Tag: dollar

Michigan exporing options to raise gasoline tax!

That’s right- the State is thinking of raising gasoline taxes now that the price of gasoline has come down. With gasoline under $2, the State is exploring options to raise gas taxes. And to think- "In five years… you’ll be blown away"… with what, new taxes? Thanks Jennifer!

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From the Associated Press: (News Story HERE)

LANSING — Gov. Jennifer Granholm and lawmakers should consider eliminating Michigan’s 19-cents-a-gallon gasoline tax and replacing it with a tax on the wholesale price of gas, according to a report being released Monday.

Swapping the taxes would let revenues rise or fall with changing fuel prices rather than tying gas revenues to consumption, which is falling as motorists drive more fuel-efficient cars or cut back on buying gas to cope with prices that at one point topped $4 per gallon.

The change could boost transportation funding in the long run and might ensure that a bigger share of taxes paid at the pump actually go toward Michigan’s deteriorating roads, advocates say.

The recommendation is one of many listed in a Transportation Funding Task Force report set for release Monday. The Associated Press got an advance copy of the 85-page report.

"We may need to shift away from a 19th- or 20th-century tax on motor fuels," said Rich Studley, task force co-chairman and head of the Michigan Chamber of Commerce. He warned that the current system is becoming "obsolete."

The 13-member task force was created by a state law asking for recommendations to improve roads, bridges, airports and public transportation and come up with new ways to pay for them.

The panel, which includes four legislators — two Democrats and two Republicans — decided to pass up delivering a preliminary report due Oct. 31 and release the final report months ahead of schedule.

The report says Michigan must double its transportation spending and warns that one or two incremental fee increases won’t be enough to meet the need.

States have been struggling to find ways to raise enough money to fix crumbling roads and bridges and fund airports and public transportation. Gasoline sales nationally are down, so state and federal gasoline taxes are drawing in less money. Michigan continues to get back less in federal transportation dollars than it sends to Washington.

And tight budgets in recent years have led some states to put off critical work or inspections. That caused a tragedy in 2007, when the Interstate 35 bridge collapsed between Minneapolis and St. Paul, Minn., killing 13.

The Michigan task force did not recommend specific ideas over others. In listing options in order of how soon they could be done, it suggests:

  • Increasing vehicle registration fees and eliminating registration discounts. The yearly registration fee declines for three years after a vehicle is registered.
  • Converting or raising the 19-cent-per-gallon gas tax. Each penny increase would raise about $56 million. Converting the tax to one based on part of the sales price could eventually generate more money.
  • Raising the 15-cent-a-gallon diesel tax to align it with the gas tax.
  • Increasing the state’s 6 percent sales tax by a penny, to 7 cents on the dollar, and dedicating the extra money to transportation. This would require a state constitutional amendment.
  • Redirecting all the sales tax on motor fuel taxes to transportation, which would require a constitutional amendment. Much of that money now goes to K-12 schools.

"We have laid the groundwork for the Legislature to see the needs clearly and then we have also laid out for them a litany of solutions," said Mike Nystrom of the Michigan Infrastructure and Transportation Association, a construction industry trade group.

Because tax or fee increases will be a tough sell to the Legislature and to consumers worried about losing their jobs and their houses, the report outlines how the increased spending would make life better for residents.

It says less congestion would save travel time, that smoother and safer roads would reduce vehicle maintenance costs and accidents, and that new jobs could be created.

"To grow our state, just like anything else, you have to invest in something," said Rep. Pam Byrnes, a Democrat from Lyndon Township near Chelsea who sits on the task force. "If your driveway crumbles, you need to patch it up or fix it."

Granholm and legislators are facing pressure to act.

In less than a year, state and local governments could lose $950 million annually for road projects because they won’t be able afford to put up the money required to get matching federal dollars.

Yet a short-term fix such as raising the gasoline tax would be tough politically and may not provide stable funding in the long term. The state last raised the tax in 1997.

Despite the recent drop in gas prices, the cost to fix roads and build new ones is climbing. Asphalt costs more, as does road equipment.

One future solution might be a high-tech toll system that charges drivers for the roads they use.

Motorists wouldn’t have to contend with collection booths. Instead, ID tags on vehicles would be tracked as they pass through intersections or ramps to enter and exit the toll system. Computers would calculate usage on a pennies-per-mile basis and bill motorists monthly.

Michigan doesn’t charge tolls except for the Mackinac Bridge and some of the crossings into Canada. Motorists might object to having their driving monitored in that way. But some say the technology may be worth trying.

"This is the wave of the future," said task force member Ann Jousma-Miller, who also serves on the Michigan Commission of Agriculture. "This is the type of thing we all need to look at."

Fantastic! Although we need more money for roads badly, I have a feeling that unless there is an amendment to the State Constitution, most of this money may end up in the General Fund.

I’m FOR raising the gas tax by a small amount IF THAT MONEY is guaranteed to go to road repair/replacement/etc.

Thoughts? Chime in!

 

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.

DON’T FILL THAT TANK TO “F”! Read why…

That’s right folks- we’re in a huge downward trend. I’ll be the first to say I screwed up! I filled up for $3.77 (wow, seems like a while ago!) just TWO WEEKS ago… I’m still burning through that tank in fact. Was that a mistake? YES! Is it a mistake to do the same thing today and fill to “F”? YES! We have much more of a drop in store for you.

Here is my prediction: UNDER $3 in the next 7-10 days in the Midwest (for the areas still over $3)! Nationwide, we should see it in 2 or so weeks!
Let me rewind to part of my SUMMER 2008 prediction I made on MAY 27, 2008:

Late May prices peak to $4+, slowly decline into early-to-mid June. Early July will have much of the same, people will be rejoicing when prices come under $3, but that doesn’t look entirely realistic as hurricane season approaches. Traders will begin focusing on any hurricane that develops, and starting in mid-August, we’ll see prices fluctuate quite a bit. If any Category 3/etc or higher hurricane strikes West of the Mississippi in the Gulf, expect gasoline to jump right back to Spring highs or even higher. Expect market fundamentals to kick in and we may see a large correction in gasoline prices. I think that with demand slowing late Summer and oil prices due to come back down, it will boost crack profit, which will entice refiners to make utilization rates climb all summer leading to a potential collapse in prices this fall/winter- perhaps as low as $2.50 starting in October and lasting through mid-November.

What I said in November, 2007:

Oil is due for a large correction. Should come back to $70 or $80 no problems… so until that happens we’re going to continue to get set up for a market correction (hopefully not a recession)

Ok, so I’m not a “professional”, but please tell me what you thought of my LONG TERM outlook. I guess I’m a bit boastful (more or less excited that I was closer than I thought)

We can expect prices to continue to fall folks. $2.99? It WON’T stop there. I’m now expecting to see my summer prediction come insanely close to what actually happened.

ONLY BUY what you need… a few gallons at a time. You’ll end up saving a few dollars per week- but it all adds up!

Patrick

Gustav, Hannah, and Tropical formations, oh my!

Note: I decided I had better take a quick break from vacation. I was away hiking in Yellowstone, please forgive me for not posting.

When my phone got service yesterday, I had received numerous voice-mails informing me that a Hurricane “Gustav” had formed and could be effecting gas prices. Unfortunately I’ve been out of the loop- until now.

Gustav looks like it will be a dangerous category three or four when it hits Louisiana later this week. What’s this going to do to gas prices? Well, for the time being, the market is calm. One must realize that after Katrina, refineries and rigs have been much improved when it comes to large hurricanes. Also, refiners haven’t been producing as much gasoline as before Katrina.

With refinery utilization continuing to be much below 90%, any negative impact on Gulf refiners could be offset by all other refiners raising their utilization to 95%+. When Katrina hit in 2005, refinery utilization had been at 97.1%. With utilization THAT high and Katrina flooding refiners, there was no way that other refiners could up their production much. Last week, utilization was a measly 87.3%. Any capacity that goes offline could be offset by other refiners raising production runs.

Also, those refiners in the Gulf area have poured money into making their rigs and refineries better prepared for massive hurricanes. They didn’t just repair their facilities… they made them better.

The market may jump to its senses, but if we don’t see more than a 10-cent gain, you’ll see traders viewing that as a weakness in the market. We’re also helped by a continued gain in the U.S. dollar against the Euro.

It’ll be interesting to see what oil and gas does when trading opens Sunday.

I would definitely stay tuned here… I’ll be home early this week with more information as I receive it. We could see prices rise, but things are calm… for now! I see prices in GR falling to $3.70. Prices may continue their fall until Gustav gets closer to making landfall.

Patrick

A great Friday for oil/gas… dollar strengthens!

After negative news coming from Europe on the euro, the dollar posted a large gain, pushing down commodities on a whole, what a terrific end to a week.

As it stands, oil is down $5bbl to $114.96 and gasoline down 12-cents to $2.87! This may push nationwide prices down another 6-8 cents over the next week, and in the midwest, Ohio could get down to the $3.50s again, although in West Michigan, we may get as low as $3.69. Wholesale prices over the weekend should hold in the $3.60s.

The dollar really has had a turnaround vs. the euro this week and is looking impressive again. The dollar had been at 0.63X euros and now is way up to nearly 0.67 euros! Quite a gain.

I’d hold off on filling up. Also, hoarding gasoline at cheaper prices will actually push prices higher in the long run, so make sure not to get too excited.

Patrick

Another good day for consumers!

A good DOE report, good news here, good news there, congress acting… blah blah… prices are falling!

Wholesale gasoline prices, as you can see from the ticker on the left have been taking another beating this afternoon after a quiet morning.

Prices at this hour are down nearly another 11-cents… meaning nationwide price averages definitely should be going under $4 the next week or two! Grand Rapids and the Midwest could easily see $3.60’s soon, some places in Ohio should see under $3.50! This will definitely take time to reach… each day a station waits to replenish its supplies could save it hundreds, perhaps thousands of dollars!

Prices will be slow to come down, but they ARE falling!

The DOE report showed oil supplies dropping by a smaller than expected amount, and gasoline stockpiles rose AGAIN… they are now ABOVE the upper constraint of the average range for this time of year. Demand is way down, demand destruction is rampant and likely permanent. China is feeling extreme pressure to pass yet another price hike on to its gasoline consumers, which would yet another attempt to stifle increasing demand and huge losses from Chinese refiners.

Also, I’m debating making an opinion regarding any new drilling in Alaska (since everyone is making it a huge issue). If you’d be interested in hearing my opinion (from a non-partisan point of view), leave me a comment.

So again, in the mean time, I’d only put minimal amounts of gas in your tank, prices will be going down everyday!

Patrick

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