Scots and the price of gas

By Fester: Gasoline prices are increasing in the United States with isolated pockets of $4.00/gallon regular unleaded already being reported for the $100 fill-up, and the gas stations down the street from my house hovering in a $3.50 to $3.55 per gallon band. Gasoline and other refined petroleum products consumption has decreased but only slightly on an aggregate level. Per-capita consumption has dropped a bit more but it is still high. The price per gallon is projected to increase even if everything goes right in the global supply chain. This will be due to a combination of summer blends, increased demand due to more summer driving and the continued run-up of crude oil prices.

Well something else may be going wrong.

The large Scottish oil refinery at Grangemouth may be temporarily closed due to a labor strike over pensions that the refinery owners are trying to back out from. Grangemouth produces roughly 200,000 barrels per day of refined products. Early panic buying and the lack of credible and transparent reserves are causing British fuel prices to skyrocket in the same manner that a hurricane a few days out from the Gulf of Mexico would cause prices to increase in the US. Cernig has been rooting around his Scottish networks and every indication is that the Grangemouth strike will occur. One local police officer has been told to prepare for extended picket line overtime duty.

So why should we be concerned about a strike in Scotland?  According to the Energy Information Agency, the United Kingdom exports between 133,000 to 267,000 barrels per day of refined petroleum products to the United States. Most of those products are distributed on the US East Coast. If Grangemouth is down there goes the surplus capacity that has been allowing the Brits to send gas to the US. The previous export capacity would be snapped up by British suppliers who can pay a premium for local gasoline as their transport and distribution costs are significantly lower than any US importers. The US can scramble and find replacements by bidding up the prices on other cargoes, but if we assume nearly efficient markets, prices will increase as total global supply will have decreased by .25%.

Working with the assumption that there are next to no readily available and unclaimed reserves, prices will probably increase by two to three dollars per barrel of refined gasoline to destroy the demand in the short run. So when you fill up your tank this weekend, at least an extra dime per gallon is due to the attempted cram-down of pensions in Scotland.