Follow Up to “We Being Gouged at the Pump!”

Although I do not plan on posting much of anything more on this issue, a serendipitous email came my way shortly after my previous post.  It was not orchestrated! As I mentioned in the previous blog, I do NOT work in oil production (digging it from the ground) or in gasoline production & marketing; however, I DO work for the chemicals organization of an oil major (translation: I do NOT have any "insider knowledge" whatsoever; I have not even taken a single class on refinery economics, even though my unit is located within the boundaries of one!).  The following is an email with interesting facts that complement the previous blog when I posted my blog.  My emphases are in bold. Too many facts just get in the way of misconceptions (& distortions!):

Global Public Affairs                                                       
04/28/06 10:02 AM                                                            
Subject INFO:

WHY THE RECENT INCREASES IN U.S. GASOLINE PRICES?

Recently we've all heard or read news reports about increasing gasoline prices, which no doubt you've noticed when filling up your car.  As we approach the summer driving  season, the following facts will help you better understand what's going on with U.S. gasoline prices and to help you explain this to your family, friends, and neighbors.

Gasoline prices are impacted by a number of factors, including changes in the price of crude oil, supply and demand, changes in fuel specifications, government regulations, taxes, and transportation costs.  Several of these factors are currently at play in the United States, affecting fuel prices in this country:

Crude Oil Prices and Commodity Gasoline Prices Have Increased
Gasoline prices are higher this year than last year primarily because of higher crude oil prices due to increased world demand and increases in the spot prices for gasoline.

Here are a few facts…
Crude oil, the major component in gasoline, makes more than 50% of the price of gasoline.

Crude oil prices have increased from about $54 per barrel in
mid-February to more than $70 per barrel in mid-April.

Geopolitical uncertainties in oil producing regions such as the Middle East, Africa, and South America, from where our nation imports much of its oil needs, can create price volatility.

U.S. refiners must compete in the world market to purchase their share of crude and must also compete with other buyers for refined products, such as gasoline.

ExxonMobil is a net buyer of crude oil purchasing 3.5 million barrels per day more than we produce for use in our refineries. We refine about 6 million barrels per day.

Tightness in refining capacity can also impact prices – almost 5% of
Gulf Coast refining capacity is still off-line as a result of last year’s hurricanes.

Industry motor fuel production rates have been lower due to heavy refinery maintenance currently underway, some of it seasonal and some tied to changing fuel specifications such as the phase-out of MTBE (a component of gasoline), and introduction of ultra low sulfur diesel.

Another fuel change currently underway is increased use of ethanol-blended gasoline as a result of the federal Renewable Fuel Standard.

Spot commodity gasoline prices, on average, have risen substantially in recent weeks – from about $1.40 per gallon regular unleaded) in mid-February to more than $2.20 per gallon in mid-April. These prices exclude federal and state gasoline taxes, which currently cost an average of $0.46 per gallon according to the API.

Fuel Demand Continues to Increase
Americans drive more vehicles and more miles than ever before.
Here are a few facts…

Worldwide demand for gasoline, diesel and aviation fuels is up due to economic growth.

The Department of Energy forecasts that U.S. demand will continue to grow at an average of 1.7 percent per year during 2006-2007. Nearly half of the worldwide gasoline demand growth in 2004 was in the U.S. where it has grown by about 1.5 percent per year over the last 3 years.

CHAIN E-MAILS
You may have seen a "chain" e-mail urging the boycott of Exxon and Mobil stations in an effort to either reduce gas prices or to avoid purchasing Middle Eastern imported oil.  These e-mails have been around for several years and fail to take into account: (1) how gasoline prices are determined as outlined in the foregoing points, (2) the laws of supply and demand, and (3) the U.S. dependency on foreign oil.  For additional details you may want to read the third party response posted on the Urban Legends Web site: http://urbanlegends.about.com/library/bl_gas_boycott_2006.htm

We hope this information is helpful in understanding gasoline prices in context.  Our backgrounder on earnings and prices provides additional details and charts. (This can be downloaded and sent externally.) For more industry information, you may want to visit the following Web sites: http://www.eia.doe.gov and http://api.org.

Information on maximizing the fuel efficiency of your car can be found at the U.S. Department of Energy site: http://www.fueleconomy.gov 

For additional information see American Petroleum Institute's Factors Affecting Gasoline Prices.

Please feel free to share this information with family, friends, and
neighbors.


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Published in: on May 1, 2006 at 2:05 am  Leave a Comment  

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