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Thanks to our Midwest Refiners… we could see $3 shortly.

Wednesday 11 Apr 2007 | Posted By Patrick | Predictions

2 Responses to “Thanks to our Midwest Refiners… we could see $3 shortly.”

1. on 13 Apr 2007 at 2:15 pm 1Retailer

   Well, you are right about the low inventories causing higher prices, but you are wrong about who to blame. This is the same problem that we have every March / April. It is from one of the many poorly thought out (but with good intentions) EPA regulations, that cause higher gas prices.

   In the Summer when the temperature is higher, we need to switch to gas with a lower Reid Vapor Pressure (RVP) aka “Summer Gas” otherwise it can cause vapor lock in vehicles. The oil companies used to check make the switch whenever they felt they needed to, and I assume that some waited too long some years. Then the EPA stepped in and decided that they all need to have everything they sell switched over to Summer Gas by May 1st (retail locations need to be switched by June 1st).

   There are a couple of problems with this forced switch date. They need to have a tank with high RVP gas almost empty before they fill it up with low RVP gas otherwise the RVP number will still be above the mandated number. This is why inventories are so low right now, there are thousands of very large tanks all over the country that the oil companies are trying to run low.

   This is a very complicated balancing act, because they don’t want to run out of Winter Gas before they receive their Summer Gas shipment. They also don’t want to be stuck switching the tanks over too early, since Summer Gas costs more. I assume that there is some process that they can use to blend small amounts of left over Winter Gas into the Summer Gas after May 1st, but I’m sure it costs them a lot extra. The easiest way for them to control their inventories is by adjusting their wholesale prices, they are normally very close between oil companies, but this time of the year they can vary by a lot.

   If they were able to faze in the Summer Gas over a few months, inventories would never drop this low, RVP would gradually go lower (it doesn’t need to be as low in May as July), and it would have very little effect on retail prices.

   But, for now we are all stuck with it. The June retail switch normally doesn’t impact consumers. It can be a pain for us to switch the Premium tanks in some of the slower stores, which normally results in selling it for a loss till it runs out. Because, no one wants the $32,500 / day fine the EPA can give you for not having low enough RVP on June 1st.

   Regardless of how much the retail prices have dropped since everyone went to $2.95 (mostly because Meijer only went to $2.88), wholesale prices have been going up. Which means that a lot of stations are selling at or below cost this weekend. Unless we get a large (and highly unlikely) wholesale price drop tonight, I would bet on Speedway going up on Monday. When they go up, it is normally 18-21 cents above our cost. On today’s cost $2.999 is a 19.6 cent markup, so I would guess that they go to that or possibly $2.95 again.

2. on 13 Apr 2007 at 7:34 pm 2coolgurl84

   Hey Patrick,
   I like the website! Very cool. Thanks so much for all you do.
   Elizabeth

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