Out of the frying pan…

When I agreed to contribute here, I said, “Sure, I can write an post a week!” The market is pushing me towards a daily contribution. The loss of the crude distillation unit at BP Whiting has wreaked havoc on the Midwest markets. As of this post, Chicago CBOB was up 60 cents and RBOB was up 65 cents. Without some crazy market reverses, I don’t see how we will avoid another price hike this week. A simple addition of today’s market increases and today’s spike prices across the Great Lakes region puts us above the $3 mark. If you haven’t topped off yet, today’s spike price may start to look pretty good by mid-morning tomorrow. -TS

Updated: August 11, 2015 — 4:02 pm

89 Comments

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  1. Speedway dawdled most of the day but based on a slew of posts in the last few hours they appear to have pulled off a Threepeat, 3 in 3 days, the first ever I’m pretty sure, with yesterday’s $3.19 being replaced by $3.39 and #3.49 prices in Chicagoland. The competition is probably relieved.

  2. I still have not seen any answers or even speculations regarding the source of the $2.99/3.19 gas currently in abundance in our region. If we’re running refineries at 95% and if a bunch of refineries in the region are down, either we run out of gas or the $3.19 price is enough of a deterrent and demand drops alongside supply, or someone is making the whole thing up.

  3. Unleaded up 55 cents, and diesel has actually gone DOWN around here, as low as $2.259, with a lot of $2.399.
    Hmmmm……..

  4. Probably won’t do any good, but at least for the first time someone in the state government here is talking about gas prices.

    http://woodtv.com/2015/08/13/state-senator-questions-gas-production-price-spikes/

  5. And the hits just keep on coming in Cincinnati, at least it looks like it.

    The Highest price stations at Cincinnati Gas Buddy right now is almost all BP at $3.15. Could this be a spike and if so will they be giving the Cincinnati market yet another surcharge over most of Ohio?

  6. Mike – Kalamazoo
    I seem to recall after the huge post Katrina spike the Michigan AG spoke out and Speedway dropped prices, across all markets. But the difference then was the spike was due to a huge runup in NYMEX RBOB futures (the “basis” for spot prices) rather than any real supply issue up here.

  7. If we are having supply issues that justify 30% price hikes in a week, how come we do not have shortages? Is demand down 30% or whatever percentage Whiting provided?

  8. We all knew that a supply issue would never and will never materialize, certainly not in the short term. We will see in a few weeks, if we have one. I doubt it though.

  9. Cadiz, Ohio (Eastern part of state, with ZERO Speedway’s, *cough *cough) average price is in the 2.50s.

  10. I filled up in St Clairsville Ohio waaaaay over on the east side of the state for $2.39 yesterday. Not sure if there are any Speedways over there or not, I’m guessing not.

    Meanwhile the wrenchs must be turning at the Whiting refinery as gas has DROPPED 4 cents to $2.95 at one station between Muncie and Anderson. With Indiana still 30+ cents below the spike line, I wonder why they’re being “generous” with so many $2.99 prices? Or are they just easing us into a $3.29 price for tomorrow?

  11. Turbo, this article from Daily Finance seems to indicate that Whiting is only responsible for 6% of the refinery capacity in the Midwest. Granted, there are multiple refineries running at limited capacity that may be adding to the cumulative impact.
    Frankly, that 6%, if correct, surprised me.

    http://www.dailyfinance.com/2015/08/13/midwest-gas-prices-midwest-near-three-dollars-gallon-refinery-glitch/?icid=maing-grid7%7Chtmlws-main-bb%7Cdl21%7Csec1_lnk2%26pLid%3D1248716788

  12. The other refineries’ output was taken into account price wise before Whiting went belly up, no?

    If 6% capacity loss (more like 3%-4%) raises retail prices by 30% or more then I gotta hand it to the industry…

    And of course sympathetic failures in other places or maintenance will ensure we are paying Katrina prices till Thanksgiving… Business as usual.

  13. Very impressive, turning a 6% reduction in output into a 30% gain in intake.

  14. So, does this mean that Whiting will still make almost as much money with 40% of it’s capability offline? Just wondering. Of course, they need to pay for the fixes.

  15. Michigan’s Attorney General Bill Schuette posted this on his FaceBook page:

    Gas prices have gone up across Michigan, and we need an answer from BP as to what is going on at their Whiting, Indiana refinery, most importantly when it will be up and running again. Today, I issued a letter to BP asking for that very information and increased transparency about how this outage so quickly caused a price spike. Our economy is on an upward trajectory, and we will not tolerate any unscrupulous behavior that violates Michigan law when it comes to gas gouging and price fixing. Today gas prices dropped 10 cents to 2.899 at the Kroger gas station where I go.

  16. Does Whiting refine E-85? Because Speedway raised E-85 right in lockstep with E-10. The spread between the two is still the same(E-85 being 40 cents less than E-10).

  17. ChrisDG74
    E-85 is CBOB blended with 85% ethanol E-10 is CBOB blended with 10% ethanol. Same gasoline blendstock. There would be no reason for the actual amount of the increase to be the same. It should be less. Ethanol continues to hover around $1.70 on the spot market. If they raised E-85 by the same amount as they raised E-10, I won’t use the g-word, but that’s excessive. The 3 Speedways I checked here all have a 70 cent spread, even though the base E-10 price differs.

  18. Jim- that’s EXACTLY my point. The Speedways around here keep a 40-50 cent spread between E-10 and E-85. BOth times this week, when E-10 went up, E-85 went up by the EXACT same amount. Right now, the Speedways along my commute are $2.99 for E-10 and $2.59 for E-85.
    Pre-spike, they were $2.45 for E-10 and $2.05 for E-85. WHen they drop the price for unl (always after someone else has gone down first), they drop E-85 by the exact same amount, to keep that spread.

    Just one more reason to NOT patronize Speedway.

  19. Not to be super paranoid here but I noticed that the price of auto diesel offered by Costco (2.22) is 30 cents lower than auto diesel in most places… Could it be that on top of higher taxes for auto diesel we’ve had to deal with extra margins on auto diesel just because?

    Also, is diesel refined during the same process that produces gasoline, or separately? in other words would losing the gasoline capacity at Whiting also result in losing diesel capacity? I’m not sure but seem to remember that fractional distillation starts with gasoline and goes down into the heavier stuff.

  20. Well I see Chicago spot fell 17 cents on Friday. Sure nice of them to pass that on to us. Oh wait, they did.. a whole 3 cents…

  21. I have never seen diesel subjected to the pricing swings that gasoline experiences. It is made in a similar process, and certainly requires the cracking mechanizm that gasoline does. But I believe the supply, delivery, and demand on diesel to not be part of a mass marketing dependency that tegular gasoline is.

    Just an additional comment. When prices are as stable as they get, truck Diesel here in fort Wayne, at the Pilot truck stop is generally 20 cents above auto regular gasoline. I have observed this for 10 yeas, more or less. Today, it is at least 50 cents UNDER. Meaning that regular could be at a 70 cent premium now.

  22. I should think it would be more widespread than here but there have been several sharp diesel spikes in Chicago the last 5 years or so and usually there’s no identified refinery problem. Maybe not quite as fast as last weeks, but almost as much. Diesel is 90 cents to $1.00 below regular at most stations here now in the Chicago araa.

  23. The way I understand it, they could add more refining capacity, but it is such a low margin it would not be a good business move. That and nobody wants them in their backyard.

  24. Refining hasn’t been lucrative up until the last year or so… and will it last? Hard to tell, but even Goldman Sachs has said some refiners are well positioned. Time for more expansions.

  25. This is still the issue ever since so many of the smaller refineries were shut down in the past 30 years. Didn’t they even have a couple more on the east coast shut down in the past 5 years even? By having these “mega refineries” it doesn’t take much to throw the entire system out of balance. Building any new refineries is a pipe dream because as Bill said, everyone wanting them most want it for cheaper fuel but no one wants them within 5 miles of where they live due to the carcinogenic fumes and particulates that they belch out (as if you could meet the air requirements to even build one these days). So, next best would be to do expansions to current refineries or do more to encourage energy efficient vehicles. And, I’ve always thought, better regulation to make sure the current refineries aren’t cutting corners on maintenance. It always seems like our politicians are all about less regulation… until something like this happens at which point they grandstand and point fingers.

  26. Let’s not forget the Senator Wyden (D-OR) report done in the 90’s that caught on to refineries being consolidated purely as a profit grab…

    Interesting that nobody in the corporate media is calling out $43 oil and $3.00 gas for a large number of the US population due to a “leak” in a nearly brand new refinery that will take weeks if not months to fix.

    We have been taught well.

  27. Went to Kings Island today. Along my travels It was hard not to notice the long gas lines, stations with no gas at all, people stranded on the interstate holding gas cans begging for gas. Oh wait…NONE OF THAT HAPPENED! Gas was flowing, cars were moving and not one station was out of gas…yet the price has stayed around 3 bucks a gallon. Supply and Demand…PLEASE! If you believe in that I have a small island of gold I wish to sell you off the coast of North Korea.

  28. You don’t understand the fundamentals of economics. That’s how prices are determined. Look at what’s going on with the avian bird flu. Everyone still has eggs but they’re much higher in price… because demand slows down when prices rise, that’s what the gasoline market is doing, balancing itself. If prices didn’t go higher, you may see continued strong demand and shortages.

  29. So… Is demand for gasoline down 6% or whatever Whiting production represents? Do you see more people biking to work? Carpooling?

    Could it be that gasoline is inelastic demand wise? The EIA thinks so.

    http://www.eia.gov/todayinenergy/detail.cfm?id=19191

  30. Gasoline is mostly inelastic. That’s why it has to jump so much. Scare a small %into not driving to work, or not visiting grandma, and BOING! Enough gas for most of us to continue.

    That being said, in the early 1970’s there really was a huge shortage. And no one didn’t get to the store, or to work, or their vacations. I was in my 20s and I honestly don’t know who sacrificed. I knew no one who did, and yet there was a huge shortage compared to Whiting being down.

  31. TimmP I do understand basic economics. Call it sarcasm with my last post, but it certainly is not on my mind first when it comes to gas. Here we are flirting with sub $2 gas, and wham in an instant we are flirting with $3 gas. I lived in New Jersey during the 70’s gas shortage. I recall the odd even days, I recall my folks having 2 cars with a plate ending in odd and one ending in an even number. It did nothing in stemming them from getting gas. They had to work, they had to travel. But gas did not soar price wise. It went up but not as drastically as it has today.

  32. The oil companies of today run on the same business model as the large diamond companies. When you control everything from getting it out of the ground till it goes to the consumer, you can control quantity and cost. Just make scarce and the price goes up. Then add very little if any over site and you get what we have today, consumer ripoff.

  33. Maybe it did work, maybe it didn’t. Maybe it was just because so many schools here in Indy metro went back last week. But for whatever reason, it has seemed like wed last week through yesterday, there were fewer backups on the highway on my way to and from work (down 69 in fishers to 465 on the east side). So maybe some did put off that day trip or whatever. But the first few days definitely left the spot market scrambling from everything I heard (a friend works for a distribution company in Ohio and he said they were definitely scrambling and rerouting trucks, and even gas was even being brought in by semi truck from PA where spot was running 50 cents lower because in certain areas they couldn’t get gas). That’s the thing- it’s now been several days and even in the Midwest, the pipelines can move the gas between where it needs to go and we’ve seen spot drop significantly since last wed. Not going to be $2 a gallon anytime soon, and I’m still not sold on that Canadian crude that apparently is so corrosive it can cause piping in a brand new unit to leak after only 2 years or less in production. Who cares if that crap is so much lower if it’s going to keep causing issues in whiting. Good luck getting keystone passed if it’s going to eat through that new pipeline also.

  34. I can see the Rationalization Hamster spinning at supercharged speeds. The same industry that can get a spike in a state in an hour can’t agree on contingency plans?

    I’m sorry to be such a cynic but as I have stated here for the last decade it’s all about industry credibility. If we hadn’t been conditioned to expect the worst from the oil industry perhaps we’d give them the benefit of the doubt.

    Not under those circumstances…

  35. Spot down 38 cents, retail down SIX. Spread of almost 90 cents.
    Must be all those stations running out of gas, due to the long lines of cars waiting to fill up.

    Oh wait. NEITHER of those happened.

  36. We made national news thanks to Whiting spiking the national average up 3 cents instead of down 1 to 2 cents.

    http://www.upi.com/Business_News/Energy-Resources/2015/08/18/BPs-Whiting-outage-behind-end-to-gas-price-slump/7231439892659/

  37. Nice to see sw Ohio is STILL almost $1 over spot ($1.95 vs $2.91).
    Those lines and that rationing again.

  38. I must be reading the weekly production data for PADD 2 wrong, because I can’t see much evidence of the sky having fallen:

    http://www.eia.gov/dnav/pet/PET_SUM_SNDW_DCUS_R20_W.htm

    07/10/15 07/17/15 07/24/15 07/31/15 08/07/15 08/14/15
    2,531 2,559 2,652 2,702 2,670 2,607
    94.1 97.5 98.7 100.3 99.0 92.2

    The first row is weeks. The second is gasoline production. The third is utilization. The drop from 99% to 92% is Whiting. However, gasoline production did not drop overall.

    Any ideas, or have I been smelling ethanol for too long?

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