Friday, June 14, 2013, 6:30PM: Good job by those refinery managers a few weeks ago. What, people want to buy gas in the summer to drive? Due to “refinery problems”, retail prices soared to $4.29 recently. Since the beginning of June, though, wholesale prices have dropped something like 80 cents, and if we could reset prices this weekend based on the cost to retailers, we would be looking at gas prices in the $3.45-$3.69 range. Conclusion: prices will drop considerably over the next several days, so don’t rush to fill your tanks. — Ed Aboufadel
In a word, yes. In recent posts I have told you that the Exxon refinery in Joliet was down for repairs. Turns out it was due to a compressor problem. (http://www.nasdaq.com/article/refinery-status-exxon-has-compressor-problem-at-joliet-refinery—filing-20130325-00606) Well, it’s back up! (http://www.bloomberg.com/news/2013-06-10/chicago-gasoline-falls-to-1-week-low-on-exxon-joliet.html) This, along with some supply coming in from the Gulf region sent the Chicago spot price spiraling down almost 20 cents today.
The news I have read says this should only be the beginning. BP’s Whiting, Indiana refinery expansion project should also be back up and running by the end of the month. (http://www.hydrocarbonprocessing.com/Article/3216650/Latest-News/BP-nears-completion-of-work-to-modernize-Whiting-refinery-in-Indiana.html) Right now we are at a 40 cent premium to the NYMEX RBOB. That has in the past when times were good been a 20 cent discount. We still have a long way to go, but it looks like we are out of the woods for now.
As you may already know, prices spiked up over the weekend. It’s $3.899 in Ohio, $3.999 in Indiana, and $4.159 In Michigan. I’ll get to the reason for that disparity later, but first, to the reason why we spiked up in the first place.
We have seen an enormous rise in spot prices recently, up almost 35 cents in the last week, and 80 cents since mid-April. The big reason for this is refinery issues that have plagued the mid-west, as well as some pipeline issues. Part of BP’s Whiting refinery is due for reopening this month, as is Exxon’s Joliet refinery. This actually helped lower June’s first cycle prices at the beginning of the week, but a round of refiner buying is driving the latest price increase. The EIA supply reports are showing we are low on supply. Rack prices out of Chicago are also rising (I don’t have rack prices closer to Indiana, Michigan, and Ohio, unfortunately.)
That being said, we have not seen a corresponding rise in prices at the pump. At least, we aren’t as high as we should be with the current spot price. Indiana has an average of $3.98, and it still is 27 cents lower than the Spike Line. Michigan’s average is $4.15, yet they are 15 cents lower than the Spike Line. Ohio is up to $3.85, yet they are almost 16 cents below the Spike Line. Prices have been lower than the Spike Line for quite a while now. The only reason I have is that some areas are being supplied from outside the region.
That leads me to the reason for the price disparity we are seeing. Ohio is always lower, as they have a lower tax on gasoline. Indiana and Ohio may also be lower than Michigan because they are being supplied in part from the Gulf Coast. They have a spot price almost 70 cents lower than in Chicago. I believe Michigan is not getting supplied by the Gulf coast due to it’s proximity, that is reason enough for the higher price.
So, how long will this last? It is hard to say. With almost 500,000 barrels per day of refinery output allegedly coming back online, relief should be on the way. But that output will take around two weeks to come online. We shall see in the coming week how things work out, and I will keep you posted on what I find.
Saturday, June 1, 2013, 8:30AM: I just got back from my Saturday morning walk, and I got to see the local Speedway implement a rare Saturday hike, to $4.15. An industry insider tells me that Friday afternoon in Chicago, there was an inexplicable spike in wholesale prices, one that was not matched in other parts of the country. There were a number of odd end-of-month actions in markets Friday afternoon, including the sudden drop in stock prices from 3:25 to 4:00 PM. Sometimes these occur due to traders and financiers balancing their books at the end of the month, which probably doesn’t bother them much, but this morning we see concrete consequences of trading-based, as opposed to supply-and-demand-based, volatility. Journalists and political leaders, if you want to investigate a good example of what is going on with gas prices, here it is! — Ed Aboufadel
Comment on the May 13 prediction: Michigan got a reprieve two weeks ago, although Minnesota didn’t. But I was WRONG.
Wednesday, May 29, 2013, 11:30AM: Things have been rather screwy lately. Speedway-led price hikes have been more localized to certain states or regions, which led to relatively cheap gas in Ohio two weeks ago, and crazy-high prices in Minnesota. Here in Michigan, prices re-set to $3.99 on May 20, which by my calculations was the same price retailers were paying, so in some ways, we were getting a bargain. Then, while Chicago spot prices rose last week, and prices in Standale were $3.97, suddenly they were $3.79 and stayed that way all weekend. Yesterday, another re-set to $3.99, but many stations in Grand Rapids decided not to play, and you can get gas for $3.79 in Wyoming today. Why not follow with the hike? Because wholesale prices dropped hard on Tuesday.
By my calculation, retailers are paying $3.79 today for gas, so $3.79-$3.99 would be the retail range right now, and that’s what we have. But it is hard to predict right now what to expect the next several days. — Ed Aboufadel
Comment on the May 8 prediction: Prices rose in Michigan to $3.85 on Thursday, pretty much as CORRECTly predicted.
Monday, May 13, 2013, 9:00PM: Wholesale prices climbing again. Looks like $3.99 on Tuesday. –Ed Aboufadel
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