Gasoline Prices WTF?

Previously, I have mentioned rising gasoline prices both here and on LinkedIn.  It is now a story on the major news outlets and you are probably painfully aware of it.  The chart below shows this year's price increase compared to the last two years.  You can see we are already fast approaching the peak prices of the prior two years.

Source: AAA.com

Since we are still below the prior peaks, if you were wondering why it feels so bad, the chart below may help put things in perspective:

Source: Global Macro Monitor

Except for 2008 (which was no picnic with over $4 a gallon gasoline), this is the highest estimated percentage of mean household income we have spent on gasoline since the early 1980's.  If you are wondering why this is happening, it is a combination of things.  Below is a chart of what makes up the price at the pump:



Source: US Energy Information Administration

As you can see, two thirds of the price is based on crude oil.  Both global benchmark crude oil prices (North Sea Brent and West Texas Intermediate) have moved up since December, explaining much, but not all of the increase in gasoline prices.

Some of it is because inventories have been constrained due to lingering effects from Superstorm Sandy.  The rest comes from the smallest percentage piece, the refining part.  Over the last few years, approximately 1 million barrels of refining capacity on the East Coast and St. Croix has been shut down.  In addition, this January Hess announced plans to close its Port Reading NJ refinery.  (More pieces on this are here and here.)  This is on top of seasonal refinery shutdowns to switch over to summer blend gasoline, which is happening earlier than usual.  This has combined to start off the usual increase into the summer driving season in February instead of March.  If the experts are right, the price should top off around the same level as the last two years, just a lot sooner.