Energy Business

New Refineries Could Help Push Up Price Of Oil

New refineries will be opening soon in China and some countries in the Middle East. This may force other facilities in the US and Europe out of the business. The older plants are not as efficient and have high costs. The latest plants will be high-tech and have better operating margins.

According to Reuters “The U.S. market for refined gasoline imports could disappear by 2020 as mandated use of biofuel such as ethanol takes an increasing share of demand.”

The refining business has been hurt because much of the rising price of oil cannot be passed on to gas, diesel, and jet fuel distributors. With gas prices nearing $4 in some markets, trying to push higher prices at the refining level is a move with very little leverage.

As economics forces US companies out of the refining industry the country becomes dependent on overseas suppliers for both crude and refined products. That is a strategic vulnerability the country hardly needs.

It is not the business of the federal government to subsidize oil companies the way it does banks and brokerages. But, if gas goes toward $5 because of high crude costs and a lack of US-based refining capacity, the Feds may wish they had taken some of the money earmarked for Citigroup and given it to refining facilities in Texas.

Douglas A. McIntyre