Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Gasoline Is Sticking at Four Dollars While Crude Slips
Transcript
- Lucas: So the national average for regular gas is sitting at four dollars and five cents a gallon. That's up a tick from last week, even though crude oil is basically flat. And if you've been following the headlines, you know there's this persistent gap: oil prices aren't surging, but your fill-up still stings. Luna: Right, I saw that WTI is around 86 and a half, barely moved. But gas is still above four bucks. What's going on? Is it just refiners being greedy? Lucas: It's tempting to say that, but the real story is the crack spread. That's the difference between what refiners pay for crude and what they get for selling gasoline and diesel. And right now, that spread is stubbornly wide. We're talking about a crack spread that's been elevated for months, not just a blip. Luna: So refiners are making more per barrel, but is that because they're charging too much, or is there something else? Lucas: It's mostly capacity and product demand. Let me unpack that. On the crude side, WTI is around 86.5, Brent is 95.3. The spread between those two is about nine bucks. That's a big incentive for U.S. refiners to export product, especially diesel. But domestic gasoline demand is still pretty healthy, so they're running their units hard and keeping margins fat. Luna: And the Gulf Coast refining glut we talked about back in episode 154 — is that still a factor? I thought more refining capacity meant lower margins. Lucas: You'd think so, but that glut is actually part of the equation. The Gulf has a ton of export-oriented capacity. When global diesel prices are strong, those refiners can sell into the international market rather than flooding the U.S. with gasoline. So we get tight gasoline supply domestically, and the crack spread stays wide. Luna: So they're making money hand over fist, but the average driver is stuck paying four bucks. That feels like a mismatch. Lucas: It is a mismatch, and it's structural. Look at the numbers from this past week: the energy sector ETF is down about one percent, but the exploration and production ETF is up slightly. Refiners aren't the same as producers. And that's why you see divergence in the stock moves — the commodity and the companies that process it are telling different stories. Luna: Interesting. So if crude ticks down, why doesn't gas follow? Is there a lag? Or is it something about the summer blend? Lucas: Both, actually. There's a typical lag of a couple weeks, but the summer blend is a real factor. Refiners have to produce a more expensive gasoline blend in the summer to meet EPA volatility rules. That adds cost. And as we transition out of that, we might see some relief, but it's not going to be immediate. Luna: So what would break this? What would get gas back to three fifty or three seventy-five? Lucas: A few things: a big drop in crude, which we're not seeing; a surge in refining capacity, which takes years; or a real slowdown in demand. Right now, demand is still strong, especially for diesel internationally. And there's geopolitical risk — the headlines about sanctions on Iran, for example, are keeping a floor under crude prices. Luna: Right, that's been in the news. So we're not likely to see much relief at the pump this year? Lucas: Probably not. The best case might be a slow drift down as we exit the summer driving season and refiners switch to the cheaper winter blend. But even then, the crack spread is likely to stay above historical averages because of structural capacity constraints. Luna: So for the average person, the message is: don't hold your breath for cheap gas. But maybe there's an investment angle here. What does this mean for energy stocks? Lucas: It means refiners are the ones making the money right now, not the producers. Look at the numbers: Exxon down 1.2 percent, Chevron down slightly, but ConocoPhillips up almost three percent. That's a producer with a strong portfolio. But if you want to play the crack spread, you're looking at the refining names, and they're a different beast. Luna: So maybe the takeaway is that the energy sector is not monolithic. You have to be specific. Lucas: Exactly. And that's the theme we keep coming back to on this show: energy markets are complex, and the simple story of 'oil up, gas up' is way too simplistic. Luna: Yeah. And you know, if this episode has helped you feel a little smarter about why you're paying four dollars, maybe consider supporting the show? It's a small thing, but it genuinely keeps us ad-free and independent. Lucas: That's a good point. We don't do ads, and we like it that way. If you've gotten value from these conversations, you can buy us a coffee at buy me a coffee dot com slash fexingo. It's the smallest ask we can make, and every little bit helps. Luna: Yeah, no pressure. Just if it's worth a coffee to you. Lucas: Right. So back to the crack spread — one thing I want to emphasize is that this isn't just a U.S. story. The brent wti spread at nine dollars is a global signal. European and Asian refiners are facing similar dynamics, and that's why diesel prices are strong worldwide. Luna: So when we see headlines about oil prices falling, we should always ask: falling for whom? Producers, refiners, consumers — they're all in different boats. Lucas: That's the takeaway. And maybe the next time you hear a politician promise cheap gas, you'll remember the crack spread and know why that's a tough promise to keep.