Gasoline Prices Are Going Up, Why…?

Crude oil prices and the calendar says James Hamilton. The calendar part of the answer is easy, we are approaching the “driving season” also known as summer. This is when families pack up stuff and drive for vacations. Even if it is just a weekend camping at the beech or something, gasoline demand goes up. As for crude oil prices they do not usually follow a seasonal pattern, but this year the prices have moved so as to reinforce the seasonal fluctuations in the demand for gasoline. Check out Prof. Hamilton’s post for more information and some helpful graphs.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Bithead says:

    Steve;

    True, but incomplete.
    At the moment, the supply side is suffering because of the change in gasoline formulations…

    we’ve not put up a refinery in this country since 1976, so refining capacity is finite.

    Now, to this limited capacity, let’s add the curve that these refining companies have to re-tool twice a year, thereby lowering the amount of fuel being output by the number of refineries offline at any given time.

    Thank that’s going to affect the prices, any?

    We’ll be down by 30cents/gal around 7/4 as the refining capacity comes back online fully, and the supply lines fill with the result.

  2. Steve Verdon says:

    Actually capacity has increased, just the number of refineries have declined. Now that doesn’t mean this plays no role in prices, but I don’t think it is part of the seasonal fluctuations.

  3. Anjin-San says:

    Prices in the Bay Area surged long before the weather warmed up…

  4. Django Bliss says:

    Does it seem to anyone else that the length of time that the “Driving Season” excuse is used is getting longer and longer as time goes on?

    I guess my point is that there’s a lot more to it these days. As word wide oil demand continues to surge, prices will have difficulty stabilizing.

  5. Steve Verdon says:

    Does it seem to anyone else that the length of time that the “Driving Season” excuse is used is getting longer and longer as time goes on?

    No.

    I guess my point is that there’s a lot more to it these days. As word wide oil demand continues to surge, prices will have difficulty stabilizing.

    True, but this has little to do with the “driving season”.

  6. Jim says:

    Last year when prices went up the Democrats demanded investigations into the oil companies…this year I am hearing crickets. Typical…

  7. floyd says:

    “Retooling” is called “turnaround” in the refining business. A “Major Turnaround” [which involves total refinery shutdown] only happens,as a rule, on single train refineries. These occur about every 3-5 years and last about 30-45 days. Minor T/As for essential repairs do not significantly effect supply.
    Multi train refineries don’t generally have complete shutdowns at all due to the fact that they have redundant units which are serviced while the refinery continues to run.
    A fuels refinery is capable of switching production emphasis between fuel types from the control room[simply put]. There is broad flexibility to produce the type of fuel that is in demand.Because of this,there is also limited capability to control supply. limiting supply [temporarily] spikes the price at the pump.
    All of this being true,the price at the pump is far more in the hands of speculators and marketing departments than it is in the control of the refineries.
    I have just completed 35 years in a single train refinery which I helped to start brand new,but I have not been able to comprehend the real machinations of the “men behind the curtain” who seem to control their “OZ” from corporate headquarters.
    The real conclusion seems to be that refineries are most profitable at full capacity and therefore limit the manipulators ability to drive prices up beyond what storage capacity will allow.

  8. Bithead says:

    Perhaps I was not clear.

    When I say retool, I’m talking about the multiple different formulations that each refinery is required to produce, for a given season. (EPA, again)

    That generally speaking requires at least a brief shutdown in the refining stream, which means that supply get shorter, and prices go up. The reason it happens at the leading edge of every driving season is precisely that, they have to make the change at the leading edge of the driving season.

    Which is why, prices went down at the end of June the beginning of July, the last couple of years. I suggest it’s going to do the same thing again this year.

  9. floyd says:

    Perhaps I was not clear, blending [formulation] of gasoline occurs post refining and causes no pause in the process. Gasoline is custom blended for customers all year around on a batch by batch basis. If one wants “winter grade” for instance the blender will mix C3s&C4s with a moderate blend stock to produce a certain octane with a certain flash point at a certain average temperature. This is true, whether it is to satisfy government regulations or simply customer demands.