Rising Gasoline Prices

A friend sent an article blaming currently record US gasoline prices on limited US refinery capacity, and that without profits the oil companies have no incentive to build more.

First Reply

The point of this article is the same as the Mobil Oil public service announcement for Masterpiece Theater in 1976 that Doonesbury made fun of in a memorable cartoon.

First two frames, much like this article, ending with "And the moral is"

Third frame, is Mike Doonesbury on the couch guessing what they are going to say next "Don't mess with the oil companies"

Fourth frame, the advertisement on TV ends "Don't mess with the oil companies."

So this article makes a big deal about the "Crack Spread" as if it's a law of nature.

But stated differently, it's that oil companies are charging higher prices (aka the crack spread) BECAUSE THEY CAN.

The final claim (and I'm calling it a claim because I believe there could be other factors) there is no surplus of refining capacity in USA because some of it was shut down during Pandemic.

Meanwhile, it would take years to build new capacity.

An obvious unanswered question would be why they don't just reopen those recently shut down...if this indeed were the problem.

Meanwhile, it does say that at these prices, 95% of available capacity is in use.

An obvious unanswered question is how much that unused capacity would be at a significantly lower price, like $1 less.

Probably 100% of that refining capacity would still be priced lower than the current price less $1.

So no capacity would, in theory, be reduced by legal requirements that forced prices $1 lower, or accomplished that aim by penalizing the "above normal" profit.

Except with regards to the oil companies playing hardball and trying to roll the system because of their oligopolistic power.

As it seems they are often doing.

And the second reply

There are some other things unmentioned in this article.

Demand for oil is up party because the US military needs it.  The US military has been fairly quietly deploying more advisors,

troops, etc., to Europe.  The US military burns a lot of oil, I believe it's the #1 largest "consumer" in the US.  Plus, it burns more

when mobilizing and exercising.  There may be some similar action happening in the Pacific right now too.

Churning out more weapons also uses up energy supplies, as well as other supplies like the very same metals which come from

Russia.  Not only was the Pentagon budget a new record, above what was requested as usual, another $40 billion was just added.

So oil demand is up from those things.

Meanwhile, "Global" supply, at least to "the West"...that group of countries that takes orders from the USA because they see what happens to other countries who don't..., has been depleted due to sanctions against Russia, Iran, Venezuela, and other countries.

Russia is the #3 producer of oil (after USA and Venezuela).  Venezuela has the leading reserves.

While demanding other countries sanction everything from Russia immediately, US has been quietly letting existing contracts with

Russia expire while continuing to import.  (Why were we #1 producer, and still importing from Russia?  That's another long story.)

US has meanwhile negotiated some sort of limited un-sanctioning of Venezuela.  Remember we weren't even recognizing their government as the official government anymore, instead recognizing our puppet Guaido.  But I've heard there is some limited degree of freedom now for oil companies to negotiate and deal directly with Venezuela  without fear of US penalties.

But meanwhile, there are a lot of other unsatisfied demands in the rest of "the West" as well, especially if other Western countries stop buying oil from Russia too.  

So US oil companies are not even seeing the supply increases to justify opening refinery capacity that had just been shut down due to the Pandemic either.

They've got everything now on supply churning through the currently open refinery capacity.  So why open more?

The article doesn't hint at either of these things, which means it's largely a "don't look here (at war)" kind of article.  As well asa "don't look with ascance at our profits" kind of article.

So ignore the fact that a lot of our problems are being caused by our ongoing war (to continue global domination) and capitalism as usual and just carry on because it's natural law.