Senators grill refiners over high prices amid oil boom
Source: Bloomberg
Lawmakers grilled representatives of oil producers and refiners seeking an explanation for a rise in gasoline prices at the pump amid a boom in U.S. oil production.
Senators at an Energy and Natural Resources Committee hearing today complained that fuel exports and refinery shutdowns for maintenance cause regional price surges, while the head of refiner Valero Energy Corp. (VLO) said local prices reflect global shifts in crude markets and blamed higher costs on the Renewable Fuel Standard, which mandates ethanol use.
“Our people want to know why the flood of new domestic crude oil isn’t lowering prices at the pump,” said Ron Wyden, an Oregon Democrat and chairman of the Senate Energy and Natural Resources Committee. “There is no question that the lower oil costs are not getting through to Americans’ wallets.”
Advances in drilling technology, including hydraulic fracturing, has revived U.S. oil production in states such as North Dakota and Texas, which reached 7.4 million barrels a day in April, a two-decade high, according to the U.S. Energy Information Administration.
Amid rising supplies, pump prices are rising. Gasoline jumped to a four-month high, as unplanned refinery outages may crimp fuel supply. Gasoline for delivery next month rose 3.17 cents, or 1 percent, to $3.1346 a gallon at 11:57 a.m. on the New York Mercantile Exchange.
Gasoline Rising
Regular gasoline at filling stations rose 14.7 cents in the past week to an average $3.639 a gallon as of yesterday, the highest since June 10, EIA said. Fuel demand is typically strongest from the last weekend in May to the U.S. Labor Day weekend in early September, the prime U.S. vacation period.
In recent months, planned refinery outages or emergency shutdowns for maintenance in the West and Midwest triggered sharp increases in gasoline prices regionally, not tied to the global price of crude oil, lawmakers said.
“The fact that this price spike can happen without real supply and demand disruptions is disturbing,” Senator Maria Cantwell, a Washington Democrat, said at the hearing.
The head of the independent EIA, Adam Sieminski, said that supply and demand is the main determinant of pump prices. The boom in U.S. oil production is helping to hold down global oil prices, and so is benefiting American consumers, Sieminski testified. Greater U.S. exports would actually help keep domestic prices lower by enhancing the global trend, he added.
Keystone XL
The argument failed to sway Wyden, who said the prospect of greater exports is a reason he is skeptical of the proposed Keystone XL pipeline, which would carry oil sands from Alberta, Canada, to refineries along the U.S. Gulf of Mexico.
“There are a host of questions with regards to Keystone, foremost of which is that most of the production is going to be exported,” Wyden said after the hearing. The State Department is reviewing the application of TransCanada Corp. (TRP) to build the pipeline.
While lawmakers questioned the functioning of the U.S. gasoline market, industry representatives said those prices reflect movements in international crude-oil markets.
“These are commodities and they work in a global market,” Valero Chief Executive Officer William Klesse said in an interview after he testified. While refinery outages can cause prices to rise, the gain doesn’t last long, as refiners are quick to ship in fuel to take advantage of that premium, he said: “It’s all about supply and demand, and free markets.”
Instead of focusing on refiners’ margins, Congress should rework the Renewable Fuel Standard, mandating the use of ethanol, because a drop in fuel use will cause the share of ethanol to exceed the 10 percent that can be used safely by all vehicles, he said.
“The oil supply picture has changed, the basis of the original legislation has changed, the RFS should be repealed and new legislation developed,” Klesse testified today. Wyden pledged to have a separate hearing to examine issues with the RFS.
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