Gasoline prices are affected by supply and demand side factors, as well as unregulated Wall Street speculation (See note at bottom of post). This post will show that the demand side does not explain increasing gasoline prices. Escalating price increases are due to a trifecta combination of exports, refinery closings on the supply side and fear-based speculation. These results bode well for Wall Street and oil company profits, but only exacerbate the economic plight of the 99 percent, who are struggling to survive in a weak economy.
The figure below illustrates the increase in gasoline prices from March 2008 through March 2012. From January 2010 through December 2011, gasoline prices rose from $2.61 per gallon to $3.24 per gallon. That is an increase of 24 percent over one year.
Supply Side: Exports and Refinery Closings
Exports: “The United States exported more than 500,000 barrels per day (bbl/d) of gasoline in 2011; this level represents a 57 percent increase compared to 2010, and a 266 percent increase compared to 2007.” The figure below shows annual U.S. gasoline exports by destination. Clearly, gasoline exports have risen considerably from 2009 onward. A significant fraction of gasoline exports are destined for Mexico, as well as Central and South America. Notice that gasoline exports from 2009 onward mirror the upward gasoline price increases during that interval. This indicates an association between exports (i.e., reduced domestic supply) and domestic price increases.
Refinery Closings: “The closing of oil refineries in Philadelphia and its suburbs has led to higher prices at the gas pump and as it furthers the nation’s reliance on foreign oil, it becomes a national security issue…Sunoco has said it plans to close its South Philadelphia refinery, the largest on the East Coast, if a buyer isn’t found by July 1…The company already shut down its Marcus Hook refinery in Delaware County…ConocoPhillips shut down operations at its Delaware County refinery in Trainer…The three plants, which had 2,200 employees, including 1,200 United Steel Workers, account for 50 percent of the East Coast’s oil refining capacity.”
Demand Side: More Fuel Efficient Vehicles and Unemployed Workers
Hybrid Electric Vehicles: From 1999 through 2011, approximately 2.2M hybrid electric vehicles were sold in the United States. Compared with a total of 182M vehicles sold in that period, hybrid electric vehicles are 1.2 percent of that total. That percentage is not sufficient to reduce gasoline prices.
Unemployed workers: In February 2012, the civilian labor force was nearly 155M workers. Unemployed workers were approximately 13M with an unemployment rate of 8.3 percent. Granted that unemployed people probably drive less, however, the percentage of unemployed workers has been relatively constant during the interval when gasoline exports increased sharply. Thus, unemployment (i.e., this component of demand side) does not explain rising gasoline prices.
Wall Street Speculation: According to policy analyst John Lippitt, “Although tension over Iran and concern about the oil it supplies to world markets affects oil prices, financial speculators see this as an opportunity to make money and jump into the market heavily, which drives prices up much more. Wall Street firms and other financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil they are trading. Ten years ago, producers and end users (airlines, oil refiners and retailers, etc.) were responsible for 70% of the trading of oil; now the financial speculators make up 65% – 80% of the market. The only reason they are in the market is to make money and the money they make comes out of our pockets through higher prices.”
Note: An analysis of 36 years of Energy Information Administration data shows no statistical correlation between domestic oil production and gasoline prices Thus, there is no reason for this post to consider oil price fluctuations and the price of gasoline.Tags: Exported Gasoline, Hybrid Electric Vehicles, Refinery Closings, Unemployed Workers, Wall Street Speculation