Strong global demand rather than a shortage of supply stateside is the driving factor behind the high costs of gasoline, says Matthew Roberts,
The popular notion that constrained refining capacity is the cause of high fuel prices is misplaced.
“We can easily look at the futures market and get a good idea of the money being made by refiners. What we have seen over the last five years hasn’t been a significant shift in refining margins. If we truly had a shortage of refining capacity and it was having an effect on our energy prices, then refineries would be making lots of money. We’d see the difference between the cost of the input and the cost of the output increasing,” said Roberts. “Instead, with a few exceptions, we’ve seen that refining margin holding steady or declining. Refining margins are at their lowest point in five years, so there actually appears to be a refining capacity surplus in the market. "
Roberts contends that global demand for energy driven by strong economic growth is the fundamental issue driving the energy market.
“Part of the energy demand is coming from
In addition, global economic growth is on track to be over 4 percent this year. Strong economic growth translates into strong oil demand.
Add in the supply fears generated from such issues as instability in the Middle East and
So what does this mean for American consumers? Right now, not much, but things could change this summer.
“Until we get to $3 a gallon on gasoline, American consumers don’t really seem to care about the price,” said Roberts. “But this summer certain regions of the country may see $3 a gallon of gas or higher. The issue will have less to do with whether or not there’s enough gasoline, but whether or not there is enough fuel of the right specification at the right place at the right time. There are a lot of worries this scenario might happen.”
One scenario that might cause those higher prices is government regulations that require dramatic reductions in sulfur content in gasoline and diesel starting this summer.
“Right now, ultra-low sulfur fuels represent less than 1 percent of all the fuel being produced. This number needs to rise to 70 percent or 80 percent by this summer,” said Roberts. “Refineries will have to be taken off-line to make the adjustments so they can meet those targets. When you are not producing fuel and living off the inventories we have, that’s going to cause prices to rise.”
Also, refineries across the
Farmers or other small business owners who store fuel on-site should take note, said Roberts.
“The take away point of this whole situation is that for those who have fuel storage, I would be filling it to the max right now,” said Roberts. “It would probably be wise to fill fuel storage for use through June, and if you have any additional capacity, to fill up all tanks at this point.”
“We are entering into the refinery maintenance season, where the units are taken off-line to be repaired, modified, or upgraded. Some refineries went off-line March 2,” said Roberts. “More refineries will continue to go off-line, and as that happens, we’ll see the price of gas continue to increase.”