The financial news today is that oil prices are down below $90 a barrel from over $100, and futures market prices for gasoline are down 5% to below $3.00 a gallon. Will that translate to big savings at the pump? Don’t bet on it, at least not for long.
OilWatchdog has watched for years as refiners curtailed production to keep prices up even as consumers buy less gasoline. Gasoline prices have hit $4.00 a gallon in state after state even as pinched consumers drove less. Unbought crude oil has also piled up in storage tanks in Cushing, Oklahoma, the main hub for oil pipelines to Midwest refineries. Gasoline prices should be falling through the floor. But they’re not, certainly not yet.
How refiners make these big bucks was explained over the weekend in a Kansas City Star weekend story by reporter Steve Everly, who completely understands how energy companies stick it to consumers and isn’t afraid to write about it. It couldn’t be any plainer than this:
The conventional wisdom has been that gasoline shot to about $4 a gallon because the price of oil soared.
But that ignores a key factor: Even though U.S. gasoline use is declining, refiners have kept U.S. stockpiles below average by curbing production and exporting more gasoline.
That has kept prices up — and doubled oil refinery profits. Refineries are on track to reap their best profits in years. …
For refineries, their margin is the difference between what they pay for crude oil and what they get for the wholesale gasoline and other products. Those margins have been gradually rising this year and recently were more than double what they were a year ago, when they were 38 cents for a gallon of gasoline.
Last week the margins climbed more because of concerns that Mississippi River flooding could close some refineries and tighten supplies further.
At one point last week, the margins for wholesale gasoline sold in the Midwest were more than $1.20 a gallon, rivaling levels briefly seen after Hurricane Katrina in 2005.
The U.S. Corps of Engineers has since disappointed a lot of gasoline speculators by opening upstream floodgates to protect major Gulf Coast refineries, which helped cause Monday’s drop in the speculative price of gasoline. Drivers may see a little more relief at the pump in the next several weeks, but refiners have learned a lot in the last few years about making more money by making less gasoline. It’s no longer a business that tries to grab more customers by competing on price.
With a lot of refineries up for sale–a sort of hangover from the bad refining profits at the 2008 peak of the recession–it’s up to federal and state regulators to make sure that whatever competition is left isn’t cut further. The worst case would be more refineries simply being shut down, as Shell tried to do in California several years ago. That’s a guarantee of even higher gas prices down the road.