Like a man hiding in the closet, it’s time to call out the Queen of Denial.
Since the API are busy playing their numbers release like Fight Club (rule number one is…), we can only get a glimpse of their iffy numbers. One of the numbers that seemed right in line was a gasoline draw that came in over 3MM barrels. Holla. That’s an interesting number, because for as long as this year has been long, it’s something that we’ve been warning the teeming millions about. We’re in a perfect storm of summer driving season, Unemployment at its lowest since 2008 (5.4) and auto sales that have been at their highest monthly pace (16.8MM/mo) since 2004.
While everyone has been whining about the full time v. part time argument with new workers, honey badger don’t care. Gasoline demand will take all and any newcomers to the road. There’s no embracing better fuel efficiency when you are adding more cars into America faster than the miles saved. We’re replacing older cars at such a high pace that for every one that comes on the street saving a few miles, we’re adding another three that weren’t there before.
This is all fine and dandy. There’s something good about having more workers and more drivers on the road. That’s a sign that the economy is doing better and we can get on with this eventual rate hike and count on even more. The issue is that we’re getting to this point where all the crude in the world just doesn’t matter. We still need to refine that black gold and turn it into something that makes transportation go. Where we once we’re concerned about keeping refining margins high enough to support our aging system, we’re now looking for ways to make it bigger.
Back in the mid-2000s when gasoline prices were riding high on high light sweet crude prices, we saw a major shift in refining when many moved from the more expensive light sweet to handle more medium and heavy grades. This time around there’s no switching and there’s plenty of cheap crude to choose from. This time there’s no where left to hide, no where left to run.
Right now we’re in the midst of running as fast and as hard as we can. The issue we face is like LiLo—sooner or later we’re going to have to pay up and finish our community service. Refinery capacity in the United States is just a hair under 90% this year (89.6), but if you look at what’s going on in PADD2 (Midwest), it’s lights out. That area has been on a tear and averaging 91.5% since 2010. For those that still refuse to think that refining isn’t having as much as an impact on our water demand, go no further. I recently attended a water and energy conference where a lot of the focus was on upstream.
Funny thing, some of the highest hit states for water stress happen to be Illinois and Indiana. Yeah, you might recognize those as home to some of the largest refineries in the Midwest. We’re treading thing ice up there, and at this pace, we’re likely to lose a big part of the game. Move over California, there’s a new area that is vying for most expensive gasoline in America.