Are U.S. Gasoline Exports About to Goose Prices at the Pump?

Something strange is going on in the U.S. gasoline market. Although prices at the pump have fallen about 60¢ a gallon since early September, the wholesale price that refiners, banks, and traders pay before the gas reaches the consumer have jumped almost 20 percent over the last couple of weeks.

Since Nov. 6, the wholesale price of gas on the Gulf Coast spot market has risen from $2.30 a gallon to more than $2.70 as of last Thursday. That’s the price companies pay for gasoline that gets delivered into the Colonial Pipeline, the main artery for taking crude from refineries along the Gulf Coast up the East Coast, where it’s then distributed to gas stations.

While some recent refinery outages have played a part in this spike, most notably a Nov. 15 fire at a Chevron refinery in Mississippi that killed one person, there’s a more important force at play: the boom in U.S. fuel exports.

In the last several years, U.S. refined product exports have more than tripled, from fewer than 1 million barrels a day to more than 3 million a day. That’s tightened up supplies of gasoline and diesel at home so that when refiners do have outages, there’s not enough supply sloshing around to prevent a price surge.

The export boom has been apparent for a couple of years now, but because domestic demand has been little changed, most analysts didn’t expect it to have much impact on the price that U.S. drivers pay. “I did not see this one coming,” says Tom Kloza, chief oil analyst at the Oil Price Information Service and “I’m never really surprised by what happens in the marketplace, but this one took me by surprise.”

While the national average price of gasoline reversed its two-month slide last week by ticking up 2¢, from $3.27 a gallon to $3.29, there’s probably more pain to come as higher wholesale prices start to filter through the supply chain. That effect could be muted somewhat as oil prices fell after a deal to ease sanctions on Iran was reached on Sunday. Still, if gasoline prices do start to rise over the Thanksgiving weekend, people may assume that retailers are trying to take advantage of holiday drivers, says Kloza, but they’ll be wrong.

Although we won’t get the November export numbers from the U.S. Energy Information Administration until next spring, Kloza says he’s betting that “November 2013 will break all records for exporting gasoline out of the U.S.”

So where’s all that American-made fuel going? Some of the biggest demand has come from Central and South America. Brazil, Argentina, and Venezuela have all more than doubled the amount of refined fuel they import from the U.S. since 2010. Demand has spiked particularly in Venezuela, which since 2012 has imported an average of more than 2 million barrels a month of refined petroleum products from the U.S. From 1993 through 2011, monthly exports to Venezuela averaged about 500,000 barrels.

West Africa is also taking more U.S.-made fuel. Exports to Nigeria shot up to 2.7 million barrels in August. Driving this growth is a strange price incentive that’s largely a function of the Merchant Marine Act of 1920 (known also as the Jones Act), which requires goods transported between U.S. ports to be carried on vessels based in the U.S., made in the U.S., and crewed mostly by U.S. citizens. A shortage of these ships has created a bizarre scenario where it’s cheaper to ship gasoline from Texas to Nigeria than it is to ship it to New York, or to Florida for that matter. “I can ship a barrel of gasoline across the Atlantic for one-third the cost of shipping it to New York from Houston,” says Fadel Gheit, an oil and gas analyst at Oppenheimer. Gheit estimates there are only 28 vessels certified by the Jones Act that are allowed to ship fuel between U.S. ports. He calls them “the chosen ones.”

Exports have been a nice outlet for U.S. refiners faced with declining demand in the U.S. because of more-efficient cars and stagnant driving habits. Refiners also don’t have to blend pricey ethanol into the fuel they export, as they do in the U.S. This has all led to what Gheit calls a “double whammy” of more expensive gas for U.S consumers. “The benefits of cheap U.S. energy are being exported overseas,” he says.

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