With the recent spike in gasoline prices bringing that commodity to the forefront of the news again, you might wonder why gasoline is priced so different in different parts of the country.
Why are prices always higher in California and Chicago, and lower in other places? Certainly taxes has something to do with it, since some states like New York tax at a higher rate than, say, New Jersey.
But there is much more to it than that.
Most people think that there are three to six different grades of gasoline. Actually, the reality is that across America, at least 55 different blends of gasoline are sold. I say “at least” because I have researched this and found that no one knows exactly how many blends are sold — some say it could be as many as 70.
Why does no one know for sure?
The reason is simple. The federal government has left it up to the states to decide or mandate the cleanliness of the gasoline that each state, or in some cases local municipality, will sell. By “cleanliness,” I mean how cleanly the gas burns — how much burning the gas will affect the atmosphere. In the simplest terms, this has to do with the chemicals added to the gasoline. Adding ethanol to gas is one way to affect the cleanliness. I say 55 to 70 blends because some of the legislation is working its way through the system as I write this.
What does all this mean?
Well, different make-ups mean that the gas that is allowed to be sold in New York is different than the gas that is allowed in New Jersey. The City of Chicago has its own gas. St. Louis has a certain kind of gas, East St. Louis across the Mississippi has a different kind, and the suburbs around both places have another. As you can imagine, this is a nightmare for refiners and the gasoline distributors, and most certainly adds to the cost to produce it. That’s just simple economics — it is cheaper to produce one uniform good than it is to produce many versions of it.
It also causes shortage problems like those we are currently seeing on the west coast. Yes, California and the rest of the world have seen many refinery problems and a few closures, especially on the east coast and in the Caribbean. And of course, the large refinery explosion that recently happened in Venezuela did not help. That said, there are other refiners around California that could help make up the shortage, but they are not allowed to, because the gas they produce is not allowed to be sold in that state.
I believe this is one area in which the Feds need to step in and make some changes. The federal government needs to mandate that the gas allowable for sale around the country is more uniform in its make-up. They should eliminate most, if not all, of the different blends. I have talked to cash gas traders and people on the refining level, and they all are in agreement that these changes are long overdue. They say that the logistics of making and distributing all the different blends is becoming impossible We all want clean air, and I believe that even if the cleanest form were mandated, it would still ease prices around the country by reducing the number of blends that refiners would have to make. At the least, this topic certainly deserves more attention from the Department of Energy.
– Anthony Grisanti is founder and president at GRZ Energy, a commodities trading and execution firm specializing in energy.
Many people dismiss the risks associated with oil depletion and climate change--even many who accept the two issues as problems. They judge those risks to be small or at least manageable. Since no one can know the future, we cannot be sure whether they are right or wrong. But even if they are right, should we be so sanguine? As we examine this question, keep in mind that we are talking about probabilities and the level of risk, not absolute knowledge which none of us can have about the future.
One reason that so many people discount the risks of oil depletion and climate change is that their experience tells them to do so. We've had high oil prices and tight oil supplies before, and always new supplies and declining prices followed. For many we are just in another market cycle, and there's nothing to be worried about. And, when it comes to climate change, well, we've had hot summers before and even if the climate is warming a bit, we'll adapt. ( Continue… )
One by one, the temporary props that have kept California gasoline prices artificially high are getting knocked out. But how quickly gas prices stop rising and fall back to more normal levels remains an open question.
On Friday, ExxonMobil's 149,000-barrel-per-day refinery in Torrance, Calif., resumed normal operations after a power outage shut it down earlier in the week. On Sunday, Gov. Jerry Brown ordered that the California Air Resources Board (CARB) to immediately let oil refineries produce winter-blend gasoline. In most areas of the state, that switch isn't allowed until Nov. 1.
So the surge in California gas prices should begin to ease after eye-popping increases have angered motorists and caused some gas stations to close. On Sunday, the statewide average hit a record $4.66 per gallon, according to the AAA's Daily Fuel Gauge Report, a rise of more than 50 cents per gallon in a little over a week. California officials hope gas prices will start heading down in days rather than weeks.
"If this situation continues, it may cause unacceptable price impacts for consumers and small businesses, significant economic disruption, and serious harm to public safety and welfare," California Gov. Jerry Brown wrote in his letter Sunday ordering the immediate switch to winter-blend gasoline. "Allowing refiners to make an early transition to winter-blend gasoline could quickly increase fuel supply."
The governor's move should help, but the speed of the change depends on a number of factors.
One of the quirks of California's oil market is that there are few pipelines that can bring gasoline in from other parts of the United States, writes James D. Hamilton, an economics professor and energy expert at the University of California, San Diego, in his blog. Indeed, one of the factors that has exacerbated the current shortage is the continued shutdown of the Kettleman-Los Medanos pipeline, which transport crude oil from the Bakersfield area to refineries in northern California. It was closed after elevated levels of organic chloride was found in the oil it was carrying.
Another key issue is refinery capacity. The reopening of ExxonMobil's refinery will help ease the shortage, but the state's gasoline supplies have been tight ever since an August fire at the much larger Chevron refinery in Richmond, Calif., one of the biggest refineries in the state. Two months later, the refinery is still operating at reduced capacity.
Another unknown is how much winter-blend gasoline refineries have produced in anticipation of the switch from summer-blend gas.
If the drop in gas prices happens slowly, it may do little to assuage the anger of Californians, who are now paying the highest gas prices in the nation.
While the price hikes are caused by temporary supply problems, they could continue for a few more days, experts suggest. Already, some gas stations are charging more than $5 per gallon and others are closing for lack of fuel.
The economics just aren't worth it. As Patrick DeHaan of GasPriceBuddy.com pointed out Thursday, an 8,000-gallon buy of gasoline that cost $25,840 a week ago, now cost $33,840 (before taxes). Those that do stay open have to keep jacking up the price to cover their costs.
While the national average is at a seasonal record – $3.79 a gallon – Californians on Friday were paying $4.49, according to The AAA Daily Fuel Gauge report.
The high gas prices are caused by a series of problems: a refinery fire, a pipeline shutdown, and a scheduled switchover from a special summer blend to regular blend of gasoline at the end of the month.
The price surge shouldn't last too much longer. Wholesale prices are heading down already. Within a few days, retail prices should start falling as well, but not before gas prices challenge the state record $4.61 set in 2008.
"There's light at the end of the tunnel," writes Mr. DeHaan of GasBuddy.com, a group of local websites that track gasoline prices. "It won't come as fast as I, or anyone else wants it. But it is coming."
As U.S. retail gasoline prices once again near $4.00 a gallon, does this pose a threat to the economy and President Obama’s prospects for re-election? My answer is no.
EDIT - I originally wrote this post thinking that Prof. Hamilton was looking at a broader question: Can an economy learn to live with increasingly high oil prices? After looking again at his article again, I realize that he is talking about a narrow question: Using the figures he was looking at (average gasoline prices across all grades), prices were then near $4 a gallon, as they had been several times in the past, as they bounced up and down.
In that context, what he says is far closer to right than what my analysis of the broader question of whether an economy can learn to live with increasingly high oil prices, below, would suggest. There is a difference, because gasoline prices are not too closely tied to oil prices in short term fluctuations, and because the issue is likely to be as much one of consumer sentiment as anything else, as long as the issue is simply one of gasoline prices in a not-too-wide range. But I think there are some longer-term, more general issues we should be concerned about. ( Continue… )
On-going concerns over the global economy helped push oil prices to recent lows, with U.S. and foreign futures down more than 2.5 percent in recent trading. Most major U.S. stock indices, meanwhile, started off the fourth quarter in the black, though trouble in the Eurozone and weak economic reports from China dampened overall expectations for the global economy. A weak economy translates to weak demand for petroleum products. A decrease in crude oil stocks reported by the U.S. Energy Department, meanwhile, could be a sign of a rough future for energy markets.
European indices were in negative territory in Wednesday trading amid lingering concerns over the Spanish economy. One European fund manager described the Spanish debt crisis as "problematic." The Asian Development Bank, meanwhile, cut its growth estimate for China's gross domestic product from 8.5 percent predicted in April to 7.7 percent. ADB's Chief Economist Changyong Rhee said global forecasts "especially from Europe" meant there would likely be a "a serious drag on growth in the near term." (RELATED: The Devastating Economic Impact of Constantly High Oil Prices) ( Continue… )
A number of major US companies are taking energy into their own hands, harnessing solar power to cut costs and improve the bottom line. Iconic brands are now being equated with the power of the sun, and retail giants are leading the trend.
A recent report published by the Solar Energy Industries Association (SEIA) shows that 42 companies have installed upwards of 320 megawatts of photovoltaic (PV) capacity at more than 750 locations across the US. The top 20 companies account for almost 280,000 kilowatts of solar-electricity generating capacity, which is about the capacity of a mid-sized natural gas power plant. This also translates into the generation of over $47 million in electricity every year and hundreds of millions in utility bill reductions for those businesses. Their capacity can power almost 50,000 average homes. The top 20 have installed more than 1.2 million solar panels. ( Continue… )
Landscaping business owner Sebastian Figueredo stood Thursday at a Union 76 gas station near the San Francisco-Oakland Bay Bridge, holding his phone up high so he could get a photo of theprice sign.
A gallon of regular at the station was selling for $4.79, up from $4.59 the day before. Premium gasoline was $4.99.
"Every time these go up, I can't just raise my hourly rate up as well," Figueredo complained.
Throughout California, the average price of a gallon of regular gasoline jumped 8 cents overnight to $4.32 and was up 18 cents during the past week, according to the AAA's Daily Fuel Gauge.
Analysts said it was poised to quickly soar past $4.37 a gallon — the high so far this year — after refinery outages and pipeline problems left the state short on supplies. ( Continue… )
Unrest in Iran reached a fever pitch Wednesday as the Islamic Republic's currency continued to plummet in value.
In Tehran, protestors clashed with riot police as hundreds marched against the rapid devaluing of the country's currency, the New York Times reported. The rial saw a 40 percent drop in value over the past week, and rising food prices have forced some in the country's middle class to start stockpiling food.
The protests exacerbate the economic tightening that has resulted from sanctions on Iran. Internationally, the unrest has sent oil prices yo-yo-ing as traders watch the volatile, oil-producing giant with uncertain eyes.
Pressure on President Mahmoud Ahmadinejad continues to mount. Whispers of a regime change are afoot, prompting some to make optimistic forecasts for the global oil market.
Gartman's perspective appeared validated by Wednesday's sharp drop in oil prices.
Brent crude oil for November fell to $107.67 Wednesday, its lowest since Sept. 20.
Thursday, however, tells a different story.
Prices jumped $2.25 midday to a high of $110.42. The 2 percent hike comes as attention shifts to Syria where Turkey has launched retaliatory strikes, threatening disruptions of oil supply in the Middle East.
The path of protests in Iran, along with the unfolding Syria-Turkey tensions, will continue to determine the fluctuations in oil prices. Elevated hostilities between Syria and Turkey may tighten supply, sending prices skyward. Should the Ahmadinejad regime topple, oil prices will surely react in the extreme—either prices drop in anticipation of an easing of sanctions, or rise for fear of further instability.
Either way, oil markets will continue their convoluted tangle with the unpredictable ire unfolding in the Middle East.
With sustainability and clean energy both hot topics nearing the end of the presidential campaign, pollsters are hitting up citizens from around the United States in order to see where the general population stands on those subjects and their relation to climate change.
The results show that Americans overwhelmingly support political efforts to reduce the effects of greenhouse gases, with most agreeing that climate change is an important issue that needs immediate attention.
One poll, conducted by independent firm Hart Research Associates, took in the opinions of 1,206 adults from across the country with widely varying political views, finding that 92 percent of them believe that it is “very important” or “somewhat important” for the United States to further develop solar power in order to achieve sustainability. (See more: First Solar May Supply World’s Largest Solar Farm)
Another poll, this one investigating not only attitudes towards climate change, but the political affiliation of those attitudes, found that 7 percent of voters remain undecided, with most of those people reporting that climate change will be one of several key factors that will determine which candidate gets their vote next month.
In an effort to explore the relation between attitudes towards climate change and location on the political spectrum, the poll’s findings indicate that 86 percent of Obama supporters believe that human-caused global warming is a reality, compared to only 45 percent of Romney supporters, suggesting that most of that undecided 7 percent could end up voting for the current president to take office for a second term. (See more:U.S. Oil Production Surges to Highest Level in 15 Years)
While climate change and sustainable energies haven’t been at the forefront of the presidential campaign thus far, the topics have seen greater exposure in the past few weeks as the Republican party made an effort to block government-offered financial incentives for the solar power industry even as President Obama was put under increased pressure to approve the Keystone XL pipeline that would allow oil extracted from Canada’s oil sands to be transported to the United States.