Angry About High Gas Prices? Blame Shuttered Oil Refineries
Business News
Actually, the President doesn’t have that sort of pricing power. The more likely reason behind the purchase price increase, though certainly less compelling as a political argument, may be the recent spate of refinery closures in the U. S. Over the past year, refineries have faced a vintage margin squeeze. Charges for Brent crude have risen, but demand for gasoline in the U. S. is at a 15-year low. Which means refineries haven’t been able to spread the bigger prices with their customers.
Because of this, businesses have opted for to shut down a small number of large refineries instead of keep on to reduce money in it. 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 stated in the Northeast.
This week, Hovensa finished shutting down its refinery in St. Croix. The plant processed 350, 000 barrels of crude a day, yet lost about $1. 3 billion over the past 3 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 charges for Brent crude, but it also lacked access to inexpensive gas, a essential raw material for refineries. Without the benefit of low gas prices, which are down 50 percent since June 2011, it’s likely that more refineries could have had to shut down.
The U. S. refining industry has been split up in two. On one hand will be the older refineries, mostly on the East and Gulf Coasts, that are set up to take care of only the bigger quality Brent “sweet” crude—the items that comes from the center East and the North Sea. Brent is simpler to refine, though it’s gotten dramatically more expensive recently. (Certainly another reason behind higher gas prices. )
Then you can find the plants able to refine the heavier, dirtier West Texas Intermediate (WTI)—the items that comes from Canadian tar sands, the deep water of the Gulf coast of florida, 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 's the reason older refineries that may handle only Brent are hemorrhaging cash and shutting down, while refineries that may handle WTI are flourishing.
“The U. S. refining industry is undergoing an enormous, 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 near 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 united kingdom are found such states as Colorado, Utah, Montana, and New Mexico, while Ny, Connecticut, and Washington, D. C., involve some of the highest prices.
