Gas Prices

If you're like me, the rise in gas prices today found you reeling. Fortunately, after listening to the morning news, I was able to fill up at $3.59 a gallon after I dropped my daughters off at school. By the time I picked them up the price at that same station was $3.79 for regular and that was the cheapest around. Tonight I decided to drive into Yadkinville and these are the prices that I found:


This is at the Exxon station


This is a stone's throw away at the Citgo


And this is about 1 mile away at another gas station (which, by the way, had gas at $5.35 earlier in the afternoon but apparently felt remorse and lowered it).

There is definitely a discrepancy in prices at these local stations but they all have one thing in common: They raised their prices significantly during the day in response to Hurricane Ike.

I did some research to find out why that is the case. It seems as if the price for oil rose very little today (up 31 cents to $101.18) yet wholesale gas prices jumped 30 per cent in response to refinery shutdowns ($4.85 in the Gulf Coast market). Close to one fifth of all U.S. refineries are in the Gulf Coast region and many (not sure how many) shut down with Ike looming near.

So with oil prices remaining relatively low as of late, why such a dramatic rise in gas prices? If oil prices rose dramatically then I would expect gas prices to increase as well, but oil didn't do that. Normally the futures market will drive up the cost of oil, even if there is an ample supply, if these traders believe in the future that oil supply will be low or demand will be high. In the case of gas prices today, there appears to be a future's panic about the supply of gasoline since so many refineries had to shut down because of the storm.

32 states have oil refineries in them with a total of around 150 nationwide. These facilities refine over 17.5 million barrels of oil per day which translates into about 343 million gallons of gasoline (a barrel of oil is 42 gallons which, when refined, turns out 19.6 gallons of finished motor gasoline while the rest is used for other oil products such as jet fuel, fuel oil, etc.). The last new refinery was built in 1976 although several others have been upgraded since then.

It seems, then, that more oil refineries would be a good thing. If there were more refineries then a devastating storm such as Hurricane Ike would not temporarily cripple our supply of gasoline (remember, 19% of our refineries are in the Gulf region). So why do we not have more refineries?

There seem to be various - and often contradictory - reasons. Some say that it's a big plan by oil companies to minimize competition. If these oil companies can control the amount of refineries then they can increase their profit. Others say that it's an environmental issue - people don't want pollution-churning refineries in their towns. Add to this that there doesn't seem to be enough places near the water to build them. What would you rather have: a condo with a great view of the ocean or refineries dotting your coastal horizon?

Even if oil production in America increased - which would be nice since we import 58% of oil from outside our borders - we will still need the capability to refine this oil. It's kind of like wanting an Apple iPhone (which I do) and knowing that Apple can make enough to meet the demand, they just choose not to. That way, the market price will always be high.

My thoughts on this may be too simplistic but hey, I just want cheaper gas. I'm all for alternative fuels and I hate having to rely on foreign countries for our oil supply, yet I would love to know the real truth as to why we don't have more refineries in America. If you know, please tell me. I'm all ears.