Retail gasoline prices took another jump this week, ballooning to a national average of $3.75 on February 18 -- I filled up yesterday with $3.69/gallon ethanol. But with a fracking boom in progress flooding our national pipeline with crude from shale, where is our cheap gasoline? There are, of course, a number of factors at play here including a type of reliance on foreign oil you may not have thought of.
Despite WTI's lower price for crude, U.S. gasoline is still tied to Brent crude which typically trades $10-$20 higher than WTI. What is currently driving prices higher in part is the crack spread -- the difference between the wholesale price of gasoline and the price of Brent crude. As the crack spread margin widens, gasoline prices increase. (Click here for more on crack spread.)
According to EIA, "Some of the factors contributing to rising crack spreads (or margins) for gasoline, and therefore to rising retail gasoline prices, include:
- Refinery outages. There have been multiple refinery outages, both planned and unplanned, that reduced U.S. capacity to manufacture gasoline.
- Global demand for petroleum products. Year-over-year global product demand is up, and further rises are expected. That rise in demand affects domestic refinery utilization rates, maintenance needs, and product balances.
- Prior low crack spreads. Throughout much of November and December 2012, gasoline crack spreads were very low, and in some cases negative (a barrel of gasoline was worth less than a barrel of Brent crude oil).
EIA goes on to suggest that there is upside room in the coming weeks for retail gasoline and suspects gasoline prices will continue to be wildly volatile. A greater reliance on WTI crude would help ease gasoline pricing here in the U.S., but improvements to the national pipeline and refinery capacity will have to lead the way.
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