Tuesday, August 18, 2015

If Oil Is at Record Lows, Why Are Gas Prices Rising?

Stephanie Yang explains:
Despite the supply glut that has sent oil prices tumbling, prices at the pump are on the rise.

Crude oil fell about 1 percent on Monday, trading near six-year lows. However, the national gasoline price average has increased to $2.67 from $2.59 one week ago, according to AAA's Fuel Gauge Report.

Andy Lipow of Lipow Oil Associates said the rise in gas prices is driven by California and the greater Chicago area, where major oil refineries are having trouble processing crude oil into gasoline for the consumer.

BP recently shut down its largest crude-oil processing unit in the Midwest after heavy damage from a malfunction. Lipow said California gas prices are still feeling the blows from an explosion in February at an Exxon Mobil refinery in the Los Angeles area...

Meanwhile, the rest of the industry is unable to resupply the deficiency, because oil pipelines into the Midwest are already operating at maximum capacity, he said.

And, btw, oil prices are at record lows because of the lack of refineries to convert the supply that is being produced.



  1. I know California has banned any new off-shore platforms since the 70's. I think new refineries are also on that list.

  2. I believe that no oil refineries have been built in the US since the 1970s. But that's not the issue here. Nor are pipelines. After Katrina, gas prices ballooned in Atlanta, far away form the storm and the damage to the refineries on the Gulf Coast. The problem is that governments all over the country have made edicts about the formulation of gasoline in their areas. There are dozens of different formulations, all required by bureaucratic fiat. What's more, it can takes weeks to change a refinery over to making a different kind of gasoline.

    So if the refinery which is making gas for your area breaks down, there is no one who can replace it. As I recall, the refinery which served Atlanta was in Louisiana. Other refineries are forbidden coming to the rescue unless they provide the proper formulation. And they can't respond quickly.