Oil Prices Dropping, Gas Should Be Next

Comment on the February 26 prediction:  Prices rose in Michigan to $2.55 on the 28th, so the prediction was CORRECT.

Saturday, March 11, 2017, 8:00AM:  I am not smart enough to know why oil prices dropped 10% in the past week, but that does mean that we will be seeing lower gas prices this coming week.  Don’t be in a rush to fill up, as we should see prices drop below $2.20 in the next few days.  That usually happens first in Lowell and/or near 44th Street in GR.  The situation may look different Thursday morning, though. -EA

March To Come In Like A Lion?

Comment on the February 8 prediction:  That’s exactly what happened, so CORRECT.  Was not engaged when we got the reset to $2.39 again on President’s Day.

Sunday, February 26, 2016, 7:30PM:  There are two signs that we’ll see some gas price fireworks this week.  First, despite the jump last Monday, many stations in the Grand Rapids are have already given most of it back, while wholesale prices were flat last week.  Second, I find these future month quotes for RBOB worrisome, hinting at higher prices in March.  Either way, I would fill up on Monday if I could. -EA

Blame It On Ethanol

Comment on the January 30 prediction:  Pretty much correct, as pries rose the next day, but only to $2.29

Wednesday, February 8, 2016, 8:00PM:  Feels like we have backed into price-hike territory.  Wholesale prices haven’t done much lately, but ethanol has been climbing, while retail prices have fallen enough that I think we are about at the 0-cent margin price.  I’ll fill up Thursday morning for $2.19, and then expect prices to rise to $2.39. –EA

Garden Variety Hike Coming Soon

Comment on the January 17 prediction:  No hikes since then, so it was CORRECT.

Monday, January 30, 2017, 12:30PM:  Usually we see gas prices moving up in January, but here in the Grand Rapids area, we’ve seen drip-drip-drip down of prices since the first of the year.  A big contributor has been a 30-cent drop in wholesale prices since January 1.  But those prices have stabilized, and the retail prices have fallen enough that we are heading into price-reset territory.  We already have scattered reports of hikes in Indiana and Ohio today, and I think you can count on Michigan following suit by Wednesday.  Maybe $2.39? — Ed A.

A Rather Quiet January So Far

Comment on the December 31 prediction:  $2.59 on New Years Day, as predicted.  CORRECT.

Tuesday, January 17, 2017, 11:30AM:  So, let’s review what has happened since the New Years hike, fueled by the newly higher Michigan gasoline tax.  Retail prices have been slowly dropping, with most places in the Grand Rapids area still in the $2.40’s.  Wholesale prices, however, have had an interesting ride.  They rose sharply the final two weeks of December — almost 30 cents — and since then given half of that back.  Put it all together, and retail prices are still sitting noticeably above the 0-cent margin price, which means no hike on the horizon, and the slow drops continue.  Good!  –Ed A.

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:

gas-prices-since-2000

 

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