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Editor’s note: Why is the price of gas spiking? Energy experts point to global market forces at work — the complications of supply and demand. To get the inside story, New America Media’s Ngoc Nguyen interviewed David Hackett, president of Stillwater Associates, an energy-consulting firm specializing in the transportation-fuels market, based in Irvine, Calif. Following are excerpts from her interview.
David Hackett: The prices at your corner station are a function of three basic things: Crude oil prices, regional gasoline supply and demand and local competition. So with those three things in mind: Crude oil prices are high ― $108, $109/a barrel in West Texas Intermediate [WTI crude oil]. And that price is actually lower than the world benchmark, which these days is North Sea Brent crude, some $15 to $20 higher.
The high crude prices are driven by supply problems in Africa and
Hackett: The refineries on the West Coast are having a streak of unplanned maintenance problems, unplanned down time ― the Chevron [refinery] in
This is the time of year when refiners normally do their maintenance in the first quarter. When they have planned maintenance, they can arrange ahead of time to cover their operations. In this particular case, these problems seem to be more extensive than people anticipated, so there’s been a large draw of inventory of gasoline on the West Coast, and prices have shot up. If you’re a
According to the Energy Information Administration, regular-grade
Hackett: On a short-term basis, I think it is over. The spot price ― that’s the price refineries and trading companies sell to one another in large quantities ― today’s values were pretty much the same as yesterday. So, the market has reached equilibrium for now. It’s gone up as high as it’s going to go right now.
Where it is going to be in March? My answer is, let’s see. If tensions in
NAM: We’re hearing a lot about the benefits of increasing domestic crude oil production― won’t that help to bring gas prices down?
Hackett: More domestic production ― that’s nice, but the issue is it’s all jammed in the center of country. It can’t get to the coast. The rapid growth in production is in that region, especially
Hackett: Any additional pipeline capacity out of the mid-continent to the coast will reduce the delivered cost of that crude and create price competition with coastal crudes. This competition will especially reduce crude prices in the local regions and likely worldwide. There are no pipelines on the drawing boards from the mid-continent to
Hackett: Prices reflect the world market. If you are a seller of gasoline, demand is bad, but there are other forces at work that are driving the price of gas. In other parts of the world, the economy is good.
There’s a minimum level that a refinery can process, or it will have to shut down. So if they have to run at 80 percent and can’t sell all of their product [in the
Hackett: That’s assuming they can find buyers. If the price goes down, are people going to go out and buy more? Gas demand is relatively inelastic. It takes big price changes before people change their consumption behavior.
Could [oil companies] pound additional gas into the market? They may very well. What happens in refining has an impact, but it’s nowhere near as big as the crude-oil market.
That reflects strong markets in