Gasoline $3.20

Some of these latest pieces on Gasoline are getting a little bit dicey. Both Thursday and Friday all network evening newscasts had major stories on the "Pain at the Pump. I'm guessing about the third each night. But it's a reasonable assumption. My DVR only records two channels. So it was ABC and CBS with Katie Couric one night, and ABC and NBC in HD the next. The Big Number was $4.38. I forget which broadcast carried that theory. Anyway, Gasoline is all the rage now. So here's a sampling of what the "experts" are saying.

Stuart Staniford says

So then the question is whether 2mbpd in missing Saudi oil production is enough to account for the $0.70 increase that can reasonably be attributed to crude, rather than refinery tightness. Well, that's a $0.70/$1.90 ~ 35% increase. Given a gasoline price elasticity of -0.05 during the period of interest, it would only take a 35/20 = 1.75% reduction in global gasoline supplies to do the job. Since the missing Saudi production is 2/84 = 2.4% of oil supply, it would appear that, had this not happened, we would have had little or none of the 35% crude-based increase in gasoline prices since 2004.

James D. Hamilton discusses the problems involved in constructing the first new US refinery since 1976 in Arizona.

What if we'd had this refinery's planned 85,000 barrels/day of gasoline online right now? That would represent a little less than 1% of total U.S. demand. In an environment like the present in which refining capacity may be the determining factor driving retail prices at the margin, with a short-run demand elasticity of 1/3, a 1% increase in quantity supplied would translate into a 3% reduction in price, or 9 cents per gallon using the current U.S. average retail price of $3.16 a gallon.

Admittedly, that calculation is a bit misleading, because it ignores the potential significant smoothing of price fluctuations that should come from adjustment of inventories and imports. But it does highlight the fact that, when those adjustments are working imperfectly (as they appear to be at the moment), even one more refinery could make a lot of difference.

Tom Whipple is concerned

The next important point about gasoline stockpiles is that not all of it is useable. As gasoline is largely delivered by pipeline, barge and coastal tankers these days, a lot of gasoline is tied up in transit. Thus the amount of gasoline “trapped” in transport is substantial. This“trapped” gasoline is known as the “minimum operating level.” [...]

If stockpiles – on either coast – drop much more, we are going to find out, the hard way, exactly where the minimal operating level is, for that will be the day the shortages develop. [...]

Total US gasoline inventory increased by 1.5 million barrels last week to 196.7 million barrels, still well below normal and still a cause for concern given the increased demand and the proximity of the summer driving season.[...]

There is still a good possibility of trouble ahead; last week’s stockpile increase certainly was not enough to prepare us for a Gulf hurricane, or any other kind of major disruption, but it may be enough to get us through the first part of the summer driving season without shortages. These issues are how much we continue to consume and whether imports will stay high. We will know shortly. The distribution of the US stockpiles is still not good with the Midwest and East Coast being the most vulnerable to shortages.[...]

Large US imports of gasoline, mainly from Europe, are starting to raise questions. Last weekend gasoline in Germany went over $7 per gallon and analysts are talking about the possibility of $8 gasoline later this summer. The Europeans note that the US is now importing roughly 1 out of every 8 gallons of gasoline consumed and that there is no end to this imbalance in sight. Some Europeans are beginning to ask whether their governments should be taking action to slow the exports to the US.[...]

Tom Kloza says.

I’m still holding to my prediction that we’ll see some moderation or perhaps a “giveback” in retail prices between now and the July 4th holiday. Most of the drops should occur in markets that have the most excessive prices - Oregon, Washington, the Rockies, Great Plains, and Great Lakes states. But once the Weather Channel starts showing those “cones” that indicate the probability of storm paths, we’ll bounce higher on the fear that comes with Hurricane season.