>Oil prices are falling, demand is down, and gas prices are still going back up. What gives?
Blame the refiners, not the fact that we aren’t “drilling here, drilling now,” says USA Today:
A big reason for the disparity: refiners. Beset by weak consumer demand and losses on gasoline sales, oil refiners have scaled back production since late December. The average utilization rate at U.S. refineries was 81.5% as of Feb. 6, the lowest in 17 years, not including hurricane-related slowdowns, according to the Energy Information Administration. As recently as early December, refineries were running at 87.4% of capacity.
Refineries typically shut some units for maintenance this time of year. But many are trimming output because demand is anemic. That tends to rile consumers who view low gas prices as a small silver lining in a dismal economy. But go easy on the poor refiner, analysts say.
“If you’re losing money on something and you’re producing at 90%, you’re going to cut back,” says OPIS chief oil analyst Tom Kloza.
“If there’s no demand, … there’s really not a whole lot of point to making extra gasoline,” says Bill Day, spokesman for Valero, the largest independent U.S. refiner.
And as oil prices drop, the poor, beleaguered refineries will increase their profit margin by earning more on every gallon they do refine. Nice.
Of course, if there’s no demand, it doesn’t make any sense to drill any more oil that won’t get refined, either. And if oil prices keep dropping, it doesn’t make sense to drill in some of these off-shore areas where it’s so much more expensive to drill.
I’ve written dozens of blog posts about how lowering demand lowers gas prices more immediately than ridiculous ideas like opening up ANWR to oil drilling. But “Drill Here, Drill Now” was all an election year ploy anyway, designed to rally the base, raise money and grab headlines. It was completely dishonest, since the oil companies are already sitting on gazillions of oil leases they have no intention of tapping. It was dishonest, everyone knew it was dishonest, except for the morons who slapped “Drill Here, Drill Now” stickers on their SUV bumpers. You know who you are.
Anyway, now that demand has dropped to the point where refineries are cutting back on production, perhaps we’ve reached a kind of steady-state at $2/gallon. Refineries certainly don’t have an interest in seeing that price drop or they’d up their capacity.