Month: October 2008

Seemingly “glued-on” price digits tell the story: Gas STILL over $4 in parts of U.S.

Tonight as I step back and look at local prices, I see how high we are compared to several locales. We even sit higher on a regional level- Ohio is paying just $1.98 in areas!

 
Having set the stage, how would you feel knowing oil prices have slid if gasoline prices stayed at their record high levels of $4.25 or so?

Well, in part of the U.S., some people are still paying over $4. In fact, they’re paying more than we ever paid this summer (unless your timing is terrible).

Ouch! Where is the attorney General in Wyoming? They are stuck paying $4.30/gal at this ExxonMobil. Leave it to XOM to charge this even as gas prices and oil prices have fallen 50% off their highs. This is today’s price which I just verified moments ago as well.

Don’t get stuck traveling to the mountains of Wyoming!

Prices remain unstable with downward bias

Comment on last Tuesday’s prediction:  There was no price hike last week, so the prediction was quite WRONG.

Tuesday, October 28, 2008, 9:00 AM.  So, did I jinx it?  I wrote last Tuesday, "It looks to me like the chaos on Wall Street is dissipating, so energy prices are starting to stabilize."  That was true until 3PM on Tuesday.  Since then, stock indices have fallen over 10%, and energy prices have followed suit.  Where we are at this morning is that, using NYMEX prices, gas could fall below $2 a gallon, while AXXIS prices suggest retail prices in the $2.30’s.  Since the cheapest price around is $2.56 in Lowell, the prediction is lower prices for the rest of the week.  Also, keep in mind that last year around this time, NYMEX started to be a better predictor than AXXIS.  I’ll try not to shake up the stock market any further.

 

$1.99, are you outta’ your mind?!


 

A Speedway gas station in Fairfield, Ohio is reporting gas prices at $1.99 tonight! Is Grand Rapids headed there? There is a remote chance… today’s COST is roughly $2.28 to stations, so we still have a lot of room to fall, and I expect local prices here to decline.

However, I am worried that oil prices are approaching an eventual bottom. We may go lower, but keep in mind the lower we go now, the higher it may go later.

This week’s fill-up strategy should be a few gallons when you need them. I won’t be filling the tank to "F" just yet.

Also some pictures from Steven in Ohio (Thanks!) of the local price of $2.09! Wouldn’t you love to have that here? I was just remarking Saturday night how LOVELY it was to be paying "just" $2.50… 6 gallons for $15 and change.

OPEC slashes production 1.5mb/day, but will it stop oil’s skid?

WRITTEN THIS MORNING (OCT 24, 7AM)

This morning OPEC convened and arrived at a decision to cut 1.5 million barrels of oil per day. Many of you are likely asking what we can now expect and what will happen. Let me try to shed some light for you.

It will be an interesting day on the market, that is for sure. Traders will have to fight it out- some traders will likely view this as a sign that OPEC is deeply worried about a world recession and that cutting production is an “endorsement” by OPEC that demand has fallen significantly, along with many countries only major source of cash… oil. Unexpectedly, Venezuela was NOT the OPEC member seeking the biggest cut in production, as I would have expected with their attitude towards the U.S.

The cut is one of the largest cuts I’ve seen from OPEC who usually cuts under 1 million barrels/day. You can see the worry that these countries have as some simply can’t operate now with “normal” oil prices. I’m hoping the Saudi’s will not follow their quota and keep pumping oil. World inventories are ALREADY too low in my opinion, and this cut worries me enormously. Whenever the world decides to come out of recession, this cut COULD likely mean RECORD oil prices- but that will definitely depend on how long we have this economic slowdown.

Today, we have 311,380 million barrels of oil (excluding the SPR) in U.S. inventories. That compares with an all-time high of 391,907 million barrels on July 27, 1990, and a low of 263,666 million barrels on January 23, 2004. We’re still trying to recover from that low. Just this past January (2008), we had 282,841 million barrels in storage. We really need to have inventories at 350,000 million barrels but OPEC doesn’t want to keep pumping.

Demand of gasoline has fallen and stayed under 9.0mb/day, and I expect that EVEN WITH this announcement, it will take some time for oil to reverse its course.

NOTE: Wholesale prices today in GR are $2.46. We have a ways to drop yet.

Why aren’t gas prices lower?

Tuesday, October 21, 2008, 9:20 AM:  The following question has been posed to me several times the past month:  On July 15, oil was at $145 a barrel, and gasoline cost $4.25 a gallon at the pump in Grand Rapids.  Last week, oil was $72 a barrel, and gasoline cost $2.96 a gallon.  If the price of oil has been cut in half, why hasn’t the price of gas followed suit?

There are a few reasons for this, that I will try to explain.

1.  NYMEX.  Oil and gasoline futures are traded on the NYMEX, a public market with prices available for all to see.  The price of these future contracts helps set what is called the “spot” price, which is what is actually charged when real oil or gasoline changes hands at the wholesale level.  Sales and other taxes are not included in the NYMEX prices.  Looking at these futures prices, both oil and gasoline has dropped approximately 50%, so at least at the NYMEX level, these prices are correlated.

2.  Taxes.  There are three taxes applied to the wholesale price:  the federal gas tax of 18.4 cents per gallon, the state gas tax of 19 cents per gallon, and the sales tax of 6%.  So, that’s at least 50 cents of the retail price that is taxes, regardless of the wholesale price (except for the sales tax, of course).  In the past three months, those taxes have not been cut in half, so it would be hard for the retail price to drop 50%.

3.  Chicago Summer Premium.  I coined this term a few years ago to describe how, during the summer months, the wholesale price in the Midwest is usually higher than the price based on NYMEX.  The reasons for this have to do with reformulated gasoline, variations in supply and demand, and some other mysteries I’ve never solved.  A way to monitor this premium is to look at the wholesale numbers for selected Midwest cities that are posted on AXXIS.  The NYMEX/AXXIS difference was 20 cents on July 15, over a dollar in mid-September when Hurricane Ike struck, and is currently still 41 cents.  The AXXIS price has not dropped in half the past three months, and this may still be a hangover from the hurricanes.  It is also the first place I would look for gas gouging if I was the Attorney General.

4.  The Dynamics of the Retail Market.  As a journalist said to me last week, “Up like a rocket, down like a feather.”  We’ve documented time and again on this site how this works, with the big price hikes followed by the gentle day-to-day drops, while the wholesale price fluctuates in the background.  Our last price hike was during the September 12-14 weekend, when prices got up to $4.29 on 28th street.  Since then, the drops have been slow but sure — some days one or two cents, other days seven or eight cents.  In an area where there are several stations, one station decides to drop their prices a few cents because a cheaper shipment came in that day, and the other stations follow suit.  The point is that the retailers aren’t setting their prices based on trading on NYMEX.  They are setting it based on their costs, what their competitors are doing, and what sort of business they are getting.  Are the retailers making extra money right now?  I doubt it, as our monitoring indicates they are still dealing with high wholesale prices in the Midwest, and some of the gas in their tanks cost them $2.95 a gallon last week.  But prices continue to fall, slowly but surely.

All this leads to my latest prediction:  It looks to me like the chaos on Wall Street is dissipating, so energy prices are starting to stabilize.  I expect Speedway and friends will decide it is time to straighten up their prices, with a reset by the end of the week to $2.89.

We made it to $2.99! What’s next?

Comment on last Thursday’s prediction:  $2.98 was spotted in Standale on Monday, so the prediction was CORRECT.

Wednesday, October 15, 2008, 1:40PM:  What a month it has been, with crashes in the stock and commodities markets, including oil and gasoline.  At the wholesale level, oil has fallen from $145 a barrel in July to $75 this afternoon.  Wholesale gas prices were $2.77 (NYMEX) and $3.72 (AXXIS) a month ago, and today they are $1.80 and $2.59.  On the street, everywhere gas was $4.19 a gallon, and today you can find it in Allendale for $2.85.  So, where do we go from here?

We continue to see pressures for lower prices from what is happening in New York.  If you use NYMEX, the 0-cent margin price today would be $2.32.  Wow!  But, as Patrick reports, supplies are down in the Midwest again, and we have yet to get over the NYMEX/AXXIS divide that opened up in late July.  In fact, AXXIS prices are up this week, and using that estimate, we get an estimated retail price of something more like $3.32!  Which number to believe?  Although most of my instincts say we continue to go lower, I’m going to pass on making a prediction for the rest of the week, and look to fill up quickly if a price hike is announced.

By the way, thank you Patrick for your continued great work.  Also, readers may be interested to know that The Gas Game’s reach is growing, with recent interviews with the Chicago Tribune and WTOP radio in Washington, DC.

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