Rising gasoline and diesel fuel prices can affect the profitability of every business in the HVAC industry. The more you know about the future cost of these volatile commodities, the easier it is to plan for profitability. The three major factors driving the price of motor fuel are refinery capacity, demand, and supply.

Refinery Capacity

More than 50 million cars have been added to U.S. highways in the last 30 years, yet we haven't built a single new oil refinery since 1976. At best, U.S. refiners can only meet 88 percent of our refined oil demand. Our growing dependence on imported refined motor fuel must make up the ever-growing difference. Even if crude oil supply were high, refining bottlenecks limit production and drive pump prices higher.

Refining bottlenecks are also created by regional environmental requirements. Currently, U.S. federal laws require 45 different gasoline blends to meet regional clean air concerns. Each blend must be separately refined, stored, and shipped. A shortage of a certain blend in one area can create consumer frustration, gas lines, and price spikes.

Not only are our refineries old, many are obsolete. Much of the oil we get from countries like Mexico and Venezuela is a thick, high-sulfur substance that requires an additional refining process. Because many U.S. refineries don't have the capability to deal with heavy sour crude, they are forced to bid against each other for less widely available and currently much more expensive light sweet crude.


Oil is tied in some way to every product manufactured. As production rises, oil consumption increases. Oil demand is higher than any time in history due to rapidly growing economies in countries such as China, whose gross domestic product (GDP) grew an astonishing 19 percent last year.

Growing economies create new consumers. In China, one-quarter of the world's population is rapidly replacing pedal-powered bicycles for gasoline-burning motorbikes and using other energy-consuming devices. In just four years, China's oil consumption has increased more than 25 percent, from 4.5 million barrels to over 6 million barrels per day.


We're not out of oil, we're just out of cheap oil. In the United States, oil production peaked, then started declining in 1970. No matter how many wells were drilled, production would not increase. Like the United States 35 years ago, the world is nearing its peak oil production. As we start consuming the second half of the world's supply of oil, expect what remains to be exponentially more costly to find, lift, transport, and refine.

The only oil-producing country in the world that is not operating at peak capacity is Saudi Arabia. This kingdom nation is the largest oil producer in the Organization of Petroleum Exporting Countries (OPEC).

OPEC has tremendous power. When in agreement, OPEC ministers can greatly affect the world oil supply and price through production slowdowns and cutbacks. Every time the price of oil increases $1 per barrel, OPEC members add about $30 million a day to their treasuries.

Take Action

In the next 12 months, world oil consumption will grow from 82 million to over 84 million barrels per day. Barring a worldwide recession, oil consumption and gasoline prices will continue to climb. Once we realize that current pump prices are not a short-term phenomenon, it's time to plan for the future.

  • Analyze your service area and market to customers closer to the center.

  • Revisit your dispatch plan and make sure travel distance is considered.

  • Make sure your fleet maintenance program includes routine checks of air filters and tire pressure.

  • Unload unnecessary tools, supplies, and equipment immediately.

  • Ensure rising costs are included in the selling price of your products and services.

  • Make conservation a companywide priority.

    Steve Howard is the founder of The ACT Group. He can be reached at either 602-678-1055 or steve@nopressureselling.com.

    Publication date: 06/13/2005