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: