Blame It On Ethanol

Comment on the January 30 prediction:  Pretty much correct, as pries rose the next day, but only to $2.29

Wednesday, February 8, 2016, 8:00PM:  Feels like we have backed into price-hike territory.  Wholesale prices haven’t done much lately, but ethanol has been climbing, while retail prices have fallen enough that I think we are about at the 0-cent margin price.  I’ll fill up Thursday morning for $2.19, and then expect prices to rise to $2.39. –EA

Garden Variety Hike Coming Soon

Comment on the January 17 prediction:  No hikes since then, so it was CORRECT.

Monday, January 30, 2017, 12:30PM:  Usually we see gas prices moving up in January, but here in the Grand Rapids area, we’ve seen drip-drip-drip down of prices since the first of the year.  A big contributor has been a 30-cent drop in wholesale prices since January 1.  But those prices have stabilized, and the retail prices have fallen enough that we are heading into price-reset territory.  We already have scattered reports of hikes in Indiana and Ohio today, and I think you can count on Michigan following suit by Wednesday.  Maybe $2.39? — Ed A.

A Rather Quiet January So Far

Comment on the December 31 prediction:  $2.59 on New Years Day, as predicted.  CORRECT.

Tuesday, January 17, 2017, 11:30AM:  So, let’s review what has happened since the New Years hike, fueled by the newly higher Michigan gasoline tax.  Retail prices have been slowly dropping, with most places in the Grand Rapids area still in the $2.40’s.  Wholesale prices, however, have had an interesting ride.  They rose sharply the final two weeks of December — almost 30 cents — and since then given half of that back.  Put it all together, and retail prices are still sitting noticeably above the 0-cent margin price, which means no hike on the horizon, and the slow drops continue.  Good!  –Ed A.

For the New Year, Let’s Review How We Play the Game

Comment on the December 17 predictions:  The GR hike occurred as predicted, so CORRECT.  For hike #2 …

Saturday, December 31, 2016, 1:30PM:  Even though prices are below cost to retailers in Michigan, it appears that they are holding off until the gas tax hike on Sunday to just do one big hike (and blame it on the Governor).  As a refresher, here’s how the calculation works, leading to an estimate of the new price:

1.  Start with a CBOB market price.  One one to do this is to take the NYMEX RBOB price (posted on our web site) and adjust it using this web page.  For today, that would be $1.6728 (NYMEX) + (-$0.0563) (Chicago adjustment) = $1.6165.

2.  Get the ethanol price, and then mix 90% CBOB with 10% ethanol.  For today, that’s .90*($1.6165)+.10*(1.76) = $1.6309.

3.  Add in 18 cents per gallon for various transportation, storage, middlemen, and other markups. (That’s a reasonable guess, but the actual add-in could be different.) That gets us to about $1.81.

4.  Add in the Federal gas tax of 18.4 cents per gallon (which hasn’t changed since 1993).  Now we have about $1.99.

5.  Tack on 6% sales tax.  $2.11.

6.  Finally, add in the Michigan tax per gallon, which goes up to $0.263 on January 1.  So, about $2.37.

This is what I call the “0-cent margin price”, and when we are near that price, I’m prepared to predict a price hike.  In Michigan, prices are in the $2.20’s right now, so we are overdue.  (In nearby states, a hike late this week has already happened.)  From the 0-cent price, retailers add on an amount, which I think of as their profit per gallon, but that might not be the correct way to think about it.  Nevertheless, adding this number works!  We reverse-engineer this number from studying previous hikes, and currently it seems to be about 22 cents.  So, add that in to get the new price:  $2.59.

I was in Lansing this morning (running a 5K), and though most stations were $2.21 or so, I swear I saw a $2.59 at a BP near downtown.

So, I expect a rare Sunday price hike to $2.59.  Or maybe it will happen late today.  Or maybe they’ll wait until Monday morning.  Regardless, fill up this afternoon!

And Happy New Year! — Ed Aboufadel

Bonus:  Here’s what gas prices have looked like since 2000, from dshort.com:

gas-prices-since-2000

 

Late Notice Hike Warning

Price hike today looking likely in Ohio, Indiana. Michigan a little less certain, but spot price has been on the rise all week. Big jump in spot yesterday with reported refinery issues at BP Whiting, also possibly at Detroit Marathon. Thinking $2.499 – $2.599 in Ohio. Probably the same for Indiana and Michigan.

As 2016 Comes To A Close, Two Price Hikes in the “Pipeline”

Comment on the December 4 prediction:  We did get a hike on Friday, December 9, so CORRECT

Saturday, December 17, 2016, 11:00AM:  We have scattered reports of local hikes in the Midwest the past two days, but none yet in Grand Rapids or the stations I monitor in Fort Wayne.  However, wholesale prices spiked on Friday, and ethanol has been out of control for a week.  So, if you haven’t seen a hike in your neighborhood yet, you will by the end of the day on Monday.

Looking ahead, this may be my last post for 2016.  Here in Michigan, I’ll have to retool my calculations for the big gas price hike on January 1 (as noted in the comment section of the last post by Diether Haenicke).  So, prediction:  prices will rise on Sunday, January 1 in Michigan!  And as I wrote last time, I’m expecting a lot more volatility in 2017, which should make playing The Gas Game more of a challenge.

Thank you readers and posters for being with us in 2016! — Ed Aboufadel

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