Spring for high gas prices: Refineries gearing up to make cleaner summer blend
NEW YORK (AP) -- Ahh, spring. The days get longer, flowers bloom, and gasoline gets more expensive.
It's a galling time for drivers, and it's more maddening than usual this year. The average price of gasoline could surpass $4 per gallon nationwide as early as this week. It's already $3.93 per gallon, a record for this time of year.
In Dickinson this past week, the price for a gallon of regular gas swung up a dime to $3.89 at most gas stations.
Why the seasonal spike? It's the time of year refineries reduce output to repair equipment and start making a cleaner, more expensive blend of gasoline for summer.
Since 2000, pump prices have risen every year between early February and late May. The annual increase has boosted prices by 27 percent on average, according to the National Association of Convenience Stores. This year, prices have risen 14 percent, or 48 cents per gallon, since Feb. 1.
"There's always built-in increase, and it's going to be accentuated this year," said Tom Kloza, chief oil analyst at Oil Price Information Service.
Gasoline was expensive even before the seasonal run-up. Strong global demand, heightened tensions with Iran and a smattering of supply disruptions have kept crude oil prices elevated for months. The oil used to make most of the gasoline in the U.S. has averaged $120 per barrel this year.
This year's spring surge is more extreme than usual because three refineries that serve the East Coast were shut down last fall and another one may be closed in July. That's threatening supplies in one of the country's most densely populated regions, and pushing prices higher everywhere.
Demand for gasoline tends to drop off in winter. That makes it the perfect time for refineries to get ready for summer, when the objective is to produce as much fuel as possible. The catch is that the refining industry's version of spring cleaning causes supplies to shrink and prices to rise. To be specific:
- Refineries need major maintenance once every four years, on average. On a practical level, that means one-fourth of the nation's refining capacity is temporarily shut down in the first quarter of every year. Because the U.S. has half the number of refineries it did in 1980, a delay in getting one or two back up and running has a greater impact than in the past.
- To comply with the Clean Air Act and limit smog, refiners have to make a special blend of gasoline that doesn't easily evaporate in the warm summer air. The fuel is 5 to 15 cents a gallon more expensive to make because of raw material costs.
- The nationwide fuel supply can't be transformed overnight. Between April 1, when refiners must start making the summer blend, and June 1, when retailers have to be selling it, supplies become uncertain, and prices at the pump rise.
During this period when refiners are doing maintenance and making summer gasoline, the odds of an unexpected supply disruption rise, analysts say.
To protect themselves against this possibility, energy traders buy wholesale gasoline futures on financial exchanges. That pushes wholesale gasoline prices up. And higher wholesale prices are quickly translated to higher retail prices.
Distributors and gas station owners buy gasoline every day based on a price set on exchanges. Station owners then change their prices based on how much their last shipment cost, how much the next shipment is likely to cost and what their closest competitors are charging.
Retailers can go back to selling winter blends September 15. While it's not required, most do so because it is less expensive. Gasoline prices generally decline in the autumn, along with gasoline demand.