Oil tops $129 a barrel

This is from MSNBC News:

VIENNA, Austria - Oil prices spiked to a new trading high Tuesday, sweeping toward $130 a barrel as supply concerns intensified the momentum buying that has lifted crude deeper into record territory. Gasoline, meanwhile, reached an average of $3.80 at the pump for the first time.

The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange before settling back to $129.43, up $2.38. The imminent expiration of that contract created additional volatility in the market, and raised the very real possibility that crude could hit $130 before the end of the day, when the contract was ending.

Oil’s trek toward $130 coincided with the Labor Department’s report of an unexpectedly sharp rise in wholesale inflation last month. The combination raised fears that inflation will slice into Americans’ discretionary spending, and that sent stocks falling sharply on Wall Street.

Retail fuel prices also shattered records. The national average price for a gallon of regular gasoline touched $3.80, according to AAA and the Oil Price Information Service, while diesel jumped nearly 2 cents to a record $4.54 a gallon. Gas prices are up about 19 percent from this time last year.

Jim Ritterbusch, president of oil trading advisory firm Ritterbusch & Associates in Galena, Ill., said oil prices were being supported by strong demand for diesel fuel in Asia, and a weakening of the U.S. dollar against the euro, which makes oil cheaper for some investors overseas.

A couple of comments here. First, we're heading into the Memorial Day weekend, which is the start of the big summer driving season for Americans. Gas prices spike during the summer months as Americans take their summer driving trips, and vacations. But with gas prices going over $4.00 a gallon, I wonder just how many Americans are willing to take a summer driving trip? I'm sure there is a greater worldwide demand for gas that is outstripping the supply here, but I still have to wonder if we're seeing some price gouging taking place with the oil companies.

The second comment is about refinery capacity in the United States. According to this May 15, 2007 ABC News story:

For the week ending May 11, the EIA reported that the nation's 149 oil refineries operated at 89.5% of their total capacity, processing 15.3 million barrels of crude oil per day, up .5% from a year ago. The refineries produced 9.1 million barrels of gasoline per day, up from the previous week.

Drivers, however, used 9.3 million barrels of gasoline per day, 1 percent more than a year ago. The United States has had to import 11.5 million barrels of gasoline per day. For the year, Americans have been consuming an average of 9.1 million barrels of gasoline per day, up just more than 1.7 percent from the same period a year ago.

The EIA reports that as of 2006, the nation's 149 refiners could process more than 17.3 million barrels of crude oil a day. As recently as 2001 there were 155 refineries nationwide that had a maximum capacity of 16.6 million barrels of crude a day.

Refinery capacity peaked in 1981, when there were 324 refineries that could process a total of 18.6 million barrels of crude oil per day.

More than quarter of a century later, there are now less than half that number of refineries, but they have a larger refining capacity thanks to newer, more technically advanced refining technology.

The number of refineries in the U.S. have actually dropped from 324 refineries in 1981 to 149 refineries in 2006. Granted these 149 refineries have a greater refining capacity due to technological advances, but they are processing less oil today than in 1981, down from 18.6 million barrels of oil processed by 324 refineries in 1981 to 15.3 million barrels processed by 149 refineries for today. Big oil companies have cut back on their refining capacity. The refineries are producing 9.1 million barrels of gas per day, while drivers are using 9.3 million barrels of gas per day. It is almost like there is a built-in shortage in refining that Big Oil can exploit in raising gas prices on consumers. According to energy economist Philip Verleger, "Crude oil could be free and you'd still have these high prices because you can't make enough gasoline." This is a problem that has been going on for years, even to the point where, in October 2005, Shell Oil President John Hofmeister said that Shell Oil will not build any more refineries, even as President Bush and Congress provided incentives for oil companies to expand their refinery capacity.

Happy summer driving.