Tuesday, May 23, 2006, 2:15 PM: Last week, stock and commodity markets fell, including the prices of gasoline futures contracts. So far this week, these markets are stabilizing, and today they are rising … together. In fact, gas futures are up 7 cents today from yesterday. With prices dipping below $2.70 around town, they are hitting the 0-cent margin price (using the HB/RU average), so look for a price hike on Wednesday or Thursday, to somewhere in the neighborhood of $2.89. On Wednesday the 24th, prices rose to $2.89, so the prediction was absolutely CORRECT. After slipping over the Memorial Day weekend, prices re-set to $2.89 again on Tuesday the 30th.
Yesterday, I signed up for Speedway’s “Speedy Rewards”. Am I moving to the dark side, or am I just a sucker for those frozen Pepsi’s? Maybe I’m just feeling good that they kept the price (barely) under $3, despite a strong run-up in wholesale prices last week. That run-up has turned around, as we have been expriencing extremely volatile commodity markets the past few days. For example, gas futures fell 12 cents a gallon yesterday. The volatility is proof that you have prices being knocked around by speculators. Long-term, this all averages out, as supply meets demand, but short-term, it can play havoc on gas pricing, and price predicting. Using last night’s closing prices, and averaging the HU and RB contracts, we get a 0-cent margin price of $2.70 and a 20-cent margin price of $2.91, and the cheapest gas at the moment is $2.83 in Allendale. So, I wouldn’t pay more than $2.89 a gallon today, even though the price is still $2.99 in a lot of places. It is not at all obvious how the rest of the week is going to play out. The futures markets went down with the stock market, so we got no price hike.
I inquired this week about the actual wholesale price, to re-calibrate my spreadsheet if necessary. For those of you playing the Gas Game at home, the real 0-cent margin price on Monday was about $2.83. This is very close to my daily calculation, if you *average* the “HU” and “RB” contracts. In another month or so, it should be clear how to use the new “RB” contract. Although we are not happy about recent price hikes, they actually could have been worse, but Speedway and friends are using smaller margins right now, rather than price gas over $3. Another positive is that wholesale prices have dropped nine cents since Monday, meaning some stations will set prices below $2.80 over the next few days, I predict. All went as predicted, with no price hike, and prices below $2.80 at several places, including along Alpine, so CORRECT!
If the choice was paying $3 a gallon for gas or being a resident of New Orleans or Biloxi, I would choose the former.Now, what’s next for gas prices? The September gasoline futures contract, which expires today, went out of control yesterday, rising from $2.06 to $2.47 a gallon. I’m having a hard time believing this is a good approximation of wholesale prices. What I do in my calculations is average the current and next month contracts, and that gives us an estimate of $2.34 on wholesale prices, which corresponds to $3.10 for retail prices, with the 20-cent margin, but no fudge factor. Meanwhile, the government just announced that it is going to release oil from the U.S. Strategic Reserve, and there are reports on grandrapidsgasprices.com that Speedway just posted another price to $3.19. Right now, I can’t even guess what is going to happen five minutes from now.
And on Thursday, prices went up to $3.39, but not everyone matched that price hike.
Well, we’re starting to see the economies in growing countries start
to slow down, (specifically China) and for the first time in months,
the IEA has LOWERED its forecast of crude oil consumption by 50,000
barrels a day. While that might not seem like much (since the world
uses 84 million barrels a day) its all psychological. Its causing
significant drops in crude oil, especially since Saudi Arabia is now
saying they will pump 500,000 more barrels a day and will promise to
deliver the oil that they promised on contracts. The market is now
A few more facts about crude and gas this week:
U.S. commercial crude oil inventories (excluding those in the
Strategic Petroleum Reserve) rose by 3.6 million barrels from the
previous week. Over the last nine weeks, they have increased a total
of 26.4 million barrels. At 320.7 million barrels, U.S. crude oil
inventories are just below the upper end of the average range for this
time of year. Total motor gasoline inventories increased by 0.8
million barrels last week, and remain above the average range.
Basically we saw a climb in gas inventories EVEN though refinery
utilization was down 2% over last week, which means demand is cooling
PREDICTION: we’ll see gas prices down to the 2.00-2.10 range soon,
MAYBE even break a ONE on the boards at 1.99.
NO rise for this week.