The factoid thrown around is that roughly 20% of the world’s oil supply travels through the Strait of Hormuz. Since it closed, my local gas prices in one area of the US midwest have gone from $2.60 to now $4.10 presumably as reserves have been used up.
I could understand a 20~30% increase in price to correlate with the reduction in supply, but what are the economic factors that lead to what feels like such a disproportionate increase?
That assumes you can get a different type of crude. If a different refinery is setup for texas light sweet crude, they are likely able to take all the oil Texas can pump, and they have pipelines in place from Texas to them. Even if you convert your refinery you can’t get any of that crude because it is under contract to the other refinery and they can afford to outbid you because their shipping costs (via the pipeline) are lower.
10 years ago (approximately) there was a North Dakota oil boom - the crude from those wells was shipped via a railroad that goes very close to a Minnesota refinery, but that refinery is setup for Canada crude (including a pipeline) and so the trains went right on by without stopping. The oil ended up in East Cost refineries that had been mothballed (that is shutdown) for years, but they were able to take the North Dakota crude and so reopened. I don’t know the current situation - other than a suggestion that the owners of those refineries were not planning to do more than minimal maintenance - that is if something major breaks they would tear down the refinery instead of repairing it (this of course has likely changed several times as the market changes).
You also have to remember that since oil is a commodity price driven item, the producers don’t want to overproduce, that means they plan 5-10 years out on speculative demand so there is a lag of up to years before they can expand production in some cases. No one wants to spend billions of dollars increasing production capacity only for the price to fall down on its face again and burn up your investment.
A LOT of the production capacity in Corpus Christie is also about to get shut off since they (the refineries) have essentially fucked their own ability to get water required to refine the oil. The whole region is about to drain itself dry and the state isn’t doing shit to stop it.