Tag: Hurricane

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

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!

Prices are lower all around us, what gives?!

Come on Grand Rapids! Hastings is $3.82, I was there last night. Lowell is $3.87, but Grand Rapids still isn’t any cheaper than $3.95! Honestly now… Lowell and Hastings stations aren’t much different than stations in Grand Rapids… they likely bought their fuel from the same rack as the stations from Hastings, but GR is STILL 15-cents higher per gallon! It’s been several days now and it seems no one wants to lower their prices, and average COST today is STILL $3.66! Prices have remained the same on the wholesale market, so come on! I’m not asking $3.66 overnight, but a penny lower every day!? This gets frustrating in times like this. Stations on average are making a margin of 34.6-cents per gallon. That’s a nice chunk there… and like I said, I’m NOT asking stations to make no money… but someone STEP UP and bring prices down. I think that if there one station or a chain of stations that would be consistently the first one to make bold steps lower how much positive publicity they could get from TheGasGame… but hey, that’s probably not enough, is it?

IKE UPDATE: Hurricane Ike is gone, but refineries are still closed, the worst off was likely Shell’s Deer Park, TX refinery that fell victim to a lot of rain. Damage is still minimal, but there are some light repairs necessary. STAY TUNED to the Refinery Status page to check on how restoration is going. ExxonMobil also reported water damage to its Beaumont, TX refinery. In the mean time, the massive 567,000bpd Baytown refinery is continuing to make progress towards a restart. Marathon had also said that their 76,000bpd refinery had been restored electrical power.

Oil prices falling uncontrollably? Update on refinery damage!

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************************

HEADLINES:

*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

REDUCED RATES

*Plantation pipeline at reduced rates

*Colonial restarts distillate line after Ike, mogas down

Mr. Wholesaler, Tear Down Those High Prices!

Monday, September 15, 2008, 4:20PM:  I think we’ll look back on this weekend as the turning point for gas prices for quite a while.  On Friday and Saturday, there were price hikes to $4.09 and then $4.19, driven by fears of massive shortages due to Hurricane Ike striking Texas, and a sense that we were being deluged by our own hurricane.  In fact, a few Citgos in town went up to $4.29, and prices were temporarily above $5 in the central part of Michigan.  Whether we will be facing shortages and rationing remains unclear (and I suspect, unlikely).  What is clear is that as of Sunday night, Michigan and our friends Illinois and Indiana were stuck with the highest average prices in the country.  The gas price map on GasBuddy was glowing red in those states last night, and this afternoon, and the Governor and the Attorney General really need to investigate.

But, more volatility was in store.  NYMEX opened up over the weekend for a special session, and prices there plummeted.  It may be because the hurricane caused less damage to the energy infrastructure than feared, but it seems that the real reason is that some Wall Street financial firms are falling apart, and with it, the inflated prices at NYMEX and elsewhere.  Today, crude oil hit $96 a barrel, while NYMEX gasoline futures prices fell 20 cents since Friday and 43 cents since the beginning of September.

Patrick wonders if these price drops in New York will make their way to Ferrysburg, Michigan, which is where the rack rate is set for the Grand Rapids area.  It has to, and it will start very soon.  Expect lower prices starting tomorrow.

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