Page 5
Winter 2016
NATURAL RESOURCES PROTECTIVE ASSOCIATION
Louisiana and Alabama.
We tend to point angry fingers at the
oil producers when prices rise, but
bottlenecks or add-ons all along the
distribution chain contribute to the
amount consumers ultimately pay.
In fact, when the refineries are at full
capacity, crude backs up along the
pipelines and the glut depresses
prices – bad for producers but good
for refiners because now they can
buy crude product cheaply and sell it
at increased prices.
Let’s not forget the distributors; the
people at the pump. The concept is
“Rocket up – Feather down.”
When something happens in the
news; a tanker goes aground in Tur-
key, a strike cripples output in a Cali-
fornia refinery, the price at the pump
immediately increases.
These
events have nothing to do with what
the gas station paid last week for
what’s in their tanks below the pump
but we pay up. O&G refers to us as
‘sheeple.’
So, one would think that stories of
declining crude prices would lead to
decreases at the pump. One would
be wrong. Wholesale prices must
decline significantly and for a while
before any savings are seen on the
street.
Some major companies practice
‘vertical integration.’ They pump oil
from their wells to ports where they
put it on their ships to bring it to their
refineries and then deliver it to their
own named or franchised service
stations. When one component in
the chain suffers, they can make it
up at another.
Drivers should remember that when
you point a finger at someone, three
fingers point back (except for Jason
Pierre Paul). Americans have a love
of big, fast cars, driving hard and
driving alone. The government en-
courages automakers to produce
more efficient cars with CAFÉ
(Corporate Average Fuel Economy)
numbers. Frozen during the Bush
administrations as a favor to Big Au-
to and Big Oil, this was the era of
Escalades, Hummers and the Ford
Excursion (or the Ford Pig) with its
V10 engine.
When the oil crisis precipitated by
the Arabs hit in the late 70’s Europe
responded with smaller cars and
then added fuel taxes when prices
eventually declined to encourage
less consumption. They weren’t as
painful as they might have been be-
cause consumers were used to the
higher cost. Americans should con-
sider a tax on gas (or “user fee” as it
might be termed to help cowardly
politicians who are unable to utter
the dreaded “T” word) that would
help limit consumption and pollution.
The funds collected could be dedi-
cated to our criminally neglected
crumbling infrastructure.
No one
wants to pay taxes, but everyone
wants to drive the interstate to the
national park.
As prices have recently declined, we
are seeing increasing sales of big
Jeeps and huge pick-up trucks. We
are selfish and have short memories.
A point that may work in favor of low-
er priced fuel is the competition be-
tween OPEC and American produc-
ers. The Arab producers are used to
having their way and dictating prices
because they owned a large share of
the market. As American producers
have increased their output and effi-
ciency, the volume of oil available
can’t help but put downward pres-
sure on prices. The price of a barrel
of oil, which varies greatly based on
origin and purity, has been stable
recently at about one hundred dol-
lars a barrel after spiking to about
one and a half a few years earlier.
Improved extraction techniques at
traditional wells combined with frack-
ing increased the amount of oil avail-
able to markets. High prices encour-
aged Canadian producers to develop
their tar sands. This is a dirty, ex-
pensive oil with a high environmental
cost. Delaying the Keystone pipeline
has turned out to be a wise or lucky
development. This pipe was intend-
ed to deliver Canadian crude to Gulf
Coast refineries. Delayed by ques-
tions of environmental concerns and
a much lower number of jobs than
the proponents promised there is
now no need for Keystone as Cana-
da finds that current prices will no
longer support the expensive extrac-
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received one bid and so went for a
low price. An auction for more desir-
able spots in the central Gulf over a
year ago brought in well over a hun-
dred million. The price of crude oil at
the time of the earlier sale was over
sixty dollars a barrel. The price at
the time of the more recent sale hov-
ered around forty.
Drill rigs are usually rented and sup-
port services which includes workers,
insurance, trucks and other equip-
ment can cost a typical operation
(“Day Rates”) $10,000 to $20,000
per day.
A consideration not always looked at
is the fact that we don’t put crude oil
in our cars. We have to look at refin-
ers and distributors. Oil is ‘cracked’
or distilled by heating it and collect-
ing the different types of oil which are
boiled off at different temperatures.
Light oils such as kerosene and avia-
tion fuel are the first fuels produced
since they are light and come out of
the crude at lower temperatures.
Gasoline is next and at the bottom of
the list are diesel and home heating
oil. Most plastics used for our vinyl
jacket or margarine tub are made
from petroleum. Supermarket shop-
ping bags in the billions are born in a
hole in the ground.
Availability certainly affects the price
we pay. In the spring, gas prices
increase because refineries slow
production to switch over their opera-
tion from heating oil to gasoline to
prepare for the peak driving season
over the summer. As more drivers
hit the road, up go prices. American
refineries are getting old. Due to
environmental concerns and public
distaste for these big, dirty, smelly
operations, no new refineries have
been built in the United States in the
last forty years. They are breaking
down. A major refinery in Indiana
had a serious breakdown earlier this
year and has been out for months.
Prices have spiked throughout the
Midwest. The ripples from this event
have spread across the country as
other suppliers have redirected their
products to fill in the gap (at in-
creased prices – this is what made
America great). Most of American
refineries are clustered around the
Gulf of Mexico in Texas, Mississippi,
