In the wake of the recent crude oil surplus, price per barrel has tumbled, and some are taking huge advantage of the low prices– particularly, U.S. refiners.
There’s a reason gas prices have plummeted to barely $2 a gallon, the lowest average nationwide in over five years, and it’s because refiners are guzzling as much crude oil as they can while it’s available for a remarkably low price tag.
Unfortunately for them, U.S. drivers just can’t keep up with the surge; most of the fuel they’re producing is winding up in storage tanks across the nation. At 240.3 million barrels, gasoline inventories are bursting at a high not seen since 1990 for this time of year. Though drivers are indeed filling their tanks more often, this increase pales in comparison to the practical flood in supply. This comes as no surprise: refiners have been using upwards of 93% of their operating capacity to produce 16.3 million barrels of oil a day from early December to early January, abnormally high numbers for this time of year.
Experts on the refining field are stumped by this course of action. Tom Kloza, Head of Energy Analysis at the Oil Price Information Services, says refineries are “running at pell-mell rates that are not justified.” He believes they’ll need to cut back, soon, but first: “Refiners are going to have to basically say, we’re just choking on it.”
These refineries have been operating at high capacity despite losing money– in some parts of the country, margins between what refineries pay for crude oil and what they make on gasoline were negative. Some have started to reign in production, and more will surely follow in upcoming weeks as they prepare for maintenance usually completed during the late winter months, but still more fuel is arriving from overseas. European refineries too are reveling in low costs of crude, also manufacturing as much as quickly as they can handle. Much of Europe uses diesel, however, so excess gasoline is shipped to the United States, to be added to the surplus filling the nation’s already overflowing storage tanks.
Analyst Sam Margolin with Cowen & Co. thinks the choice to almost overproduce is due to perceived profits: “The mentality is, ‘I’m not making as much money as I’d like to, but if I cut the only thing that will happen is that everybody else is going to be making more money.’ That’s why they don’t stop until they absolutely have to.”
All of this is great news for U.S. drivers. The U.S Energy Administration predicts gas prices will average out to about $2.33 this year, a 31% drop from 2014. They also estimate that, on average, U.S. households will save approximately $750 on gasoline alone this year.
Fuel manufacturers hope these savings will translate into U.S. consumers choosing to drive more, leading to more profit-producing fill-ups. They also have high hopes that other industries reliant on high fuel consumption, like freight transportation, will increase their demand– but analysts are skeptical. “Although we are optimistic on gasoline demand for 2015, on low prices in the U.S. and some other countries, supply growth is far greater,” wrote Amrita Sen, Energy Aspects’ Chief Oil Analyst in London.
This post comes courtesy of http://fueltankhire.com.au/