U.S. government and refiners hold talks over causes for higher-than-anticipated fuel prices

Members of the American Fuel and Petrochemical Manufacturers (AFPM) as well as the American Petroleum Institute (API) met with U.S. government officials in Washington to discuss fuel markets after gasoline prices spiked in early June to levels higher than anticipated in an EIA forecast from earlier this year.

Image courtesy of Rudy and Peter Skitterians, Pixabay

AFPM President Chet Thompson, and API President and CEO Mike Sommers, sent on June 15 a letter to U.S. President Joe Biden “responding to recent letters the Administration sent to major U.S. fuel refiners suggesting that these companies, their workforces and facilities throughout the country aren’t doing their part to bring fuel to the market and lower energy costs (…)”

U.S. refiners are “running at a world-leading 94%” of capacity, the AFPM and the API said on June 16. Refiners also used the opportunity to ask for greater support for the industry.

On June 23, after a meeting between the U.S. secretary of Energy and refiners, the U.S. Department of Energy published a press release where it informed that the content of the talks included the need to lower energy costs for U.S. drivers and transportation.

Fuel prices for gasoline rose in early June to levels higher than what the U.S. Energy Information Administration (EIA) had anticipated just a few months earlier. Higher fuel prices, as well as higher prices for food and other items delivered by truck, have contributed to U.S. inflation indicators seeing some of the highest numbers in decades.

Added capacity

“Even if refiners could bring more refining capacity online despite these challenges, the result could be higher demand and higher costs for crude oil,” the associations said.

“Current market conditions are complex and require a closer look. U.S. refiners are, in fact, adding new U.S. refining capacity where it makes business sense,” the AFPM and API statement added.

A follow-up email question was sent in late June to the AFPM to try to learn details on where and how much capacity is being added, as per the release. Capacity for U.S. oil refiners fell in 2021 for the second year in a row, Reuters news agency reported on June 21.

The American Fuel & Petrochemical Manufacturers (AFPM) represents fuel and petrochemical producers.

The American Petroleum Institute (API), which represents America’s natural gas and oil industry, has nearly 600 members and was formed in 1919.

The AFPM release also said that “about one-third of recent refining capacity loss is due to conversions to renewable fuel production.”

Biden´s Letter

According to reports from news organizations, including a Washington-dated report on June 15 from Reuters news agency, U.S. President Joe Biden wrote to executives from Marathon, Valero and Exxon Mobil.

The letter was also sent to BP, Chevron, Phillips 66 and Shell, according to several media reports.

"At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable," wrote Biden, according to Reuters news agency.

Efforts to release U.S. crude oil reserves or to increase the proportion of ethanol to the gasoline mix sold in the U.S.,  from about 10% to about 15%, didn´t help to significantly reduce prices at pumps in service stations because refineries didn´t seem to operate at full rates, Biden had appeared to complain in his mid-June correspondence.

Ethanol, an alcohol produced in the U.S. from corn, is added to the naphtha mix as an oxygenate.  Ethanol helps power the vehicle but its role is mainly to help produce a cleaner combustion and release cleaner emissions.

Most U.S. cars are made to run without mechanical problems on up to as much as 15% ethanol. In Brazil, where ethanol comes from sugar cane, most cars can switch between a E25 (25% ethanol) gasoline mix or E100, that is 100% hydrous alcohol (ethanol), or any combination. 

Refiners meet Energy Secretary

The AFPM and the API on June 23 released a joint statement after a meeting of the U.S. Energy Secretary Jennifer Granholm with a group of U.S. refiners.

"Secretary Granholm’s meeting with American refiners today was a constructive discussion about ways to address rising energy costs and create more certainty for global energy markets,” the statement said.

“While these challenges and their causes are complex, from Russia’s war in Ukraine to market imbalances leftover from COVID, productive outcomes today should send a positive signal to the market that the U.S. is committed to long-term investment in a strong U.S. refining industry and aligning policies to reflect that commitment,” it added.

The U.S. oil refining industry “will continue to seek opportunities to work with policymakers to unlock American energy, fuel economic recovery, and strengthen our national security."

More gas to the pump

The U.S. Department of Energy confirmed on June 23 that at President Biden´s directive, Energy Secretary Granholm met executives of seven major U.S. oil companies at the U.S. Department of Energy Headquarters in Washington D.C.  

“Secretary Granholm reminded the companies that their consumers, workers, and communities are feeling the pain at the pump because of (Russian President Vladimir) Putin’s Price Hike, and that at a time when Putin is using energy as a weapon,” the statement said.

“The Secretary made clear that the Administration believes it is imperative that companies bring supply online to get more gas to the pump at lower prices,” the statement added.

Granholm “reiterated that the President is prepared to act quickly and decisively, using the tools available to him as appropriate, on sensible recommendations,” it said.

Front-month Brent futures had closed the last day of 2021 at $77.78 per barrel.  Following Russia´s invasion of Ukraine prices rose to a peak of $127.98 on March 8. Brent futures, front-month traded at just over $111 in early July.

The higher the crude oil prices, the greater the U.S. petrochemical industry´s advantage because it mostly uses ethane, derived from natural gas, as feedstock. This helps U.S. petrochemical producers be more competitive than producers elsewhere that rely on naphtha, which comes from crude oil. In China many plants have relied on coal or other feedstock imports, also more expensive.

U.S. gasoline prices rose in early June to a level higher than what the EIA had anticipated about three months earlier.

By Renzo Pipoli