Oil companies said, back when crude oil cost $145 a barrel, that
exploration and construction costs were too high for them to invest
much in drilling and refining. Exxon, for instance, spurned any project
that wouldn’t produce a 30% profit. Now, with oil prices at four-year
lows and all other costs dropping as well, now the "economic climate"
isn’t right for investing. Now, as the New York Times reports today, oil companies decline to invest because of the recession. So Exxon’s investment in refining more diesel fuel made some news today.
With diesel fuel still costing more than $2.50 a gallon on
average–almost 90 cents a gallon more than gasoline–there’s no doubt
that Exxon will profit handsomely from its $1 billion in refinery
upgrades and expansion in Texas (Exxon’s Baytown plan is pictured at left) and Louisiana, as well as at a refinery
in Belgium.
Diesel is so much costlier than gasoline in the U.S. partly because oil
companies lagged in their promises to make plenty of the cleaner
low-sulfur diesel required as of 2006 under federal law. Users of
diesel, mostly in commercial shipping, can’t cut back on consumption as
much as consumers can when the price goes up, so they’re really at the
mercy of refiners.
OilWatchdog also noticed that a lot of extra diesel got exported from U.S. refineries earlier this year, helping drive up the price.
Exxon’s investment is bigger-than-usual drop in the bucket, but the
lack of investment elsewhere actually bolsters our argument that
federal regulators should:
- Oversee oil refining more closely, demanding that supplies on hand be bolstered in times of low demand
- Require that refiners pull back on exports when prices rise sharply.