Month: May 2008

The 2008 Driving Season Begins. What’s in store?

The long awaited 2008 Summer Driving season is now upon us, after a mostly gloomy and cool Memorial Day weekend here in Mid-Michigan. With gasoline prices approaching and surpassing $4, many are asking what’s in store for this Summer… what can I expect, when should I vacation?

This post may be one of my longer posts. Just sit back and read it, you may find some information you didn’t know. I’ll try to cover everything that’s on my mind at this point.

First glance this morning the market was up… but now we’re seeing a good size pullback in the oil and gasoline markets, with crude falling over $3bbl at this writing. Why? I’ll explain.

If you haven’t noticed, we’ve had a significant run-up in prices this past Spring. I suspect the main reasons were the weaker U.S. dollar, higher global demand, and speculation. It’s anyone’s guess what percentage each one of those played in the higher prices, but I’m sure there are a couple factors that I haven’t included that have helped push prices up as well.

$4.19 was the price this weekend if you hadn’t noticed, and many are wondering if this is the highest we’ll see this year. It’d be easy for me to say yes based on past years. In 2006 and 2007 prices for the year peaked in mid-to-late May. However, this year hasn’t been anywhere close to resembling ’06 and ’07. In those years prices climbed more due to actual issues and problems- refinery maintenance, etc. This year, we’ve really not had as much bad news, but the economy has been more the indicator. The worse the economy seems to get, the more oil and gasoline prices rise. You’d think the two would be hand-in-hand, but that’s not the case.

I’m *thinking* that now we’re in driving season, we may see traders pull out as they realize we’re sitting on record high oil prices without a real reason. Supply is remaining constant, Saudi Arabia says they’ll try to pump more oil, and we haven’t really had any refinery issues. Is it time for the market to go back to realizing the fundamentals instead of buying based on speculation?

Refineries have and are in the midst of a huge number of expansions and upgrades. Many older refineries are adding and replacing older equipment that isn’t as efficient. They’re tightening their belts [refineries] to get every penny out of every gallon of gasoline. Since oil companies have been enjoying record profits, they’ve also been spending billions on refinery expansions. Shell is well underway to renovate an existing refinery to near DOUBLE its output. While we won’t see it online for the next couple years, the market should be looking down the road and realizing that output will grow as record profits continue.

Let’s not forget about the Goldman Sachs analysts, Murti and Currie- they’ve predicted record territory for oil the last few years and have been amazingly accurate. Just a week or so ago, they raised their forecast to say the average price of oil in 2008 would be $141 and oil have a “super spike” to $150-$200/bbl. The day they released that forecast, oil prices took a sharp jump, and have continued their climb… not because of OPEC lowering output, or because a refinery shut, but because two men predicted higher oil prices. This is where I’m talking about a return to fundamentals instead of speculation! Anyway, these two men forecasted in 2005 that oil prices would rise to $50-$105 over six to 24 months and were pretty accurate. They then boosted their forecast to $80-$135 in September 2007, even during a seemingly non-existent hurricane season. Still, they re-raised themselves last December, and just weeks ago re-raised again. Just keep in mind WHY Goldman analysts may be doing this… that is, making seemingly high forecasts. They are in the business of selling oil, I consider them an oil broker. They run huge commodity funds, give advice, and trade oil. Wouldn’t you think that to be a HUGE conflict of interest? Almost like going against the Terms of Service of eBay and bidding up your own online auction.

The interesting part of this is that while Goldman analysts have raised their own forecasts, which would provide HUGE profit to oil companies (ExxonMobil, BP, Shell, etc), Goldman has NOT raised their stock outlook for these companies, and they’ve kept their rating on ExxonMobil at “neutral”. Would one think that Goldman might put its money where its mouth is and raise their outlook on these oil companies stocks? Quite interesting. Perhaps Goldman knows that while they enjoy making tons of money off trading oil, one day the bubble will pop. I can’t think of any other reason why Goldman would not raise their outlook on XOM stock [ExxonMobil].

Point here is that this latest rally is pretty much only supported by Goldman, which is like the oil trading god. Perhaps Goldman has been the one fueling the latest rises, buying more oil to push prices up so its analysts are correct. Nothing like using fear to make a profit, which may be what they’re trying to do.

Back to my office chair- I stare at the $3.98’s and $4.19’s that are out in the Midwest.

I’d love to predict lower prices, but the way I see it, any prediction I make will have odds that are worse than buying a Big Game lottery ticket.

However, I’ll do it anyway, and maybe the odds will be much better than a Big Game ticket, but still, I wouldn’t put more than a $20 bet on it.

Summer 2008 outlook:
Gasoline:
Late May prices peak to $4+, slowly decline into early-to-mid June, perhaps as low as $3. Early July will have much of the same, people will be rejoicing when prices come under $3, but that doesn’t look entirely realistic as hurricane season approaches. Traders will begin focusing on any hurricane that develops, and starting in mid-August, we’ll see prices fluctuate quite a bit. If any Category 3 or higher hurricane strikes West of the Mississippi in the Gulf, expect gasoline to jump right back to Spring highs or even higher. If the 2008 hurricane season is a non-event, expect market fundamentals to kick in and we may see a large correction in gasoline prices. I think that with demand slowing late Summer and oil prices due to come back down,
it will boost crack profit, which will entice refiners to make
utilization rates climb all summer leading to a potential collapse in
prices this fall/winter- perhaps as low as $2.50 starting in October and lasting through mid-November.

Diesel:
Prices won’t really pause much as global supplies remain well-below average. Prices may flirt with $5 in the Midwest while nationwide prices rise to near $4.75. Don’t expect high diesel prices to cause a huge demand slowdown, especially with farmers raking in profits growing their fields, feeding their equipment. The U.S. has been exporting a lot of diesel to Europe as well, so our own stockpiles aren’t as cushy as possible. Diesel may fall back to $4.35 as the summer continues, but it won’t last long. Expect diesel to rise substantially if hurricane season is active.

The huge wildcard will continue to be the 2008 Hurricane Season. If it’s more active than usual, be prepared to cancel vacations. If not, it may help push prices lower come late Summer and early Fall.

Obviously things can and will change rapidly, but Ed and I will continue to monitor prices throughout the Summer. We will both need some time off and may miss a prediction here and there, but overall TheGasGame.com will continue to be active!

Patrick

Speedway resists being first over $4, then follows… then back under $4, now what?

After Speedway’s late-week identity crisis in which it didn’t want to be the first over $4, it has now raised all stations to $4.19.

While there has been much confusion surrounding what to do after wholesale costs spiked last week after Speedway’s hike to $3.99, many stations simply couldn’t wait for Speedway and we saw individual stations setting their own prices, many times gaining support of other stations who followed to $4.19.

Tonight it seems that some stations have fallen BACK under $4, but don’t expect that to last. Once it’s back to work tomorrow, station owners and Speedway will be taking a look at wholesale prices (which are as of Monday night are gaining significantly) to decide what to raise their prices to.

It seems right now that Gasoline will “reset” BACK to where it was- $4.19.

As of now, I think my earlier prediction of $5 diesel in Grand Rapids before the end of May looks very accurate.

Fill up!

Patrick

$4 in Seattle, too, and hard to sleep

Comment on the May 19th posting: Prices re-set early last week to $3.99, as predicted.  Then they went up again at the end of the week, briefly to $4.19, but on Memorial Day, we are back to $4.09. So the prediction was CORRECT — Speedway did resist going over $4 as long as possible — but the situation is depressing.

Monday, May 26, 2008, 4:00 PM: I was in Seattle most of last week, so I missed the fireworks on the price signs, but prices are similar in the new Northwest right now. After updating my spreadsheet, it looks like wholesale prices closed Friday at the high of the week, so a move back to $4.19 on Tuesday or Wednesday is possible. If there is silver lining, last year at this time prices topped out at $3.65 and then dropped in June down to $2.88, and prices in June were stable in 2005 and 2006. Also, last week’s pop in the energy markets may have been more due to speculators taking advantage of thinly-traded pre-holiday markets rather than reflecting actual demand. (That’s what I read, FWIW.)  I’m not making an official prediction today, but I am hopeful for lower prices over the next four weeks.

$3.999 won’t last long… $4+ by weekend! DOE Report causes spike in prices!

Today’s DOE report was just about as bad as they get. The government’s report showed oil inventories posting a surprising loss of well over 5 million barrels, while gasoline stockpiles fell as well even though refineries operated at slightly higher utilization than the previous week.

Despite high prices, gasoline demand was report to only be 0.4% lower than last year while- get this- diesel (distillate) fuel demand was HIGHER than last year despite prices approaching $5/gallon. This is insane!

When will there be enough demand destruction to lower prices? Apparently not anytime soon.

Today’s market:
Oil is at $133$134
Gasoline is up 10 cents a gallon
Diesel is up nearly 14 cents a gallon.

$4.05-$4.15 is right around the corner folks, just in time (but not because of) for Memorial Day. The odds of $5 diesel in Grand Rapids continue to get better, I’d say the odds are now 7/10 that we see $5 diesel here.

If you haven’t already, fill up empty fuel tanks. By the way, Oil for delivery in the year 2016 has surged $17 in just a few days to over $141 a barrel.

To top it off, oil execs were quoted as saying (from all major oil companies) that oil should not be over $100. OK, so lets lower prices! Its a joke. I hope someone can find the corruption that’s going on here.

Patrick

Speedway takes one for the team, rasises prices minimally to $3.99

As of a few moments ago, Speedway has set the price of $3.99 at many of their Michigan, Indiana, and Ohio locations. This is a rare instance in the fact that Speedway is pricing gasoline the same in these states. Seems to be that they are favoring the consumer here and not going over $4 when they easily could.

Let me remind everyone as well, in previous years (last year) gas prices peaked in the last two weeks of May. Are we done for the year? It doesn’t seem like it, but we’ll see in the next couple weeks!

For now, let it be known Speedway is holding under $4 for the good of the consumers and that they easily could have gone higher.

Patrick

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