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Thursday, May 29, 2014

What has increased the cost of gasoline in USA?



A Patchwork Market. But if fluctuations in the cost of crude contribute to 85% of the price of gasoline, then something else contribute to 15%. Suggestions from the Federal Trade Commission indicate that the other 15% of the price of gasoline is due to supply and public policy factors like the proliferation of boutique fuels.[13]

Gasoline sold in the US has been
fractionated into seventeen various boutique fuels that are sold in dozens of discreet market in order to achieve air-pollution reduction aim in localities and states across the country. The three grades of gasoline per fuel has seen the production of over fifty different blends. According to the EIA [14], such boutique-fuel requirements has increased both the height of price spikes and price volatility in reference to the distance-to-market of boutique fuel consumers and producers. Transportation costs are usually reflected in the final price after boutique fuels get crafted. The United States Government Accountability Office indicate that the absolute price of gasoline found in boutique markets is also increased by boutique fuel requirements.

Special gasoline blends proliferation has already made it more complicated to supply gasoline, as well as raising costs, significantly affecting operations at pipelines, storage terminals and refineries. When making these blends in refineries, it requires additional investment like the use of larger amounts of components in the blending process and installing new processing equipment - resulting into higher cost of production of special gasoline blends. After being produced, the various blends of gasoline are kept separate throughout the delivery and shipping process. With the increased number of gasoline blends, the storage terminal facilities and the capacity of pipelines have been reduced. For instance, many pipeline companies did report that their systems' capacity has been reduced because they have had to lower the speed of products through the pipelines so as to off-load special blends at specific locations, consequently raising the cost of shipping gasoline. Likewise, storage terminals have not fully utilized their tanks' storage volume because the tanks have been designed to handle fewer fuel types and are often bigger in size and fewer in number than necessary to handle small batches of special gasoline blends. Several buyers from the wholesale markets argue that the proliferation of special blends has limited the number of suppliers of some fuels, posing difficulties after disruption of traditional supplies, like during pipeline delay or outage of a refinery. Local supply disruptions in the past could be addressed quickly by acquiring fuel from nearby locations. However, in the present day market, additional supplies of special gasoline blends are hundreds of mile away.[15] 

Refineries. The decrease in the number of operating refineries in the US over the last thirty years may have contributed to the increase in the cost of gasoline. In 1981, the capacity and number of US refineries peaked, but since then, 171 plants have been closed, although the remaining ones have increased output in order to offset a loss of production.[16] Even though majority of this reduction was caused by the refineries' low profit potential, others have seen a significant cause in " not-in-my-back yard community opposition, the high cost of new construction and the very tight environmental restrictions." [17] According to the EIA, refinery profit margins have also played a major role in the gasoline price hikes.
This year, the sizable jump in retail prices have reflected both the higher average of cost crude oil in comparison to last year and the increase in United States refining margins and gasoline (the difference between the average price of crude oil and the refinery wholesale gasoline prices) from an average $0.34 per gallon in 2010 to $0.45 per gallon in 2011 and $0.42 per gallon in 2012.[18]













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