Originally posted by: dmcowen674
Originally posted by: Icepick
Today's high gasoline prices have a lot to do with the fact that oil companies have discovered that it is more profitable to withhold supply and create an artificial shortage.
Less supply keeps prices (and profits) high since the general public has to buy the same amount of gas from week to week to fill their cars/trucks/suvs/recreational vehicles.
People can't just decide not to purchase the product when prices go higher.
Not only that but, I'm sure the oil companies have agreements with each other what they will each charge.
Think America is a free market society? Think again. Price controls have been in place for years for many necessities that we buy.
Have you or anyone else seen gas stations out of gas?
Are they going to have to ration the gas because they are holding back on purpose?
A few things to note about refineries:
1. refineries have finite crude oil, intermediate, blend stock, and finished gasoline storage. Thus they have to carefully plan production and watch the market. If a refinery runs out of finished fuel storage, they have to sell fuel really cheap and lose profit, sell blend stock to another refinery (lose money), or sell gas out of market for cheap (lose possible profits). Under no circumstances, unless all refineries in market (like CA) are maxing out capacity (see below), will gas stations be without gas. But I have seen times during summers where gas stations were out of premium for a day or so...supply was so tight that stations were getting orders delivered late.
2. Refineries have a maximum production capacity. They typically must operate at at least 50-60% of max. cap. to function well at all. somewhere in the 85-90% of max cap is often most efficient but this varies from refinery to refinery. So say refinery A has max crude capacity of 150,000 Bl/day. A's efficient optimum is probably about 140,000 depending on what crude oil types/grades are blended to make the refinery supply Often referred to as the 'crude slate').
3. Refineries produce marine fuel, jet fuel, diesel, automotive fuel, and aviation (prop) fuel from the same crude slate through a number of processing steps / unit operations. The crude slate, energy costs, and finished fuel prices/demand dictate what a refinery will produce. Refinery A cannot take all the crude and just make all jet fuel or all premium gasoline...no refinery in the world can do this that I know of. Some fraction of the crude will go to diesel/jet/marine fuel, and some to auto fuel... the fractions can be adjusted by modifying the operation of processes in the refinery but the fractionation can only be adjusted within certain limits that are determined by operational capability of process units in the refinery and the make-up of the crude slate.
It can take days to adjust and tune refinery operation to change fuel fractionation or to account for changes in the crude slate while maintaining safe operating conditions and efficiency. So refineries don't make production changes on a whim.
All that being said...
The automotive fuel market is effected by the marine, jet, and diesel fuel markets. Since CA has a high amount of flight traffic and two very busy ports, not to mention a lot of trucking/rail shipping from ports, etc. the CA automotive fuel market is inherently a little more turbulent.
Refineries scale production to find a profit optimum and they sell produce/sell fuel accordingly. When planning production, the types of crude oil available and price/barrel of each along with the current and projected finished fuel prices are considered. Also refineries capabilities for processing different grades of crude and production of different finished fuels (and at what energy cost) are also taken into consideration.
I am kinda getting tired of typing this but hopefully, from what little I said, folks can see some possible scenarios that would hike gas prices.
For instance, anything that increases demand for marine/jet/diesel fuel will pull supply away from automotive fuel market which could lead to price increases to balance supply and demand.
Or if the supply of a particular crude stock (from Mexico say) were to change suddenly... this could effect CA refineries that use that crude in their crude slate. The refineries can (A) bid against one another for the cut supply, (B) try to find a crude and combo of crudes that will effectively replace the Mexico crude, or (C) change production/operation of the refinery. In truth, refineries will do all of the above.... but this costs money so gas prices go up. The oil market as a whole could be going down but the decrease of a local crude supply effect the local CA market and could increase gas prices in CA.