ONTD Political

Oil Refineries Shutting Down Despite High Gas Prices

11:52 am - 02/27/2012
Angry About High Gas Prices? Blame Shuttered Oil Refineries
The U.S. has lost nearly 5 percent of its refining capacity in the past three months, as a handful of old refineries have shut down.

The average price of gas is up more than 10 percent since the start of the year, a point repeatedly made during Wednesday’s Republican Presidential debate. Predictably, the four GOP candidates blamed President Barack Obama for the steep increase.

Actually, the President doesn’t have that kind of pricing power. The more likely reason behind the price increase, though certainly less compelling as a political argument, is the recent spate of refinery closures in the U.S. Over the past year, refineries have faced a classic margin squeeze. Prices for Brent crude have gone up, but demand for gasoline in the U.S. is at a 15-year low. That means refineries haven’t been able to pass on the higher prices to their customers.

As a result, companies have chosen to shut down a handful of large refineries rather than continue to lose money on them. Since December, the U.S. has lost about 4 percent of its refining capacity, says Fadel Gheit, a senior oil and gas analyst for Oppenheimer. That month, two large refineries outside Philadelphia shut down: Sunoco’s plant in Marcus Hook, Pa., and a ConocoPhillips plant in nearby Trainer, Pa. Together they accounted for about 20 percent of all gasoline produced in the Northeast.

This week, Hovensa finished shutting down its refinery in St. Croix. The plant processed 350,000 barrels of crude a day, and yet lost about $1.3 billion over the past three years, or roughly $1 million a day. The St. Croix plant got hit with a double whammy of pricing pressure. Not only did it face higher prices for Brent crude, but it also lacked access to cheap natural gas, a crucial raw material for refineries. Without the advantage of low natural gas prices, which are down 50 percent since June 2011, it’s likely that more refineries would have had to shut down.

The U.S. refining industry is being split in two. On one hand are the older refineries, mostly on the East and Gulf Coasts, that are set up to handle only the higher quality Brent “sweet” crude—the stuff that comes from the Middle East and the North Sea. Brent is easier to refine, though it’s gotten considerably more expensive recently. (Certainly another reason for higher gas prices.)

Then there are the plants able to refine the heavier, dirtier West Texas Intermediate (WTI)—the stuff that comes from Canadian tar sands, the deep water of the Gulf of Mexico, and the newer outposts in North Dakota, which just passed Ecuador in oil production. These refineries tend to be clustered in the Midwest—places such as Oklahoma, Kansas, and outside Chicago. While the price of Brent crude has closed at over $120 a barrel in recent days, WTI is trading at closer to $106. That simple differential is the reason older refineries that can handle only Brent are hemorrhaging cash and shutting down, while refineries that can handle WTI are flourishing.

“The U.S. refining industry is undergoing a huge, regional transformation,” says Ben Brockwell, a director at Oil Price Information Services. “If you look at refinery utilization rates in the Midwest and Great Lakes areas, they’re running at close to 95 percent capacity, and on the East Coast it’s more like 60 percent,” he says.

This is primarily why the cheapest gas prices in the country are found in such states as Colorado, Utah, Montana, and New Mexico, while New York, Connecticut, and Washington, D.C., have some of the highest prices.


I heard on the radio this morning that Denver has the nation's lowest gasoline prices, and this is partially why. Of course I just moved from there to the Bay Area...
sesmo 28th-Feb-2012 12:02 am (UTC)
We really shouldn't talk about gas prices without the accompanying diagram about gas prices currently being controlled by speculators, a significant portion of whom have political view points. You want to guess what their view points look like?

masakochan 28th-Feb-2012 12:56 am (UTC)
I just got done telling my parents about this article, and all I got was "Oh you~ you're so misinformed. The Koch Industry people aren't the bad guys here."
awfulbliss 28th-Feb-2012 03:44 am (UTC)
The author of this article has absolutely no idea how futures markets work and major lols at the idea that the Koch brothers could influence the price of gasoline by 20-40 cents.
sesmo 28th-Feb-2012 09:56 am (UTC)
Do tell. *Citation Needed*

P.S. It appears that regulatory agencies also believe that there is a real problem with oil speculation. http://www.mcclatchydc.com/2012/02/27/140158/federal-judge-weighs-whether-to.html
awfulbliss 28th-Feb-2012 07:43 pm (UTC)
The idea that the Koch brothers have the storage and cash on-hand necessary to control up to 10% of the price of gasoline is close to beneath acknowledgement, that's how silly it is. The world consumed 88 million barrels of oil in 2010...a day. Here is a list of proven oil reserves. The Koch brothers purchased several million barrels. If you haven't read about it, for a real example of cornering the market, read about Silver Thursday in 1980.

This author implies that the futures price is dictating the spot price of oil. This is incorrect. It is the opposite. This is a pretty big misunderstanding of market mechanics. The run-up in oil prices (and subsequently gas) over the last several years is largely due to dollar devaluation (which is something the President can control on some level), Middle East unrest, accelerating BRIC demand, and so on. It's not to say speculation can't affect prices, just that its impact if you look at research papers is not yet understood. The Koch brothers are a scummy bunch, have a scary influence on American politics, etc., but the above analysis on their impact on gas prices frankly just does not make sense.

Edited at 2012-02-28 07:44 pm (UTC)
sesmo 28th-Feb-2012 11:04 pm (UTC)
The idea that speculators actually have to store the oil they are speculating in means you have no clue what you're talking about.

Another source which notes that even the oil execs agree that speculation is driving the current price. Quotable quote:

Even those inside the oil industry have admitted that speculation is driving up the price of gasoline. The CEO of Exxon-Mobil, Rex Tillerson, told a Senate hearing last year that speculation was driving up the price of a barrel of oil by as much as 40%. The general counsel of Delta Airlines, Ben Hirst, and the experts at Goldman Sachs also said excessive speculation is causing oil prices to spike by up to 40%. Even Saudi Arabia, the largest exporter of oil in the world, told the Bush administration back in 2008, during the last major spike in oil prices, that speculation was responsible for about $40 of a barrel of oil.
layweed 28th-Feb-2012 12:21 am (UTC)
In before Republicans complaining that the refusal of the Obama Administration to grant the Keystone pipeline was one of the big reasons.
maladaptive 28th-Feb-2012 12:59 am (UTC)
But but drill baby drill! Shouldn't that solve all our problems?
tabaqui 28th-Feb-2012 01:55 am (UTC)
Rarrrr. Hearing about the President 'not lowering gas prices' is like hearing about Congress not shoveling my driveway. Guess what - THEY DON'T DO THAT.

But it's a dearly-held right-wing talking point because omg, black-muslim-hater in the WH is trying to ruin AMURICA!!!
tabaqui 28th-Feb-2012 01:57 am (UTC)
Your source link is 'page not found'.
crossfire 28th-Feb-2012 02:15 am (UTC)
darksumomo 28th-Feb-2012 02:45 am (UTC)
I've been blogging about this on my Blogspot, including the exploitation of rising gas prices by GOP candidates.

Gingrich pledges $2.50 gas; President Obama hits back

Links to other posts about the latest rise in gas prices are in the post.
awfulbliss 28th-Feb-2012 03:04 am (UTC)
Dollar weakness and Iran, among other things, are driving the price of oil more than refinery capacity.
jwaneeta 28th-Feb-2012 04:00 am (UTC)
Fucking GOOD.

I'm taking the train to Utah for the spring break, because gas is high and flight is prohibitive. I'm thrilled because I love trains. :D

Anyway, GOOD. The only thing that drives down gas consumption in the USA is price: this is better for the world we all have to share. Fuck oil.
mirhanda 28th-Feb-2012 07:44 pm (UTC)
Yeah, screw those damn poor people and their need to get to work!
jwaneeta 28th-Feb-2012 09:17 pm (UTC)
escherzo 28th-Feb-2012 11:06 pm (UTC)
Uh, yeah? It's not like most people have an option where commutes are concerned, considering the state of public transportation or lack thereof in this country. Having to choose between five dollars a gallon of gas when barely making ends meet or quitting your job is "good"?
jwaneeta 28th-Feb-2012 11:11 pm (UTC)
Okay, you make a good point. How's that?
newantt 28th-Feb-2012 05:53 am (UTC)
It's smelling like 2008 all over again. Economy, brace for impact.
mollywobbles867 28th-Feb-2012 07:07 am (UTC)
I like my pet conspiracy theory that the oil tycoons who are so tightly wound up with the GOP are just hiking up prices to make Obama look bad. It is sad to me that this theory isn't as outlandish as it should be.

Seriously, the government needs to invest in alternative energy: solar and wind for starters. Energy cells made from garbage. Engines run by water. Tax breaks for people who by hybrid or electric cars (increase demand, car companies make more of them and put more into innovating them more quickly than they have been). Etc, etc.
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