With competition fierce for limited pipeline capacity, producers have begun moving crude on barges and trains, adding as much as $17 a barrel to the price of domestic oil.
That extra cost eventually makes its way to the price at the pump.
Ethanol requirements have backfired.
The idea was to stretch a limited oil supply, cut reliance on imported crude, and make use of abundant corn harvests.
But today the ethanol program is raising costs for refiners even as the price of oil has fallen 10 percent over the last year.
Complicating the equation is a 1920 law called the Jones Act, which requires any cargo shipped between U.S. ports to be carried by vessels that are based in the U.S., made in the U.S., and crewed mostly by U.S. citizens. The law was intended to protect U.S. shipping interests but has made it more costly to move fuel between U.S. ports. This in particular hurts the Northeast, which is struggling to meet its fuel needs after several refineries closed in the last two years. According to Ed Morse, chief commodity analyst at Citigroup (C), those constraints add between $6 and $8 a barrel to transport costs. As a result, it’s often cheaper for a Gulf Coast refiner to send gasoline to Brazil than to New York.
In late 2011 the U.S. quietly surpassed Russia as the largest exporter of such refined products as gasoline and diesel. Canada’s fuel imports from the U.S. jumped 15 percent in 2012. Brazil’s demand for U.S.-made fuel rose 6 percent. China’s leapt 17 percent. Exports to Venezuela and India more than doubled. Without realizing it, U.S. drivers are competing for American-made gasoline with consumers in Latin America and Asia, where demand is rising. “Americans don’t think about their prices being impacted by a global market,” says Morse. “The American public just thinks about the rising price at the pump.”
Complicating the equation is a 1920 law called the Jones Act, which requires any cargo shipped between U.S. ports to be carried by vessels that are based in the U.S., made in the U.S., and crewed mostly by U.S. citizens. The law was intended to protect U.S. shipping interests but has made it more costly to move fuel between U.S. ports. This in particular hurts the Northeast, which is struggling to meet its fuel needs after several refineries closed in the last two years. According to Ed Morse, chief commodity analyst at Citigroup (C), those constraints add between $6 and $8 a barrel to transport costs. As a result, it’s often cheaper for a Gulf Coast refiner to send gasoline to Brazil than to New York.
In late 2011 the U.S. quietly surpassed Russia as the largest exporter of such refined products as gasoline and diesel. Canada’s fuel imports from the U.S. jumped 15 percent in 2012. Brazil’s demand for U.S.-made fuel rose 6 percent. China’s leapt 17 percent. Exports to Venezuela and India more than doubled. Without realizing it, U.S. drivers are competing for American-made gasoline with consumers in Latin America and Asia, where demand is rising. “Americans don’t think about their prices being impacted by a global market,” says Morse. “The American public just thinks about the rising price at the pump.”
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