MUCH OIL LITTLE RELIEF

Ever hear of RINS?

Renewable identification numbers. No, this isn't about some government internment camp, though one might argue that depends on your definition of government mandates.

RINS, according to many who closely follow the oil industry, are in part responsible for why abundant oil supplies have failed to show up in lower gasoline prices at the pump.
Gasoline prices are up over 10% in 2013.

In case you haven't been watching, the US this year for the first time since 1994 will  produce more oil than it imports. But hold on a second. It gets even more interesting. In 2011, as noted in a recent Bloomberg article, "the US quietly surpassed Russia as the largest exporter of such refined products as gasoline and diesel. Canada's fuel imports from the US jumped 15 percent in 2012. Brazil's demand for US-made fuels rose 6 percent."

There's a similar increase in demand from China, India and oil-rich Venezuela. "Without recognizing it," the article states, " US drivers are competing with consumers in Latin America and Asia, where demand is rising."

This past month the US shipped "a record 3.2 million barrels a day of refined fuel" out of the country. Steven Schork, president of a Pennsylvania energy consulting firm Schork Group, was quoted in the Bloomberg piece:

"The US has the most sophisticated network and the most technologically advanced refining system in the world, and it has access to a tremendous amount of domestically produced crude oil in a country where demand is stagnant at best."

A while back we wrote about states like Oregon starting to tax hybrid car owners because many states are technically bankrupt and revenue from gasoline taxes have suffered a big hit. Drivers are filling up less and driving fewer miles in part owing to those hybrids the environmentalists and government bureaucrats in their save-mother-earth zeal fronted for.

Well, those same suspects pushed for another save-mother-earth goodie, ethanol. Forget the fact that ethanol comes from corn and half the farm acreage on the planet, if these folks have their way, will be growing the stuff. Nearly every gallon of gas sold in the US must be 10% ethanol.

 Not bad if you live in Iowa and grow subsidized corn. Instead of organic labels why not subsidized ones. This product is subsidized by American taxpayers. Maybe that would help wake the sleeping masses up to what's going on.

In the meantime, the ethanol tax, and that's what it is, tacks on in some cases 10 cents a gallon. But that's only half the story. Legislators when they pass laws make assumptions. In this case, demand for gasoline would remain high. It hasn't.

For 2013 the ethanol decree requires US refiners to blend nearly 14 billion gallons of ethanol in gas sold to you and me. Bottom line: too much ethanol. Refiners don't need all that mandated ethanol, a 400 million gallon difference. To offset it refiners must buy credits or RINs. But not without some pain.

Those credits or RINs, owing to the fall in gasoline use or demand, started the year selling at 7 cents, jumped to a buck by March and currently trade around 66 cents. For refiners selling their products abroad it's a no- brainier. They avoid US ethanol mandates.

Last and even more ridiculous is something called the Jones Act. Enacted in the 1920s  it requires "any cargo shipped between US ports to be carried by vessels that are based in the US, made in the US, and crewed by US citizens." Passed to protect US shipping interests, it's made it more expensive to move hydrocarbons between  American ports.

Though some might call it poetic hydrocarbon justice, the Northeast, after a series of refinery closings the last few years, faces higher energy costs because of it. Some say it adds $6 to $8 a barrel to transportation costs, making it much cheaper for a Gulf Coast refinery to ship gasoline out of the country than to the Northeast.