Thursday, January 15, 2009

Gasoline Prices ... Try Another Explanation


From the U.S. Department of Energy and parroted by the American Petroleum Institute [or is it the other way around?]:

Why do gasoline prices differ according to region?

Although price levels vary over time, Energy Information Administration (EIA) data indicate that average retail gasoline prices tend to typically be higher in certain States or regions than in others (Figure 2). Aside from taxes, there are other factors that contribute to regional and even local differences in gasoline prices:

Proximity of supply - Areas farthest from the Gulf Coast (the source of nearly half of the gasoline produced in the United States and, thus, a major supplier to the rest of the country), tend to have higher prices. The proximity of refineries to crude oil supplies can even be a factor, as well as shipping costs (pipeline or waterborne) from refinery to market.

Supply disruptions - Any event which slows or stops production of gasoline for a short time, such as planned or unplanned refinery maintenance, can prompt bidding for available supplies. If the transportation system cannot support the flow of surplus supplies from one region to another, prices will remain comparatively high.

Competition in the local market - Competitive differences can be substantial between a locality with only one or a few gasoline suppliers versus one with a large number of competitors in close proximity. Con-sumers in remote locations may face a trade-off between higher local prices and the inconvenience of driving some distance to a lower- priced alternative.

Environmental programs - Some areas of the country are required to use special gasolines. Environmental programs, aimed at reducing carbon monoxide, smog, and air toxics, include the Federal and/or State-required oxygenated, reformulated, and low-volatility (evaporates more slowly) gasolines. Other environmental programs put restrictions on transportation and storage. The reformulated gasolines required in some urban areas and in California cost more to produce than conventional gasoline served elsewhere, increasing the price paid at the pump.
Now look at the present map of U.S. prices:

The relative pricing has changed dramatically. The Midwest and Northeast consumers are being "pumped" for more money. Yet, demand is dramatically down and so are oil prices.
Do we have our own "Putin" controlling things? The Midwest and Northeast are beginning to feel like Europe does about natural gas.
Or is it just history repeating?
Published: June 28, 2000
Energy Secretary Bill Richardson said today that Midwest gasoline prices were still too high and that the Clinton administration was working to alleviate refinery problems and investigating oil companies for ''potential price fixing.'' Gasoline at the pump has fallen 7 to 12 cents a gallon in the Midwest the last week. Before last week, gasoline prices had surged for eight straight weeks.
Midwest gasoline prices continue to defy the market economics... just as they did 8-1/2 years ago... explanations and excuses notwithstanding.

In western New York, a state legislator wanted to have consumers boycott Sunoco which is the dominant player in an area of especially high relative gasoline prices:
Updated: 12/17/08 02:41 PM
Boycott of Sunoco urged by legislator

LOCKPORT — Niagara County Legislature Vice Chairman Clyde L. Burmaster called Tuesday for a boycott of Sunoco gasoline by local governments and citizens to protest high local gasoline prices.

Burmaster, R-Ransomville, sponsored a resolution that passed two weeks ago to ask for a state investigation of local gasoline price gouging. Sunday, The Buffalo News revealed that prices here are high because Sunoco, the dominant gasoline supplier in the region, is trying to make up for profits lost when crude oil prices were at record highs earlier this year.

In a speech at Tuesday’s Legislature meeting, Burmaster said, “As in the Old West, it is time for the vigilantes to ride. . . . Why don’t people want to move to Western New York or Niagara County? Is it too expensive to live here? Go ask Sunoco.”

He said residents should call Sunoco at (800) 786-6261 to protest prices and should call Gov. David A. Paterson’s local office at 716-847-7968 to ask him to respond to Burmaster’s resolution asking for an investigation.

The real problem is identifying which companies are the dominant players because of the variety of independents that get their gasoline from the majors.
I suspect, however, that in the Detroit area, Marathon sets the pace because they have a local refinery. Tough to verify, however. It could be argued that Marathon's refinery expansion is affecting this area's pricing [cover costs, etc. etc.]... but that would be tough to verify, too.
Perhaps this is a case of not having a local refinery increases gasoline prices and having a local refinery increases gasoline prices. Heads, I win; Tails, you lose.


Can"t Find It?

Use the SEARCH BLOG feature at the upper left. For example, try "Global Warming".

You can also use the "LABELS" below or at the end of each post to find related posts.

Blog Archive

Cost of Gasoline - Enter Your Zipcode or Click on Map

CO2 Cap and Trade

There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

My photo
Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)