Gasoline Inventory and Prices

These two graphs, from EIA's This Week in Petroleum 4/26, clearly show that, right now, crude oil stock has little to do with gasoline stocks (inventory). and gasoline prices. With crude oil stocks at above average values, gasoline stocks have dipped below average values.   This largely due to the fact that terminals have been reducing their inventories of finished ReFormulated Gasoline (RFG), which contains MTBE, in order to make room for Reformulated Blendstock for Oxygenate Blending (RBOB) with alcohol.  Because of corrosion problems, ethanol cannot be blended into gasoline until just before it gets trucked to retail stations.  This means that stocks of RFG will virtually disappear. In other words the stocks of RFG with MTBE have to be used up and replaced with RBOB (for blending with alcohol), during the transition to using ethanol as the oxygenate rather than MTBE as is shown in the graph below. The fact that ethanol cannot be transported in pipelines and must be transported via tank truck or ship complicates this as well as the fact than we must import substantial quantities of ethanol until the domestic supply catches up with the requirement for blending. Getting ethanol in the right place for blending plus the $0.54 per gallon import tariff on ethanol are the primary causes for high prices of gasoline. having nothing to do with the high prices of crude.  When the ethanol problem gets ironed out then we may have to worry about crude prices supply, especially during the July-August peak demand for gasoline.  The price of gasoline is strongly affected by the price of crude which represents about 55% of the cost of gasoline. I hope this makes sense, the popular press seems to be having a problem explaining this. (Revised 4/29  As I did-I was wrongly thinking that high crude inventories meant low crude prices-we have a world market for crude and must pay prices based on the worlds demand, not just the US demand.)

Technorati tags: gasoline, ethanol, energy, technology

Comments

[Cervus]

The blame for most of these price rises falls squarely on the shoulder of Congress for requring ethanol when we were two BILLION gallons short of being able to meet the ethanol requirement domestically. The 2005 Energy Act is a sick joke.

Just looking at that gasoline stock graph makes me sick. Before this switch we were far, far above the normal range. Now we're below. I shudder to think at what gas prices would be if we'd been in the normal range, though.

The refiners are doing the best they can in the face of these new regulations.

[amazingdrx]

Excellent analysis Jim! I guess this is why politicians and energy policy do not mix.

Politicians usually only consider campaign contributions (bribes) when making policy decisions. Agribizz interests benefit from ethanol. Big bribes!

Oil companies benefit from high gas prices, even bigger bribes!

So a 100 dollar rebate to consumers is the Frist plan? How much in campaign contributions would that 20 billion dollar bribe for voters get him? Bribing US with our own money.

[DG]

I think I misunderstood this sentence: "With crude oil stocks at above average values, gasoline stocks have dipped below average values."

By values, are you talking about price, or about levels (amount we have on hand)?

Because it sounds like what you're saying is the LEVEL of gas is lower than average (due to the ethanol switch) which is what's making the PRICE be higher than average.

[Jim from The Energy Blog]

Sorry for my error in logic when doing this post last night. I just corrected it, of courase the price of crude affects the price of gasoline. It's suprising that no one caught that.

I use the terms levels and values interchangably. I do not mean to infer price when I use level in this context, although my dictionaries first definition of value is worth. I use the meaning my dictionary calls numeric quantity-I guess that is from my engineering training-sorry for the confusion, level would have been a better choice.

[DG]

Thanks for the clarification. I'm new to all this oil and energy stuff, so I tend to pester people with a lot of questions. Great blog, though!

[JesseJenkins]

Thanks for the analysis, Jim.

[Claire Celsi]

Jim: I am surprised at your simplistic approach here. There are many reasons that gas prices are high. The switchover from MTBE to ethanol is only accounting for a few cents a gallon of those huge prices and as the supply eases up ethanol will once again be less expensive than gasoline. The main reasons the prices are high are that world demand is way up because of India and China's growing appetite for fuel, oil speculators driving the prices up through panic over Iraq and Iran and also because oil companies have not reinvested gigantic profits into new refinery capacity. The Secretary of Energy himself acknowledged just last week that ethanol producers are the real heros because they are increasing capacity at a record rate to meet the demand left by MTBE. By the way, MTBE has not been banned in most places. It is being dropped like a hot potato because it pollutes groundwater. Ethanol does not have that problem. By the way, it's the oil companies buying and storing the ethanol at the blending terminals. They have had 6 months to smooth out the system.

[amazingdrx]

Ethanol will always rise directly as gasoline does, as will all liquid fuels. As long as big oil is in control, if agribizz takes over control from big oil, so what, same beast. Corporatism killing the planet with CO 2.

Electric powered cars? At the current cost of wind power, 2 vents per kwh, less than 20 cents per equivalent to a gallon of gas. Even at power company retail of 10 cents per kwh it is 75 cents per gallon equivalent.

Recharge from your own home solar and wind electricity and it's free, after the payback period.

Forget agribizz, land/carbon sink destroying chemical fuel farming. From the waste stream using algae in solar collectors liquid biofuel could still power aircraft. But newer, more effective batteries are even going to assault that use.

[Garko Novis]

buying gas has become a major investment decision, as in "do i invest in some food so i can get thru the day or some gas so i can get where i have to go?" It should never be this way but it is. But that doesn't mean we have to just suffer. There is a real solution in Water4Gas and you owe it to yourself to check it out! http://w4g4mpg.info

[Garko Novis]

buying gas has become a major investment decision, as in "do i invest in some food so i can get thru the day or some gas so i can get where i have to go?" It should never be this way but it is. But that doesn't mean we have to just suffer. There is a real solution in Water4Gas and you owe it to yourself to check it out! http://w4g4mpg.info

[Supply Chain Management]

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[Inventory Management Software]

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