The U.S. Energy Information Administration (EIA) said this morning that U.S. crude oil production topped 7 million barrels a day in the final two months of 2012. That is the highest volume production since 1992 and is being driven by production in the Bakken shale play in North Dakota and onshore oil plays like the Eagle Ford and Permian Basin in Texas.
That is all well and good, but crude oil is not the reason gasoline pump prices are high. Pump prices are high because there is not enough gasoline, particularly in the Northeast section of the country.
The U.S. imported 1.98 million barrels of finished motor gasoline in December, according to the EIA. Almost all of that - 1.44 million barrels - were directed at the Northeast, or as the EIA refers to it, PADD 1 (Petroleum Administration Defense District). That gasoline is mostly refined from Brent crude in Europe and shipped by tanker to the United States. Why? Because refinery closures in the Northeast have forced the switch to imports.
And the refineries closed because they could not get supplies of U.S.-produced WTI crude, which is around $20 a barrel cheaper than Brent. They were forced to take the higher-priced imported Brent crude, pay for shipping costs and then refine it. It is cheaper to refine it in Europe - where demand for gasoline is falling even faster than it is in the U.S. - and ship the refined product to the U.S. The same is true for diesel fuel and residual fuel oil, and those two products also are aimed at the U.S. Northeast.
According to GasBuddy.com, the average price of a gallon of regular gas in the U.S. today is $3.735, down from $3.737 yesterday, and just a couple of ticks higher than a week ago. We noted here a couple of weeks ago that $3.80 would be the likely peak for this latest jump in pump prices, but we may have been too pessimistic. It looks now like $3.75 may end up as the high point.
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