Chicago, We Have A Problem!!

Comment on Monday’s prediction:  Yup, prices rose to $2.49.  CORRECT!

Wednesday, March 18, 2015, 6:30PM:  I can’t believe this is the third time in a week that I need to post an update.  It seems to be a hot mess at the BP refinery in Whiting, which is a key source of distilled gasoline in the Midwest, and Chicago-based wholesale prices have gone insane.  Last Thursday it was $1.49 a gallon.  Right now, $1.85.  I’m pretty sure we are looking at another price hike on Thursday, to the neighborhood of $2.69 in Michigan.  Vernal equinox bleah!!! –Ed A.

Updated: March 18, 2015 — 6:22 pm

78 Comments

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  1. the bottom line is that all the pro-Whiting arguments led us to believe that Whiting would be a great thing for energy price stability in the Midwest. The exact opposite is happening. Whiting is becoming a single point of failure that is causing serious expenses to Midwest drivers.

    I can understand this happening once in a few years but it’s getting to be a near annual occurrence now. Interestingly enough such issues don’t seem to impact other parts of the country as much as they impact the west coast and the Midwest.

    That’s what it looks like to my untrained and cataract impacted eyes at least… Let’s see if we will have the “50-75c a gallon premium” for the foreseeable future or whether there will be a Berlin air lift of cheap southern gasoline headed our way again…

  2. Betting on the premium, Trub

  3. I never thought I would invoke the words of Ren Butler but I think after today “I would be happy to pay $2.39 for a gallon of gas.”

  4. Turbo: You said it very well. It seems like BP’s Whiting is one of those new computer controled cars that things just never work correctly for very long: it is in the shop a lot and runs good for a bit, then the “check engine” light comes on and we get “reduced power mode” for a while. The car can get returned under the Indiana Lemon Law. Not so with the refinery. If there is a “Berlinn style air lift of gasoline” to us, it won’t be till after we are paying the premium for a while.

  5. Whiting we have a problem…lets see, according to the Northwest Times, the northwest Indiana newspaper, certain BP managers that were ‘filling in’ for striking union employees, seemed to have injected a catalyst wayyyy above the 8% to 12% norm. Something like a plugging 60% catalyst injection into the system that completly clogged the whole works up. According to the article it will take weeks to unclog the tower and associated piping. After blowing up the Valero refinery in SoCal and this one in Whiting the oil companies decided that they need the regular employees running the system CORRECTLY.
    By the way the employees said they were also alarmed at the massive flares that have been running in Whiting…ummm something is really really wrong….but BP issues a press statement that everything is safe and running fine…yeah righto! 60% instead of 8%? Bwahahaha.
    By the way the Trib story didn’t come up so I have no idea if they ran the same story as the NWTimes ran.
    Dano in Rockford SMH and laughing.

  6. Perhaps they should have spent less money on squirrel proofing the place and more money on a decent monitoring system… I write software for real time control applications and we put all kinds of checks in there to make sure stuff like this don’t happen…

  7. Family Express leading a spike to 2.79 in Lake and Porter County.

    Family Express leading a spike to 2.59 in La Porte County.

  8. Even this web site was down for a day. Things break. 😀

    And when things break, you can either complain about it like a kid with a broken toy, or you can fix it, replace it, or deal with it.

  9. BTW, no secondary spike in Indy yet.

  10. Sorry about the down time today. Prices jumping in Michigan on Saturday — to $2.69.

  11. Things that cost $4B don’t just “break”. I have lots of friends working the Intel fabs in Beaverton, OR and have taken the grand tour. The amount of automation and checks and balances is beyond comprehension. My wife spent a decade working on software used to make medicines. Things don’t just “break” there either. I work in mission critical electronics. Things don’t “break” in my code either.

    We aren’t talking about a Kentucky moonshine still here, but one of the newest refineries in the world. If clueless or mischievous squirrels or humans bumped up the value of whatever from 6% to 20% or more, the system should have handled it.

    Regardless, it’s all academic anyway.

  12. “Things that cost $4B don’t just ‘break.'”

    Let me introduce you to NASA.

    Your blanket statement is absurdly inaccurate.

  13. Funny you mentioned NASA, Ren. They paid (well) for one of my graduate engineering degrees. A refinery is more or less a known situation, and has no limitations of power, weight, or protection from vacuum and extreme temperature you see in space. Now granted, space has no squirrels or other hostile wildlife but still…

  14. No spike in Indy this weekend. In fact, prices have gone down decently this weekend. I plan on filling up first thing in the morning.

  15. Niles MI many stations to $2.59, WMT @ 2.33 for now & $2.36 just down the road from it.

    Not much change in South Bend IN this weekend $2.25-$2.39.

  16. Well, despite all the tooth-grinding about refineries and how much better we could run them, the Indiana and Ohio markets have managed to remain below the national average for almost the entire past month…

  17. WTHeck is going on with the spot prices this week? (I know, I know, refinery issues. Check.) Chicago is up to 2.1463/gal, while Cleveland is up, but only to about 1.7484/gal. Last week, CHI was 1.6107 and CLE was 1.6023. I mean, this kind of explains why IN and OH haven’t spiked yet. I was fully anticipating one this morning. Has the Midwest started to get gasoline from the East or Gulf Coast as a result of the refinery issues?
    Link, in case you want to have a source to check for yourself:
    http://gasprices.cstoredecisions.com/

  18. RFG!

    Chicago uses RFG, Cleveland is conventional. RBOB is 40c/gal higher than CBOB.

  19. @Patrick – So you’re saying RFG was $1.6107 last week in Chicago? Not buying it. I get the difference in grades between CBOB and RBOB, but CLE has been tracking CHI for Regular Unleaded within a penny that past two weeks. These are the same numbers Ed uses to calculate the “Rack Adjustment” in his model. This week’s rack adjustment would be -0.3979 according to those numbers. Using today’s mid-day numbers from DTN (1.7910 for CHI CBOB): if we ignore the RA, we’ve got a Spike Line in OH of $2.385; if we include it, we’ve got a Spike Line of $1.9871. We should be in a spike situation here (especially considering Michigan went last Friday), but we’re not. I guess I shouldn’t be complaining about not having a spike, but it’s frustrating when the model doesn’t seem to work when we seem to be in what should be an obvious spike situation.

  20. “the bottom line is that all the pro-Whiting arguments led us to believe that Whiting would be a great thing for energy price stability in the Midwest. The exact opposite is happening. Whiting is becoming a single point of failure that is causing serious expenses to Midwest drivers.”

    How do you know it wouldn’t be worse – much, much worse – without the expansion? We might be talking about spikes to $2.99 or $3.09 instead.

  21. Oredigger:

    CHICAGO SPOT
    Mar 11
    CBOB: 1.57
    RBOB: 1.61

    Mar 20
    CBOB: 1.80
    RBOB: 2.22

    Anything else?

  22. Shell was heard to be buying RBOB to ship to Midwest markets on the Explorer Pipeline, market sources said. The pipeline system links Houston and Chicago and carries 660,000 b/d of fuel, the equivalent of more than two cargoes.

    “A refiner came in buying RBOB in large size for Explorer,” a US products trader said. “That was more of the stimulus in the market than anything.”

    Shell spokesman Ray Fisher said the company was not in a position to comment on market activity.

    “I find it odd. It’s either a plant problem, or they’re looking to get ahead of the season and bring summer grade up to Chicago,” a Midwest market source said.

    He said he had not heard Shell looking to sell barrels in Chicago for delivery in two weeks’ time.

    “If Shell is booking [RBOB to send to Chicago], it has already found a home,” he said.

    http://www.platts.com/latest-news/oil/houston/us-gulf-coast-rbob-rises-73-cents-on-refiner-21186669

  23. Without the expansion I think the other refineries plus imports from other areas would have had to cover the slack. This is not optimal from a pricing control standpoint since it spreads the risk around quite a bit. It’s likely more expensive in the long term but not if we are having issues every year.

    Bottom line – we were told Whiting was good for us. In retrospect it was not the case.

  24. I knew a guy with a 1971 Vega that was more reliable than Whiting seems to be.

  25. Patrick – Point taken. Can you explain how the Rack Adjustment works, then? It has been my understanding (perhaps incorrectly) that it was a comparison of similar products at different racks so that you could compensate for local market differences between Chicago-priced CBOB and Cleveland-, Indiana-, and Detroit-priced CBOB. So what you’re really saying is that it’s a correction for the difference in price between Chicago-priced RBOB and locally-priced CBOB? Is that an accurate statement? RE: our current situation, is a -40 cent Rack Adjustment for Ohio valid? I apologize if I’m coming across as a little dense, but I’m genuinely curious and trying to understand this a little better.

  26. $2.499 reset in Ohio underway.

  27. Indiana (Indy/FW) appear to have escaped for at least another day.

  28. Oredigger, I’m a bit confused. “Rack adjustment” is not a term I use, so I’m not sure where that’s coming from. RBOB and CBOB are two different fuels. There’s no magic number that RBOB is always X more than CBOB. It varies, mostly by season. Two fuels have different markets, different fundamentals. RBOB is not as widely used, so it’s less liquid for market trades. The volume of CBOB sold doesn’t match RBOB, so it’s hard to draw comparisons. I don’t like most formulas because of the wide margin for error that can take place given a refinery problem, or that there may be a problem with CBOB or RBOB and not vice versa. Right now RBOB commands a large 40c/gal differential to CBOB, but that will likely cool in the next couple weeks. If you want a good formula, don’t use RBOB and have a “adjustment”. Just find what CBOB trades at and use that.

  29. If Bill sees this (Bill Eby), the author of “Today in Oil” he should change the column that says Chicago spot to Chicago CBOB, add CBOB to “Group 3” (Group 3 doesn’t trade RBOB), Change NYMEX heating oil to NYMEX ULSD (HO) and LSD (chicago) to Chicago ULSD.

  30. “Indiana (Indy/FW) appear to have escaped for at least another day.”

    A great way to build trust in your customer base…..

  31. Turbo,

    Is there a problem with what he said? A price correction is and has been due, based on behavior we’re used to seeing. It’s nice to escape it, and goes to show we aren’t the ones behind the hikes, but really- you think suddenly hikes are going to stop? And FWIW, Speedway’s Facebook page has nearly 719,000 fans. GasBuddy has 190,000 or so. Why not go preach to the choir? At least we’re warning you.

  32. It’s all a matter of perception. I don’t expect spikes to stop any time but a business model where customers are forced to play all kinds of games to get a good price are generally doomed if the consumer has a choice, and only work when the consumers don’t have a choice.

    Look at the airline industry. They’re a monopoly for all practical purposes so the gamed pricing model works great for them but consumers are irate. Stores like JCpenney and Sears are on the way out partially because newer consumers are tired of coupons etc.

    Speedway is free to do their own thing and I wish them luck. But if they expect our trust they have a long way to go towards getting it. I think I have bought gas there maybe once a year for the last 20 years. I don’t mind spending money but I don’t like being taken advantage of.

  33. I wonder how many of that 719,000 joined the Speedway FB page in the heels of the impromptu female anatomy photo shoot recently?

  34. One thing we can count on no matter what oil prices do, is good olé Ren being pugnacious and Turbo46032 being the voice of reason along with a good bit of humor.

  35. “but a business model where customers are forced to play all kinds of games to get a good price are generally doomed if the consumer has a choice, and only work when the consumers don’t have a choice.”

    That’s ridiculous. Every retail industry has spike cycles. They’re called “sales” and “discounts.” Sometimes they are based on supply/demand issues, sometimes they are loss leaders. Either way, the customer has to time their purchases accordingly to get the best deal.

    That’s business.

    Turbo “the voice of reason” with “a good bit humor.” Good…Lord…

  36. Patrick – I get the term Rack Adjustment from the Spike Line Page. Scroll down to the bottom and there’s an RA piece for each of the markets being tracked. I have messaged back and forth with Bill before and understand how he calculates his numbers. I use the same sources as him to get numbers that I use to update my own spreadsheet model. I completely understand how a state-wide model doesn’t necessarily fit with what is being seen in the market. I’m surprised that Speedway doesn’t do more regional spikes given the vast difference in retail averages across a state like Ohio. The northwest (and southwest, to a lesser degree) always seems so much lower in cost than the state as a whole. Maybe I shouldn’t give them any ideas. I do get the differences in gasoline (The BOBs) and that there are different blendstocks for different areas of the country (ChemE by degree), but the pricing and markets are a little different animal than the technical aspects of the fuel. I like to think I have a pretty good handle on the Speedway-dominated markets, but then we have weeks like this. I have noticed that when I have trouble predicting, it’s usually keyed into either an ethanol difference (which I’ve started accounting for) or a “Rack Adjustment” issue (for lack of a better term).

  37. A single business’ sales or price increases rarely cascade thru the entire industry unless there is no alternative.

    Speedway happens to be in the “no alternative” category. Good for them, but I think we could do without the pageantry of having to come up with reasons to raise prices.

  38. Speedway got in one last price hike (3rd in 8 days) in Chicagoland today as RFG wholesale prices kept rising despite 3 straight drops in RBOB spot. Hopefully a nearly 9 cent drop in RBOB spot today puts an end to the rising wholesale.

  39. Unsurprisingly, most of Indiana/Indianapolis is finally appearing to get the speedway reset this morning, with $2.45 being the price. Still amazed (and feeling fortunate) that it took this long considering what the margins appeared to be.

  40. Chicago RBOB shed 15c/gal last night due to a cycle change.
    Chicago CBOB yesterday only declined 3c/gal, though the Today in Oil page shows a more substantial drop (incorrectly)

  41. Indy is getting spiked by Speedway up to $2.45. Finally got a GasBuddy alert!

  42. South Bend, IN spiking to $2.45. Fill up for $2.17-$2.20s while you can!

  43. One of the sloppiest hikes I’ve ever seen happening in NW Indiana. 90-95% of Family Express spiking to 2.79 in Lake and Porter Counties. Family Express in Michigan City and one station in La Porte spiking to 2.59. Will see how fast this spike spreads.

  44. This latest spike in Indy STILL didn’t push the Indy average higher than the national average. We’re going on four full weeks below the national average.

    Also, for perspective, we are still more than 36% lower than the same time last year.

  45. but oil is 52% lower than same time last year, or at least it is according to CNN’s commodities page

  46. Well, squirrels ,”maintanence”(and strikes and fires) will cause that disconnect we’ve seen between wholesale gasoline and oil prices

  47. Right, Mike, and you should really know by now that oil might be the primary driver of gas prices, but it’s far from the only one. There are way too many other variables in play to apply laser focus to only one factor.

  48. Mike: If oil was free, there would still be taxes, delivery, cracking, distilling, etc. Once you get below $1.75 a gallon, there just isn’t that much room to work with, as far as passing on the savings. Not that I wouldn’t want to see 1968 prices all over again.

  49. I could swear that back in the Clinton years where gas was under a dollar a gallon, all the squirrels in the Midwest could not influence gas prices. We had hurricanes back then too, and reformulated has of some kind I think, and labor, and refinery mishaps.

    Do I remember wrong or prices were a lot more “stable” back then (with the exception of “dime Thursdays” of course).

    Anyone has spike data from the early to mid 90’s?

  50. Gas prices were stable until 1973 (look up what happened around that time):

    http://www.energytrendsinsider.com/wp-content/uploads/2012/02/Annual-gas-prices-1919-2011.jpg?00cfb7

    BTW, there wasn’t a single year 1993-2000 where gas averaged below $1. Also, $1 in 1993 is equivalent to $1.62 today, after inflation.

    In summary, yes, you remember wrong (your words).

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