“New Factor” Contributing to Volatility:.Excess Capacity is Gone
Source: Energy Information Administration
- With the price spreads for gasoline that we saw in April, how come we didn’t produce more gasoline? One answer is that we are nearing full capacity.
- Since about 1997, domestic refineries have been running at or near maximum capability during the peak demand summer months.
- For almost 20 years, we have had an excess of refining capacity in this country, but that is no longer the case.
- Actually, for gasoline we are dependent on imports. We import over 500 thousand barrels per day on average.
- If refiners were to build capacity to meet this need, they might have to add about 1 million barrels per day of crude processing capacity (distillation capacity) to produce that gasoline.
- If a problem occurs in a region when local refineries are running at maximum capability, the region must wait until the supply problem is fixed or new supplies arrive from other distant regions or countries.
- During the wait for new supplies, prices rise. But the price surge helps to temper demand in the meantime, and encourages the quick arrival of new supply.