The U.S. Is Now EXPORTING Refined Petroleum Products, But the Oil Companies Are Gaming the System By Switching To a Different Benchmark to Keep U.S. Fuel Prices HIGH … And the Keystone Pipeline Will Create Even HIGHER U.S. Prices

Big Oil Is Gaming the System to Keep Domestic U.S. Prices High

Leah McGrath Goodman – who has written for the Financial Times, Barron’s, The Wall Street Journal, Forbes and Fortune – notes that the U.S. is now an exporter of refined petroleum products, but that Americans aren’t getting reduced prices because the oil companies are now pricing the fuel according to European metrics:

The U.S. is now selling more petroleum products than it is buying for the first time in more than six decades. Yet Americans are paying around $4 or more for a gallon of gas, even as demand slumps to historic lows. What gives?

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Americans have been told for years that if only we drilled more oil, we would see a drop in gasoline prices.

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But more drilling is happening now, and prices are still going up. That’s because Wall Street has changed the formula for pricing gasoline.

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Until this time last year, gas prices hinged on the price of U.S. crude oil, set daily in a small town in Cushing, Oklahoma – the largest oil-storage hub in the country. Today, gasoline prices instead track the price of a type of oil found in the North Sea called Brent crude. And Brent crude, it so happens, trades at a premium to U.S. oil by around $20 a barrel.

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So, even as we drill for more oil in the U.S., the price benchmark has dodged the markdown bullet by taking cues from the more expensive oil. As always, we must compete with the rest of the world for petroleum – including our own.

This is an unprecedented shift. Since the dawn of the modern-day oil markets in downtown Manhattan in the 1980s, U.S. gasoline prices have followed the domestic oil price ….

In the past year, U.S. oil prices have repeatedly traded in the double-digits below the Brent price. That is money Wall Street cannot afford to walk away from.

To put it more literally, if a Wall Street trader or a major oil company can get a higher price for oil from an overseas buyer, rather than an American one, the overseas buyer wins. Just because an oil company drills inside U.S. borders doesn’t mean it has to sell to a U.S. buyer. There is patriotism and then there is profit motive. This is why Americans should carefully consider the sacrifice of wildlife preservation areas before designating them for oil drilling. The harsh reality is that we may never see a drop of oil that comes from some of our most precious lands.

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With the planned construction of more pipelines from Canada to the Gulf of Mexico, oil will be able to leave the U.S. in greater volumes.

The Wall Street Journal noted last November (subscription required) :

“The sale of an oil pipeline running from Oklahoma to Texas upended U.S. energy markets Wednesday, sending the price of crude surging above $100 a barrel …Enbridge Inc.—which bought a 50% stake in the Seaway Pipeline—announced it would reverse the direction of the flow, allowing more crude to move south from oil storage in Cushing, Okla., into the world’s largest refinery complex along the Gulf Coast. Over the past two years, the U.S. has started producing so much oil that existing pipelines have been unable to move it to refineries. That has led to a glut of oil in the center of the country, keeping the price of American crude far below that of petroleum traded overseas…With a new supply of oil headed to Gulf Coast refineries, exports of gasoline are expected to rise … For decades, oil has been imported from overseas to the Gulf Coast, then either refined there or moved elsewhere in the U.S. for processing.

“The pipeline system was set up to move crude from south to north…U.S. oil production, which had been declining since the 1970s, is climbing again. After bottoming out at five million barrels a day in 2008, domestic production has jumped by 10% in the past couple of years. It is expected to grow even more amid a drilling boom, as companies use hydraulic fracturing to free oil from shale rocks … More crude flowing to the Gulf Coast will feed a growing energy-export business to Latin America’s rapidly growing economies. U.S. exports of petroleum products have reached 2.6 million barrels a day, double the level of three years ago. Roughly 15% of the gasoline and diesel refined in the U.S. is now exported, according to U.S. Energy Department data. “The middle of the U.S. should start considering applying for membership in OPEC,” said Phil Verleger, an oil economist who runs PK Verleger LLC. Industry analysts don’t expect rising U.S. crude-oil production to translate into lower gasoline or diesel prices anytime soon. So much gasoline and diesel is exported from the Gulf Coast that U.S. customers compete with customers in Mexico and the rest of Latin America—and have to pay as much as these foreign users ….

Because of the glut in Cushing, the price paid for crude in the Midwest U.S. has been substantially less than European benchmark prices, such as Brent crude. This is expected to largely disappear by the middle of next year, as the Seaway pipeline change gets underway.”

CNN Money reported in March that the Keystone Pipeline might also raise fuel prices within the U.S:

Gas prices might go up, not down: Right now, a lot of oil being produced in Canada and North Dakota has trouble reaching the refineries and terminals on the Gulf. Since that supply can’t be sold abroad, it reduces the competition for it to Midwest refineries that can pay lower prices to get it.

Giving the Canadian oil access to the Gulf means the glut in the Midwest goes away, making it more expensive for the region.

Tyson Slocum – Director of Public Citizens’ Energy Program – explained in November:

How does bringing in more oil supply result in higher gas prices, you ask? Let me walk you through the facts. A combination of record domestic oil production and anemic domestic demand has resulted in large stockpiles of crude oil in the U.S. In particular, supplies of crude in the critical area of Cushing, OK increased more than 150% from 2004 to early 2011 (compared to a 40% rise for the country as a whole). Segments of the oil industry want to import additional supplies of crude from Canada, bypass the surplus crude stockpiles in Oklahoma in an effort to refine this Canadian imported oil into gasoline in the Gulf Coast with the goal of increasing gasoline exports to Latin America and other foreign markets.

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Cushing typically is a busy place – I noted in my recent Senate testimony how Wall Street speculators were snapping up oil storage capacity at Cushing. And all of that surplus capacity is pushing WTI prices down – and for many in the oil business, downward pressure on prices is a terrible thing. As MarketWatch reports, “[B]y running south across six U.S. states from Alberta to the Gulf of Mexico, [the Keystone pipeline] would skirt the pipeline hub at landlocked Cushing, Okla., a bottleneck that has forced Canadian producers to sell their oil at a steep discount to other crude grades facing fewer obstacles to the market.

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There are several global crude oil benchmarks, and the price differential between Brent and WTI now is around $10/barrel, which is a fairly significant spread, historically speaking. Moving more Canadian crude to bypass the WTI-benchmarked Cushing stocks, the industry hopes, will align WTI’s current price discount to be higher, and more in line with Brent.

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The Keystone pipeline isn’t just about expanding the unsustainable mining of … Canadian crude, but also to raise gasoline prices for American consumers whose gasoline is currently priced under WTI crude benchmark prices.

In an interview in January, Slocum noted that oil is America’s number 1 import at time same that fuel is America’s number 1 export.

Specifically, more oil is being produced now under Obama than under Bush. But gas consumption is flat.

So producers are exporting refined products.  By exporting, producers keep refined products off the U.S. market, creating artificial scarcity and keeping  U.S. fuel prices high.

Slocum said that the main goal of the Keystone Pipeline is to import Canadian crude so the big American oil companies can export more refined fuel, driving up prices for U.S. consumers.

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  • dfmills

    Last time I checked Canadian oil (even if it is from the environmentally disastrous tar sands) was Canadian oil…. Thus the Keystone pipeline is a transit route as it is not US oil. Silly me.

  • Bill

    Wildly misleading title. America is a net oil exporter of OIL PRODUCTS. They still import massive amounts of oil from around the world and then refine it. Due to demand destruction in the US it is axiomatic that net exports of REFINED product would go up as china and India are desperate for the black gold and America has underused refineries. I still see a complete lack of understanding of EROEI in any of these badly researched MSM articles, people seem to think that all oil is created equal. Peak traditional oil has passed, Once declines in traditional established fields are higher than gains in new expensive oil sources Oil will then begin its exponential curve of price increases.

  • http://blogdredd.blogspot.com/ Dredd

    In his book “Private Empire”, Steve Coll points out that oil barons rule through “sovereign” corporations that have more power than governments in various ways. They do not have single-nation characteristics, nor single-nation patriotism.

  • YesMaybe

    As Bill points out, your headline claim is absolutely false, and this is not a matter of any controversy. Such a blatant mistake makes me question your reliability on other topics.

  • gozounlimited

    What is financialization and why is it coming to the oil industry?

    It’s a common belief that oil prices are set on the world market by supply and demand. Less supply and/or more demand causes prices to rise. Oil is getting harder to find; OPEC is holding back supply; China and India are guzzling it up; Iran is threatening to blow it up. And regulations are getting in the way of drill, baby, drill — end of story.

    But this fixation on blind market forces ignores the fact that Wall Street is financializing the commodities markets – especially oil – as it seeks new ways to pick our pockets. The same greedy swindlers who puffed up the housing bubble and then milked it dry are now hard at work doing the same with gasoline.

    read more: http://www.salon.com/2012/05/04/wall_streets_oil_scam/

    • gozounlimited

      Matt Taibbi’s new article addresses Dodd-Frank and market abuses….specifically

      How Wall Street Killed Financial Reform

      During the year of nonaction on position limits, the “disease that did not exist” – energy speculation – returned to ravage the American gasoline market. In the winter of 2011, oil soared above $100 a barrel, despite fundamentals of supply and demand that would have suggested a price drop. Obama blasted fuel speculators for the price hike and announced that he was creating the Oil and Gas Price Fraud Working Group to “root out any cases of fraud or manipulation in the oil markets.” He added, in stern and stirring tones, “We’re going to make sure that nobody is taking advantage of American consumers for their own short-term gain.”

      This was a curious decision. If Obama really wanted to stop speculation in the oil markets, he didn’t need to create a brand-new task force that would have to start from scratch to deal with a hellishly complex problem that Congress and the CFTC had already spent years studying. “An easier way to deal with excessive oil speculation,” one senior Senate aide explains, “is for the president to just pick up the phone, call Gary Gensler and say, ‘The Dodd-Frank Act required you to put in strong position limits by January 17th, 2011. Get off your butt and act.’”

      The Oil and Gas Working Group turned out to be a complete sham. In its year of ostensible existence, the panel met only a few times, then never bothered to convene again. One source on the Hill tells me that some of the members were not even aware that they’d been named to the task force for months. It was such a Potemkin committee that when oil prices once again shot up past $100 a barrel this year, Obama was hilariously forced to announce that he was “reconstituting” the task force, even though it had never officially disbanded. “It’s a joke,” says Greenberger, the former regulator. “They’ve done absolutely nothing.”

      Many key sections of Dodd-Frank, in fact, are now experiencing such “unforeseen” delays. The Volcker Rule, which severely restricts the ability of banks to gamble with taxpayer-insured money, is in the midst of an impressive double delay. Regulators have been so slow to wade through the flood of 17,000 comment letters submitted on the rule, most of them from Wall Street interests, that they may not be finished­ writing the regulation by the Dodd-Frank-mandated deadline of July 21st, 2012 – two years after the bill passed.

      But instead of kicking regulators in the pants, six senators, led by Republican Mike Crapo of Idaho, introduced legislation to give regulators more time to (not) finish writing the law. On April 19th, the Federal Reserve announced that it won’t implement the Volcker Rule until 2014 – an extra two years that will give Wall Street plenty of time to find a way to kill the thing for good.

      Read more: http://www.rollingstone.com/politics/news/how-wall-street-killed-financial-reform-20120510?utm_source=dailynewsletter&utm_medium=email&utm_campaign=newsletter&page=4

  • http://essential-intelligence-network.blogspot.com essential-intelligence

    Petroleum speculation is probably meant to keep the USD floating while the Yuan outperforms it, as we’ve shown in our recent series of reports:

    Read about it here :

    ‘European debt and the Anglosphere’s Chinese trap’
    essential-intelligence-network.blogspot.com/2012/05/european-debt-and-anglospheres-chinese.html

    ‘Keys to Europe’s Socio Economic Liberation’:
    essential-intelligence-network.blogspot.com/2012/05/keys-to-europes-socio-economic.html

  • MountainHome

    A wonderful explanation on why the price of gasoline is not dropping in price even with more drilling. Thanks!! However, the issue is becoming too complicated for the average Joe/Jane Six-pack so Wall St. can get away with what they are doing along with the oil companies.

  • http://www.greatamericanphotography.net PAUL LEO FASO

    The destruction of the all electric car by General Motors ( google: who killed the electric car?) and the introduction of the Chevy Volt, a half ass hybrid, that still has you going to the gas station till the end of time, relates to the Petro/Dollar tyranny of the criminal Federal Reserve Bank.

    Can you imagine the whole world according to this article, engaged in the price manipulations of the banking lunatics and refiners that have us still using the ancient internal combustion engine for over 100 years, while everything else has changed on the planet except that engine?

    But it gets worse, when you consider the bankers are aided by the Federal government and States who fund their broke operations on the excise taxes at the pumps for each gallon pumped. Where is the incentive to change this sick model for free enterprise in a nation out of its’ mind for wars for oil?
    Only now, to prop up a bogus fiat reserve currency by a private Federal Reserve Bank, who has made this nation the largest debtor nation in the world, while forcing us to borrow money from China to fund the wars to steal the oil in the Middle East to keep an ancient engine in place, so the increased dollar cost paid for gas by Americans is set by the inflation created by devaluing the worthless currency by the Federal Reserve Bank, now busy looting the U.S Treasury for ” bail outs” of the criminal off shore banking partners with Trillions of dollars which is placed on the backs of the American People as debt.

    This is an illegal, Odious Debt to be totally repudiated by virtue of its criminal origins and intent.

    More here on what to do about this theft and tyranny ;

    http://www.zerohedge.com/print/365866

    WE NED OIL LIKE WE NEED CANCER

  • Peak-a-Boo Oil

    Still believe in peak oil? Remember who invented the idea? M. King Hubbert. Conveniently he wrote his own “Mien Kampf” as a founder of the Technocracy Society Inc. In it, he divuldged his desire to control mankind in a scientific dictatorship of technocrats by creating scarcity of energy, then highly controlling it’s use. Energy was to become the new currency replacing money with energy credits (carbon credits?) 15 years later, Hubbert conveniently “discovered” peak oil theory.

    Technocracy is the idea of controlling the population of the world and all human activity by scientific means to be accomplished by energy rationing. In otherwords Hubbert had an ax to grind when he invented the peak oil curve.

    If you know anything about the first family of oil in this country, the Rockefellars, you will also see an evil association with eugenics and population control/reduction. “Only the fit should be allowed to breed, while the rest should be sterilized.” The Rockefellars have controlled energy policy in conjunction with foreign policy for 100+ years. Brzenzki is a Rockefellar technocrat who had alot to say in his predictive book “Between Two Ages, Americas Role in the Technotronic Era”. The quaint notion that all this is not planned and is just happening is about as nutty as believing that politics happens by accident.

    Watch the movie Network. In 1975 it was a curious take on dystopia. Today, it seems to have come true.

  • http://profile.yahoo.com/K2A6CEWHWMKNGOBH3X74F6MDNE Buck

    Make Candians mad enough by keep thier oil exports at low prices. They may put pipelines to their west coast with asin loans and long, 30 to 40 year, contracts to ship it all to Asia ie. china.. And none for the greedy americans. It is already happening in Veneszalia and China trade deals.

  • ajay

    Price are going up due to nation like India and China where Oil consumption is very high .
    Website Designing Company in Delhi

 

 

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