Bad news tonight for consumers, although I personally believe that some issues will be addresssed and corrected before disaster hits. Without wasting time, let me cover the issues.
First, we have a number of refineries reporting being completely shut down tonight, including a 245,000bpd refinery in Texas and a 108,000bpd refinery in Washington. We also have some issues closer to home here in the Midwest. BP’s massive Whiting, Indiana refinery has unexpectedly shut a unit for maintenance. BP was hopeful that the maintenance would only last a week at most, but keep in mind that the unit needs to be shut-down and restarted which means that the unit’s actual time down will be more than a week. I am hopeful that BP will be accurate and have the unit back online ASAP to avoid higher prices in the Midwest market, but with Midwest prices already high, I am somewhat fearful that Midwest spot prices may rise more than those outside our PADD.
A possible price hike may happen as soon as tomorrow. I don’t have an estimated price range due to these issues listed, but it would be no lower than $1.99 and COULD break $2/gallon.
Also on the radar here at TheGasGame.com is a POSSIBLE STRIKE that could occur at some U.S. refineries as early as Sunday at 12:01am if a contract is not met. The United Steel Workers, a union that represents 30,000 workers at half of U.S. refineries that have a capacity of roughly 17.6 million barrels per day of refining capacity, may strike if a contract is not agreed on by weekend, Reuters reports.
Talks could go "down to the wire" on Saturday says USW spokesperson Lynne Baker. While both sides obviously want a new contract in place, both sides are bracing for strike. Oil companies are putting replacement workers on stand-by. Any strike would likely shut down a large portion of refinery capacity in the U.S. and could lead to a spike in gasoline prices as production dives to record low levels. This is a risky situation and one that has the potential to lead to overnight price spikes if there is no resolution. While I am also hopeful, I realize that the odds of a large refinery shut down are very small.
BP does say they WILL SHUT DOWN four of their five refineries represented by labor unions if there is a strike or lockout. BP said it would shut the plants to continue the good working relationship it has formed with the USW in recovering from a deadly 2005 explosion at its Texas City, Texas, refinery.
If any strike does occur, it would lead a huge blow to Midwest consumers, already paying more than the national average and dealing with higher unemployment than any other area in the country. I estimate that if a strike does occur and half of U.S. refineries elect to shut down, gasoline prices could spike almost overnight to $3 or $4.
In good news for Midwest consumers, PADD two contains the most crude oil since 1998- but we still need refineries to refine it so prices drop locally!
Like I said, any strike and shutdown is quite unlikely, but that doesn’t mean we should ignore a possible outcome or not plan ahead. Keep this in mind this week, and check back here at TheGasGame.com for further updates.
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Just to warn you, this post will be a bit lengthy, but may be incredibly insightful for some. First off, it looks like Ed has predicted a hike to $1.99. We’ll see if he’s right on… if you can get gas for around $1.80, fill up like I did tonight just in case. I’m not completely sold on a price hike, but we will see what happens.
Now to explain my post title. Was there a ship leak or some accident? No. There ARE 80 million barrels of oil floating on the sea protected by a thin layer of steel, sitting in huge supertankers. According to Bloomberg, Frontline Ltd., the world’s biggest owner of said tankers has made this claim. It would be the most oil stored at sea in 20 years, as traders seek to cash in on higher prices later in the year.
This is an idea that carries a good amount of risk if you ask me… but you don’t make money without risk. Oil prices haven’t really started a good climb yet this year, and prices have largely given up most of their gains they made the last two weeks. These supertankers are huge ships that cost large amounts of money to lease but some can hold well over a million barrels of oil. If prices jump $10/bbl, there’s a large amount to be gained. However, with oil supplies in Cushing, Oklahoma nearly at capacity (the delivery point for contracts traded on the NYMEX), what’s going to happen? We’re already awash in oil, sitting nearly 40 million barrels above where we were JUST LAST YEAR! Crude oil in storage this week, as reported by the DOE, was 326.6 million barrels. Like I said, storage in Cushing, OK, was at 33 million barrels, with capacity of 34 million barrels. This represents a 20% GAIN in oil inventories there in just 4 WEEKS! How are these traders betting on higher prices in a few months when we’re lush with oil in a recession?
Figuring those 80 million barrels could go anywhere in the world, let’s figure half goes to the U.S., the world’s leading consumer of oil. If that 40 million barrels (which is doing nothing) would eventually end up at U.S. ports in a few weeks, we could have the most oil in storage since September 21, 1990!
Even WITHOUT the 40 million barrels, we’re already at our highest level of storage for a January since 1999, when demand was strong and the economy was surging ahead… remember the .com era? So many startup companies… and to see us at the same level of oil now with a much different outlook?
Let’s throw a name out here… a banking company that used to actively trade oil contracts (and bet on higher prices). Remember Goldman Sachs? The company whose analysts predicted $150 oil? What ever happened to them? They seem to have gotten out of the oil trading business. Goldman is now forecasting oil prices in the $30’s for quite some time. Do they have any obvious interests in oil now? Not that I can see- and crazy enough they’re actually making some sense with their seemingly non-biased oil price forecasts!
What’s this all got to do with gas prices?
Lets think it over. I’ll even format it so it’s easy to read:
- U.S. January oil inventories highest since 1999 and economic outlook is much worse than that of 1999
- 80 million barrels of crude oil haven’t even hit the market, owners betting on higher prices
- Gasoline inventories healthy
- Excluding 2006 and two weeks in 2007, oil inventories (including SPR) are at their highest levels EVER
- Gasoline demand down 3-4%
- Diesel demand down 4-5%
- Jet fuel demand down 12-15%
- OPEC countries need to pump more to generate revenues
- Refinery utilization at just 85% and we’re still putting plenty of gasoline into storage
Point is-with such great news on the shape of oil inventories, how can oil and/or gasoline make a spring run-up in prices? Ed’s bet that we’d see $2 gas before we saw $1 gas is nearly the OFFICIAL winner, but I still think prices have more room to fall.
My short-term bet on oil (the next two months) is that prices fluctuate between $30-$45, but we may briefly break the $30 barrier. A gasoline prediction? I’ve already had that bet with Ed. Once he wins, MAYBE I’ll make another prediction.
As prices continue to fall here in the Midwest, the South has not yet forgotten the sting and pain that Hurricane Ike brought, roughly 3 weeks ago. Atlanta, GA is still suffering from periodic gas shortages and high prices. The same is occurring in other locations in the South. Here in Michigan it is relatively quiet with prices falling into the $3.50’s.
On the other side of Michigan, prices have dropped as low as $3.27 in Ypsilanti! Will we see that here, and furthermore, will we see under $3 anytime soon? YOU BET! I am definitely expecting prices to drop below $3 between now and mid-November (BUT… this depends on Hurricane season of course!) We also are looking forward to some refinery expansion projects coming online!
Projects due to be completed soon:
- Sunoco @ Philadelphia, PA (early 2009): Gaining 15,000bpd from a new Fluid Catalytic Cracker unit and 40,000-50,000bpd fro a new HDS
- Sunoco @ Toledo, OH (end 2008): 10,000-15,000bpd expansion
- ConocoPhillips @ Wood River, IL (2009): 135,000bpd, Crude Distillation Unit, Delayed Coker Unit projects
- Holly @ Navajo, NM (Q4, 2008): 20,000bpd expansion
- Motvia @ Port Arthur, TX (2008): 45,000bpd expansion (plus an additional 325,000bpd to be online in 2010!)
- Holly @ Woods Cross, UT (Q4, 2008): 20,000bpd expansion
- Sinclair @ Salt Lake City, UT (2009): 60,000bpd expansion
- Big West Oil @ Bakersfield, CA (2008): 19,200bpd (new Fluid Catalytic Cracker), 25,000bpd (Distillate Hydrotreater), 9,000 (Alkylation unit)… total of 53,200bpd!
- CHS @ Laurel, MT (Aug 08): 15,000bpd expansion
Wow! Going back in time, we’re also at 17,610,000 barrels of daily capacity at U.S. refineries, almost 500,000bpd more than when Katrina hit in 2005, and the highest amount in history!
With slowing demand, I’ll bet some refiners are having second thoughts…
Look for prices to continue to fall!
With prices falling (and rightfully so) to the $3.60’s (suburbs) and $3.70’s (GR area) and much lower in other parts of the state, is a hike likely anytime soon? It could be… chances are really 50/50, but I personally filled up just in case so I wouldn’t get caught losing too much money if prices came down. If any hike occurred, it wouldn’t be more than $3.79 or so.
Nationally, there are still major refineries without power and that are closed in Texas and Louisiana. Refineries operated at a record low 66.7% of capacity last week, as reported by the Department of Energy in its Weekly Report.
We’re hurting folks, but not as bad as those dealing with REAL GASOLINE shortages in Georgia, Tennessee, areas of the Carolinas, and the upper South. They are encountering major supply issues as refiners are slow to pickup the pieces.
Nationally, I expect prices to rise up-to a dime more before things calm down. I think realistically, we won’t be back to normal until mid-Winter. Supplies of gasoline in storage are at a record ALL TIME LOW dating back to 1969. Folks, this is pretty unprecedented.
Other news, TheGasGame.com will be making a splash onto Washington, D.C. airwaves as Ed was called for a radio interview! Cool! We are also looking to add another major source of information (this is huge and I’m quite excited about it). The source may provide inside information to the oil/gasoline industry and will fuel my curiosity to learn more, which will ultimately benefit our audience here.
Be sure to stay tuned to the REFINERY STATUS page as well. It will be updated as necessary or as new information becomes available. It is quite accurate at this time.
Oil seems likely to continue its fall tonight and tomorrow as Big Oil assess its refineries after Hurricane Ike.
Grand Rapids prices should head WELL South of $4!
Also according to Reuters calculations, here are some of the numbers that have impacted gasoline prices:
CUMULATIVE IMPACT OF GUSTAV AND IKE
*20.48 million barrels of crude oil
*102.79 billion cubic feet of natural gas
*33.06 million barrels of refining (counting only plants completely shut)
*99.9 pct Gulf of Mexico oil output
*93.8 pct Gulf of Mexico gas output
*15 refineries shut, 24.6 pct of US capacity
*1 refinery, ConocoPhillips Sweeny unit, restarting
*5 refineries representing 7.7 pct of US capacity at reduced rates
*Some ports, Gulf Coast pipelines ramping back up
*At least 55 ships await entry to Houston
*Oil drops $5 on financials, Ike
*11 rigs, platforms damaged or lost: USCG
*Louisiana Oil Port restarts, but power limited
*Anadarko restarts Independence Hub
*Seaway crude line restarts
*Henry Hub force majeure still, some damage
*Refineries showing little damage
*Shell evaluating restart sked for Capline
*********************PIPELINES, GAS PLANTS************************
*TEPPCO partially back
*Explorer expects return to normal by late Tuesday
*Magellan some damage, assessing its system
*Seaway restarts as planned
*Shell evaluating full flow sked for Capline
*24 U.S. nat gas plants, 12.23 Bcfd, shut – DOE
*10 U.S. nat gas plants, 4.26 Bcfd, at reduced levels – DOE
PIPELINES, OTHER FACILITIES SHUT
*SPR Bryan Mound, Big Hill, Tex; Hackberry, La,
*Shell Houston-to-Houma crude line
*Centennial Pipeline products line
*Portions of ConocoPhillips pipeline system in Texas
*Dixie Pipeline propane line from Texas to Louisiana, Iowa
*Enterprise Cameron Highway and Poseidon offshore crude in Gulf
*Longhorn Pipeline products line
*Portions of Marathon Pipeline system onshore, offshore Gulf Coast
*Enbridge: Four pipelines force majeure
*Plantation pipeline at reduced rates
*Colonial restarts distillate line after Ike, mogas down