Donald Trump vs. OPEC

As of last week's price report from the US Energy Information Administration, the average US pump price of regular gasoline has gone up by $0.19 per gallon since the first week of March. That reflects normal seasonal factors but is mainly due to a jump in international crude oil prices of around $8 per barrel in the same period. President Trump's accusation that OPEC is responsible for rising fuel costs shouldn't have surprised anyone:

Last Friday's tweet prompted a quick retort from Saudi Oil Minister al-Falih: "there is no such thing as an artificial price." It doesn't require a deep study of OPEC or economics to conclude that, however phrased, Mr. Trump's remark was closer to the truth than his chosen foil's reply on this issue.

The more interesting question is whether OPEC's very intentional efforts in conjunction with Russia to tighten oil markets are actually harmful to US interests at this point. Could our instinctive reaction to rising oil prices be based on outdated thinking from the long era of perceived scarcity that began with the oil crises of the 1970s and ended, more or less, with this decade's US shale boom?

Let's recall that less than four years ago oil prices fell below $100 per barrel as the rapidly growing output of US shale, or "tight oil" production from wells in North Dakota and South and West Texas created a global oil surplus and rising oil inventories. Oil prices went into free fall around the end of 2014--eventually bottoming out below $30 per barrel--after Saudi Arabia and the rest of OPEC abandoned their output quotas and opened up the taps.

That response to the shale wave began the only period in at least four decades when the oil market could truly be characterized as free, when all producers essentially pumped as much oil as they desired. Some referred to it as OPEC's "war on shale."

However, those conditions proved to be just as hard on OPEC as on US shale producers, and by the end of 2016 OPEC blinked. The output agreement between OPEC's members and a group of non-OPEC producing countries led by Russia has been in place over a year, and it has taken this long to dry up the excess inventories that had accumulated in 2015-16. OPEC's quota compliance--historically mediocre at best--was aided significantly by geopolitical factors affecting several producers, notably the ongoing implosion of Venezuela's economy and the oil industry on which it depends.

Given all this, it's fair to say that OPEC has engineered today's higher oil prices, while its leading members contemplate even higher prices. It's much less obvious that this is bad for the US, which now has a vibrant and diverse energy sector and is finally approaching the energy independence that politicians have touted since the late 1970s.

Prior to the shift in the focus of the shale revolution from natural gas to oil, the US was still a substantial net importer of petroleum and its products. In 2010, we imported over 9 million barrels per day more than we exported. That was around half of our total petroleum supply. Today, these figures are under 4 million barrels per day and 20%, respectively.

That means that when the price of oil rises, this is no longer followed by enormous outflows of dollars leaving the US to enrich Middle East and other producers. Something like 80 cents of every dollar increase in the price of oil stays in the US, and in the short run the effect may be even more beneficial as investment in US production steps up in response.

In other words, when oil prices go up and gasoline and diesel prices follow, the main effect on the US economy is to shift money from one portion of the economy to another, rather than the whole economy springing a large leak. What makes that shift challenging is that consumers come out on the short end, while oil exploration and production companies, and to some extent oil refiners, gain.

A useful way to gauge the impact on consumers is to compare one year's prices to the previous year's. When oil prices were falling a few years ago, year-on-year drops of as much as $1.00 per gallon for gasoline (2014-15) put up to $100 billion a year back into the pockets of consumers. That provided a timely stimulus for an economy still recovering from the financial crisis of the previous decade.

As oil prices started to recover last year, these comparisons turned negative. Currently, the average regular gasoline price is $0.31/gal. higher than last year at this time. If gas prices were to stay that much higher than last year's for the rest of 2018, it would impose a drag of about $45 billion on consumer spending. $2.75/gal. is the highest US average unleaded regular price for April since 2014. Although gas is still nearly $1.00/gal. cheaper than it was then, memories tend to be short.

We may be living in a new era of energy abundance, but I am skeptical that our political instincts have caught up with these altered circumstances. The price of gasoline is still arguably the most visible price in America. When it goes up week after week, consumers notice, even in an economy running at essentially "full employment" and growing at 3% per year.

Most of those consumers are potential voters, and this is another election year with much at stake. In that light, I would not expect President Trump to abandon his attack on "artificial prices" for oil, even if it's arguable that the US economy as a whole may not be worse off with oil over $70 instead of below $60 per barrel.

Where Is the Stimulus from Cheap Oil?

• Those expecting a boost to the US economy from lower oil prices--the opposite effect of past oil price spikes--have been disappointed by the anemic response so far.
• In GDP terms cheaper net oil imports have been offset by cuts in oil & gas investment. However, consumers now have billions saved at the gas pump to spend elsewhere.

For the last couple of months media coverage has reflected skepticism about the benefits of lower oil prices, and especially cheaper gasoline, for the US economy. This is somewhat puzzling, since the US is still a net importer of crude oil, and as such has enjoyed significant savings on our collective oil import bill during this period. And while the fallout for US oil producers whose rising output helped to trigger last fall's oil price collapse might negate some of the upside of that decline for the nation as a whole, the benefits for consumers ought to be more obvious.  

 

Start with some basic figures. From January to September of last year, West Texas Intermediate crude oil, the main benchmark for US petroleum, averaged $100 per barrel (bbl), in line with the average of the previous three years. From October through mid-May of this year, WTI has averaged just over $60/bbl, near where it trades today. The data for what US refineries paid to acquire imported oil through April reflect a similar drop, implying national savings of around $60 billion since the price of oil fell below the previous year's lows last October, on the basis of 7 million bbl/day of net crude oil imports. That equates to $94 billion on an annualized basis.

 

However, as I've noted before, the US has become a significant net exporter of refined petroleum products like gasoline and diesel fuel. If the revenue from those sales has fallen in parallel with oil prices, that would shrink the benefit for overall US petroleum trade by about a third.

 

At that level, the GDP gains from cheaper imported oil appear to be more than offset by cuts of over $90 billion in capital expenses as US oil producers seek to reduce their costs and manage their cash flow in a low-price environment.  Those cuts, along with reduced operating expenses, ripple through oil companies and their supply chains, resulting in job losses and suppliers that have less, in turn, to invest in new equipment.  

 

Of course the flip side of that is that with US net petroleum imports below 5 million bbl/day, out of total consumption of just over 19 million bbl/day, the country would suffer much less than previously from a sudden increase in oil prices due to some geopolitical event or a further change in OPEC's strategy.

 

Nor does this alter the fact that US consumers whose jobs are not tied to the oil industry have more left to spend or save every month, thanks to lower prices at the gas pump. Since the beginning of last October, US retail gasoline prices have averaged $0.84 per gallon less than at the same point a year earlier, peaking at a $1.25 year-on-year discount in mid-April. Current prices for all grades average $0.92/gal. less than in early June of 2014, following the Memorial Day weekend. As a result, consumers have gained around $90 billion in gasoline savings through May, equivalent to $137 billion per year.

 

If they're not yet spending the difference on other goods and services, they have reacted in other ways more directly related to cheaper gasoline: They appear to be driving more. The US Department of Transportation's gauge of vehicle miles traveled is up sharply, at or near a new high. API's oil statistics for the first quarter of 2015 show total US gasoline consumption ahead by 2.9%, compared to the first quarter of 2014. As cold and snowy as the past winter was, that's surprising.  If this trend persists, it could indicate a reversal of the generally downward trend in US gasoline demand since the financial crisis.

 

Consumers also appear to be purchasing larger, somewhat less fuel-efficient new cars. The Transportation Research Institute at the University of Michigan reported that average US new-car fuel economy of new cars sold in April was 0.6 mpg lower than at its peak last August, though still up by 5.1 mpg since October 2007.  Consistent with the figures on fuel economy, sales of hybrid cars fell by 16% in the first quarter, compared to last year, and now make up just over 2% of US new cars. Plug-in hybrids fell by nearly a third. Only battery-electric EVs bucked this trend, driven largely by Tesla's growth in sales.

 

Despite these shifts, I don't believe the return--for however long--of fuel prices that start with a "2" instead of a "3" or "4" will turn the US back into a nation of gas guzzlers. Consumers are only spending a fraction of their savings at the pump buying more fuel, and the preference of many for cars larger than those they were buying when gas prices reached $4 per gallon seasonally in much of the country doesn't alter the fact that even light trucks are becoming steadily more efficient.

 

Wherever the rest of that $100-plus billion a year from cheaper gasoline is going today, Americans would be wise not to assume it will carry into the future indefinitely. Oil prices remain volatile and uncertain. Although OPEC might be correct in projecting that we will not see $100 per barrel again soon, current prices may not prove sustainable, either. 

A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

 

The LPG Echo of the Shale Gas Boom

• Increased US production of LPG and natural gas liquids is an outgrowth of the shale gas revolution and a key ingredient for translating its benefits into industrial growth.
• The infrastructure investments, export opportunities and price relationships for these liquids represent a microcosm of the similar issues for shale gas and LNG.

An article in the Wall St. Journal last month on the impact of a Midwest propane shortage on farmers trying to dry their corn harvest caught my attention. How could propane be in short supply, when US production is soaring due to shale gas? While it turns out that the shortfall in question was localized and temporary, it prompted me to take a closer look at LPG supply and demand than I have in many years. I found yet another market that is being transformed by the shale gas revolution.

Like most Americans--except for those in the roughly 5% of US homes heated with it-- I normally think about LPG only when I have to change the tank on my barbecue grill. That wasn't always the case; early in my career I traded LPGs for Texaco's west coast refining system. I'm happy to see that some of my former colleagues from that period are still involved and frequently quoted as experts on it. Although the LPG market is obscure to many, it represents a microcosm of the issues of reindustrialization and product exports arising from the recent turnaround in US energy output trends.

In order to follow these developments, we first need to clarify some confusingly similar acronyms, starting with LPG. Although often used synonymously with propane, it actually stands for "liquefied petroleum gas" and covers mainly propane and butane, though some in the industry include ethane in this category. The term reflects the oil refinery source of much of their supply, both historically and to an important extent today.  LPG overlaps with natural gas liquid (NGL)--ethane, propane, butane, isobutane and "natural gasoline"-- that has been separated from "wet" ( liquids-rich) natural gas during processing. NGLs are entirely distinct from the anagrammatical LNG, or liquefied natural gas, which consists mainly of methane that has been chilled until it becomes a liquid. By contrast, NGLs and LPG are typically stored at or near ambient temperature but under pressure to keep them in the liquid state.

LPG and NGLs make up a distinct segment of US and global energy markets, falling between the markets for natural gas and refined petroleum products. They are also linked to these larger markets, both logistically and economically. For example, gas marketers vary the amount of liquids they leave in "dry gas" to meet pipeline natural gas specifications based on price and other factors, and oil refiners blend varying quantities of butane into gasoline, depending on seasonal requirements. Propane and butane are mainly used as fuels, while ethane and isobutane are chiefly chemical feedstocks.

The development of shale gas in the US and Canada has affected the supply of NGLs and LPG in several important ways. First, starting around 2007 increasing shale gas output helped to halt and then reverse the decline in US natural gas production from which US NGLs are sourced. Then, following the financial crisis, diverging natural gas and crude oil/liquids prices pushed shale drillers toward the liquids-rich portions of shale basins like the Eagle Ford in Texas, in order to maximize their revenue. The resulting surge of US NGL production in late 2009 reinforced the decline of US LPG imports that began with the recession. According to US Energy Information Administration data, the US became a fairly consistent net exporter of LPG in 2011.

The current US LPG surplus is around 100,000 bbl/day, out of total production of around 2.7 million bbl/day. That surplus and its expected growth provides the basis for a number of announced LPG  export projects, as well as the anticipated development of new domestic chemical facilities such as ethylene crackers that would consume substantial portions of new supply, particularly of ethane.

The success of those projects depends on significant investments in new infrastructure, including gas processing, NGL fractionators to split the raw NGL into its components, and pipelines to deliver NGL to fractionators and LPG to markets. This is particularly true for the Marcellus and Utica shale gas in the Northeast, from which little or no ethane has been extracted due to limited local demand. Not only is that a missed manufacturing opportunity, but it constitutes a potential constraint on further liquids-rich gas development, since leaving too much ethane in the marketed gas would cause it to exceed pipeline BTU specifications.

In the meantime we're left with a situation that's analogous to the growth of tight oil production from the Bakken  shale. New sources of production have come on-stream faster than the infrastructure necessary to deliver them efficiently to where they can be processed or consumed. That puts a growing US surplus of propane and other NGLs in tension with tight regional markets for these fuels in the Midwest and Northeast, where residential propane prices are running well ahead of last year's at this time.  The resolution of this apparent paradox will depend on which infrastructure and demand projects are eventually completed, and how soon.

A different version of this posting was previously published on the website of Pacific Energy Development Corporation.

Exports Raise the Bar for US Strategic Petroleum Releases

I've seen a number of Tweets suggesting that the US will release oil from its Strategic Petroleum Reserve (SPR) sometime in the next month or two, perhaps in tandem with other member countries of the International Energy Agency.  Although circumstances might provide several possible rationales for such a release, including the implementation of tougher sanctions on Iran's oil sector and the possibility that Hurricane Isaac will disrupt some production in the Gulf Coast, it's hard to avoid a political interpretation, as well.  As we head into a close Presidential election, gas prices are rising again, and that's never good for an incumbent.  Selling oil from the SPR is one of the few levers available that might affect short-term energy prices.  However, much has changed since the Clinton administration released 30 million barrels (via exchange) in the lead-up to the 2000 election.  In particular, the country's switch from net importer to net exporter of petroleum products implies that a release in response to events other than a physical disruption in oil supplies could result in some of the benefit of such a release being exported, as well.

When it comes to uses of the SPR, I'm a purist, probably because I can recall sitting in gas lines and participating involuntarily in the bizarre "odd-even" rationing-by-license-plate scheme introduced during the oil crisis following the Iranian Revolution.  The SPR was designed to provide a backstop for our vital energy supplies in a true physical emergency, not as a tool for price manipulation.  I've also suggested for some time that the SPR is overdue for a comprehensive reassessment of its structure.  Our energy situation has changed significantly since the mid-1970s, when the present SPR was established, and we are in the midst of the biggest changes in US energy supply and demand patterns in decades.  We ought to invest the time and money required to bring this institution into the 21st century.  Earlier this year, I also suggested an alternative mechanism for leveraging SPR inventories without depleting them. These are tasks for after the election, whoever wins.  For now, we have what we have, and we should think carefully about the implications of using it in situations less compelling than a war in the Persian Gulf or an unanticipated disruption in North American or global supplies.

One of the changes that must be taken into account is our recent shift in refined product exports, about which I've written previously.  US refineries are capitalizing on the expansion of domestic oil production in a period of weak US demand to continue to operate at high utilization rates and export the resulting surplus output to growing economies in Latin America and elsewhere.  This is generally a good thing, because it helps preserve capacity that might otherwise no longer be available when our own economy eventually resumes healthier growth. It also sustains employment we would sorely miss in a terrible job market.  Furthermore, we have benefited greatly in reliability and flexibility from participating on both sides of the global market in refined products. Still, although I view our petroleum product exports as generally positive--just as I do Boeing's exports of jetliners--I wouldn't advocate using petroleum stockpiles purchased with tax dollars to drive down oil prices to give these refiners an even bigger export advantage.  Yet because of its temporary nature, in contrast to new pipelines or new production, that's exactly where at least some of the benefit of SPR oil released in the absence of a serious supply crisis would go now. 

That doesn't mean I regard rising oil or gasoline prices as harmless to the economy. Consumers are facing the highest pump prices heading into Labor Day weekend since 2008, and that could have a ripple effect throughout the economy.  But even if one ignores the longstanding bi-partisan principle that the SPR is intended only as a crisis-management tool, its effectiveness at moderating oil-price volatility is limited.  Last year's coordinated SPR release, prompted by the Libyan revolution, had little persistent effect on either oil or gasoline prices. A release now is likely to be no more effective when US refineries are already running above 90% utilization and the current 4-week averages show 3.6% of US gasoline production and 23% of diesel output being exported. None of these statistics suggest refiners are experiencing difficulties in obtaining feedstocks, other than on price.  Putting SPR oil into such a market might boost refiners' margins for a while, but it's doubtful it would do much for the product prices that matter to consumers. 

There are sharp differences between President Obama and Governor Romney, not least on energy policy. We're sure to hear more about energy from both campaigns in the weeks ahead, and I plan to analyze their positions closer to election day.  However, one factor this election doesn't need is a release of oil from the SPR that appears to be aimed at dampening gasoline prices that often decline after Labor Day without intervention, rather than being justified by a tangible threat to US oil supplies, and that fails to take into account the added complexity of net product exports. That wouldn't serve the interests of voters, taxpayers or consumers, and it would come at the expense of a little bit of our collective energy security. 

2011 in Energy: The Year of...

At the start of 2011, I thought the hallmark of the year's energy events and trends might involve regulation, with the White House seeking to implement measures that couldn't garner enough support in Congress to become laws. But for every major new regulation issued, such as last week's release of the new Mercury and Air Toxics Standards for power plants, others were delayed or deferred, including the EPA's effort to regulate greenhouse gases under the Clean Air Act and the agency's proposed ozone standard. Outside of the utilities and other industry groups directly affected by these rules, it seems likely that 2011 will instead be remembered for big, unpredictable events like the Fukushima nuclear accident and the Solyndra bankruptcy scandal, along with several major trends that reached critical mass this year. Anyone attempting to pick the energy story of the year is spoiled for choice.

In my search for a catchy title for this year's final posting, I toyed with "The Year of Solyndra", "The Year of Shale", "The Year of Fukushima", "The Year of Exports", and various other combinations of the energy buzzwords that percolated into our consciousness this year. In some ways, they'd all be apt choices. Here's a quick rundown on why they might merit that kind of recognition, with links to previous postings providing more details on each:

• If 2011 is the year of Solyndra, it's not because of the possibility that the government's $535 million loan to the firm was the result of political influence (cue Major Renault), or even that the Department of Energy is unlikely to recover more than pennies on the dollar in the firm's bankruptcy. Instead, it's because Solyndra highlighted the much broader and deeper problems of a global solar industry that, despite continued demand growth that other industries would kill for, now faces overcapacity and the fallout from the winding down of unsustainable government support. Germany's Solar Millennium is just the latest victim of this trend. Along with BP's exit from the solar business after 40 years, it provides a further reminder that renewable energy firms must succeed not just as technology providers, but as businesses that can earn consistent profits and continue to attract investors.



• Shale gas was hardly new to the scene in 2011; it has been expanding rapidly for several years and now accounts for up to a third of US natural gas production. However, the controversy surrounding drilling techniques like hydraulic fracturing that make its exploitation possible became much more widespread this year, while some scientists raised questions about its contribution to greenhouse gas emissions. Shale gas has the potential to transform nearly every aspect of our energy economy, and probably sooner than renewable energy sources could. That has some folks nervous, while others are eager for shale gas to displace coal from electricity generation, compete with oil in transportation, and revive the domestic petrochemical industry. I suspect we'll see all of those to some extent, provided we don't regulate shale out of the running.



• The aftermath of Fukushima could prove equally transformational, though it remains to be seen whether the ultimate result is safer nuclear power or a global retreat from one of our largest sources of low-emission energy. All but 8 of Japan's 54 nuclear power plants are currently idle, and that nation must shortly decide whether it will eventually restart those units that weren't critically damaged, or shut down the rest and attempt to run its manufacturing-intense economy on a combination of renewables and much larger imports of fossil fuels. The German government's post-Fukushima decision to phase out nuclear energy entirely could provide an even quicker test of the same proposition.



• Another major shift that has been in the news recently involves exports. Although the US has long exported coal and various petroleum products, we could shortly become a bigger, more consistent exporter of many fuels, including liquefied natural gas (LNG), gasoline and diesel. As the reaction in a CBS news segment last week demonstrated, the US public doesn't know quite what to make of this, yet. Becoming a major energy exporter while still importing a net 9 million barrels per day of crude oil is very different than the picture of isolated self-sufficiency that four decades of "energy independence"rhetoric has evoked. We shouldn't be surprised that energy can provide a boost, and not just a drain on our trade balance. This topic requires more public discussion and education, before we see serious proposals to ban such exports--proposals that would make no more sense than banning exports of corn, tractors, or aircraft in an attempt to keep their US prices low.



• It's also tempting to call this the Year of Oil Price Confusion. The news media gradually woke up to the huge gap that had developed between global oil prices and the oil price that Americans tend to watch most closely, the one for West Texas Intermediate crude. Yet despite numerous stories on the storage and pipeline crunch and supply glut at Cushing, Oklahoma, few reporters and networks seemed able to follow through by breaking their old habit of treating the NYMEX WTI price and its gyrations as if it were still the best indicator of the overall oil market. Fortunately, the problem is in the process of being resolved, as pipelines are reversed and more tankage built.



• Finally, there was the administration's non-decision on the Keystone XL pipeline. Observers can read much into this, including the growing influence of citizen activists mobilized via social media. However, if it does nothing else, the Keystone controversy should put to rest the superficial fallacy that anything that improves greenhouse gas emissions is automatically good for energy security, instead of requiring difficult trade-offs. In that context, the prospect that the administration might ultimately turn down the permit for Keystone would be easier to stomach if the net greenhouse gas savings involved amounted to more than a paltry 0.3% of annual US emissions, based on the emissions from incremental oil sands production the pipeline might facilitate, compared to those from the conventional imported oil it would displace.

It was a busy year for energy, and if my short list of top stories missed something crucial, please let me know. 2012 promises to be just as interesting, with a Presidential election, in which energy issues could feature prominently, added to the mix. In the meantime, I'd like to wish my readers in the UK and Commonwealth a happy Boxing Day, and to all a Happy New Year.

Net Exports and Gasoline Prices

US petroleum product exports have been in the news, along with the welcome discovery that we are apparently on track to become a net exporter of these fuels this year, for the first time since the 1940s. This is a far cry from energy independence, as various oil skeptics have been quick to point out, but it's still a noteworthy inflection point in energy trends. However, I've also seen stories suggesting that US consumers will pay a lot more at the pump as a result of this change, to which the most succinct response so far is "rubbish." Being a net exporter hasn't suddenly connected US fuel prices to the world market, as if they had somehow been insulated from it until now. In fact, we've been exporting products for many years--as I know from personal experience--but for most of that time we just happened to be importing more. The net effect of our new status on prices here will be minimal, while the main impact will be a positive nudge to our trade deficit.

I am sympathetic to the present urge to see a cloud in every silver lining; we seem to be going through one of those phases in our history. At the same time we should understand that to the extent net petroleum product exports aren't entirely good news, it's because the main driver of this departure from a long trend of steadily increasing net imports was the sudden slowdown of consumer activity that accompanied the recession and financial crisis, from which we are still recovering. And while I agree that more efficient cars have contributed, recent fuel economy improvements have been too incremental to our fleet of 240 million light-duty vehicles (passenger cars, SUVs and light trucks) to have made such a big dent in demand, quite so soon. Mainly, we're driving less, as the statistics on vehicle miles traveled indicate. That might be better news if it reflected a massive lifestyle change, instead of the grim reality of millions of un- and under-employed Americans for whom driving has become a luxury.

Even in that negative context, the fact that we are now exporting more gasoline and other petroleum products than we import is a plus, since without buoyant non-US demand, US refiners might have been forced to reduce operations by more than they have, or to idle more facilities and lay off staff. Today's net exports imply a positive margin between crude oil imports and product exports sufficient to cover refiners' costs, even after netting out freight. That results in more economic activity and value added here, driven by overseas demand, following the same export-led strategy that other industries are pursuing in order to compensate for lower US demand for their output.

More exports and fewer imports mean a smaller trade deficit, but the question on some people's minds is apparently whether this is being accomplished at the expense of US consumers. That might have been the case if, for example, exports had been banned until recently and refiners forced to create an artificial glut of petroleum products to drive down prices. (That's effectively the case in some other countries.) Instead, the US has long been part of a global market for both crude oil and refined products, and refiners and traders have always been alert for gaps between regional markets that could be profitably exploited. When I traded refined products for Texaco's west coast refineries in the 1980s, we occasionally took advantage of export opportunities, even though we were more often importers. When I traded products in London, my team routinely sold cargoes of gasoline, diesel or jet fuel from the US into Europe and Asia, and we did the reverse when the "arbitrage" worked in the other direction. We accounted for just a small portion of the trade in cargoes passing back and forth between continents, which continues today.

As a result of this global market in refined petroleum products, US consumers of gasoline and other fuels have always been competing with consumers in other countries, whether we realized it or not, especially in parts of the country where refiners have easy access to export markets. That's been true since the days when my former employer's advertising touted its success in "lighting the (kerosene) lamps of China". In terms of the impact on domestic prices, it doesn't matter much whether we're net exporters or net importers, as long as we're connected to the global market--a linkage that has saved our bacon on many occasions when US refineries were hit by hurricanes, blackouts, or other disasters.

A more tangible way to test the consequences of product exports involves comparing past and present crude oil and gasoline prices. Making that comparison accurately is complicated by the breakdown of the main US oil market indicator, the price of West Texas Intermediate crude, which for more than a year has been burdened by excessive inventory at Cushing, OK and other factors. For now the price of Louisiana Light Sweet (LLS) is a better gauge of the oil market. LLS has been relatively unaffected by WTI's problems and trended much closer to global oil prices, such as UK Brent crude. It turns out that 104% of the higher retail price of gasoline this November vs. a year ago is explained by the $23 per barrel increase in LLS since then. In other words, crude prices have increased by slightly more than gasoline, suggesting that raw material costs still have a much larger impact on prices at the pump than does the recent shift in US petroleum product trade patterns.

Although the evidence that product exports don't hurt consumers is strong, I don't expect it to dispel this handy new rationale for complaining about gas prices. After all, the price of gasoline is one of the most visible and volatile prices we're exposed to, and for which we have few practical alternatives. Having a narrative to explain these spikes and dips is empowering, even if it's wrong. However, in the midst of all the grumbling it's worth spending a moment thinking about the benefits of having an oil refining industry that has been able to find alternative outlets for its products while it waits for the US economy to recover, instead of yet another manufacturing industry on the ropes, shedding jobs and moving offshore.