Retail matches wholesale at the moment — $1.80 to $1.99

January 10, 2009, 12:00 PM:  I was in Washington, DC much of the week, but no one wanted to talk to me about gas prices.  Actually, I was there for the annual mathematics meeting.  Yes, we actually have annual meetings.  Prices over $2 were standard in the DC area, and I watched the hike to $1.99 in Michigan via the Internet.  The three recent hikes, starting 12/29, reflect a stunning rally in NYMEX, from 80 cents a gallon on Christmas Eve to $1.20 or so on January 5.

The three recent hikes provide a chance to re-calibrate my Excel spreadsheet.  It looks like the AXXIS price is a pretty good proxy for wholesale prices in west Michigan right now, using a margin in my formula in the range of 21 to 25 cents.  If that is the case, the 0-cent margin price is in the low $1.80’s, as fmcman reports on GrandRapidsGasPrices.com.  And, lo and behold, retail prices in the area are from the low $1.80’s to $1.99.  So, I expect prices to drop slowly over the next several days, which would set us up for a price re-set on Thursday.  This feels like weather forecasting, though, looking five days ahead, because we don’t know what is going to happen in trading on Monday and Tuesday.

Not feeling like playing today: fill up for $1.50 if you can and go home

Tuesday, December 23, 2008, 1:45 PM:  Let’s review what has happened since the double-hike of December 11.  First, in Standale, Meijer didn’t match the second hike to $1.75, so prices were back to $1.59 the next day.  (Hooray for competition!)  Since then, they have not changed very much and were $1.55 or so this morning.  Everywhere else, prices have dropped, sometimes to the $1.50’s, sometimes still in the upper $1.60’s.  I understand from GrandRapidsGasPrices.com that gas is $1.45 in Hudsonville today.  Are they itching for a pre-Christmas hike on Wednesday?

Looking at NYMEX, prices are 20 cents a gallon cheaper than two weeks ago, including a big 8-cent drop yesterday.  AXXIS seems to be running ahead of NYMEX by a several cents, which is surprising this time of year.  Using NYMEX, there would be clearly no price hike this week.  Using AXXIS, it is not so clear.  So, I would fill up for $1.50 if I can and enjoy the holidays.

Stocks, NYMEX, gas prices all lower

Comment on the October 28 prediction:  Still no price hike, so the prediction was CORRECT.

Thursday, November 6, 2008, 12:30 PM:  From October 28 to November 3, the stock market rallied, but NYMEX energy prices didn’t.  Curious.  Then, on Election Day, NYMEX oil and gas took big jumps, and we seemed to have been set up for a price hike yesterday.  I was busy following the election returns, but I considered posting something about that.  Yet, yesterday and today, the Dow is tanking again, and so is NYMEX.  I think it is time to ignore AXXIS for a while, and focus on NYMEX.  Using the current intraday prices there, I get a 0-cent margin price in the neighborhood of $1.90, so if there had been a price hike today, it would have been in the $2.09 to $2.19 range.  Since most retail prices are still above $2.19, expect prices to continue to fall the next several days.

Prices remain unstable with downward bias

Comment on last Tuesday’s prediction:  There was no price hike last week, so the prediction was quite WRONG.

Tuesday, October 28, 2008, 9:00 AM.  So, did I jinx it?  I wrote last Tuesday, "It looks to me like the chaos on Wall Street is dissipating, so energy prices are starting to stabilize."  That was true until 3PM on Tuesday.  Since then, stock indices have fallen over 10%, and energy prices have followed suit.  Where we are at this morning is that, using NYMEX prices, gas could fall below $2 a gallon, while AXXIS prices suggest retail prices in the $2.30’s.  Since the cheapest price around is $2.56 in Lowell, the prediction is lower prices for the rest of the week.  Also, keep in mind that last year around this time, NYMEX started to be a better predictor than AXXIS.  I’ll try not to shake up the stock market any further.


Why aren’t gas prices lower?

Tuesday, October 21, 2008, 9:20 AM:  The following question has been posed to me several times the past month:  On July 15, oil was at $145 a barrel, and gasoline cost $4.25 a gallon at the pump in Grand Rapids.  Last week, oil was $72 a barrel, and gasoline cost $2.96 a gallon.  If the price of oil has been cut in half, why hasn’t the price of gas followed suit?

There are a few reasons for this, that I will try to explain.

1.  NYMEX.  Oil and gasoline futures are traded on the NYMEX, a public market with prices available for all to see.  The price of these future contracts helps set what is called the “spot” price, which is what is actually charged when real oil or gasoline changes hands at the wholesale level.  Sales and other taxes are not included in the NYMEX prices.  Looking at these futures prices, both oil and gasoline has dropped approximately 50%, so at least at the NYMEX level, these prices are correlated.

2.  Taxes.  There are three taxes applied to the wholesale price:  the federal gas tax of 18.4 cents per gallon, the state gas tax of 19 cents per gallon, and the sales tax of 6%.  So, that’s at least 50 cents of the retail price that is taxes, regardless of the wholesale price (except for the sales tax, of course).  In the past three months, those taxes have not been cut in half, so it would be hard for the retail price to drop 50%.

3.  Chicago Summer Premium.  I coined this term a few years ago to describe how, during the summer months, the wholesale price in the Midwest is usually higher than the price based on NYMEX.  The reasons for this have to do with reformulated gasoline, variations in supply and demand, and some other mysteries I’ve never solved.  A way to monitor this premium is to look at the wholesale numbers for selected Midwest cities that are posted on AXXIS.  The NYMEX/AXXIS difference was 20 cents on July 15, over a dollar in mid-September when Hurricane Ike struck, and is currently still 41 cents.  The AXXIS price has not dropped in half the past three months, and this may still be a hangover from the hurricanes.  It is also the first place I would look for gas gouging if I was the Attorney General.

4.  The Dynamics of the Retail Market.  As a journalist said to me last week, “Up like a rocket, down like a feather.”  We’ve documented time and again on this site how this works, with the big price hikes followed by the gentle day-to-day drops, while the wholesale price fluctuates in the background.  Our last price hike was during the September 12-14 weekend, when prices got up to $4.29 on 28th street.  Since then, the drops have been slow but sure — some days one or two cents, other days seven or eight cents.  In an area where there are several stations, one station decides to drop their prices a few cents because a cheaper shipment came in that day, and the other stations follow suit.  The point is that the retailers aren’t setting their prices based on trading on NYMEX.  They are setting it based on their costs, what their competitors are doing, and what sort of business they are getting.  Are the retailers making extra money right now?  I doubt it, as our monitoring indicates they are still dealing with high wholesale prices in the Midwest, and some of the gas in their tanks cost them $2.95 a gallon last week.  But prices continue to fall, slowly but surely.

All this leads to my latest prediction:  It looks to me like the chaos on Wall Street is dissipating, so energy prices are starting to stabilize.  I expect Speedway and friends will decide it is time to straighten up their prices, with a reset by the end of the week to $2.89.

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