Watch those refineries

Earlier this year in a radio interview, Peak Oil guru Matt Simmons made a prediction:  Some summer day — whether this year, next year, or sometime beyond that — news of a regional gasoline shortage will spark panic buying nationwide, and the reality of Peak Oil will start to set in.

We're not there yet, but this sure made me perk up:

The Midwest continues to get pounded by big jumps in gasoline prices — so big that they have pulled the collective U.S. average back above $3 even though prices elsewhere are lower and often still falling.

Statewide averages in the Midwest zipped 5 cents to 7 cents a gallon overnight, travel organization AAA reported Thursday. Prices usually move less than 1 cent.

Problems at refineries in and near the Midwest have tightened supplies enough to drive up wholesale prices, which kicks up prices at the pump.

"We don't have any shortages. There's an adequate supply of gasoline. But as inventories drop below the comfort level that the market has established, prices go up," said Bill Holbrook, spokesman for the National Petrochemical & Refiners Association. NPRA tracks U.S. refining capacity.

The retail market's sensitivity to refinery outages is underscored by this paragraph:

The highest statewide averages for regular-grade gasoline were in Midwestern states Nebraska and Indiana — $3.295 and $3.293 — not in California and Hawaii, which typically have the highest average prices.

That's largely a function of refinery outages in Coffeyville, Kansas and Whiting, Indiana.

As a long-time Midwesterner, I can tell you from personal experience that when it's cheaper for Illinoisans who live near the Indiana border to stay in Illinois to buy their gas, the world has turned upside down.

The Daily Reckoning