CAMARILLO, Calif. -- From raccoons to lightning strikes, recent events affecting refining capacity have added 88 cents to the retail gasoline price since January 19 and brought it to a new all-time record high, according to a special edition of the Lundberg Survey provided to CSP Daily News. The Lundberg Survey compiles data from approximately 7,000 U.S. gas stations.
Now, at $3.07 for regular grade, the price may be high enough to create a rush of imports, dampen demand growth and cause a price crash, said the report.
The year [image-nocss] began with the U.S. average gasoline price within two cents of its year-ago level. In late January, though, it began an ascent that surpassed the path of 2006. On May 4, having zoomed 88 cents per gallon, self-serve regular hit $3.0684.3 cents above the prior all-time record high set on Aug. 11, 2006.
Unlike other historical spikes, this price rise is not from crude oil prices. Crude has been comparatively steady so far in 2007. The new record retail price comes from tight gasoline supply during a time of strengthening demand. The tight supply comes from an extended and expanded slew of U.S. and foreign refinery work projects that idled capacity.
Recent weeks of seasonally building U.S. gasoline demand applied the usual pressure to refinery output, but this year, demand has been stronger. Daylight savings time, which came about one month earlier than last year, added a percentage point to demand growth.
And refinery work during strong pre-summer gasoline demand, as well as new refinery problems, reduced gasoline imports and stronger-than-usual gasoline demand for the time of year, resulted in the 2007 price spike.
For the past three months, the U.S. refining sector has:
Played catchup with repairs not completed in 2006 from 2005 hurricane damage. Conducted normal seasonal maintenance pre-spring. Had unplanned glitches to fix. Lengthened repair periods past what had been expected. Suffered power outages (two caused by wandering critters such as raccoons and opossums). Had lightening strike a refinery.There were at least a dozen new refinery problems or extensions of work projects just in the two-week period prior to May 4 when the retail price hit a new record. Other problems occurred outside the United States.
The reason that these recent coincidences had such a powerful impact on U.S. refining capacity and kick off an 88-cents-per-gallon rise at the pump is that cost-prohibitive rules, regulations and unconscionably long lead times imposed by federal, state and local governmentswhich also curtail building of new refineries and expansion of existing facilitieseffectively starve Americans of enough refining capacity.
The U.S. must import gasoline because of insufficient refining capacity. The cure, said the report, is active rationalization of the permitting process to effect more capacity. Decades of overzealous government-induced price hikes and prevention of capacity expansion have come home to roost in 2007, it said. Consumers are paying the price because high-priced imports are now the only solution. U.S. gasoline is dependent on imports, and Lundberg said it expects this dependency to grow.
Lawmakers are now proposing measures to fix the problem of high prices, for example, through anti-gouging legislation. Such laws would inhibit price increases by fear and prevent market price response from doing its job dampening demand during a supply emergency. IF necessary price hikes are thwarted by government threats, gasoline supply problems may make Spring 2007 look meek, concluded the report.
Click here to view the complete May 8, 2007, edition of this Lundberg Letter for free with registration.
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