Gas Prices on the Rise, Here's Why

Over the past week or so, we’ve seen the average price of gasoline hit $3.60 per gallon of regular, with some areas of the country -- like California -- reaching a heady $4 a gallon.

But while the Syrian uprising and political tensions between Iran and the West over its nuclear program are playing a small part in increasing the price you pay at the pump, energy specialists say the biggest culprit lies closer to home.

In short, the U.S. isn’t refining as much gasoline as it once was.

During Wednesday’s All Things Considered on NPR, Fadel Gheit, senior energy analyst at investment firm Oppenheimer and Co., explained that outdated and unprofitable oil refineries had been closed down in recent years.

Declining Refineries

“The supply of gasoline has been declining,” he explained. “We have 700,000 barrels of refining capacity [that were shut down] in the last three months. That is almost 5 percent of U.S. gasoline production...now offline.”

Most of the recently closed refineries -- more than energy analyst Phil Verleger has seen in his 39-year career -- have been closed down as a direct consequence of the type of oil now common on the market.

High Sulfur Crude

Traditionally, so-called “sweet” low-sulfur crude was refined into gasoline, but as supplies have dwindled the cost of sweet crude has risen, more refineries have started to process high-sulfur crude.

But high-sulfur crude, while cheaper to buy, requires more processing in order to remove the higher levels of sulfur. In turn, that means older refineries be retrofitted with expensive equipment designed to deal with the higher levels of sulfur.

The U.S. isn’t alone in a reduction of oil refineries either. According to Verlerger, a large oil refinery in Europe has also had a big impact on U.S. gasoline supplies.

Offshore Oil Rig

Exports Impact Domestic Sales

With a drop in domestic gasoline production, you may expect the U.S. is importing more oil than normal, accounting for a rise in gas prices.

But the truth is the exact opposite. Over recent years, the amount of foreign gasoline imported into the U.S. has dramatically dropped, while the export of gasoline has increased.

And with increased gasoline exports, there’s even less gasoline for domestic customers.

Driving A High Gas-Mileage Future?

At the moment, gas prices are having a negative effect on the bank balances of Americans nationwide.

But if it continues, the rise in gas prices could help the U.S. auto industry, which has focused a lot of attention in the past few years on producing high gas mileage cars, hybrids and plug-in cars.

Source: Green Car Reports