Tag: expansion

Still feeling Ike down South

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!

Math/Stats/Data

This page is filled with great information on the math behind gasoline prices, the stats of hikes, days they are most likely to occur, and the data behind why prices rise and fall. This information is about as raw as it gets, meaning it is hard to understand for some who haven’t looked at it before. We’re posting it to show what we do to try and win “The Gas Game”.

First of all, see how Ed calculates the expected price. It is a formula that takes in many numbers from different sources.

Secondly, see what day a gas price hike is most likely. Ed’s data reflects over six years experience of monitoring gas prices.

Third, try and read the Weekly Petroleum Status Report from the Department of Energy. This report can greatly effect local prices and market prices. It is released typically on Wednesday mornings at 10:35am Eastern Time.

If you aren’t bored yet, another good summary of a week’s petroleum usage is the data report “This Week In Petroleum” (Gasoline Section). It is raw numbers, graphs, and data from the nation’s oil companies and refiners. It contains some of the same information found in the WPS report.

Some other good information and data about gas prices can be found on gasoline retailer’s own websites. Some retailers even list their current fuel prices at some of their stations. Some that do this are Speedway, Pilot, and Flying J. Definitely monitor many stations across the country for a large snapshot!

All of these pages that are listed are a GREAT source of information for why gasoline prices go up and down. The government reports especially play in to prices. After the reports are released, traders read them and see if there are any surprises. Before the reports are released, traders are typically polled to check their expectations of the governments report. If the report is worse than expected, traders buy oil and gasoline contracts, and wholesale prices rise. If the report is better than expected, traders sell oil and gasoline contracts, and wholesale prices fall. This is part of the reason why most gas price hikes are Thursday: the report is released Wednesday, traders react, and pump prices either rise the following day or they remain the same or fall if the report is good.

Today’s Grand Rapids Gas Price Trend:

Some more good resources to check out:

Oil and Gasoline News from MarketWatch | Speaking of Oil with Tom Kloza | Energy Information Administration | AXXIS Petroleum- Price Services | List of U.S. Oil Refineries, Capacity and Location | U.S. Refinery Expansion Plans/Updates | Michigan Gasoline/Product Pipeline

Helpful Images:

Areas where RFG (Reformulated Gasoline) are required by the EPA

Areas where RFG (Reformulated Gasoline) are required by the EPA

More information and links to data may be posted here at any time, so stay tuned! In addition, if you have any good information/stats/data that you think should be added here, e-mail Patrick. The address is on the left side of the main index page.

We’re in a predicament… spiraling downward

Oil is $146 a barrel today.

Want to know why U.S. supplies are OVER 50 million barrels below where they were last year? Want to know why oil prices keep rising? The two are directly connected, and its going to keep getting worse unless the dollar strengthens.

As I said, today oil hit $146- a new record. Why? Supply. OPEC wants you to think they’re supplying the market- and they are. But you see, why would oil companies want to pay $146/barrel to BUILD their inventories and risk getting stuck with a lot of expensive oil OR spend a HUGE amount of money stockpiling oil at these prices?

To get oil stockpiles where they were last year at this time… lets do the math… 53 million barrels is what it would take, multiply by today’s price- $146 and you get $7,738,000,000. It’d cost oil companies $7.7 BILLION dollars to buy 50 million barrels of oil to get stockpiles to last year’s levels. You may say “eh, that’s not that much money for them”… and perhaps you’re right. However, would you rather have oil companies spend the money on buying oil to sit around or spend it on refinery expansions? Its a waste and a HUGE risk for oil companies. If oil prices fell to $73, they’d lose HALF of what they spent on the oil.

Its a huge risk and they’d need the cash flow to be able to buy it. Then we ask WHY would they do this? It’d lower the profit from oil if supply was cushy, lowering their bottom line.

Now we come to OPEC who says supply isn’t the problem. They’re right… to an extent. While they claim they have oil ready for customers, there are no customers willing to buy at such high prices… especially for just the purpose of building oil stockpiles.

Let me just say- the only reason refiners are still producing gasoline is because refining that oil also produces heating oil/diesel, which is making a decent amount of margin for them. If diesel demand drops or if Europe’s demand lowers the refining margin, there will be TWO products that refiners make that are yielding LITTLE TO NO money. Thus refiners will shut part of their refineries resulting in… you guessed it… shorter supplies meaning higher gasoline and diesel prices.

So… we need oil! OPEC has it, but no company wants to buy it and risk storing it and losing value. We’re in a predicament… oil is there, no one wants it, prices are rising because inventories are falling!

Does that make sense?

Patrick

The 2008 Driving Season Begins. What’s in store?

The long awaited 2008 Summer Driving season is now upon us, after a mostly gloomy and cool Memorial Day weekend here in Mid-Michigan. With gasoline prices approaching and surpassing $4, many are asking what’s in store for this Summer… what can I expect, when should I vacation?

This post may be one of my longer posts. Just sit back and read it, you may find some information you didn’t know. I’ll try to cover everything that’s on my mind at this point.

First glance this morning the market was up… but now we’re seeing a good size pullback in the oil and gasoline markets, with crude falling over $3bbl at this writing. Why? I’ll explain.

If you haven’t noticed, we’ve had a significant run-up in prices this past Spring. I suspect the main reasons were the weaker U.S. dollar, higher global demand, and speculation. It’s anyone’s guess what percentage each one of those played in the higher prices, but I’m sure there are a couple factors that I haven’t included that have helped push prices up as well.

$4.19 was the price this weekend if you hadn’t noticed, and many are wondering if this is the highest we’ll see this year. It’d be easy for me to say yes based on past years. In 2006 and 2007 prices for the year peaked in mid-to-late May. However, this year hasn’t been anywhere close to resembling ’06 and ’07. In those years prices climbed more due to actual issues and problems- refinery maintenance, etc. This year, we’ve really not had as much bad news, but the economy has been more the indicator. The worse the economy seems to get, the more oil and gasoline prices rise. You’d think the two would be hand-in-hand, but that’s not the case.

I’m *thinking* that now we’re in driving season, we may see traders pull out as they realize we’re sitting on record high oil prices without a real reason. Supply is remaining constant, Saudi Arabia says they’ll try to pump more oil, and we haven’t really had any refinery issues. Is it time for the market to go back to realizing the fundamentals instead of buying based on speculation?

Refineries have and are in the midst of a huge number of expansions and upgrades. Many older refineries are adding and replacing older equipment that isn’t as efficient. They’re tightening their belts [refineries] to get every penny out of every gallon of gasoline. Since oil companies have been enjoying record profits, they’ve also been spending billions on refinery expansions. Shell is well underway to renovate an existing refinery to near DOUBLE its output. While we won’t see it online for the next couple years, the market should be looking down the road and realizing that output will grow as record profits continue.

Let’s not forget about the Goldman Sachs analysts, Murti and Currie- they’ve predicted record territory for oil the last few years and have been amazingly accurate. Just a week or so ago, they raised their forecast to say the average price of oil in 2008 would be $141 and oil have a “super spike” to $150-$200/bbl. The day they released that forecast, oil prices took a sharp jump, and have continued their climb… not because of OPEC lowering output, or because a refinery shut, but because two men predicted higher oil prices. This is where I’m talking about a return to fundamentals instead of speculation! Anyway, these two men forecasted in 2005 that oil prices would rise to $50-$105 over six to 24 months and were pretty accurate. They then boosted their forecast to $80-$135 in September 2007, even during a seemingly non-existent hurricane season. Still, they re-raised themselves last December, and just weeks ago re-raised again. Just keep in mind WHY Goldman analysts may be doing this… that is, making seemingly high forecasts. They are in the business of selling oil, I consider them an oil broker. They run huge commodity funds, give advice, and trade oil. Wouldn’t you think that to be a HUGE conflict of interest? Almost like going against the Terms of Service of eBay and bidding up your own online auction.

The interesting part of this is that while Goldman analysts have raised their own forecasts, which would provide HUGE profit to oil companies (ExxonMobil, BP, Shell, etc), Goldman has NOT raised their stock outlook for these companies, and they’ve kept their rating on ExxonMobil at “neutral”. Would one think that Goldman might put its money where its mouth is and raise their outlook on these oil companies stocks? Quite interesting. Perhaps Goldman knows that while they enjoy making tons of money off trading oil, one day the bubble will pop. I can’t think of any other reason why Goldman would not raise their outlook on XOM stock [ExxonMobil].

Point here is that this latest rally is pretty much only supported by Goldman, which is like the oil trading god. Perhaps Goldman has been the one fueling the latest rises, buying more oil to push prices up so its analysts are correct. Nothing like using fear to make a profit, which may be what they’re trying to do.

Back to my office chair- I stare at the $3.98’s and $4.19’s that are out in the Midwest.

I’d love to predict lower prices, but the way I see it, any prediction I make will have odds that are worse than buying a Big Game lottery ticket.

However, I’ll do it anyway, and maybe the odds will be much better than a Big Game ticket, but still, I wouldn’t put more than a $20 bet on it.

Summer 2008 outlook:
Gasoline:
Late May prices peak to $4+, slowly decline into early-to-mid June, perhaps as low as $3. 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 or higher hurricane strikes West of the Mississippi in the Gulf, expect gasoline to jump right back to Spring highs or even higher. If the 2008 hurricane season is a non-event, 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.

Diesel:
Prices won’t really pause much as global supplies remain well-below average. Prices may flirt with $5 in the Midwest while nationwide prices rise to near $4.75. Don’t expect high diesel prices to cause a huge demand slowdown, especially with farmers raking in profits growing their fields, feeding their equipment. The U.S. has been exporting a lot of diesel to Europe as well, so our own stockpiles aren’t as cushy as possible. Diesel may fall back to $4.35 as the summer continues, but it won’t last long. Expect diesel to rise substantially if hurricane season is active.

The huge wildcard will continue to be the 2008 Hurricane Season. If it’s more active than usual, be prepared to cancel vacations. If not, it may help push prices lower come late Summer and early Fall.

Obviously things can and will change rapidly, but Ed and I will continue to monitor prices throughout the Summer. We will both need some time off and may miss a prediction here and there, but overall TheGasGame.com will continue to be active!

Patrick

Huge refinery expansion project gets under way

From ArabianBusiness.com:

Aramco starts work on US refinery expansion update

Motiva Enterprise, a joint venture between Saudi Aramco and Royal Dutch Shell, has started work on expanding its Port Arthur refinery to make it the largest in the US, Aramco said on Tuesday.Once completed in 2010, the expansion project will almost double the refinery’s capacity to 600,000 barrels per day (bpd).Although Aramco did not disclose any figures on the cost of the expansion, people familiar with the project estimate the cost to between $5 billion and $7 billion.

Yay! This is good news for the U.S. who has badly needed refineries to expand to support the nation’s gasoline addiction.

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Minnesota refinery close to opening the spigots on 50,000bpd expansion

Pine Bend refinery located in Minnesota is nearly ready to open the spigots to its nearly completed refinery upgrade.

The story from TwinCities.com:

Sometime this fall, Pine Bend refinery in
Rosemount, Minnesota’s largest refinery and its biggest source of
gasoline, will get significantly larger.
Owned by Wichita, Kan.-based Flint Hills Resources, the
sprawling maze of pipes, tanks and emission stacks that sits off U.S.
52 will crack open the taps on a $200 million expansion it has been
nursing along for the past several years.
The expansion will increase Pine Bend’s refining capacity by
about 50,000 barrels of oil a day, boosting production from 280,000
barrels to 330,000 barrels daily.
With each barrel holding 42 gallons able to produce 19.6
gallons of gasoline on average, the boost translates to a potential
980,000 gallons of increased gasoline production a day out of the
Rosemount refinery.

Could it get any better? Finally the higher gasoline costs are bringing increased capacity!

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