Oil's down, gasoline isn't. What's up?

by Marita Noon

A little more than a year ago, oil prices were above $100 a barrel. The national average for gasoline was in the $3.50 range. In late spring, oil was $60ish and the national average for gas was around $2.70. The price of a barrel of oil has plunged to $40 and below--yet, prices at the pump are just slightly less than they were when oil was almost double what it is today. 

 

Oil and gasoline prices usually travel up or down in sync. But a few weeks ago the trend lines crossed and oil continued the sharp decline while gasoline has stayed steady--even increasing. 

 

Oil's down, gasoline isn't. Consumers are wondering: "What's up?"

 

Even Congress is grilling refiners over the disparity.

 

While, like most markets, the answer is complicated, there are some simple responses that even Congress should be able to understand. The short explanation is "refineries"--but there's more to that and some other components, too.

 

Within the U.S. exists approximately 20 percent of the world's refining capacity. Fuel News explains that "on a perfect day," these domestic facilities could process more than 18 million barrels of crude oil. But due, in large part, to an anti-fossil fuel attitude, it is virtually impossible to get a new refinery permitted in America. Most refineries today are old--the newest major one was completed in 1977. Most are at least 40 years old and some are more than 100. Despite signs of aging, refining capacity has continued to grow. Instead of producing at 70 percent capacity, as they were as little as a decade ago, most now run at 90 percent. They've become Rube Goldberg contraptions that have been modified, added on to, and upgraded. The system is strained.

 

To keep operating, these mature refineries need regular maintenance--usually done on the shoulders of the busy driving seasons and when systems need to be reconfigured for the different winter and summer blends. Even then, things break. Sometimes a quick repair can keep it up and running until the scheduled maintenance--known as "turnaround." Sometimes, not. Fixing the equipment failures on the aging facilities can take weeks.

 

This year, several unexpected maintenance issues happened in the spring. Other refineries worked overtime to make up the shortage. That, plus low crude prices, means that many refiners didn't shutdown for the usual spring turnaround. Fuel News notes, potential profit encouraged refiners to "get while the getting's good." 

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