For three months now, US gasoline stockpiles have been dropping steadily. Nationwide, gasoline prices jumped 10.2 cents a gallon last week to an average of $2.97 and $3.46 around San Francisco.

Last week, US gasoline stockpiles dropped for the 12th straight week by another 1.1 million barrels as US motorists continued to burn up gasoline at a rate 1.6 percent higher than last year. While refinery utilization at 88.3 percent is still well below what is needed to build up stocks for the summer driving season, refiners did manage to produce another 300,000 barrels of gasoline per day which reduced the pace at which gasoline stockpiles have been dropping; 1 million barrels last week vs. the 4 million barrels per week we saw earlier last month. US imports remained the same last week at 1.2 million barrels per day, also well below the 1.5-1.6 required to build up stockpiles for the summer.

As has been the case for many weeks, gasoline consumption continues to run above last year, a series of refining problems have kept gasoline output well below the utilization needed to build stockpiles, and the US seems to be unable to find enough refined gasoline on the world markets to make up the difference…

The fundamental problem in keeping the refineries working is that they are simply being pushed too hard. Twenty years ago US refineries were run at an average 78 percent of rated capacity and all was well. Now they need to be operated at close to 95 percent of capacity to keep up with increased summer demand. Moreover, there is a growing shortage of the experienced personnel needed to overhaul our refineries and they are becoming more complex as a result of the need to process more of the heavy sour crude oil that is an increasing share of what is available for import…

Earlier this week, Energy Secretary Bodman said he feared surging gasoline prices will reach a record high, but he remains “reasonably confident” the market will respond to the high prices with new supply. The head of ConocoPhillips, however, recently said he is concerned about the refining industry’s ability to meet growing demands for gasoline.

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The general perception was that we would get oil prices inching ever upwards, an erroneous perception of course. But people really bought in to that idea. Predictions were made that $50 oil or $60 oil would make markets collapse. And not just by odd men on the internet with a healthy imagination. Even here on Resource Investor this columnist thought $80 crude was a shoe-in in 2006. Sure, we got to $78.40, but still.

But there are too many technical sides to markets, in the simplest sense, long and shorts. They prohibit the straight lines on the graphs. When something goes long, eventually enough people have a vested interest in shorting it. We have things like software driven spikes or dips, and year-ends. As in 2005 and 2006 the price has been artificially distorted by the year-end, too low in 2005, too high in 2006….

So one analyst this week, who shall remain unnamed here, was talking about $35 crude on technical grounds. Well, that may turn out just to be the other side of the peak oil coin, expecting the price to keep falling.

But of course a drop in price to $49.90 or even $35 really does not signify anything as regards ‘peak oil’. Unhappily for those who thought peak oil would bring about overnight collapse of the U.S. and world economy, whenever peak oil arrives - tomorrow or in a hundred years - it will be a far slower and more drawn out process.

One of the central planks of some ‘peak oilers’ intent on collapse Armageddon-style, was the idea that an oil-induced recession would be coupled with ever rising oil prices. We are not yet at that state. Even major ‘peak oil’ proponents like Chris Skrebowski in London, the editor of Petroleum Review, think that any peak will be delayed by some kind of combination of recession and over capacity.

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Palast poo-poos peak oil as being a corporate backed panic mechanism; Heinberg lets rip.

The all-important question is, how much oil can the industry pump every day (that is, at what rate can that oil be produced)? That’s what the debate over Peak Oil is all about—not reserves or amounts ultimately recoverable, but flow rates. When will the flow rate that the industry can possibly attain reach its maximum?

With prices high, you say, hundreds of billions of barrels of oil from the tar sands of Canada and from the heavy-oil fields of Venezuela become economical to produce. Right again, though this is not conventional oil we’re talking about, but materials that have to be transformed into synthetic petroleum using energy-intensive processes. Again, the real question is, at what rates? Canada is currently extracting a million barrels a day from the tar sands; Venezuela is pulling a little over half that amount from the Orinoco belt. These numbers are expected to climb—and then level off. Why? Because the process of producing synthetic oil from these low-quality hydrocarbon sources is constrained by physical factors that just do not respond much to economic stimuli. Canada needs lots of fresh water and natural gas to make oil from the tar sands, and both are in short supply. The best published forecasts say that, regardless of the price of oil, flow rates there will max out at about three to five million barrels per day by 2025—a generous amount in terms of the benefit to Canada’s economy. But this is not nearly enough fuel to satisfy the US habit of over 20 million barrels per day—and crucially, it’s not enough to make up for expected declines from the world’s giant and supergiant conventional oilfields once the latter begin their inevitable declines—as they are doing now. There are only about a hundred of those big fields that, collectively, yield roughly half the oil extracted today. Nearly all are old (found in the 1940s through the 1970s), and we’re seeing that, with the newer water-flooding recovery methods, when decline comes it can hit unexpectedly and with catastrophic swiftness—as it did in the Yibal field in Oman, which peaked at 250,000 barrels per day in 1997 and is already down to less than 80,000 b/d.

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Last week the US Government released the International Energy Outlook 2006 (IEO). As it has been doing annually since 1985, the Energy Information Administration uses this document to expound its view of world energy supply and demand for the next 25 years.

Unfortunately, however, from a peak-oil-is-imminent perspective, one is forced to say that many of this report’s projections are so far from reality that the EIA must be talking about some other world. Early on the report makes it clear the government is not buying into imminent “peak oil.”

… The authors assume that “for the period out to 2030, there is sufficient oil to meet worldwide demand.” “Peaking of world oil production is not anticipated until after 2030.” They also assume there will be no long-lasting disruptions to the steady growth of oil and other forms of energy production for the next 25 years. The report says flat out, “A business-as-usual oil market environment was assumed. Disruptions in oil supply for any reason (war, terror, weather, geopolitics) were not assumed.”

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