Oil Prices Crash — Gas Prices Next

Comment on the November 14 prediction:  I am going to score it as WRONG, because retail prices haven’t dropped very much, and we actually got a price reset last Monday to $2.99 in Michigan.

Sunday, November 30, 2014, 3:30PM:  We saw a price re-set last week, despite a lack of fireworks in the wholesale market, although ethanol has been popping higher lately.  It make me think that our Big Red retail friends are trying to change the rules of the game.  Unfortunately for them, oil prices crashed on Friday, and based on UGA (the ETF for gasoline), so did wholesale gas prices, although I can’t find a wholesale quote this weekend.  So, retail prices have to go down significantly this week — we have $2.76 this afternoon in Grand Rapids, and I think we’ll see $2.50 somewhere in the area this week.  That’s a prediction. — Ed A.

Updated: November 30, 2014 — 3:20 pm

47 Comments

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  1. Speedway is leading the charge in Muncie with the cheapest gas in Indiana at $2.48 a gallon. Drop, baby, drop! Now what would really seem strange is seeing a 1 as the first digit. I’m still adjusting to looking at signs with $2.xx though lol

  2. Oh no, oil made up $2 of the $7 it just went down last week…Reason for a Greedway hike? Just a thought…

  3. Wholesale and spot prices seem to be out of synch:
    The Axxispetro.com report early this morning did show a Chicago wholesale dated 11/28 which had dropped only a penny or so from 11/26. And then today’s price was down just another 1/2 cent from 11/28 despite the Thanksgiving fireworks from OPEC. But then spot prices plunged 15.55 cents today…dating back to the Wednesday close. This, despite RBOB futures being up more than a nickel but in this case dating to Thursday’s close, which was down 18&cent from Wednesday in overseas (I guess) trading. Or perhaps an emergency trading session. (DTN marketwire actually had a report posted on Thanksgiving Day reporting the huge fall in RBOB futures!!) Wholesale prices tonight should be down double digits or nearly that from the weekend.

  4. my key stations have gone up too 2.89,.. we may have a price jump today,,….daaa

  5. Oil loses the $2.00 it gained yesterday and RBOB falls back down. Cost to retailers is under $2.50/ gallon in MI so expect to see Ed’s prediction cone to fruition by the beginning of next week. Consumer prices will fall to the mid $2.50’s

  6. We should be closer to $2.30 in Ohio. Thanks to GREEDway, we’re still over $2.70, on average. Missouri’s in the $2.30s(no GREEDways). St Louis average is $2.36.

  7. Agreed Chris. The cost to retailers is roughly $2.30, and us in MI, IN and OH only have Greedway to thank for the prices still hovering around 2.60-$2.70/ gallon at the pump right now.

  8. Cue in the usual soothsayers in 3..2..1..

    Compare to North Carolina as their taxes are as close to Indiana as it gets.. It looks they’re in the 2.55 range.

  9. Given my belief that it is much easier for entities to make (comparatively) exorbitant margins during times of decreased cost, I would not be surprised at all to see a spike when calculated margins reach 25 to 30¢, what used to be considered the top margin after a spike. We, as drivers, are very happy to be under $3, and the industry knows that. What we are seeing is everybody in the process breathing easier with their newly obtained margins, while we see not as much of the drop showing up in our wallets. Still, filled up at $2.61 yesterday in Fort Wayne.

  10. For those of you that play along at home, here are the relevant rack prices for this week.

    Chicago $2.0734
    Cleveland $2.1516
    Detroit $2.0837
    Indianapolis $2.0773

    Last week’s pre-Thanksgiving spike had a lot to do with ethanol prices being high (although they have since crashed). Although ethanol is only 10 percent of most blends, the final cost of the blend is more sensitive to fluctuations in ethanol cost as the gasoline wholesale cost drops. If you account for ethanol in the calculation of last Monday’s Spike Line, it added about 10 cents to the Spike Line which put us in Ohio negative to the Spike Line.

  11. independent retailer

    Bobby where do you get your numbers from? Cost to me today is 2.52.

  12. What state are you in?

  13. My way of figuring retail price isn’t exact science by any means, but simply goes by what gas is taxed according to michigan rules.

    Chicago spot as of yesterday was 1.6570, add the fed tax of .184 gets you 1.841, times the sales tax of .06 equals .11046 plus 1.841 equals 1.95146 plus state tax of .19 equals 2.14146 and in the past i’ve always added an additional .15 for unknown variables. This adds up to a cost to retailers of around 2.29. In the past this equation has always been pretty close and i have noticed using this method that spikes did happen when consumer cost reached retail cost. I am writing this because i have noticed recently from Independent retailers prices that this equation no longer holds true.

  14. I would agree with all of the above in terms of my calculation, except that I use the RBOB futures price of (currently) $1.799 as it tents to be more reflective of midwest costs, and also the sales tax on gasoline in MI is a set amount which includes all inherited supplier fees, etc. – not 6% like most items. For the period of 12/1-12/31/2014, this preset sales tax is 16.8 cents per gallon. So the cost to MI retailers should be $1.799 + .1840 + .190 + .168 = $2.34/ga.

  15. Bobby and Robert
    The actual dealer contract wholesale/rack price out of Chicago (could be a little lower east of here) was around $1.85-1.86 yesterday. Using Chicago spot is risky because over the course of a year it can run anywhere from a 20 cent discount to RBOB next month futures to a 50 cent premium (not unusual in late winter/early spring). And it can range from well below (as now) the actual dealer contract prices to well above, when supplies are tight. Using NYMEX RBOB futures to predict Midwest prices certainly suffers from at least the same problems.

  16. Jim,
    Thank you for the insight. Where would you recommend finding the the most accurate wholesale/rack price for midwest states?

  17. I understand Jim, as stated its not pinpoint accuracy for sure, but when used in the past it was fairly close in terms of price guessing. More to the point, i think there seems to be a difference in cost to retailers now then what we thought earlier in the game. I don’t remember recalling which state it was in, but yesterday the news aired a station that was selling for 1.99.

  18. Here’s one for all of you to think about. Isn’t it quite a cooincidence that just as soon as gas prices seem to come down to a level that it should have been all along, that you hear about wanting to raise gas taxes at the federal and state level to fix our roads. So after that happens we will be back to above 3.00 range cause we all were already paying that anyway. Amazing how things happen isn’t it?

  19. independent retailer

    Bobby
    I am in Michigan. And I have to correct you the the MI sales tax. Our prepaid sales tax is.168 cents per gallon. But we pay the 6% on the retail price. It is not preset, we make up the difference at the end of each month.
    Cost today 2.49. FYI diesel dropped .27 from yesterday.

  20. Ahh! Thank you. That explains the missing $.15/ per gallon. 🙂

  21. Bobby… This free site http://www.axxispetro.com/download/wisconsin-cta.txt posts daily “dealer contract wholesale” prices for Chicago and Milwaukee (the two farthest east). This would be not including any of the tax add ons or delivery fees. To this price, I can add 88 cents in Illinois and compare Speedway’s average in this market to that and come up with pretty accurate predictions of when Speedway will hike. I might have been caught by surprise once or twice in the last year. I predict tomorrow’s wholesale using today’s (actually in effect at 6 pm the evening before) and today’s spot price movement in Chicago trading (this can be significantly different than NYMEX, especially as we head into winter when the annual premium over NYMEX starts to build up.

    Unfortunately the data are not freely provided by the site operator for MI/OH/IN. I haven’t found any other source of similar data for you areas.

    Robert…if it works for you, good. I would think you would have to make some seasonal adjustment especially Jan-Mar when Midwest prices traditionally have a large premium vs NYMEX RBOB futures. Gasbuddy shows 2 or 3 OK City stations under $2.

  22. Chicago CBOB closed today around $1.64, RBOB around $1.71. Our rack price in West Michigan is close to $1.90 before taxes, freight, etc added on. I think you guys are underestimating cost to retailers by about 15-20 cents per gallon.

  23. Jefferson and others…with a rack price Friday of $2.86 for pure ethanol, there’s 12 cents a gallon (10% of the difference to CBOB spot) more for E-10 (which I assume you sell). Then, spot prices are always below rack prices in times of ample supply.

  24. FWIW – There are two stations along my commute that advertise E-85. One, Speedway, is selling for 2.47.
    The other, Kroger is 2.05.
    Both are in the northern suburbs of Cincinnati.

  25. I know this is a gas site, but any idea why diesel is so much more expensive than gas? I’ve never seen such a discrepancy between unleaded and auto diesel. $1 and more at some stations. It also used to be the norm for diesel to be slightly cheaper (and less price volatility) than unleaded. This is also true in any other countries I’ve visited (mostly Europe).

  26. Just from my anecdotal evidence, In Fort Wayne, the cheapest Cash price for Diesel was usually 25 cents above the average price of gasoline, when gasoline was priced midpoint between spikes. Sometime ago, and I don’t know the year, the road use tax on diesel surpassed gasoline. Also, Diesel is only a small fraction of the production as gasoline is. It is not used for price wars either. All this conspires to make its price more consistent, less volitile. I can remember, when gas was over $4.00, diesel was not, but was more like $3.50.

  27. The new Costco in Oshtemo Township may be causing that area to have the lowest prices in Kalamazoo County. It was $2.329 this morning at the BP on the corner of Stadium Dr. and Drake Rd.

    This area of town almost never has the lowest prices. It has had the lowest prices for the past week.

    Since Wednesday, that particular station has dropped its price by 27 cents.

    Speedway may try for a reset this Thursday or next.

  28. In Goshen on the Northeast side of Cincinnati two stations are the first to go to $2.39. Even on our West side of town which is one of the higher parts of town we have hit a low of $2.51 this afternoon.

    Deither, we have probably dropped about 14 cents in a week; good news for sure but I too wonder, even though spot dropped about 8 cents today, how much longer before GREEDway gets too itchy.

  29. If spot dropped 8 cents, that puts us at 1.57, if I “mathed” right.
    That’s a full $1.01 below average Ohio retail. No way GREEDway spikes. No way, Jose.

  30. The diesel pricing has lots of reasons, but my squirrel-hat conspiracy theory is that diesel for passenger cars is much more efficient than gasoline, thus there’s a need to ‘make up’ some of the ‘lost profits’. The last time I had a diesel in Europe was a VW Golf TDI, which gave us unreal mileage – and nobody noticed the thing was diesel to begin with. In 2007. If diesel was priced the same here, about what gasoline goes for, you could well see fuel sales drop by quite a margin. Put two and two together and see.

    My squirrel-hat further says that we’ll see this phenomenon again as more electric only cars are sold. All of a sudden you’ll see separate 240V a requirement, and separate meter. Or if we’re really unfortunate, Big Oil will start buying utility companies…

    Just (conspiracy) theories, mind you, and diesel never made a lot of friends in the USA with awful cars sold earlier, but at some point taxes (and costs) between diesel and gasoline should be balanced so that consumers have more choices. We are already paying more for diesel cars as it is, let’s not get gouged again at the pump.

  31. My take on diesel, is that we export a million + barrels per day, mostly to Europe where they embraced diesel cars (that are starting to face some pushback ironically due to the extra air pollution they produce as far as NO2 and other unique diesel pollutants) and only import perhaps 100,000 barrels per day. Thus, supply continues to be constrained (on the very low end of the supply envelope), and as it is part of the same distillate group that encompasses fuel oil used for winter heating, it continues to face price pressures this time of year that gasoline does not. Hence why it continues to stay steady at the same time gasoline is falling. Someone can correct me on all that if I’m wrong, but these seem to be the reasons why.

  32. Cincy retail down 20 cents in a week. If not for the fact that wholesale was at $1.57(pre-yesterday), I MIGHT be concerned about a GREEDway spike. We’re still at $1 above spot here. Room to drop still.

  33. Last Wednesday, regular unleaded gasoline prices around the new Costco in Oshtemo Township, Michigan were $2.599.

    Today, gasoline in this same area is $2.299, a 30¢ drop in a week (11.5% drop).

    If gasoline continues to fall at this rate, we’ll be at $1.999 by next Wednesday. We haven’t seen prices that low since around January 2009. Oil and gasoline prices crashed during the fall of 2008 and gas got as low as $1.499 at Thanksgiving 2008, only 3 or 4 months after gasoline hit an all time peak of $4.299.

  34. Diesel exports have been the driving force behind the price inversion with gasoline. Refinery rates have been very high to produce diesel, but the benefit is, gasoline production increases as well, and that can be seen in the build of gasoline inventories – driving prices down – while at the same time diesel inventories are running near the bottom of the five year average.

  35. It’s amazing how few complaints or few grips, or little discussion there is here while prices are falling and there are no spikes. Just shows the frustration with spiking and volatile pricing models by the purchasing public.

  36. Prices finally getting more “reasonable” in most people’s minds (and pocketbooks), which is a welcome reprieve during the holiday season. $2.00 in Lowell, $2.39 in Dorr is interesting tho. I never could figure out why the huge price difference from one side of town to the other. And I’m sure, prices will be back up come spring/summer. I doubt (IMHO) they’ll be down long. Time will tell.

  37. The crude prices have to stay down long enough to kill off the Canadian tar sands and U.S. fracking. These are the only reasons that OPEC is flooding the market with cheap oil. The only reason. As soon as those industries are cripled, the prices will rise extremely fast and suddenly. Ther will then be shortages instead of surpluses.

  38. $1.99 at almost every station in Greenville, Michigan as I type. @2.00 flat in the Lowell area too.
    As for the demise of tarsands and fracking? Naaa, THAT GENIE is out of the bottle. When and if oil goes back up an appreciable amount they just reopen the frac taps and out comes the oil again.
    Mexico is opening for bid large areas of their offshore caribbean area for oil exploration again. STATOIL in Norway has major finds of oil just sitting there awaiting a price rise again…there is LOTS of oil out there, the high price encouraged exploration and they found it in abundance…thusly the drop in oil price…thusly we are where we are at at this moment….I don’t see oil going really high again for some time. Heck lets get an agreement with the Iranians over the nuclear thingy…MORE CHEAP OIL in the market AGAIN…

  39. Cost of gas around $2.10-$2.15. Lot of stations been at or below cost for better part of a week. Cost is going down but pump price going down just as fast or faster.

  40. There are 2 stations in West Union, Ohio ( a little bit SE of Cincy), selling gas for $1.859 today.
    Just thought I’d throw that out there.

  41. Average is still $2.34. Too high.
    Who would of thought I’d be complaining about $2.34?

  42. I am stockpiling gasoline in my basement!!! Figure 2000 sq ft x 9 ft height is 18,000 cubic feet that’s $269298 worth of gasoline at 2.00/gallon. In a year it will go up to $4.00 so I will have doubled my money!!! Hopefully I won’t run into the Marlboro Squirrel…

    Serious question, could someone conceivably stockpile gasoline with today’s low price and wait a year? I know they did that with oil a while back but why not do it with refined stuff? is it done?

  43. I have a 24 gallon strategic reserve in my garage.

  44. I have a heating oil tank back in my garage that I don’t use any more. I think I found a use for it now.

  45. In 1973, during the Arab oil embargo, I worked for a commercial laundry. I snagged two empty 55 gallon drums from the oil we would add to the walk off carpets that would catch the dust. I filled them with 39¢ to 49¢ gas. Kept the drums COMPLETELY FULL, and in an out building. After the oil embargo was over, and gas was 89¢ or more, I had a whole month of free driving. Now I just have six of the six gallon jerrycans in the barn out back.

  46. When gas went over $4.00 the first time:

    Couple Stockpiling Gas Blamed for Apartment Blaze

    June 06, 2008

    http://www.foxnews.com/story/2008/06/06/couple-stockpiling-gas-blamed-for-apartment-blaze/

    “Officials say they might face civil penalties for violating the fire code.”

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