Tag: inventories

Price hike inevitable Monday or Tuesday… $2.09? $2.15?

After some mixed news last week about oil and gasoline inventories, prices has slowly risen. While we should all be happy prices are still WELL below their year-ago levels, I will let you know that we should see a price hike Monday or Tuesday to between $2.09-$2.15.

While I personally believe crude prices should keep bouncing around $40 to $55, I am led to believe that it will take a few weeks for them to bump to my next “prediction” of $55-$65 starting in early May.

Fill up before prices rise as early as tomorrow!

80 million barrels of oil floating in the ocean, owners betting and hoping for higher prices

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.

Patrick

Temporary respite in gas price hikes likely… prices to fall!

After the expected Speedway hike to $1.99 Tuesday, we can expect a break in gas price hikes as the DOE released a favorable report on weekly oil inventories today.

The report on oil and gasoline stockpiles contained some very good (bearish) news for the markets. It was expected that oil inventories were to gain 800,000 barrels last week while they actually gained much more than that- an astounding 6.7 million barrels. Gasoline inventories also gained much more than expected, to the tune of 3.3 million barrels. Traders were expecting very small gains in both and news of such a large gain prompted thoughts of the weak economy and recession we’re in and prompted selling.

Midwest stockpiles (PADD 2) also gained a healthy amount jumping from 46.8 million barrels to over 48 million barrels.

All of this news comes at a good time for Midwest gasoline consumers who had been taking a hit as Midwest storage had fallen to levels not seen since 2007. We can expect that gasoline prices have a temporary drop in Midwestern states (Indiana, Ohio, Michigan), and that any “Chicago Premium” will either drop off completely, or become a “Chicago Discount” as we see PADD 2 reach higher levels not seen since before Thanksgiving (2008).

As many know, wholesale prices may rise the remainder of the week negating my comments below, but if wholesale prices do not rise, we could see areas in the Midwest drop into the $1.70s… keep in mind ONLY if wholesale prices do not rise soon.

Patrick

Will we get under $2 before wholesale prices force a price hike?

I don’t like to be bearer of bad news, but I believe we are approaching the lowest gasoline prices we’ll see for a while. While gasoline prices usually "bottom out" in late November and early December, I believe with the dramatic fall in prices and negative profit outlooks for refining gasoline, it will result in higher prices.

(Image taken by TheWalt)

Along with OPEC’s massive production cuts, we’ll be seeing inventories stay steady and not build like they should heading into peak oil season (winter).

Wholesale prices rose earlier this week on worries about demand coming back as well as lower production from OPEC and local gas stations are getting close to the 0-cent price margin. Today’s cost to stations is under $2.10, so we have a little room to fall yet, but stations under $1.99 (Admiral in Plainwell comes to mind) are losing money and will need to raise prices.

The question is, will we ever see $1.99 like parts of Michigan has before prices start to head up? It’ll be a darn close call!

In the meanwhile, if you see gas prices like below, make sure to fill up all your gas tanks- vehicle, portable, etc!

A hike for West Michigan is NOT yet imminent, but it won’t be too far off!

In other news, you might have noticed- we hit 300,000 visitors to the site on November 5! Thanks to all who keep coming back! If you recall, we posted about having hit 200,000 this past June, so to already hit 300,000 is amazing! THANK YOU FOLKS!

Patrick
 

 

 

OPEC slashes production 1.5mb/day, but will it stop oil’s skid?

WRITTEN THIS MORNING (OCT 24, 7AM)

This morning OPEC convened and arrived at a decision to cut 1.5 million barrels of oil per day. Many of you are likely asking what we can now expect and what will happen. Let me try to shed some light for you.

It will be an interesting day on the market, that is for sure. Traders will have to fight it out- some traders will likely view this as a sign that OPEC is deeply worried about a world recession and that cutting production is an “endorsement” by OPEC that demand has fallen significantly, along with many countries only major source of cash… oil. Unexpectedly, Venezuela was NOT the OPEC member seeking the biggest cut in production, as I would have expected with their attitude towards the U.S.

The cut is one of the largest cuts I’ve seen from OPEC who usually cuts under 1 million barrels/day. You can see the worry that these countries have as some simply can’t operate now with “normal” oil prices. I’m hoping the Saudi’s will not follow their quota and keep pumping oil. World inventories are ALREADY too low in my opinion, and this cut worries me enormously. Whenever the world decides to come out of recession, this cut COULD likely mean RECORD oil prices- but that will definitely depend on how long we have this economic slowdown.

Today, we have 311,380 million barrels of oil (excluding the SPR) in U.S. inventories. That compares with an all-time high of 391,907 million barrels on July 27, 1990, and a low of 263,666 million barrels on January 23, 2004. We’re still trying to recover from that low. Just this past January (2008), we had 282,841 million barrels in storage. We really need to have inventories at 350,000 million barrels but OPEC doesn’t want to keep pumping.

Demand of gasoline has fallen and stayed under 9.0mb/day, and I expect that EVEN WITH this announcement, it will take some time for oil to reverse its course.

NOTE: Wholesale prices today in GR are $2.46. We have a ways to drop yet.

Dow rises 900 points, gasoline rises as well.. hike soon!

As of late, oil and gasoline have been virtually tied to the Dow as we look to economic woes as reasons to sell-off gasoline and oil contracts. With the Dow finally putting together a noteworthy rally, gasoline and oil both surged.

With a gain in wholesale prices along with much tighter Midwest supplies, we can expect our first price hike in weeks. The tightness in supplies is mainly due to refinery woes later this summer, combined with planned fall maintenance led to a large loss in inventories. Usually when this happens, refiners will direct products to the Midwest to take advantage of larger margins. However, coupled with Gustav and Ike, refiners were too busy directing fuel at the South, especially TN and GA as large shortages increased margins.

Fuel out of Chicago is now pegged roughly 40-cents over the NYMEX trading price, bringing us to a $2.35 wholesale cost before shipping and taxes.

I would fuel up very soon and take advantage of anything under $3, knowing that a hike would be to $3.19-$3.29.

Hopefully this is temporary, but we’ll find out.

Patrick

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