What factors contribute to gas prices? [OC]Submitted by USAFacts_Official t3_yl8yag in dataisbeautiful
Wizard01475 t1_iuxlwl4 wrote
Perhaps this is a stupid question, but what would make refining costs double almost triple in a matter of two years? My only thought is cost of labor.
marzenmangler t1_iuxu66n wrote
That might actually be where the profits are.
From what I’ve read refining shut down in the pandemic and it’s difficult to restart once it’s down, same as drilling. So there was a bottleneck there.
And I think a lot of oil companies also have integration in the refining process, so when there is a bottle neck they can charge a higher price there.
Ok_Frosting4780 t1_iuxupy2 wrote
Many refineries closed down as demand nosedived during the pandemic. Now demand is back, but the refineries remain shuttered. This leads to a refinery shortage, allowing refiners to hike up their prices and expand their profit margins. So the cost to refine isn't much more, they're just now in a position to charge a lot more for it.
Bot_Marvin t1_iuy1ayq wrote
…. That’s what a cost is. A court side basketball ticket doesn’t cost more because the chair is super expensive, but because there are fewer of them, a higher price can be charged. Nearly every firm charges the most they are in a position to charge.
Ok_Frosting4780 t1_iuycrk1 wrote
I agree. Firms charge whatever they think their clients are willing to pay. The person I was replying to implied that the price of refined oil increased because it became more costly to refine when in reality it's mostly caused by a predictable market reaction to contracting supply and expanding demand.
Bot_Marvin t1_iuyepkb wrote
That’s very reasonable, I guess I just had a knee jerk reaction to similar wording used by people who believe rising gas prices are the result of “greed” as if firms suddenly became greedy haha.
Wizard01475 t1_iuybg8a wrote
Great analogy. Really what this means is the refineries know they have the upper hand and are able to gouge any price they want. What I’m hearing is there is not enough competition.
Bot_Marvin t1_iuybxd5 wrote
And I agree with you right there. More competition is very necessary.
40for60 t1_iv0w3ln wrote
They are not shuttered, they are at a 7 year high utilization % of 94%.
starrdev5 t1_iv14amn wrote
That means ones that are open are at 94% utilization practically max refining capacity. That’s a sign of a refinery capacity shortage.
40for60 t1_iv15czv wrote
yes, one of the issues is the large refinery in Philly that blew up and they aren't going to rebuild it because the forecast is for consumption to decline. EV's are nearly 20% of new car sales in CA now The reason why gas prices went up so fast was due to the vaccine deployment going so smooth which made a sudden demand surge and outpaced the ability for the refinery's to ramp up, also North Dakota was slow to pump oil due to a really cold Jan/Feb then labor shortages.
starrdev5 t1_iv17552 wrote
You’re not wrong about your other points but specifically total refining capacity is operating at 1 million barrels of oil a day less than pre-covid.
Here is a list of refineries that shut down since Covid. Some of the shutdowns will cite things other than Covid that did them in like hurricane repairs and equipment maintenance costs, but refineries took big losses in 2020. It’s because of those big operating losses that their balance sheet couldn’t withstand the later operating losses.
40for60 t1_iv18tz6 wrote
Qty is down but not because systems are idle as the first person I responded to insinuated but because Philly is gone and the rebuild of Husky,due in 2023, and others isn't complete.
TinKicker t1_iv02cd8 wrote
No new refineries have been built in the US since the 1970s.
Since it takes roughly ten years and $10B to complete a refinery, no company could justify such an expense on a long term project that could be shut down by the next administration, before construction is ever completed.
Meanwhile, every time a refinery shuts down or suffers a catastrophic accident, that’s one less refinery to produce the nation’s ever-increasing energy.
Wizard01475 t1_iv0i4vw wrote
While I agree there could be more. They have opened new ones. As recently as 2022
https://www.eia.gov/tools/faqs/faq.php?id=29&t=6
When there is profits to be made companies will build the infrastructure.
wingfield65 t1_iv1irdt wrote
Refineries have to purchase crude oil.
Wizard01475 t1_iv2yghv wrote
So the increase cost in crude is identified both in the cost for crude and for refining it?
wingfield65 t1_iv2z6nq wrote
yes - when price of oil goes up the cost for a refinery goes up for both feedstock and cost of refining. cost of refining will go up because utility costs go up.
Viewing a single comment thread. View all comments