re: #618 ggt

Oil Prices Continue To Slide As Japan Economy Hit

The price of gas is a conundrum I’ll never work-out.

As a former employee of a refining company I learned a lot by osmosis about gasoline and refining product pricing. (And outside of the refining part itself there’s a lot little tweaks involving demand, transportation costs, local storage, etc.)

But at the refining side in the US there are at least three things going on regarding gasoline production:
1. What are the current costs regarding required additives (such as ethanol for instance)*
2. What are the production capacities and inventory compared to immediate and projected short-term demand.
3. Given a barrel of oil - what is currently the most profitable set of products I can make from it.

#3 is pretty much the ruling factor. If aviation fuel is the key part of the most profitable crack spread then avgas will be producted rather than regular fuel. Until there is enough avgas on the market and/or regular gas wholesale prices rise far enough to make that the more profitable spread.

*- Gasoline additivie laws in the US are so different by locale that gasoline is essentially a “specialty chemical”. And since the ethanol is corrosive in storage it is often not added until the fuel is in a local storage facility in any case. Plus, I’ve seen some numbers that for some refiners the ethanol cost was an appreciable part (like ~25%) of the fuel production cost.