We’re in trouble. Re-hike soon?

Folks. I don’t get concerned much about gasoline stockpiles or gas prices, but since I made my summer “prediction” many weeks ago (saying we’d see closer to 2.70 gas on average), several big issues have come up that have me a bit concerned about the situation we’re in.

Don’t get all hot and heavy here- let me explain how and why we’re in this predicament and how we can get out of it faster. Make sure to read it twice if you need to.

In mid-March a TV station interviewed me and asked for a summer prediction. I told them 2.50-2.75 (per gallon) once we get through the “rough spring start”. I might need to change that prediction. Back in March when I made that prediction, refinery runs were good; maintenance was underway and we started seeing draws in stockpiles. Analysts figured that the refineries would start coming out of maintenance and start all-out producing summer gas. Well in that process there were some problems with… drumroll… the same company that seems to have refinery issues EVERY year. Can you guess? Yes- its BP. The same company famous for problems at Baytown, TX, Prudhoe Bay, AK, and more recently Whiting, IN AND Toledo, OH. Someone at BP does NOT know how to run refineries. If you remember, Baytown had a huge explosion that killed many and shut in production. Prudhoe Bay had to shut two oil pipelines due to corrosion, which was found to be due to a lack of maintenance.

Its May 10, and BP is still having refinery issues. The BP refinery in Whiting, Indiana, as my subscribers have hear me talk about, went down in late-March. Its one of the biggest refineries in the U.S. with a capacity of over 410,000 barrels of refining per day. It suffered a cracking-unit problem (refines oil into gasoline) which cut production roughly in HALF… to 200,000 barrels. While attempting to fix it, a crane smashed into power wires which caused an immediate emergency shutdown of 410,000 barrels per day (which in turn is about 11 million gallons of gasoline). BP has restarted the refinery but says it won’t be back to near 410,000 barrels of capacity until late-June at BEST. It is currently at about 220,000 barrels per day. BP also had a complete shutdown of its Toledo, OH refinery which can refine 160,000 barrels per day (roughly 4.5 million barrels per day of gasoline) due to a loss of steam pressure- there is no official word if that refinery is up yet.

Now- due to those refineries not producing near 100%, our local stockpiles of gasoline are starting to fall… rapidly. Back in February we were sitting on 56 million barrels of gasoline. Yesterday, that number had dwindled to 46 million barrels.

We have a problem- demand is up, and stockpiles are down. What happens when supply drops like this when we haven’t even hit summer driving season? Prices rise. We’re seeing stockpiles fall and its not even summer yet! This has traders and myself worried. You might say 46 million barrels is a lot of gasoline in storage… but think about this… if the entire U.S. were to use the Midwest’s 46 million barrels, it’d only last 4.7 days. Then it’d be gone.

Whats going to happen from now until the refineries are fixed?
Well, we will continue to suffer. $3.50 in Grand Rapids is in the realm of possibility if people don’t cut down their driving. Is $4? No I’d put odds of $4 gas here at 1/50. However, if another Katrina were to hit today… in the same spot… (I noticed a storm had already formed!) I’m willing to bet we’d see gas spike to $4 or more. Highly unlikely, but within the realm of possibility.

When will gas prices come down?
Barring ANY refinery problems in the next month, we should see prices calm down toward mid-June or early-July. There is a lot that can go wrong- a hurricane can threaten production, a refinery could explode… the CEO of ExxonMobil could decide that their profit isn’t enough and “accidentally” have a refinery fire. For the next month, the pain at the pump will continue with $3 commonplace. Come Summer, we’ll slowly relax prices if things go as they should, and we might come to rest around the old prediction of $2.50-$2.75.

Is there anything you can do to make prices fall sooner?
Yes. Don’t drive as aggressively. Just today I saw an SUV fly past me like it was a race to the red-light. If every driver in the U.S. would drive more conservatively, demand would drop and prices would be at $2.70 instead of $3.29. Don’t take the boat out- save your money on insurance and gasoline. Take it out later in the summer once prices relax. Don’t take that road trip Memorial Day weekend- save the money for later in the summer and add on an extra day to that August trip. Make trips only when necessary- don’t drive out to the mall just to look. Add errands up and do them all at once.

We can all do our share. Be one of the people that not just complain about gas prices but DO SOMETHING about it. I said to myself that I’m going to drive slower. Less acceleration. Hopefully you can do something similar.

Having said that, wholesale prices were up today to their highest since August. $3.29 is commonplace tonight, but we MIGHT see a re-hike tomorrow (or Monday) to $3.35-$3.39.

Make sure you don’t get caught on an empty tank when prices hike.


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