Why Aren't Gasoline Prices Falling?

Brian Hicks

Written By Brian Hicks

Posted December 13, 2013

The shale revolution has done wonders for the U.S., and we hear about it every day. But what about us the consumer? What about gas prices? Isn’t it high time we start seeing prices at the fuel pump go down, too?

We thought for a while that the price of gasoline was on its way down, but it’s just not happening the way we thought it would, as a recent Financial Times article pointed out.

gas pump handleSo what gives? The U.S., in the middle of the fastest-growing natural gas and oil production this world has seen, is practically trapped inside its own domestic market for gasoline. That’s the problem. And that’s because there are severe export restrictions that require a special license to ship crude out of the country.

The U.S. crude oil market has decoupled from the global market because of export restrictions that are outdated and out of touch. Gasoline, or petrol, on the other hand, is exported freely, so prices are set by international standards.

West Texas Intermediate (WTI), the U.S. benchmark for crude oil, has traded at around a $20 discount to Brent crude (the European standard) for much of this year. But when we look at gasoline, there is no such discount – maybe closer to $2 a barrel on a good day. As a general rule, U.S. gasoline tends to follow the more expensive Brent prices, as the Financial Times points out.

But that doesn’t work for the consumer, and if it’s not going to change, it’s time to find a real solution to our price at the pump. I know you’re not satisfied. I know I’m not satisfied.

Ta Da!

There is one possible solution being thrown around. As production of U.S. shale reserves continues to skyrocket, refineries will have more oil than they know what to do with, and the government is going to be forced to act and make changes to crude export restrictions.

That is a fact.

So what if the ban on U.S. crude exports is lifted? We know that gasoline follows the globally traded Brent market, and that the crude export ban is only in place to lower the WTI, leaving U.S. refiners to enjoy the fruits between U.S. crudes and the global gasoline prices.

If it is lower gasoline prices that we want, U.S. crude needs to be exported, lowering the Brent price in the process and seeing the price of gasoline go down right along with it.

The argument against: geopolitical instability around the world, particularly in places like the Middle East, leads to higher gasoline prices already, so many industry leaders and U.S. officials don’t see lifting the ban as a viable solution. Others would say that cheap U.S. crude is already having an effect on gasoline prices.

But many would completely disagree. Even companies like oil giant Exxon Mobil (NYSE: XOM) are on board with lifting the export restrictions – restrictions that were put in place during the 1970s in a period of Middle East oil embargoes that triggered gasoline shortages.

But the U.S. is in the middle of a shale boom right now – point blank. The statutes and regulations we have set before us were made because there was a scarcity of petroleum products in the U.S. That is no longer an issue.

In my opinion, lifting the export ban on crude is the most forward thinking way to show consumers the benefits of the shale revolution. And shouldn’t a revolution be celebrated?

This also would be a time for upstream U.S. producers to rejoice.

Natural Gas

For now, however, gasoline prices still average just under $3.30 a gallon nationwide. That’s a far cry from the $4 and even $5 per gallon prices we’ve seen. But it’s also much higher than natural gas prices.

So for now, this might mean a continued concentration on natural gas vehicles – particularly for large fleets. I get giddy just thinking about it – cleaner, healthier vehicles – it’s a breath of fresh air.

Clean Energy Fuels Corp. (NASDAQ: CLNE) announced just yesterday that customers ordered 70 percent more natural gas vehicles through the third quarter of 2013 than to the same point in 2012, according to the Wall Street Journal. The largest North American provider of natural gas fuel for transportation has signed on with companies like Long Beach Public Transportation Company, which will use 64 CNG buses.

Natural gas may seem like the best alternative if the crude export ban remains in place.

Maybe it will be lifted. Maybe it won’t. But this one piece of legislation could point the U.S. into the direction it wants to go – a more economical way of life, with cheap prices at the fuel pump.


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