Gas prices surge again to record high but the driver is refineries, not oil prices
What’s refining and what has that got to do with the price of my gas?
Refining breaks down crude oil into products we use every day. On average, U.S. refineries produce, from a 42-gallon barrel of crude oil, about 19 to 20 gallons of motor gasoline; 11 to 13 gallons of distillate fuel most of which is sold as diesel fuel; and 3 to 4 gallons of jet fuel, according to the Energy Information Administration.
What consumers see quoted as the price of oil is what the refineries pay for oil. Refineries then transform that oil into products and sell those. Refiners’ prices on those fuels are closer to what consumers pay. And those prices are closer to $250 to $280 per barrel, Daniel Milan, managing partner at Cornerstone Financial Services, said.
When COVID-19 struck and world economies closed, demand plunged for oil and gas so many companies closed their plants. Others were hit by bad weather. Some companies stopped investing in refineries because of uncertainty over how the transition to green energy would affect their business. When Russia invaded Ukraine, more refineries in Russia were taken offline.
All of this has led to less refining capacity. Existing refineries are operating at near maximum capacity, but they haven’t been able to keep up with demand, and refinery margins have widened, said John Mayes, vice president at energy consulting firm Turner, Mason & Co.
The difference between the purchase price of crude oil and the selling price of finished products, or so-called crack spread, closed Friday up 2.7% at $60.54, near a record high, EIA said. The crack spread is seen as an indicator of the short-term profit margin of oil refineries.
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