The Sweet Spot in a Gas Market That Wants High Prices
NEW YORK (TheStreet) -- Shortly after Hurricane Katrina, I had to drive up to North Carolina on business.
The hurricane had knocked out Louisiana refining capacity, dramatically cutting supplies. Thus traffic was very light. I gassed up before leaving and took a picture of the sign outside the station, because I was shocked at the prices -- $3.15/gallon for regular!
Today we'd call that a bargain.
Americans have become inured to gas prices we previously found unacceptable, and the industry has taken note. They have learned that the supply chain of this global market can be manipulated at many different points to maintain that price, and it is.
In some ways, these high prices are good news. They encourage efficiency and efficiency pays. Buy a higher-mileage car and you make up most of that cost in energy savings -- you get a sweeter ride, too. The same holds for appliances, for heaters and air conditioners and for industrial boilers. Efficiency is the cheapest form of renewable energy and a source of economic growth.
But with U.S. oil now supplying 83% of domestic needs according to Bulldogcapitalgroup.com , and oil trading in a narrow range at a $20/barrel discount to European supplies, as ArmoTrader Jerry Hachoyan writes , producers have had to find a new choke point in order to maintain pricing.
The choke point is refining.
Domestic refining capacity hasn't increased in over a decade, according to the Department of Energy and very little capacity is idle. Thus, by rescheduling the move from "winter" to "summer" fuels and by suddenly scheduling maintenance, refiners have turned oil abundance into a gas shortage, despite the fact that stocks of gas are near their yearly high, as BusinessInsider writes.