Bill O’Reilly contends that it’s all just an energy company conspiracy, but this week’s price hike for gasoline and crude oil is actually showing just how sensitive U.S. energy markets have become to disruptions that just a few years ago would have barely registered a blip in those markets.
Gasoline and crude-oil and prices surged after the June 20 spill of 47,000 barrels of oil waste snarled the Calcasieu Ship Channel, a major Louisiana waterway that connects the Port of Lake Charles to the Gulf of Mexico. The stoppage stranded oil barges and tugs that are delivering crude oil to three refineries that together refine about 775,000 barrels of crude oil a day into fuels such as gasoline. The Coast Guard reported yesterday that it might open the channel to limited traffic by this weekend.
Primarily as a result, gasoline futures on the New York Mercantile Exchange have risen by almost 15% over the past week to yesterday’s close of $2.29 a gallon, the highest level since the aftermath of last summer’s Gulf Coast hurricanes. Meanwhile, August crude-oil futures rose over $1.30 to $73.52 a barrel, which is about $3 higher since the spill and an 11% increase for the current quarter. The spill is merely the latest in a series of supply disruptions over the past year that have increased average U.S. gasoline prices by almost 25% and crude-oil prices by 15% since the beginning of the 2005 hurricane season.

Not only are the US gasoline and crude oil markets tightening because of increased global crude-oil demand and flat production levels, US refineries are already operating at almost 95% of capacity, which is making the US more dependent on gasoline imports. Accordingly, expect short-term gasoline prices to go even higher during this hurricane season and the peak summer vacation season while longer term prices also will likely trend upward because of the limited refinery capacity. Inasmuch as the US currently uses just over 9 million barrels of gasoline a day and US refineries can produce about 8.5 million barrels a day, the balance of the US daily usage is imported and will grow if US demand for gasoline increases.
Just a few years ago, an incident such as the Calcasieu spill would have barely caused a ripple in the gasoline or oil markets that had bountiful supplies and untapped refining capacity. But no more. With little spare global capacity in crude oil and even less untapped refining capacity, any blip on the global oil production or refining radar screen is likely to generate quick price hikes in those markets. Remember that the next time you hear O’Reilly railing against energy companies or US politicians dithering about how to limit energy company profits rather than on how to encourage those companies to increase production of oil and gasoline.