The Oil Drum: Europe

In the last year, the price of gasoline has risen by 38%. The prices of other fuels have risen much more--diesel has risen by 64% and jet fuel has risen by 91%, and the price of West Texas Intermediate (WTI) crude oil has risen by 100%. Why aren't gasoline prices rising more than they are? Some will recognize this as the "crack spread" issue.

I see several possible explanations, including a long term shift in prices valuing diesel (or "distillate") more highly than gasoline; political pressure to keep gasoline prices low; and integrated oil companies not really needing a high gasoline pricing margin to keep overall profits at an acceptable level. I do not see ethanol as playing a significant role at this time. Regardless of the explanation, refineries and gasoline stations that are not part of oil conglomerates may find this a difficult storm to weather.

Figure 1 shows that the differential between the retail price of gasoline and the per-gallon cost of crude oil has recently dropped dramatically, leaving a much smaller margin to cover expenses and profit. It is this shift that I am discussing in this article.

Figure 1. Average gasoline price minus WTI crude price; average diesel price minus WTI crude price; and average jet fuel price minus WTI crude price. (Averages are for full years, except 2008 which is for 6 months; crude prices have been converted to a per gallon basis.)

Make sure to check out our Grangemouth/Forties poll--use this thread as the comment thread for it.

Latest:
• Grangemouth oil refinery is shutdown.
• The Forties Pipeline is shutdown
• Over 60 North Sea oil and gas fields are shutdown.
• About 700,000 bpd oil production lost costing £40 million / day @ $110 per barrel
• About 70 million cubic meters natural gas production lost per day costing £42 million / day @ 60 p / therm
• BP, Shell, Exxon-Mobil, BG Group, Conoco-Philips, Chevron-Texaco, Total, Marathon, Tallisman, Nexen, Venture, Dana and many more companies affected
• Global energy prices rise
• Rural Scottish economy hit hardest by fuel shortages
• Risk level is raised throughout the system
• Worker's grievance is unresolved
• Population calm, politicians panic, fuel rationing looms?

[update 5 by Euan, 23 April]

Latest from the BBC (Wednesday evening)

BBC Scotland understands operators Ineos and the Unite union have failed to agree a halt to an impending strike by workers at the Grangemouth plant.

It therefore looks like Ineos will have to proceed with closing the plant which they say will take 4 weeks to restart. We'll be back with a fresh thread in a couple of hours.

[update 4 by Euan, 23 April]

Latest from the BBC (Wednesday pm) with a fine video:

As the hours tick by the likelihood of widespread disruption looks increasingly likely

On Thursday, January 17, the American Petroleum Institute (API) hosted another Blogger Conference Call. The purpose of this call was to talk about 2008 US statistical data regarding oil supply, and various related issues. In this post, I provide insights from API's bloggers call. Since most of the numbers are fairly similar to EIA data, I also look at longer trends using EIA data.

1. API Statistical Report: In 2007, total domestic petroleum deliveries were flat--marking the third year in a row for which they experienced only minimal growth or outright decline.

The details are out on the weekly crude oil statistics. In sum, a larger drop in crude stocks was offset by higher gasoline stocks and lower gasoline demand than expected. Oil sold off initially, rallied to $100.10, and has now settled around $99.25. At $100 oil, isn't it strange that gasoline at the pump is $3.05. Are the refiners working for free? And if so, why would they do that? Details of this weeks TWIP below the fold:

US Crude Stocks -Thanks -Khebab

Rep. John Dingell has a long history of opposing fuel-economy increases and other "green" initiatives.  His position as defender of Detroit's remaining auto industry more or less forces him to support the production of whatever vehicles are still profitable there, regardless of what they do to US energy security, balance of trade or global climate.  For the last 20 years or more, this has meant large cars and personal trucks:  the "guzzler" segment.  Because of this, I was surprised and pleased to learn of a proposal from him for a carbon tax and a petroleum tax, to help move the US away from both fossil fuels in general and petroleum in particular.

Both emotions lasted about as long as it took to read the summary.  It does not appear to be a serious basis for initiatives to move away from fossil energy.  Instead, it looks like a straw-man proposal designed to fail, while appearing to promote the interests of union labor in the process.  My final appraisal is "disappointingly cynical".

One of the things I really like about The Oil Drum is that I learn something new here almost every day. So, I thought I would return the favor by explaining in a bit more detail something you may not know.

Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline, such as the following (originally in the Bradenton Herald, but the link is long dead):

Motorists can thank a mild hurricane season in the Atlantic for the lower gas prices, according to the American Automobile Association.

Other factors include the end of the summer driving season and a cheaper winter fuel mix.

Gas stations sell a special, more expensive fuel blend during the summer to cut down on smog during hot months. Stations nationwide will start selling a less-expensive winter fuel blend Friday, which could lead to even lower prices, analysts said.

So what does this mean, and why does it make winter gasoline less expensive?

I feel the need to bring you an interview with Trilby Lundberg of the Lundberg Survey that's on CNN right now. The link to the interview is here. (Hat tip to TOD reader damac as well. Thanks.)

Q: As far as conservation, what are the trends you are seeing?

A: I'm hoping that consumers will see through the rhetoric about consuming less, demanding less, as faulty. It is not a given that consuming less will be good for our economy or for our personal freedom. It is not even established for our environment that we [should] deprive ourselves of gasoline for our personal mobility as well our commerce. And to suppose that it is good to do that, and pretend that we have consensus and put our heads together to deprive ourselves of this great product that makes the country go around, commercially and individually, I think is flawed. I'm hoping consumers and voters will see through that and be able to ignore some of the most extreme suggestions.

I think that there has been friendly as well as unfriendly brainwashing taking place. And when I say friendly and unfriendly, I'm talking about decades of extremist views that have now achieved mainstream acceptance. And the No. 1 item among those affecting current oil politics in Washington is the boogeyman, also known as global warming.

I don't accept it as established fact, nor do I accept that it would be caused by petroleum consumption, nor do I accept that the human species should not affect its environment. So even if it were someday to be shown to have some small effect on the environment, I see no crime. In fact, taking into account the many, many millions of people around the world that envy our way of life, it would seem more humanitarian to wish them the kind of plentiful petroleum products and vehicles ... that we enjoy ... to lift themselves out of [a] backward, poor way of life.

This is the person the media relies upon to discuss gasoline prices and supply?! As tempted as I am to say something else smart or clever here, instead, I will just let her statement speak for itself.

This is a guest post by Smokey. Smokey has a background in sustainability in transportation, and has conducted research on responding to fuel supply disruptions.

To what degree is the decline in quality crude affecting domestic refinery utilization rates and therefore gasoline stocks?

In recent years some analysis has suggested that light sweet crude oil may have peaked, with the world left to increasingly rely on lower quality crudes. See for example this story on The Oil Drum and this story on Energy Bulletin. Although the data on global peaking of light sweet crude may not yet be conclusive, data on the production of many regions that produce primarily light sweet crudes conclusive show that many of these regions are past peak.

This morning at 10:30 am EST, the Department of Energy released their weekly supply reports for crude oil and refined products. Gasoline stocks increased for the 7th consecutive week, and the build of 1.79 million barrels to 203.3 million barrels was higher than the market expectation of a 1.19 mb rise. Gasoline prices initially sold off 2 cents, paused for a while, then dropped sharply and spent most of the day down 5-6 cents. In the last 30 minutes of trading however, the prices rallied back to finish only down 1.5 cents on the day. Crude, after being down $2 at one point, closed down 75 cents.

Robert is on vacation so I'm posting the text of the report for those interested, along with some comments from a prominent Wall Street analyst, Paul Cheng, of Lehman Brothers. The TWIP (the text that accompanies the data released at 1pm), and some thoughts below the fold.