Thursday, February 7, 2008

Your Fuel Conservation efforts are working

Experts forecast a drop of up to 50 cents per gallon by Spring! What a turnaround. Most of us have been listening to forecasts that oil and gas prices would continue to climb – after all we have been told that the world’s oil supply has peaked. Instead, we are witnessing market forces at work. Evidently, the high fuel prices and the looming threat of a recession are encouraging US drivers to conserve.

The U.S. Energy Information Administration (EIA) is reporting that U.S. gasoline supplies hit a near-14-year high of 227.5 million barrels last week helped by falling demand for the fuel. Stock “piles” of gasoline are growing.

That’s great. How much conservation is required to affect prices? The demand for gas over the last month has grown one percent over that of last year. That is about one percent less than the average growth according to the EIA.

That’s it? A one percent reduction in demand has this much influence? Let’s see, a drop of 50 cents for $2.98 gallon is a 16.7% decrease. Wow, that’s a great return on investment. Of course, one month is not long enough, we must sustain this for a few more weeks and then gas prices are expected to start reversing.

It’s also worth noting that U.S. refineries last week were only running at 84.3 percent of capacity. On one hand, this indicates that a lot more fuel could be processed with increased capacity. On the other hand, this low capacity rate doesn’t allow much margin in the event of refinery maintenance problems, hurricanes, unstable dictators or increased demands.

After digesting this news, I am left with the awareness that the US gasoline industry is in a fragile balance. It is overly sensitive to a multitude of factors. Like any engineer worth his/her salt would say, we need more margin. So much of our economy and everyday activities depend on gasoline. Who can argue that we don’t need a more robust energy policy that includes developing diversified energy sources and conservation incentives?

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