Month: January 2009

Refinery strike temporarily delayed by 24-hours

The USW union has just announced that negotiations with refinery operators have improved, and have delayed a strike by 24-hours.

While it may not seem like much of an extension, it is good news that talks are finally getting somewhere. It is yet to be seen if the next 24-hours will yield the progress that the USW is looking for.

Any news of an agreement would come as a welcome sign to U.S. consumers who are relying on cheaper gasoline to help them get through short-term struggles.

Basically, any price hike that might have happened Monday may get pushed to Tuesday if no new agreement is announced… so a hike is still possible if a strike is not averted.

This is welcome news as progress is being made to avert a huge spike in gasoline prices as a result of a strike so rest easy tonight!

Patrick

Nationwide gasoline prices to continue to rise

With the threat of a large strike being carried out by the United Steel Workers union and a large stimulus bill making its way through Congress, gas prices are going nowhere but up from the current national average of $1.85 per gallon.

Prices have advanced lately because of a growing number of traders who see the new stimulus as a boon for Americans to begin spending, and thus increasing demand for their fuel thirsty vehicles. Traders seem to believe that the stimulus would create demand overnight and somehow dry up the millions of barrels of surplus crude we currently have.

We also have negotiations between the USW and major oil players continuing at this hour, but it seems that talks are far from stopping a strike at 12:01am Sunday morning, and unfortunately, any walkout or lockout will almost guarantee higher gas prices across the country.

Since my last update it has been revealed that even the newest member to the refining industry, Valero, has pledged to idle refineries in the case of a strike. This comes at a huge blow to U.S. consumers who are fed up with prices hikes that have started again to accelerate since gasoline prices hit a low of $1.62 per gallon last month.

Valero joins another large refiner, BP Plc, in annoucing support for the United Steel Workers union, who represents nearly 30,000 workers at roughly half of U.S. refineries. The U.S. would be joining the United Kingdom, who also is dealing with a strike at oil facilities. However, the U.K. seems to have partially dodged a bullet in their worker strike, with enough replacement workers brought in to keep facilities pumping out gasoline for consumers eager for relatively affordable gasoline.

The U.S., on the other hand, does not seem as fortunate if a strike were to be announced here. ExxonMobil seems to be one of the only oil companies with plans to bring in enough temporary workers to keep output on their massive refineries going through the weekend.

The news comes at a terrible time for a U.S. economy crippled by a recession and record unemployment, which may now have to deal with a spike in gasoline prices come Monday if a strike is not averted.

I would recommend that gasoline consumers keep an eye on developments Sunday morning and fill up if necessary before Monday morning, when prices could spike 20-50 cents per gallon nationwide as a result of union workers going on strike and forcing refineries to either find temporary workers, or to shut down their plants, halting all gasoline production.

This strike could also signal the beginning in price hikes expected to last through early Summer as refiners switch to Summer Blend gasoline, a fuel designed to alleviate pollution but costs more to produce.

Fill up and stay tuned!

Patrick

Union authorizes strike Sunday, oil companies making contingency plans

As I prepare to head to Canada this weekend (and possibly away from the internet) I wanted to update everyone.

The likelihood of a strike by the USW (United Steel Workers), the union that represents 30,000 workers, has risen. Both union officials and refining companies continue to make emergency plans, with union workers voting to authorize an IMMEDIATE strike at 12:01am Sunday morning if a new contract is not made. Oil companies on the other hand have alerted temporary workers and standby workers, with the USW warning that these workers are "minimally trained". No surprise they say that, the USW union has significant interest in worrying Americans so that a contract to their favor will be the result of such action.

The union is NOT in my opinion, in any position to lobby for such lavish benefits at this time. Refinery margins are negative, and will continue to be for some time to come. Union workers seemingly want a "piece of the pie" as oil prices hit records of $147 this summer. Perhaps one should ask if union workers would then mind paying the oil company when the refinery is in the red and losing money.

Many Americans should lobby against the union as their action (strike) would likely cause gas prices to skyrocket overnight, leaving Americans without jobs in a dire situation, and even Americans WITH jobs in a bad situation. Unfortunately for the USW, it seems like Big Oil holds the important cards in this decision, with only BP PLC saying they will shut refineries if there is a strike. ExxonMobil, Shell, Valero, and other players have either publicly stated or signaled they are preparing replacement workers.

If it was you, wouldn’t just having a job in this economy be enough? Apparently not for this union- they are asking for raises for every year until their next contract expires. They also want a safer work place, and I really can’t blame them. To lump a raise from a safety issue? A bit weak.

The actions of 30,000 union workers mainly seeking more pay and benefits has the potential to disrupt millions of American’s stability if gas prices rise as a result of refineries shutting down.

The United Steel Workers Union represents refinery workers at nearly half of U.S. refineries, which refine roughly 17.6 million barrels of oil per day.

Not only that, but it looks like we may have a price hike in Speedway states tomorrow. $1.99 seems the likely target as it seems that the Chicago Premium has dried up (look how low we got! $1.73!) We’ll see.

Watch the news Saturday night and be ready to fill up to avoid any potential gas price increases as a result of the USW union strike.

Patrick

 

Wholesale prices stable

Comment on the January 14 posting:  Prices hiked to $1.99 the next day, so the prediction was CORRECT. 

January 28, 2009, 7:20 AM:  I haven’t been posting the past two weeks because I’ve been struggling with the head cold that has been going around and doing a lot at work, and the wholesale prices have been pretty stable and calm.  As of this morning, we have the same wholesale prices we were looking at on January 9.  There are concerns about a refinery strike, but those concerns haven’t affected NYMEX or AXXIS prices yet.  Given where wholesale prices are, and with prices dipping below $1.80 in the area, it would not be surprising if we got a reset back to $1.99 by the end of the week, but it would also not be surprising if prices continued to drop slowly.  Yes, that’s quite a non-prediction, but what it means is I have no edge in "The Game" this morning.
 

Whiting refinery maintenance, possible refinery worker strike… possible outcome? Record high gas prices!

Bad news tonight for consumers, although I personally believe that some issues will be addresssed and corrected before disaster hits. Without wasting time, let me cover the issues.

First, we have a number of refineries reporting being completely shut down tonight, including a 245,000bpd refinery in Texas and a 108,000bpd refinery in Washington. We also have some issues closer to home here in the Midwest. BP’s massive Whiting, Indiana refinery has unexpectedly shut a unit for maintenance. BP was hopeful that the maintenance would only last a week at most, but keep in mind that the unit needs to be shut-down and restarted which means that the unit’s actual time down will be more than a week. I am hopeful that BP will be accurate and have the unit back online ASAP to avoid higher prices in the Midwest market, but with Midwest prices already high, I am somewhat fearful that Midwest spot prices may rise more than those outside our PADD.

A possible price hike may happen as soon as tomorrow. I don’t have an estimated price range due to these issues listed, but it would be no lower than $1.99 and COULD break $2/gallon.

Also on the radar here at TheGasGame.com is a POSSIBLE STRIKE that could occur at some U.S. refineries as early as Sunday at 12:01am if a contract is not met. The United Steel Workers, a union that represents 30,000 workers at half of U.S. refineries that have a capacity of roughly 17.6 million barrels per day of refining capacity, may strike if a contract is not agreed on by weekend, Reuters reports.

Talks could go "down to the wire" on Saturday says USW spokesperson Lynne Baker. While both sides obviously want a new contract in place, both sides are bracing for strike. Oil companies are putting replacement workers on stand-by. Any strike would likely shut down a large portion of refinery capacity in the U.S. and could lead to a spike in gasoline prices as production dives to record low levels. This is a risky situation and one that has the potential to lead to overnight price spikes if there is no resolution. While I am also hopeful, I realize that the odds of a large refinery shut down are very small.

BP does say they WILL SHUT DOWN four of their five refineries represented by labor unions if there is a strike or lockout. BP said it would shut the plants to continue the good working relationship it has formed with the USW in recovering from a deadly 2005 explosion at its Texas City, Texas, refinery.

If any strike does occur, it would lead a huge blow to Midwest consumers, already paying more than the national average and dealing with higher unemployment than any other area in the country. I estimate that if a strike does occur and half of U.S. refineries elect to shut down, gasoline prices could spike almost overnight to $3 or $4.

In good news for Midwest consumers, PADD two contains the most crude oil since 1998- but we still need refineries to refine it so prices drop locally!

Like I said, any strike and shutdown is quite unlikely, but that doesn’t mean we should ignore a possible outcome or not plan ahead. Keep this in mind this week, and check back here at TheGasGame.com for further updates.

For media inquiries regarding this story, please contact us at media (AT) thegasgame.com

Patrick

80 million barrels of oil floating in the ocean, owners betting and hoping for higher prices

Just to warn you, this post will be a bit lengthy, but may be incredibly insightful for some. First off, it looks like Ed has predicted a hike to $1.99. We’ll see if he’s right on… if you can get gas for around $1.80, fill up like I did tonight just in case. I’m not completely sold on a price hike, but we will see what happens.

Now to explain my post title. Was there a ship leak or some accident? No. There ARE 80 million barrels of oil floating on the sea protected by a thin layer of steel, sitting in huge supertankers. According to Bloomberg, Frontline Ltd., the world’s biggest owner of said tankers has made this claim. It would be the most oil stored at sea in 20 years, as traders seek to cash in on higher prices later in the year.

This is an idea that carries a good amount of risk if you ask me… but you don’t make money without risk. Oil prices haven’t really started a good climb yet this year, and prices have largely given up most of their gains they made the last two weeks. These supertankers are huge ships that cost large amounts of money to lease but some can hold well over a million barrels of oil. If prices jump $10/bbl, there’s a large amount to be gained. However, with oil supplies in Cushing, Oklahoma nearly at capacity (the delivery point for contracts traded on the NYMEX), what’s going to happen? We’re already awash in oil, sitting nearly 40 million barrels above where we were JUST LAST YEAR! Crude oil in storage this week, as reported by the DOE, was 326.6 million barrels. Like I said, storage in Cushing, OK, was at 33 million barrels, with capacity of 34 million barrels. This represents a 20% GAIN in oil inventories there in just 4 WEEKS! How are these traders betting on higher prices in a few months when we’re lush with oil in a recession?

Figuring those 80 million barrels could go anywhere in the world, let’s figure half goes to the U.S., the world’s leading consumer of oil. If that 40 million barrels (which is doing nothing) would eventually end up at U.S. ports in a few weeks, we could have the most oil in storage since September 21, 1990!
Even WITHOUT the 40 million barrels, we’re already at our highest level of storage for a January since 1999, when demand was strong and the economy was surging ahead… remember the .com era? So many startup companies… and to see us at the same level of oil now with a much different outlook?

Let’s throw a name out here… a banking company that used to actively trade oil contracts (and bet on higher prices). Remember Goldman Sachs? The company whose analysts predicted $150 oil? What ever happened to them? They seem to have gotten out of the oil trading business. Goldman is now forecasting oil prices in the $30’s for quite some time. Do they have any obvious interests in oil now? Not that I can see- and crazy enough they’re actually making some sense with their seemingly non-biased oil price forecasts!

What’s this all got to do with gas prices?

Lets think it over. I’ll even format it so it’s easy to read:

  • U.S. January oil inventories highest since 1999 and economic outlook is much worse than that of 1999
  • 80 million barrels of crude oil haven’t even hit the market, owners betting on higher prices
  • Gasoline inventories healthy
  • Excluding 2006 and two weeks in 2007, oil inventories (including SPR) are at their highest levels EVER
  • Gasoline demand down 3-4%
  • Diesel demand down 4-5%
  • Jet fuel demand down 12-15%
  • OPEC countries need to pump more to generate revenues
  • Refinery utilization at just 85% and we’re still putting plenty of gasoline into storage

Point is-with such great news on the shape of oil inventories, how can oil and/or gasoline make a spring run-up in prices? Ed’s bet that we’d see $2 gas before we saw $1 gas is nearly the OFFICIAL winner, but I still think prices have more room to fall.

My short-term bet on oil (the next two months) is that prices fluctuate between $30-$45, but we may briefly break the $30 barrier. A gasoline prediction? I’ve already had that bet with Ed. Once he wins, MAYBE I’ll make another prediction.

Patrick

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