Gas prices soar

The current spike in the midwest is related to supposed refinery power outages and maintenance.

On a complete side note.  Have you guys ever read into the refinery issues in the US?  The economic side of this stuff fascinates me.

Just found an article on the midwest spike:

http://www.usatoday.com/story/money/2013/05/16/midwest-great-lakes-regions-driving-national-gas-prices-higher/2166845/

Gas prices are so variable. In Philly it's around $3.68, but if I hop over the bridge (3 miles) into NJ it' $3.34. Plus there is no self-service in NJ, they pump it for you. You'd think that would make it more expensive, but it just goes to show how much of gas pricing is tax-based.

I was going to mention the difference in state gasoline tax as an explanation for PA vs NJ.

Same thing for NC vs SC.  NC has some of the highest gas tax in the country.  Many people who live near the border buy gas in SC (think Charlotte NC residents buying gas in Fort Mill SC).

Just in time for us to leave on our first tri/camping trip.  300 miles avg 9mi/gal... JOY!
I can't even tell you what it was to fill up... I just handed over the 15 cent/gallon coupon to my husband.

It's OBAMA and govt. overreach.....no, wait....

It's REPUBLICANS and that damn, 'free market' they're always raling about.....

I wonder if the IRS knows about this......???   hmmmmmmmmm

BENGHAZI 

No, but it's not for lack of trying.   If a refinery can produce at a profit, it produces.  Why wouldn't it?  It's obscenely expensive equipment, and it would be an incredible waste to run it at half throttle.  When refineries run at less than full capacity, it's almost entirely due to technical / logistical problems, or because refining margins aren't high enough to justify the operating costs.  Not a conscious decision to keep extra capacity on hand.

Let me flip the question around -- why does your company keep extra generation capacity on the shelf, instead of running it year-round?  Maybe it's a regulatory requirement?  Maybe you have long-term customer contracts to meet?   (To be honest, I might ask whether power prices in your region would be lower if this "extra" capacity wasn't being withheld from the market....)

Sorry, I'm not following your logic here.   Perhaps you could cite an example here? Or better elaborate what you're talking about?  (Not trying to be difficult, but I don't understand what you mean by "supply has not gone anywhere".  If supply hasn't gone anywhere, what's the disruption?)

If you truly "ran out" of gasoline the way you're describing for electricity, people would die too.  Ambulances couldn't get to the hospital, food and medicine couldn't get to market, fire trucks couldn't access fires, etc.    Either way, you're talking about extreme shortage cases.  In a more typical situation -- hiccups in supply translate into higher prices -- no different in power than in gasoline.  And people curtail their demand in response to the higher prices.  

It almost sounds like you're  claiming that power prices never fluctuate according to market conditions?? (But I'm pretty certain you're not, so help me understand the distinction you're trying to draw)

Good point, you are right. And as for the rest... well you are right again. Being a power guy, I don't really equate the two the same, but actually they are. Power prices fluctuate all day. Wildly in some cases. If the market is tight, and a unit goes down, the utility has to pay premium prices. So normal is say $20/mwh. What I can make it for. Another company makes it for $30 on gas, I need it, that's what I pay. In a tight market units down, Summer demand... it could be $70-$100 per. You the consumer do not see that. The utility company adjusts that over the year, and they may indeed make price adjustments to bills.... and you will pay it. But that is also based on a usage of 24/7/365. Buying 200 mwh for 24 hours cost a lot, but not compared to the entire rest of the year.

I'm a little embarrassed that did not dawn on me. Utility customers pay rates, and market adjustments, but it is spread out over the year... you do not see the "pain at the meter" when you go to plug your house in. You just get a bill and pay it. Where as we see the pain at the pump every week when we go to fill up.Thanks for setting me straight.

But even with gasoline and forecasting... I do not see why it can't be averaged out over the year... not in a big picture... but this is what we can supply, buy some "long term" gasoline in this area from this refinery to cover our down time in this area, and have it be more stable. All utilities do maintenance, and that is just "built in" to the rate structure. Does that make sense?

You've basically just argued for massive regulation of the oil & gas industry.  I can't foresee any problems with that idea.   

After I posted last night, I started to wonder -- power companies have all kinds of marketing packages  that allow an end customer to pick variable vs fixed rate.  Nobody has done that (to my knowledge) for gasoline.  Why not?  Why couldn't e.g. QuikTrip sell fixed-rate gasoline -- you agree to buy at least 1000 gallons over the next year at a fixed rate of $3.50/gallon.    Is that what you're envisioning?

Why hasn't that been tried?  Good question.  Two guesses:

• Despite the presence of BigOilCo branding on the marquee -- retail gasoline stations are nearly all owned & operated by individual owners or small businesses (and very seldom owned by the same entity that runs the refinery).  No way in Hades does a typical service station owner have the financial werewithal to absorb -- or even understand -- that risk.   
• If the price dropped, why would I keep buying my gasoline under the fixed rate (which is now way above market)?   I can switch really easily to the station across the street.   The gasoline market is has way more competitors than the local utility market.  

If I'm not mistaken (and I may be), this kind of fixed-rate / minimum volume contract is more common in the diesel and jet fuel markets (e.g. with large trucking and airline companies, who do buy straight from companies like Exxon, Shell, etc.).  And even then, it's not fixed at a specific $/gallon, but rather linked to a market index.   

More than likely you are right. That indeed there are companies that buy long term contracts for large supply. I know my utility had an old oil tank for a plant that we were not going to burn oil anymore... they wanted to use the tank for diesel storage and fill it up for the city and get long term pricing. I do not know if that happened.

At the end, you and me are left with buying on the "spot" market what ever the price is at that time. I do know there is more to it that just the standard response of big oil bending over the little guy when ever they feel like it.

And for sure, refinery capacity in the U.S. is a problem. It is said often how a new one has not been built in a long time... yet the old ones keep adding capacity... just like plants increase generation with modifications. But that part is the tricky part... it is supply and demand... there is no point in adding capacity to drop the price and drop revenue. You just paid good money to knock a hole in the bottom of your market. At some point prices rise and new capacity is added and they fall back to what they were... but there is absolutely no market driven reason at all the add a bunch of capacity just to lower the price of the product. It still costs the same to produce it.

That's why companies are quite reluctant to increase refining capacity -- it's a huge investment and takes years to do, so you're taking a very long term bet (~20-30 years) on prices staying favorable.   And of course -- as in every industry under the sun, from tulips to railway stocks to dot-coms to subprime mortgages -- if everybody makes the same decision to expand at once, it craters the market.    Game theory at its finest!