The only metaphor that can describe the fossil-fueled energy emotion over this past week is that the consumer has now ventured into the deep end of the pool with leaky water wings.
The energy pool is a complicated soup with many interrelated ingredients.
For evidence of this, you just have to look at this week’s price spikes at the pump and loading racks for gasoline and diesel.
The screams from the consumer, encouraged by media, have been, to say the least – deafening.
But here’s the universal question: “Why?”
It’s a short question, but here’s my “longish” answer:
The jump in the high-profile gasoline prices is not because of an imbalance of the often referred to supply and demand equation. In fact, based on the latest EIA inventory reports supply increased for not only gasoline but also crude and distillates. As for gasoline demand, it is edging up slowly but not to the extent that would justify record high prices everywhere across the country.
The real pricing catalyst that is accelerating gas prices is the high demand for middle distillates, which includes diesel fuel. Even though we have yet to see any frost on the pumpkins, distillate demand is up 16% while inventories are 11% below the 5-year average.
As articulated in last week’s “energy sermon,” diesel prices drive gasoline prices at this time of year. If diesel prices are up and holding gasoline prices hostage then what is the cause – and what will stop this spiral?
One would think that lower demand would ultimately lower gasoline prices.
How do you do that? Just increase prices.
Isn’t that the point of our furry friend the carbon tax?
Guess what, though? It has done nothing to decrease our GHG emissions! Absolutely nothing. It’s just another tax, folks. But the media isn’t biting that one!
The only way diesel and gasoline prices will fall is if the pricing glare gets too “optically bright,” politically speaking that is.
With a little, if not a lot of arm-twisting, Russia just announced that it will indeed increase supply of natural gas to the UK.
At what political cost? And with how many strings attached are the unknowns. Because of this announcement, rack prices fell by two cents per litre overnight.
All we need now is for the same message be sent to the Saudis and OPEC.
Over to you Mr. Biden…
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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