# For the New Year, Let’s Review How We Play the Game

Comment on the December 17 predictions:  The GR hike occurred as predicted, so CORRECT.  For hike #2 …

Saturday, December 31, 2016, 1:30PM:  Even though prices are below cost to retailers in Michigan, it appears that they are holding off until the gas tax hike on Sunday to just do one big hike (and blame it on the Governor).  As a refresher, here’s how the calculation works, leading to an estimate of the new price:

1.  Start with a CBOB market price.  One one to do this is to take the NYMEX RBOB price (posted on our web site) and adjust it using this web page.  For today, that would be \$1.6728 (NYMEX) + (-\$0.0563) (Chicago adjustment) = \$1.6165.

2.  Get the ethanol price, and then mix 90% CBOB with 10% ethanol.  For today, that’s .90*(\$1.6165)+.10*(1.76) = \$1.6309.

3.  Add in 18 cents per gallon for various transportation, storage, middlemen, and other markups. (That’s a reasonable guess, but the actual add-in could be different.) That gets us to about \$1.81.

4.  Add in the Federal gas tax of 18.4 cents per gallon (which hasn’t changed since 1993).  Now we have about \$1.99.

5.  Tack on 6% sales tax.  \$2.11.

6.  Finally, add in the Michigan tax per gallon, which goes up to \$0.263 on January 1.  So, about \$2.37.

This is what I call the “0-cent margin price”, and when we are near that price, I’m prepared to predict a price hike.  In Michigan, prices are in the \$2.20’s right now, so we are overdue.  (In nearby states, a hike late this week has already happened.)  From the 0-cent price, retailers add on an amount, which I think of as their profit per gallon, but that might not be the correct way to think about it.  Nevertheless, adding this number works!  We reverse-engineer this number from studying previous hikes, and currently it seems to be about 22 cents.  So, add that in to get the new price:  \$2.59.

I was in Lansing this morning (running a 5K), and though most stations were \$2.21 or so, I swear I saw a \$2.59 at a BP near downtown.

So, I expect a rare Sunday price hike to \$2.59.  Or maybe it will happen late today.  Or maybe they’ll wait until Monday morning.  Regardless, fill up this afternoon!

And Happy New Year! — Ed Aboufadel

Bonus:  Here’s what gas prices have looked like since 2000, from dshort.com:

Updated: December 31, 2016 — 1:51 pm

1. Thanks, Ed. The Speedways in the east Ann Arbor that I referenced in the previous post, the ones that dropped below the Spike Line from \$2.45 to \$2.29 are now back up to \$2.45. \$2.29 seems to be the prevailing price here (avg @ \$2.40) so a .30 boost seems to be on the horizon for most retailers around here.
I filled up at \$2.29 yesterday and the wife hit Costco this morning to fill at \$2.25.

2. I believe that the sales tax on fuel is still only 4% and not 6%. When I order propane, it is always only 4%, so I would assume that it would carry over to gasoline as well.

3. \$2.59 spotted here in GR this morning — a Speedway on US 131 south with a large sign.

4. Big Red sure knows how to welcome in the new year don’t they lol

5. Ditto in Ann Arbor, Ed. Spike to \$2.59 +/-.10.

6. Spot closed up once again today to \$1.72. I’ve noticed on the refinery status page that BP Whiting still doesn’t have the green icon next to it, meaning it’s not running 100%. I’m guessing that’s the primary reason spot is up so much over the past 15 days or so?

I suppose we’ll be greeted with another 25 cent jump in gas prices later this week 🙁

7. GREEdway did not wait until the “White Death” or the 10:30AM – Noon spike time in Cincinnati. We are spiking to \$2.49 before the morning rush this Thursday.

8. Looks like \$2.499 here in the Toledo area is starting, but it hasn’t worked its way through the system yet. Get it while you can!

9. Figures with a nearly 6 cent drop in spot today.

10. Hopefully the spike doesn’t spill over to Indiana. I saw a couple days ago lawmakers are proposing a 10 cent a gallon increase in the Indiana gas tax. Guess they’re taking a page from Michigan.

11. Spot dropped nearly 8 cents today. A spike free week in store perhaps?

12. With that drop the MI Spike Line Price should be \$2.19-\$2.20. Yet both Speedways near me are still holding onto last week’s \$2.59 spike price. Everyone else has dropped at least 15 cents.

13. It was interesting to see a few south side Indy/Greenwood stations (not Speedway that I saw) spike to \$2.49 on Saturday afternoon 1/7. By the next day, those stations dropped back to the going rate around \$2.19.

14. given the current picture still some ‘fat ‘ margins around..lots of 2.35-2.45 NW rt 20 ohio corridor. Few spots down to 2.20-2.25 which hopefully might enocurage a few others

thankful dont live in PA though….travelled through there over weekend and forced to pay \$2.65 just off I-80..ouch

15. happy MLK day for those who did not have to work
price update NW RT 20 ohio corridor

hot spot prices 2.10 elsewhere 2.25-2.35 still quite common so still a bit of margin

cant help notice some very eratic Diesel prices..not that I buy any

station A 2.10 reg gas, 2.70 Diesel
Station B 2.29 reg gas 2.39 diesel

dosnt make much sense..though station B is a truck stop also so prob does a much bigger throughput on diesel

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