Posts Tagged ‘gas prices’

A Reuters news story says the U.S. could be poised for a serious fuel-supply shortfall once the economy rebounds.

Why? Because U.S. refineries, responding to collapsing short-term demand, are postponing or cancelling more than $10 billion worth of scheduled upgrades and capital spending.

Valero Energy Corp., the largest U.S. refiner, as well as ConocoPhillips, Sunoco, Chevron and Marathon Oil, are all delaying projects. No new refineries have been built in the U.S. since 1976. Because refinery expansions take years to complete, short-term delays could spell trouble ahead.

If the economy rebounds too quickly, the imbalance could cause fuel prices to skyrocket. The greater the mismatch between production and demand, the rockier price changes could be.

“I think it’s fair to say we’re probably going to end up with higher-priced fuel because of these delays and postponements and deferrals, but that day of reckoning is at least two or three years away,” said Joseph Arsenio, managing director at Arsenio Capital Management in Larkspur, California.

There are multiple forces at work that all point to higher fossil fuel costs in the future — OPEC’s determination to get crude oil prices back in the $80- to $100-a-barrel range, surging demand for oil in China and India, and the arrival of peak oil production in many oil-producing nations. My feeling is that we’re going to need more than a few years to develop a viable alternative wind and solar energy infrastructure.

It’s hard to believe where gas prices are right now, compared to where they were just six months ago. With the recession in full swing, though, you need to enjoy those lower prices while they last.

While prices in certain parts of the country have dropped as much as 60% since last summer, try drawing a parallel with your allegiance to a particular sports team: If you’re superstitious and your team has disappointed you before, logic dictates that they’ll let you down again. As with so many other aspects of the American economy struggling right now, being cautiously optimistic about fuel costs is probably your best bet. And if you want to feel even more fortunate about fuel costs, remember that they’re dealing with much higher prices over in Europe. (It’s easy to forget that this is a global recession we’re in.)

Even if you’ve been enjoying watching fuel prices drop, don’t get too used to it. The prices at the pump today or next week — or even next month — only tell part of the overall story. As oil prices dropped more than $100 per barrel in six months, remember that those low costs have a lot to do with a weak demand for oil and refinery products. While many experts feel that the low demand could last for at least half of 2009, the past year clearly showed us that predictions and expectations can’t always be trusted, no matter who makes them.

For now, try to find some comfort in paying less at the pump. And if you’re still driving a car that eats a lot of gas, start thinking about a more fuel-efficient alternative; you may just need it in the months to come.