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By Robert Rapier on Dec 6, 2006 with no responses

This Week in Petroleum 12-06-06

I have a challenge for the conspiracy theorists out there who think oil companies purposely dropped the price of gas leading up to the recent elections. Here is the gasoline inventory graph for the past year, which the EIA just updated today at This Week in Petroleum:

Note that gasoline has dropped below the bottom range of where inventories typically run at this time of year. We are one pipeline or major refinery issue away from having a serious gasoline supply crunch. So, what do you do? If prices increase, people cry foul. Yet demand hit an all time record for this week of the year (despite this, prices fell today). Personally, I think prices need to come up (as they have been trending lately). Obviously, though, they haven’t come up enough yet to stem demand.

So, what are the options? Do you 1). Raise prices and have people cry conspiracy; 2). Keep prices steady and start rationing gasoline; 3). Just risk having lower inventories?

Or if you have another solution, let’s hear it. Note that refinery utilization is back over 90%, so cranking up the refineries is out. Gasoline imports dropped off precisely because prices had fallen, so it is going to be tough to attract more imports without a price increase.

This is the dilemma for oil companies. There really is only one fix for this, but it comes with charges of conspiracy. As one profanity-laced diatribe (that I deleted) noted in the comments a few days ago “You claim inventories are driving prices, but the public knows it’s just greedy oil companies.” I guess I should have asked him for a solution before I deleted his post.