This Week: #NotWinning the Gas Game

Comment on the December 19 prediction:  Pretty much CORRECT.  We did see several $2.99’s, and then we had a hike, but it was a bit higher than expected, to $3.39.

Friday, December 39, 2011, 8:30AM:  Well, we end the year with a loss in the Gas Game, as I did not expect the hike yesterday to $3.49.  Bill called it, though!  (Gas was still $3.16 at Costco last night, though — did anyone fill up?)  Looking over the last two months of data, it appears to me that Speedway and friends are trying once again to improve their margins.  To be specific, using the formulas posted on our site, I compute a 0-cent margin price (which is, in fact, a 10-cent below cost price) and when the retail price gets near or below the 0-cent price, we see a hike that gives us the 20-cent price.  In October and November, hikes were improving margins to a 25-cent price, and in December it appears that we rising to a 30-cent price (about 20 cents above cost).  We have seen for more than a decade, though, that reaching for a 30-cent price has been a challenge, as it is easier to competitors to undercut the price.  This already happened in Standale this morning, and Speedway on Lake Michigan Drive is at $3.46.

Some facts about 2011 prices:  The high price that I recorded for the year was $4.29 on May 2.  The low was $2.99 on January 5 and again last week.  So, we ended the year about where we started — just like the stock market (surprise, surprise!).  Oil per barrel topped out at $114 at the end of April, and got down to $75 at the beginning of October.

Happy New Year!

Updated: December 30, 2011 — 8:32 am

15 Comments

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  1. “December 39” ???

    I see a Typo…

  2. Just looking at the stations around Fort Wayne, and the last update of the Spike Line data, and the direction of wholesale gasoline yesterday. It looks to me like we could have a third week in a row of major price increases. The wholesale price of gas on NYSE looks like it has gone up 7¢ already today.

  3. Wow, $3.5999999999

    Greedway strikes!

  4. From what I can tell by looking at the wholesale gasoline pricing, it appears that gasoline should soon be at the price it was in July or August. What a way to start January.

  5. At this rate, we’ll be lucky to get to Labor Day without seeing gas above $4.499.

    Chicago spot market gasoline is up an additional 3.09¢ (1.14%) today to $2.752.

    New York February gasoline futures are currently up 3.84¢ to $2.787. New York futures settled up 9.12¢ yesterday, in addition to gains of .62¢ Friday and 2.88¢ Thursday.

    April New York futures are currently $2.9191 and will likely be over $3 pretty soon. That April price will effect our March retail prices.

    I guess the only thing to do now is post guesses on when we’ll see $3.999 again. My prediction is Thursday, March 15.

  6. Just curious, could this ‘surge’ we have seen since the fall be attributed to political motives (i.e. make the current administration look bad), now that the Arab Spring etc. reasons are out of the way?

  7. Could be Turbo, could be. But that gets sorta deep into conspiracy theory stuff…
    I think we can attribute this in part to the jitters in the Strait of Hormuz area between Iran and the rest of the world. Those wacky wacky Iranians love to drive up prices and remind me of the bratty 8 year old in the neighborhood. Only this time the 8 year old wants to go nuclear. Should the world let them and remain at ‘peace.’ India, Pakistan already posses as does Israel. I guess its how we percieve Iran and what they would do with it. IMHO if Iran ever tried a nuclear option on anyone they would be dead as a nation in a heartbeat. THEN where would oil prices go? Its brinksmanship at its best. (worst).
    Ahh, if their wasn’t a tempest somewhere how could capitalists make a profit? But thats another story. There’s plenty of oil in the world and we should be way cheaper then we are but thats they way it goes.
    Oh yeah Type The Two Words? One is in CHINESE fer crips sakes!!!

  8. And lo and behold, this just in, US fuel consumption down SEVEN percent and a major jump in fuel inventories reported this morning. Sooo lets see how fast prices go down??? I’m betting not much.

  9. I think that unfortunately what this means, Daniel G, is that we will be exporting even more refined gasoline. Which will result in keeping the price high for U.S. consumers.

  10. Thanks everyone for the conversation and analysis. I stumbled upon your website a few months ago when trying to figure out who is responsible for these ridiculous price hikes. I moved to Michigan from Illinois and am originally from California. My family still lives in California. One of topics of conversation usually is gas prices and a comparison between states. The conspiracy/oligopoly amazes me. I thought cartels were illegal. I work in the financial industry and have a good idea how markets work. The drastic fluctations are worse here (despite bad financial conditions and demand) than in California. I saw the writeup on Speedway effect and personally, I always thought it was Meijer. Perhaps its a combination of the two because they pretty much have the midwest locked up and can cast their web across several states. Its almost a guarantee that before a holiday weekend we will see a 8 or 9% spike despite what the underlying markets are doing. And a slow walkdown after the fact. Sorry if I’m rambling, but this topic frustrates me to no end. 🙂

  11. As far as current domestic demand being down, current domestic supplies being up, and prices still increasing, it has long been established that oil and gasoline prices are disconnected from current market fundamentals, largely because most (70%) market participants are investors who have no intention of taking physical delivery of the product. Watch http://www.cbsnews.com/video/watch/?id=4713523n&tag=mncol;lst;2

    Certainly, most consumers think they want the speculators out of the market. I don’t know the opinion of most economists on this. Some economists say speculators aren’t a problem and they increase market liquidity. Some economists say speculators do increase current prices, but prices over the long term are more stable, as future needs are included in today’s prices. It is said banning speculators would make the market more volatile than it already is. The example to illustrate this is onions, a market where speculators have been banned, thanks to west Michigan’s own Gerald R. Ford, since 1958. Read the Wall Street Journal article titled “What’s the Difference Between Onions and Corn? No Speculators” (I’d give you a hyperlink, but then this post would require moderator approval, which apparently kicks in when someone posts a second URL). Another article you can read is “What onions teach us about oil prices: Onions have no futures market, yet their recent price volatility makes the swings in oil and corn look tame” in Fortune Magazine.

    In my previous post, I meant we’d be lucky to get to Labor Day without seeing gas reach $4.499 sometime before that date. I’m not saying we’ll have $4.499 gas for the Labor Day weekend. The last two years, the annual gasoline peak was reached in early May.

  12. Very interesting commentary Mr Haenicke. Thank you.
    The thing I don’t like about the speculators is this. THEY DON’T HAVE ANY SWEAT EQUITY in their labors. They didn’t work for their money, they sit and reap the rewards. Ahhh but they have the risk and use their HEADS…i.e. brains. SO be it. So when they go buns up they get no sympathy from me.
    Me? I switch boxcars in a railyard for a living. Do very nicely too. Enjoy the work. It pays the bills and I buy gas at my local J&H Mobil station. When the price goes UP I complain like everyone else, then I kick out 5 bucks for a lotto, about what I paid more for a tank of gas. I should REALLY have no complaints. And in the long run I don’t either. This forum is just a fun read and a place to kibbutz about the price.
    Thank you all for your inputs. I do appreciate them and I wish more would participate. With an election coming up I reckon that is gonna happen.
    Dano in Rockford
    Oh and Invisible Defender, stop putting chinese charecters in your password, I don’t type chinese!

  13. On the topic of Speedway trying to increase markups from 20¢ to 25¢-30¢, there may be a legitimate basis for that: After 30 years, the federal ethanol subsidy ended on Sunday. This amounts to a 4.5¢ per gallon subsidy on so-called “regular” gasoline, which is E-10, gasoline blended with 10% ethanol, by federal mandate. Unless you buy your gas at a boat dock or some other specialty location, you’re putting E-10 in your vehicle. Here’s an article about this: http://www.wzzm13.com/news/specials/13onyourside/192667/216/Gas-prices-to-rise-as-subsidy-ends

    If you are interested in buying 100% gasoline, check out pure-gas DOT org.

    This was a 45¢ per gallon federal subsidy. That should mean a significant increase in the price of E-85. Here are AAA’s national E-85 averages:

    Current – $2.996 ($3.943 BTU adjusted)
    Yesterday – $2.981 ($3.923)
    Week Ago – $2.959 ($3.894)
    Month Ago – $3.028 ($3.985)
    Year Ago – $2.618 ($3.445)

    The current average is:

    up 1.5¢ since yesterday
    up 3.7¢ since a week ago
    down 3.2¢ since a month ago
    up 37.8¢ since a year ago

    I don’t see any AAA E-85 averages for states or metropolitan areas.

    As far as “Protected by Invisible Defender,” I’m not sure if I’ve seen any Chinese characters, but I’ve seen subscripts, superscripts, and Greek characters. I don’t pay a whole lot of attention, because I just press the chasing arrows button if I can’t type it. Have you ever tried the audio CAPTCHA? That’s much harder to decipher.

  14. The futures market was created exactly in order to avoid such wild variations in the prices of commodities. Such variations in supply would be outside the hands of the producers (weather, usually).

    Oil is different in that supply and demand are known well in advance, since it’s the most closely watched commodity.

    As a follow-up conspiracy theory to my original conspiracy theory, I would think that the current administration would do well to ‘let’ gas prices hit $4.50 or so, with the Iranians behaving and so on (why rock the boat if you’re getting wealthy from $120-125/bbl?) and then, right at the peak, announce some sweeping investigations or even suspend or disrupt the Commodities Modernization Act altogether, or change some regulation that would have the same effect.

    If the status quo continues, we’ll be seeing $4.50 by May easily.

  15. The markets didn’t move a whole lot Friday and today, but it looks like we should plan for a reset in Michigan to $3.699 tomorrow (Tuesday).

    Using last week’s rack adjustment, the current Michigan spike line is $3.482402. The Michigan average currently sits at $3.498.

    The lowest price in the Kalamazoo area is $3.399 on Gull Rd. and in Parchment. The metro average is $3.483.

    The lowest price in the Grand Rapids area (not at a membership warehouse) is also $3.399, at our old favorite location of 44th St. and Eastern Ave. in Kentwood.

    The lowest reported price in Michigan is $3.289 at Speedy Q in Port Huron. Like normal, the BP next to Detroit Metro airport is the highest in the state, $3.899.

    Current averages:

    $3.474 Indiana ($3.159 in Seymour, state’s lowest)
    $3.381 Ohio ($3.169 in Milford, state’s lowest)
    $3.334 USA (Salt Lake City nation’s lowest metro average, $2.829)

    Invisible Defender: Sigma (?) and umlaut (ä).

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