By Brian L. Milne, Refined Fuels Editor for DTN
After some mixed pricing for wholesale gasoline prices earlier this month, the trend is again pointed higher, as a reduction in gasoline output by oil refineries works to tighten the supply-demand balance.
After reporting negative margins from late October through the end of December 2008, oil refineries, generally speaking, are finding modest price support for gasoline.
It’s certainly understandable that consumers might think something’s afoot as crude prices continue to slide amid a dismal outlook for the global economy, with a weak economy cutting into demand for crude oil, while gasoline is on the rise.
However, consumers should realize that oil refineries were not making a sizeable profit in converting crude oil into gasoline for most of 2008 and, for most of the fourth quarter 2008 were actually operating at a loss. In other words, a gallon of crude oil—unusable in your gas tank—cost more than a gallon of gasoline. It was inflation in the global crude oil market that pulled gasoline prices to their record high in 2008.
Consumers should also know that so far this year, government data shows that oil refineries have been producing more gasoline than demand, so they’re not trying to create a shortage in supply.
Instead, refiners are reducing their production levels down to demand levels. It is this business decision that is working to push wholesale gasoline prices higher, and, as a result, increasing “street” prices at your local gasoline outlet.
Some regions, such as the West Coast, will see a greater increase in gasoline prices then the rest of the nation because unexpected mechanical issues at oil refineries have limited gasoline output more than expected.
However, consumers should take heart that the Energy Information Administration, the statistical arm of the Department of Energy, expects regular grade gasoline to average below $2 gallon nationally this year, forecasting a $1.87 average for all of 2009.
About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.