Gas Pains this summer

Discussion in 'General Industry Discussions' started by Russ, Mar 26, 2006.

  1. Russ

    Russ LawnSite Senior Member
    Posts: 539

    This is a long one but worth reading.
    It's from Steve Leer of Purdue University.


    Gas pains: Global demand driving fuel prices higher

    Strong global demand rather than a shortage of supply stateside is the
    driving force behind the high cost of gasoline, said an Ohio State
    University Extension economist.
    The popular notion that constrained refining capacity is causing high
    fuel prices is misplaced, said economist Matthew Roberts.
    "We can easily look at the futures market and get a good idea of the
    money being made by refiners," Roberts said. "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.
    "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, fueled by strong
    economic growth, is the principle force pushing the energy market.
    "Part of the energy demand is coming from China, which is using the
    energy not for driving cars, but for microgeneration of electricity,"
    Roberts said. "Here in the states, Americans' consumption habits of fuel
    have not changed dramatically in response to higher fuel prices. And so this
    country's gasoline demands are increasing. Additionally, global economic
    growth is on track to be over 4 percent, which is very strong economic
    growth. Strong economic growth means strong oil demand."
    Add to demand the supply fears generated from instability in the Middle
    East and Iran's nuclear aspirations, and global oil flow becomes tighter.
    So what does it all 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," Roberts said. "But this summer certain
    regions of the country may see $3 a gallon for 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 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," Roberts said. "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 United States are phasing out fuel additive
    MTBE (methyl tertiary butyl either) and replacing it with ethanol. Analysts
    speculate this phase-out, which California is expected to complete this
    year, will stretch the country's gas supply.
    Farmers and other small business owners who store fuel on-site should
    take note, Roberts said.
    "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," Roberts said. "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."
    U.S. consumers already are seeing a taste of what might come in a few
    short months. According to the Department of Energy, average retail gas
    prices have risen nearly 8 cents from the previous two weeks, and Roberts
    said prices are likely to continue to climb well into April.
    "We are entering the refinery maintenance season, where the units are
    taken off-line to be repaired, modified, or upgraded. Some refineries went
    off-line March 2," Roberts said. "More refineries will continue to go
    off-line, and as that happens, we'll see the price of gas continue to
    increase."
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  2. JTF40

    JTF40 LawnSite Senior Member
    Posts: 875

    As long as this country (generally speaking) loves/idolizes their automobiles more than their family/character, the fuel prices can reach $5.00 gal. and we will keep on driving - without question. :usflag:
     
  3. Richard Martin

    Richard Martin LawnSite Fanatic
    Posts: 14,700

    Hmm... Sounds like a conspiracy to me. Instead of all of the refiners doing their maintenance and upgrades all at the same time and creating an artifical shortage why don't they stagger them and keep the supply up.
     
  4. topsites

    topsites LawnSite Fanatic
    Posts: 21,654

    You might, but most won't. Sadly enough, 2.50 - 2.75 doesn't phase anyone but...

    I see a sharp decline in traffic once fuel hits 3.50+ a gallon the roads are deserted, but that is the only time I see anyone behaving.
    So while one side complains about the high price, you are correct when you say the other side doesn't care.

    As far as the reasons for the high fuel prices... I think they had to come up with another story because people wouldn't buy the 'insufficient refinery capacity' story again when they've had a whole year to build more refineries. Ok, so yeah, that's right, we built more refineries hehehe but ... but wait ... yeah, the supply / demand issue coupled with new energy standards sounds good, don't it? Give it to the University lol, thou honestly I don't think it really matters what the reason, all you have to do is look around and it's quite obvious. High fuel prices but a literal LINE of cars waiting at the petrol station, would anyone have the courtesy of turning the motor off while waiting? Of course not, we love to idle the car so let's use the drive-through to get some food next LOFL !!!

    I really think they'll pump it until we run out, at least some will and others will, too.
    At the same rate the price will rise until we can't afford it no more, would $500 / gallon make us behave?
     

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