How to spike gas prices even while oil prices fall

By Steve Eggleston

Oil prices are at levels not seen since the beginning of the Obama Presidency, but in parts of the country, gasoline prices have radically risen. Here in Milwaukee as well as Chicago, the price of gasoline went up 80 cents per gallon since Monday as part of a spike affecting much of the Great Lakes region. In California, the spread between gas prices there and gas prices reached a record level in July.

The root causes of both spikes are the same – a lack of new refineries and boutique reformulated gasoline. In suburban Chicago, the largest refinery in the region, and one of only two that produce the RFG that is specific to the Chicago and Milwaukee metropolitan areas, is effectively shut down for at least a month by BP because of a leak in the the main crude unit. In California, a combination of a refinery fire, a strike at a second refinery, and California’s very-special environmental rules kept the price of gasoline extraordinarily high.

Yes, refineries have expanded capacity since the last new refinery was built in the late 1970s. However, this is another object lesson in what happens when One Big Factory (or in this case, Refinery) shuts down. Sadly, other than timing, it is nothing new to the residents of Milwaukee and Chicago – this spike happens every spring when the more-widely-usable winter blend of gasoline has to be swapped out for our very-unique formulation of summertime RFG.

The Marketwatch story that I linked to first noted that the shutdown of the BP refinery had another effect. As it is one of the few American refineries that can handle Canadian crude, the glut caused by that shutdown caused the price of Canadian crude to, at one point in the week, be half that of West Texas Intermediate, the American benchmark. There’s a certain proposed pipeline that could have helped prevent that collapse, one that has been blocked by both Obama and the putative Democrat front-runner for their nomination, Hillary Clinton.