Therehas been a sea change in the U.S gasoline market

[pscot]

and in the oil market generally. The equation has become more complicated.

http://www.marketwatch.com/story/big-oils-new-weak-spot-the-refining-business-2010-03-14

There's been a fundamental shift in the U.S. demand and the price of gasoline," said Lynn Westfall, chief economist for Tesoro Corp. /quotes/comstock/13*!tso/quotes/nls/tso (TSO 13.48, -0.29, -2.11%) , an independent refiner that posted a loss of $179 million in its latest quarterly report. "Growth in China and India are driving crude prices higher. But demand in the U.S. is weak and so you can't pass the higher costs along."

Stoked by expectations of a rebound of the global economy, crude quickly doubled to $80 a barrel and higher in the past year. Meantime, gasoline prices have crept up much more slowly to about $2.75 a gallon.

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"We didn't want to be the leader in car washes," Tillerson (of Exxon) said. "We're methodically exiting the (retail gasoline) business (in the U.S.)."

According to the Energy Information Administration, U.S. gasoline production peaked in 2007 at 9.29 million barrels a day. In 2008, production fell for the first time in several years. The government now projects a return to 2007 levels by 2011, when production of 9.44 million barrels of gasoline a day is expected.

Meanwhile, Wall Street was treated to a glimmer of hope in recent days, when weekly gasoline supplies fell by 2.9 million barrels; forecasters had expected an increase of about 200,000 barrels. Still, supplies remain about 5.9 million barrels above the five-year average for this time of the year.

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While the oil majors have their upstream oil and natural gas production business to turn to for profits, stand-alone refiners such as Valero and Sunoco /quotes/comstock/13*!sun/quotes/nls/sun (SUN 29.57, -0.15, -0.51%) have been hit hard. Valero is in the process of selling facilities, including refineries in Delaware and Aruba, while it scooped up corn-based ethanol plants at basement prices after VeraSun and other players went bust in 2008.

More at the link.

[d_r]

1. I feel so sorry for big oil

they kept probing to find the sweet spot, knowing that people have to pay to get where they are going. Sure, they'd rather sell 4 gallons at $3 a gallon than 5 gallons at $2 a gallon, so they weren't worried about people cutting back a little. They raked in record profits, and they will be again as soon as they can.

But I honestly think that the price of gas right there with the housing bubble and health care costs in contributing to the economy - if people aren't driving to work because they don't have a job, they aren't going to be able to buy gas.

[progressoid]

2. Drill baby drill.

Oh, wait. Different rally.