Category: Commentary

Garage Sale Economics May Explain Why Prices Are Holding Up

Comment on the March 18 prediction: Prices are lower, but in some place not by much. $1.54 in Grand Haven last weekend!

Thursday, March 26, 2020, 8:00PM: I think when it comes to gas prices lately, we have to use garage sale economics. How many readers have had a Fri-Sat garage sale, and by noon Saturday, no one is stopping to see what you still have. At that point, you may be tempted to put out the “all items 25%” sign, but it doesn’t help, because there are no customers. So, you might be better off leaving the prices whole, just in case someone arrives to look. I suspect many gas retailers are doing the same thing. The stations I track on Lake Michigan Drive were stuck at $1.94 for almost a week, and today are on their second day of $1.85. But the evidence is that they have much fewer customers. No gas war, when wholesale prices are 50 cents cheaper? Garage sale economics may be why.

The easy prediction is still to expect lower prices. But how much lower? -EA

Crisis on Earth-GG

Comment on the March 8 easy prediction: CORRECT — we are under $2 a gallon.

Wednesday, March 18, 2020, 7:30PM: The crash in oil prices has been brutal and severe: from nearly $54 a barrel on February 20 to about $20 today. Two reasons: the Russian/Saudi oil price war, and, of course, the coronavirus pandemic bringing the world economy to a crawl. Gas prices, at least in west Michigan, are still based on the last hike on February 18 ($2.55), and they have a lot of room to fall, like down to $1.29-$1.39 if wholesale prices stay put. So, another easy prediction is to expect lower prices.

Diesel, though, I don’t know. At my target station on Lake Michigan Drive, it has been stuck at $2.65 since February 18. In a Reuters analysis today, “Gasoline prices have fallen further than diesel prices, in the expectation that fewer drivers will be on the roads even if truck deliveries continue.” That’s not convincing — maybe we will wake up soon to see diesel prices have dropped close to $2. -EA

Just need an excuse to go back to $2.39

Comment on the February 23 prediction: Completely WRONG, as markets have been falling hard since then, including energy markets.

Wednesday, March 4, 2020, 7:45AM: Sparked by coronavirus fears, energy markets have fallen 10% in the past two weeks, mirroring a similar move in stocks. Retail gas prices have followed, and I think we are at a point where Big Red and friends are looking for an excuse to re-set and clean up prices. This morning, in west Michigan alone, we have a wide range of prices, from about $2 to the $2.40’s. With futures signaling a stock price rally this morning, I would not be surprised if energy prices followed, and then we get the re-set in the neighborhood of $2.39. Today, tomorrow, or Friday. -EA

Sometimes they overreact, and we have to pay for it

Comment on the February 2 prediction: Prices continued to fall that week, although I don’t think we got to $1.99. Basically CORRECT. Then we say a pair of hikes the past two weeks.

Sunday, February 23, 2020, 2PM: Prices rose to $2.55 in Michigan last Tuesday (February 18), but that hike seemed fishy. Yes, markets were suggesting over the President’s Day weekend that higher energy prices were in the works, but not with the vigor that justified a hike. It felt like someone at Speedway was overreacting, and given that we are already back in the $2.30’s around west Michigan, it does seem like it was a premature push of the button.

So, where are we today? I am estimating the 0-margin price in the mid $2.30’s, and this is supposed to be the time of year where retail prices are more buoyant. I’m expecting a price reset this week, in the $2.49-$2.55 range, but probably not on Monday.

Speaking of Speedway, are they for sale? That might shake up the Gas Game! -EA

Oil Catches A Bad Cold

Comment on the January 23 prediction: It was WRONG. Prices rose, but not until the following week, and only to $2.49

Sunday, February 2, 2020, 5PM: Energy stocks (tracked by the XLE fund) did not have a great 2019, when the market as a whole had a banner year. So, many market pundits, anticipating a roaring economy in 2020, thought it was time for oil to soar. Instead, oil was down more than 15% in January, and the culprit appears to be the coronavirus. Given the effects in China, will the virus bring on a worldwide recession? Oil traders seem to think so, and that is keeping gas prices low. With the Midwestern hike late last week, retail margins are solid right now, so there is no price hike on the horizon. Rather, I expect prices to dip into the $2.10’s and maybe lower. $1.99 anyone? -EA

$2.18 today in Grand Rapids? Time to fill up!

Comment on the January 12 prediction: Prices drifted lower last week, so the prediction was CORRECT.

Wednesday, January 23, 2020, 3PM: Wow, $2.18 on the Fuller St. corridor in Grand Rapids today, while wholesale prices haven’t gone anywhere in more than a week. I am estimating a 0-cent margin price of $2.28, and that’s where we are at on Lake Michigan Drive. So, a good chance for a price reset in the next 24-48 hours, in the neighborhood of $2.59. Fill up! -EA (c) 2017 Frontier Theme