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Cake day: November 9th, 2023

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  • One of the big determining factors right now in fuel pricing, at least in the US, is the capacity and operating costs of refineries.

    Apparently there’s not likely to be any more refineries built in the US due to the belief that demand will fall with electrification and because of environmental and biofuel policies. So we’re stuck with a couple new ones and a bunch that are 50+ years old.

    So what’s likely to happen is, if demand falls the price of gas/diesel will initially fall. If it falls too much it will become unprofitable for the remaining refineries to stay in business. They’ll start shutting down, which will limit production capacity, causing the price of fuel to spike back up.

    At that point it’s basically a race to the bottom. As it becomes unprofitable more and more companies pull out of the refining industry until you’re basically left with a few boutique refiners.

    Somewhere in the middle of that the government could remove oil subsidies, adding an estimated dollar per gallon onto the price of fuel in the US. Refineries could also fail due to age, again causing a spike in prices.

    So, basically short term we can see prices drop. Long term they’re likely to keep rising.

    Now this assumes the trend of electrification and current policies. If the states and federal government suddenly said, “no more electrification, no more emissions regulations, and no more restrictions on refineries,” it could change the dynamic.