• 29 mins Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 hours Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 hours ConocoPhillips Sets Price Ceiling For New Projects
  • 3 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 3 days Venezuela Officially In Default
  • 3 days Iran Prepares To Export LNG To Boost Trade Relations
  • 3 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 3 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 4 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 4 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 4 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 4 days Santos Admits It Rejected $7.2B Takeover Bid
  • 4 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 5 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 5 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 5 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 5 days Lower Oil Prices Benefit European Refiners
  • 5 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 6 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 6 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 6 days OPEC To Recruit New Members To Fight Market Imbalance
  • 6 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 6 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 7 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 7 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 7 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 7 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 7 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 10 days The Oil Rig Drilling 10 Miles Under The Sea
Alt Text

U.S. Gasoline Demand Climbs To Record Highs

United States gasoline demand has…

Alt Text

LNG Becomes A Buyer’s Market

A continuous growing supply of…

Alt Text

Shell Gears Up For Peak Gasoline

Oil major Shell has ramped…

Gary Hunt

Gary Hunt

Gary Hunt is President, Scalable Growth Strategy Advisors, an independent energy technology and information services adviser and a partner in Tech & Creative Labs, a…

More Info

The Truth About Gasoline Price Volatility

The Truth About Gasoline Price Volatility

Nothing infuriates Americans more than volatile, spiking gasoline prices.  Often the causes given for gasoline price hikes seem contrived.  Iran and Israel trade harsh words in press reports and before the ink is even dry of the page oil prices tick up.  Word of a fire at an oil refinery is enough to send prices shooting up as high as the flames on the cracker —and just as fast.

Those price spikes never seem to come down nearly as fast as they shoot up.  Politicians are quick to blame oil companies for gouging customers, speculators for manipulating markets, traders for withholding supply.

The truth about gasoline price volatility is both a little more complicated and yet quite simple. The factors that seem to have the most impact on gasoline prices include:

 • Global Oil Swing Productive Capacity.  While the world has plenty of oil overall, prices are set by the amount of excess capacity at the daily margins.  That is how much oil is left over when all the contracts for delivery are met.  How much oil is available if something goes wrong?  If some refinery shuts down?  If some pipeline bursts?  If some war breaks out?   This marginal oil quantity has traditionally been controlled by Saudi Arabia’s ability to ratchet up or ratchet down the amount of oil pumped each day.  This control over swing productive capacity is what gives OPEC its market power and drives the rest of us crazy.

 • The Refinery Business Model.  The oil refining business is a hard way to make a living.  These plants are enormously complicated.  They require skilled precision to keep them operating at optimal performance and many things can—and do go wrong.  Yet it is almost impossible to build new refineries in the US today because of the environmental regulation, high capital costs and the NIMBY pressures in every potential location.  We live close the edge of full refining capacity, yet refining margins are very thin because the costs of operation are so high.

 • Boutique Fuels Mandates Create Monopoly Markets. A recent fire at the Chevron refinery near my home in the San Francisco Bay area adversely affected the supply of the blends of gasoline used in many of the Western States.  A pipeline rupture in the Midwest reduced the supply of oil to refineries serving Chicago.  While do these incidents have such a major impact on gasoline supply and price?  Because the environment restrictions on fuels has created a system of boutique fuel blends that are virtual monopolies in many markets.  The gasoline produced in the Richmond Chevron refinery is specifically designed for the Western market and no other gasoline products can be shipped in from other states to make up for a supply shortfall when a fire or other supply chain problem happens. So having reasonable gasoline prices requires that virtually EVERYTHING must work perfectly in the gasoline production supply chain—or else.

It does not have to be this way, but Congress passes laws without the slightest regard to how they will be implemented or enforced in practice. Congress takes credit for Clean Air but allows bureaucrats to impose regulations that have costs or impacts far beyond what the law intended.   This happens because our environmental laws are written to ignore the cost while taking credit for the benefits.  Our laws allow Federal agencies to set their own standards for measuring benefits.  They are not subject to any burden of proof.  The laws allow comment periods on rulemaking proposals but the bureaucrats do not have to accept the comments.  The system is one-sided and so are the costs!

A more balanced and reasonable approach to environmental regulation would require Congress to approve major rulemakings by a Federal agency so it cannot avoid the accountability for imposing the costs.  Existing regulations should be subject to sunset provisions and forced to be reconsidered regularly to reflect changes in technology and other factors. New laws requiring regulations should not go into effect until the final rules to implement the law are approved by Congress. Just as environmental advocates can sue in Federal Court to enforce environmental laws, those subjected to them should be able to sue over the reasonableness of the impacts of the law and rules to force the government to own its burden of proving that the benefits outweigh the costs and do not constitute an unreasonable taking of private property for which just compensation is required.

These changes in our regulatory regime won’t get more refineries built, but they would inject some common sense into the regulatory process and force the Federal agencies that dream up all these rules that the benefits are worth the cost and the practical application of proposed rules is reasonable and in the public interest.

By. Gary Hunt




Back to homepage


Leave a comment
  • Gene Sidore on August 24 2012 said:
    This is obviously an industry spokesman. Very biased statement.
  • Hans Nieder on August 24 2012 said:
    Brilliant piece, Mr Hunt!! Remove all the waste products (governmental units & regulations) and America would be enjoying $1.50 a gallon...

    Of course, that would undermine the Green/Pink Enviro movement along with their supporters, the public labor gangs...

    Keen eye, Mr Sidore...---------> Zap Cracke Pop Refinery Group
  • Jean Krewson on August 26 2012 said:
    You can't have it both ways. Either NIMBY is too much of a pressure preventing refineries from being built or the government just doesn't listen to commentary from the public. What you really mean is that the government didn't listen enough to the industry, and you may have some legitimate point there.

    Fact is--most folks LIKE not having too much pollution in their air, water, or land. They demand it. That's why the environmental laws got written in the first place. You may call them nut-jobs, but there must have been a whole lot of those nut-jobs screaming at Congress to act to get those laws enacted. That's part of how the democratic process works.
  • tom baxter on August 29 2012 said:
    The stone age didnt end due to a lack of stones but I assure you the oil age will end due to a lack of oil. When America was founded they used to find lumps of copper the size of refrigerators in the ground. Now thy have to mine the volume of a suburban house to extract refrigerators worth. Why is the concept of oil depletion so hard for people to grasp?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News