Temporary respite in gas price hikes likely… prices to fall!

After the expected Speedway hike to $1.99 Tuesday, we can expect a break in gas price hikes as the DOE released a favorable report on weekly oil inventories today.

The report on oil and gasoline stockpiles contained some very good (bearish) news for the markets. It was expected that oil inventories were to gain 800,000 barrels last week while they actually gained much more than that- an astounding 6.7 million barrels. Gasoline inventories also gained much more than expected, to the tune of 3.3 million barrels. Traders were expecting very small gains in both and news of such a large gain prompted thoughts of the weak economy and recession we’re in and prompted selling.

Midwest stockpiles (PADD 2) also gained a healthy amount jumping from 46.8 million barrels to over 48 million barrels.

All of this news comes at a good time for Midwest gasoline consumers who had been taking a hit as Midwest storage had fallen to levels not seen since 2007. We can expect that gasoline prices have a temporary drop in Midwestern states (Indiana, Ohio, Michigan), and that any “Chicago Premium” will either drop off completely, or become a “Chicago Discount” as we see PADD 2 reach higher levels not seen since before Thanksgiving (2008).

As many know, wholesale prices may rise the remainder of the week negating my comments below, but if wholesale prices do not rise, we could see areas in the Midwest drop into the $1.70s… keep in mind ONLY if wholesale prices do not rise soon.

Patrick

2 Comments

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  1. “…crude stocks in the Midwest are very high because Cushing is a landlocked base with pipes that only go in one direction,” said Christopher Bellew of Bache Financial.

    Crude oil storage at the Cushing, Oklahoma storage hub rose 4.1 million barrels to 32.2 million barrels in the week to Jan. 2, according to Wednesday’s EIA data, a new record that may test capacity, an official at the EIA said.”

    Maybe I’m reading into this wrong, but if this is the case, then we (Midwest) should not be sitting on the highest prices in the country as is the case in Michigan, Illinois, Indiana, and Ohio. I know we are on the eastern side of the midwest and this may play no role in our supply as we could be recieveing our supply from elsewhere. However given this information (cnbc.com), I think $1.99 is a little bit overpriced. (I do still like it under $2 as compared to $4 plus.)

  2. Oil at 41.33 on CNBC as I write this. $1.99 gasoline makes no sense with oil at this price. While it did jump up to $51 a barrel last week…and then the sellers tell us “we need to raise prices to refill our tanks at the higher price coming down the line.” That higher price coming down the pike is just a blip in the pipeline and I’m willing to bet it will take some time to get prices back down in line with crude again.
    We’re in a recession. Fuel usage is way down. The pundits and traders pump up a price with talk and flawed reasoning, prices move up in response, then the cruel fact that there is WAY more oil and gas in the tanks then they thought? Amazing how the ‘learned’ either are so dumb or we are, because we let them get away with it.
    Don’t get me wrong, I love fuel prices at anything less than 2 a gallon and I am amazed at the amount of money it takes to fill the Lil Red Jeep but when its up where it is today on the retail and how fast it jumped when the barrel hit 51…well thats amazing too.

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