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Wednesday, 17 January, 2018

What the Hell is With the Fuel Prices?

Date: 15 May, 2005

By: Chief

Imageo be quite blunt and short about it, the answer is — because they can. They being any person or company involved in the oil business.

Of late you either hear or read about the shortage of oil. Naturally by the Chicken Littles of the world. This is done to freak out the closet Chicken Littles, of which there are many, and as a consequence drive up prices at the local fillin' station. Now that works in the short term and the short term only.

But what about the long term? Is there actually a shortage of oil? From what I have read I would say — no. There is no shortage of oil, Chicken Littles notwithstanding. There is, however, a shortage of refining capacity.

Just before King George the Bush met with Saudi Crown Prince Abdullah, Dubya stated that he did not think "they're pumping flat out." Referring to Middle East — crude oil — production. Note that Dubya did not mention anything about refineries or refining capacity. But Crown Prince Abdullah sure as hell did. Abdullah made reference that there is:

Hmmmm. Me thinks that somebody speak with forked tongue. I am also willing to bet that Crown Prince Abdullah ain't the one with a fork in his tongue.

"I stand here to tell you that Saudi Arabian reserves are plentiful, and we stand ready to raise output as the market dictates," Saudi Arabian Oil Minister Ali Naimi stated (quote from the Trading Post).


It is a matter of public record that in the last decade or so the refining capacity of the United States has decreased. Prior to that the U.S. had a fairly large excess refinery capacity. You can Google and get that information. Suffice to say that reports from the Department of Energy (DOE), various legislative reports and independent petroleum sources all say the same thing — not enough refining capacity in the U.S. to meet the increased demand for fuels.

Well no kidding there, Sherlock. If you decrease the number of refineries yet the population increases and demand for POL products increases, the price will skyrocket. Just as it has done.

Indeed, since 1995 twenty-four or more refineries have been shut down. For instance, in 1996, in a document obtained by U.S. Senator Wyden, Texaco had this to say:

"As observed over the last few years and as projected well into the future, the most critical factor facing the refining industry on the West Coast is the surplus refining capacity, and the surplus gasoline production capacity. The same situation exists for the entire U.S. refining industry. Supply significantly exceeds demand year-round. This results in very poor refinery margins, and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline."

And in 1995, Chevron, in a document obtained by U.S. Senator Wyden, stated this:

"A senior energy analyst at the recent API (American Petroleum Institute) convention warned that if the U.S. petroleum industry doesn't reduce its refining capacity, it will never see any substantial increase in refining margins...However, refining utilization has been rising, sustaining high levels of operations, thereby keeping prices low."

If you would care to read Senator Wyden's report (as a pdf), you can do so here.

All told over 830,000 barrels per day of refining capacity has been shut down. The last new refinery was built sometime in the 1970's. Ah, that is over 30 years ago and the only thing that has occurred to refineries is shut downs since then.

Of course the major oil companies have been enjoying record profits — each and every year since the shutdown of refineries commenced. Less overhead and higher prices equals higher profit.

I have no objection to a company making money. None whatsoever. I do, without doubt, object to being held hostage at the gas pump.

The oil companies currently have us over a barrel. More accurately stated, the oil companies currently have us over the price tag of a barrel of refined fuel. And it does not hurt their feelings one little bit.

Basically, everything we do and everything we purchase revolves around fuel. With the current cost of fuel being stupidly high, everything else goes up as well. The down side to this is what we are experiencing. Airlines going into bankruptcy (though I must admit all airlines could disappear tomorrow and that would hurt my feelings, not at all), consumable prices heading for outer-space, food prices that are out of sight and getting higher with each passing week, etc.

Get odd on them

What can we, mere consumers of oil, do about this crap? Well, obviously, we cannot boycott the local fillin' station. All that would do is close down the fillin' station and they are, by and large, independently owned. We also cannot live without fuel. So, just what can we do about this? The answer, though not one I like at all, may wake up the oil companies.

We can demand from our legislative representatives:

Say 90% of each oil company's profit margin, for not meeting refinery capacity. This assessment would be reduced if and only if there was more capacity than demand.

As I already wrote, I do not like the idea of price controls and fee assessments. Not in the least. I am completely at a loss for anything else to do which would have the necessary effect of waking these oil companies up and getting them to increase their refinery capacity.

Oil companies, like any company, lives or dies on profit. If their profit is taken away said company has two options, either:

There is no shortage of crude oil, that is for sure. Neither is there a shortage of corporate greed and that is why there is a shortage of refined fuels.

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