying Eagles. It costs 37 to buy one now but just wait, prices will skyrocket.

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deafdrummer

Actually, you're not "investing" in gold, but merely choosing to save in the form of gold rather than an interest-bearing account at a bank. Gold/silver are not investments, but a form of savings to protect against inflation. Name me ONE paper financial instrument investment that the average wage earner who earns less than $25,000 a year can afford, that will give a return of about 500-800% over a 5-year period at this time.

TXgolfer

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Do not be overcome by evil, but overcome evil with good. - Romans 12:21


Sometimes at night, I see their faces. I feel the traces they've left on my soul

Foxrac

Hey Iran, feel free to play with us and you will know about serious consequences.

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DeafCaroline

Iran is not even threatening the US and you're saying bomb them?

Beowulf

I was going to say the same thing but there's no quote button on his post. Tsk, I wish they would knock off all this mindless war mongering.

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Foxrac

It was from billboard in Utah and it wasn't my idea, I think it is just best optional, in case when Iran threaten us, Israel or other Muslim countries.

Check this video but no CC, it is just designer who explain about billboard.
Video - Breaking News Videos from CNN.com

Iran said that they will response to attack anywhere, even if we are not physically threaten them.

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TXgolfer

Preemptive measure

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Beowulf

I know I am not the only one who sees the pure evil in that.

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Jiro

for....?

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TXgolfer

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Do not be overcome by evil, but overcome evil with good. - Romans 12:21


Sometimes at night, I see their faces. I feel the traces they've left on my soul

Jiro

preemptive strike means that we take strategic military action before enemy can take action against us.

so to say that we should launch a preemptive strike means Iran was planning to attack us. do you believe that Iran was going to strike us?

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Foxrac

I found about what txgolfer was talking.
Iran threatens preemptive action - CNN

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