Pumpin' oil

We’re getting it fast and hard and there’s no stopping now. 

There are a few things we have to keep in mind today; the check is in the mail, I promise I won’t (blank space) and America is saving gasoline. These are truly the modern day myths. First off, nobody uses mail. Secondly, if we’re already at this point, what’s the difference? Lastly, with gasoline prices so cheap compared to years past, there’s no better fuel burning vehicle than a gasoline driven car. Matter of fact, I am about to tell you that in all of our American greed, we’re about to turn it up a notch. 

We are changing as a country and we’re trying to do it under the guise of being environmentally friendly. The latest idea getting passed around is “car sharing”. No this isn’t some kind of ca pooling fad; it’s a way to get more people making better use of the car that they are financing to ease the burden of cost. The idea is that when you purchase a car, there’s a reduction in the cost of your car as long as you agree to “share” your vehicle during the hours that you’re not using it. On paper, this looks as good as an Electric Light Orchestra reunion tour. In reality though, we’re about to increase gasoline demand at an exponential rate.

If we can estimate that about 80% of cars in service today provide transportation to and from work, then those cars are available for at least 8 hours out of the day for others to “share”. I’ll skip the 80/20 rule here and just throw out the idea that we get only 10% of more demand out of idle cars if the car share plan works. That would mean that this year’s gasoline demand average of 9MM b/d goes to just shy of 10MM. I’m not sure where the teeming millions are thinking that gasoline supply will come from, but it’s not going to be from refineries in the U.S.. We’re already running refineries at a hot pace of 15.8M b/d and there’s not much more we’re going to be able to squeeze from here. 

Which now leads us into the other mythos that is making it’s rounds. As of last week, we are hearing that refinery capacity in the U.S. is now at 18MM b/d. Yes, we’re still making less gasoline this year than last (Apr-Sept 9.8MM b/d v. 9.9MM b/d), we’re still early in the season. It’s because we’re still cranking out a lot of distillate yield (4.9MM b/d) and the same as last year. This is where things get tricky for refiners, demand for distillate is slowly creeping up as our economy improves. This year to date we’re up 100K b/d in disty demand and that is a number that is sure to grow. Which brings us full circle to our claim to gasoline and a $4/gal of gas, at some point very soon we’re going to come up with growing demand and limited supply. Nobody is going to care if WTI is $80 or $20 because at that point it’s only going to matter what we can do with it. The U.S. is changing its view of energy demand because $3/gal of gas is the new cheap and America is the place to be with the lowest fuel costs in relation to income. Sharing is not caring about driving costs up. 

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About the Author

Carl Larry is Director of Business Development Consultant for Oil and Gas at Frost & Sullivan. Follow him on Twitter (@oiloutlooks) or on his website.