Month: June 2013

Conspiracy Theory Time: Why the Outage for the Gas Game?

Thank you to our IT support for getting the web site back up this morning.  Bill and I do not know why the site was down all weekend.  NSA?  Speedway?  The same reason Yahoo Fantasy Baseball statistics did not update on Sunday?  The floor is open for your favorite conspiracy theory!

(P.S.:  Gas prices should continue to fall, towards $3.40.) — Ed Aboufadel

Yes, relief is arriving in town

Friday, June 14, 2013, 6:30PM:  Good job by those refinery managers a few weeks ago.  What, people want to buy gas in the summer to drive?  Due to “refinery problems”, retail prices soared to $4.29 recently.  Since the beginning of June, though, wholesale prices have dropped something like 80 cents, and if we could reset prices this weekend based on the cost to retailers, we would be looking at gas prices in the $3.45-$3.69 range.  Conclusion:  prices will drop considerably over the next several days, so don’t rush to fill your tanks. — Ed Aboufadel

Is relief from these high prices on the way?

In a word, yes. In recent posts I have told you that the Exxon refinery in Joliet was down for repairs. Turns out it was due to a compressor problem. (http://www.nasdaq.com/article/refinery-status-exxon-has-compressor-problem-at-joliet-refinery—filing-20130325-00606) Well, it’s back up! (http://www.bloomberg.com/news/2013-06-10/chicago-gasoline-falls-to-1-week-low-on-exxon-joliet.html) This, along with some supply coming in from the Gulf region sent the Chicago spot price spiraling down almost 20 cents today.

The news I have read says this should only be the beginning. BP’s Whiting, Indiana refinery expansion project should also be back up and running by the end of the month. (http://www.hydrocarbonprocessing.com/Article/3216650/Latest-News/BP-nears-completion-of-work-to-modernize-Whiting-refinery-in-Indiana.html) Right now we are at a 40 cent premium to the NYMEX RBOB. That has in the past when times were good been a 20 cent discount. We still have a long way to go, but it looks like we are out of the woods for now.

This happened

As you may already know, prices spiked up over the weekend. It’s $3.899 in Ohio, $3.999 in Indiana, and $4.159 In Michigan. I’ll get to the reason for that disparity later, but first, to the reason why we spiked up in the first place.

We have seen an enormous rise in spot prices recently, up almost 35 cents in the last week, and 80 cents since mid-April. The big reason for this is refinery issues that have plagued the mid-west, as well as some pipeline issues. Part of BP’s Whiting refinery is due for reopening this month, as is Exxon’s Joliet refinery. This actually helped lower June’s first cycle prices at the beginning of the week, but a round of refiner buying is driving the latest price increase. The EIA supply reports are showing we are low on supply. Rack prices out of Chicago are also rising (I don’t have rack prices closer to Indiana, Michigan, and Ohio, unfortunately.)

That being said, we have not seen a corresponding rise in prices at the pump. At least, we aren’t as high as we should be with the current spot price. Indiana has an average of $3.98, and it still is 27 cents lower than the Spike Line. Michigan’s average is $4.15, yet they are 15 cents lower than the Spike Line. Ohio is up to $3.85, yet they are almost 16 cents below the Spike Line. Prices have been lower than the Spike Line for quite a while now. The only reason I have is that some areas are being supplied from outside the region.

That leads me to the reason for the price disparity we are seeing. Ohio is always lower, as they have a lower tax on gasoline. Indiana and Ohio may also be lower than Michigan because they are being supplied in part from the Gulf Coast. They have a spot price almost 70 cents lower than in Chicago. I believe Michigan is not getting supplied by the Gulf coast due to it’s proximity, that is reason enough for the higher price.

So, how long will this last? It is hard to say. With almost 500,000 barrels per day of refinery output allegedly coming back online, relief should be on the way. But that output will take around two weeks to come online. We shall see in the coming week how things work out, and I will keep you posted on what I find.

What Just Happened?

Saturday, June 1, 2013, 8:30AM:  I just got back from my Saturday morning walk, and I got to see the local Speedway implement a rare Saturday hike, to $4.15.  An industry insider tells me that Friday afternoon in Chicago, there was an inexplicable spike in wholesale prices, one that was not matched in other parts of the country.  There were a number of odd end-of-month actions in markets Friday afternoon, including the sudden drop in stock prices from 3:25 to 4:00 PM.  Sometimes these occur due to traders and financiers balancing their books at the end of the month, which probably doesn’t bother them much, but this morning we see concrete consequences of trading-based, as opposed to supply-and-demand-based, volatility.  Journalists and political leaders, if you want to investigate a good example of what is going on with gas prices, here it is! — Ed Aboufadel

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