Tag: production

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.

EDIT: Gas hike warning: $4.09+ in Michigan, Indiana, $3.99 in Ohio, Nationwide 10-30cents/gal

EDIT: 9:15pm EDT:
With the blog becoming the focus across the nation tonight, I am doing my part… or trying. Here’s what everyone can expect for tomorrow and the days ahead: Prices will likely rise for tomorrow in MOST areas. Here in the Midwest, we can expect at least 20-30cent differentials between now and tomorrow night. Some areas that are now paying less than $4/gal could see $4.35 or higher tomorrow. If you live in OH, PA, NY, WV, etc, you’ll be aided by East Coast refiners and pipelines that are doing well. Here’s a map. The more pink, the more of a jump you’ll see over the next week. The futher West the better. You’ll be away from pipeline issues and your crude oil will becoming in to a non-closed port like the oil for the Midwest. That also goes for those in the upper East Coast. However, EVERYONE will see prices rise.

We’ll likely see an increase at the pump tomorrow again… the main reason… IKE. He is shutting down one QUARTER of all United States gasoline production.

Hope that it doesn’t strengthen too much, and hope it goes more South!

Other than that, wholesale rack prices jumped 26-cents here tonight (the prices STATIONS pay).

You can bet tomorrow morning stations buying gas tonight will pass that price increase to you!

FILL UP NOW!

HOLY SMOKES! Retail gas prices to reach $5 in the South before Ike hits, over $4 here!

UP-TO-DATE HURRICANE IKE INFO OR CLICK “HURRICANE CENTRAL” NEXT TO THE BLINKING Q&A LINK

If you have any interests in the South (Texas, Lousiana) area, you might want to inform them to stockpile gas at ANY PRICE under $4. Grand Rapids will likely also see a price hike to over $4, with more hikes coming.

Currently, gasoline for delivery in the South/Gulf area is trading $1.40 higher PER GALLON to $4.56 a GALLON. That is the wholesale price, so retail prices there will likely hurdle over $5/gallon.

ExxonMobil today is beginning to shut the largest refinery in the United States (590,000bpd capacity) as Ike nears and parts of Texas come under a mandatory evacuation.

Texas has a large number of refineries that are at high risk with this storm. These refineries lack the upgrades that some refineries got after Hurricane Katrina in 2005. The refineries at risk and their production (according to Wikipedia):

We are likely to see prices rise well over $4 here in Grand Rapids soon as a result of Ike. Nationwide prices will likely climb at least 10-20cents per gallon. With Ike hitting and the remnants of Gustav, we’re likely going to feel a hard pinch at the pump soon. We could even set new record highs.

Also getting updates this noon that the U.S. Coast Guard has closed the nation’s LARGEST petroleum port to any new vessel traffic due to Ike.

Continuing bad news from the Louisiana Offshore Oil Port (LOOP): The Louisiana Offshore Oil Port, which is the biggest U.S. oil-import terminal and handles 13 percent of imports, shut marine operations yesterday because of Ike.

This is going to get ugly. Stay on F and plan to cut usage where possible.

Worse case scenario is that we run low on crude oil in the Midwest, as the Gulf area provides much of our oil. At least the oil imports from Canada will continue to flow!

West Michigan’s higher prices justified, the pain will continue…

First off: Read this post thoroughly if you want to find out WHY prices are justified.

A brief thank you to Tom Kloza for taking the time out of his day (Publisher @ OPIS) to respond to a few questions I had.

I now understand and can say that I know why Grand Rapids (and all of Michigan) are suffering from higher gas prices than the national average (currently at $3.66/gal)

It all started back around August 11. Grand Rapids prices had been closer to the national average, and then suddenly on the 11th, the difference between NYMEX gasoline and our local rack prices started their disconnect.

Here’s an image (graph provided by GasBuddy, edited by me) to show you exactly what’s been going on:

If you notice, the disconnect is getting worse over time. On August 11, Grand Rapids was quite close to the national average. Around Aug. 15, we had a difference of about 15-cents. On Aug. 23, that shot to 19-cents. Then yesterday it jumped to 25-cents (more like 30-cents since all the stations reset at once here)

On the subject of this matter, people have been convinced we’re being gouged. At first it would appear so, and I was ready to believe it. In haste perhaps, some were even trying to tie the price of oil (same price months ago when gas was 60+ cents cheaper) to the price of gasoline. In my years of doing this, experience has taught me that oil and gasoline prices can never be tied together.

After receiving a response from Mr. Kloza telling me briefly about struggles with getting gasoline here, I went digging. The content below is what I found:

NEW YORK, Aug 11 Reuters – Gasoline differentials in the the Midwest and U.S. Gulf Coast were expected to continue climbing this week as refinery outages, tight inventories and low imports underpin values, dealers said. The latest in a slew of unplanned refinery upsets is a reduction of rates at Marathon’s 222,000 barrel per day Catlettsburg, Kentucky refinery after a crude oil pipeline rupture on Sunday, August 10.

Reduced rates at the refinery are expected to further boost already strong differentials for gasoline in the Midwest, adding to a decrease in gasoline supply in the region after last week’s an outage at Citgo Lemont’s FCC.

“The Magellan system inventories of gasoline have dropped 600,000 barrels since August 1st as new barrels were diverted the St. Louis and Chicago,” one Midwest broker said.

“At 18 days of supply coverage the system is not yet critically short gasoline… (Group Three) must compete for barrels against Chicago for these barrels, so more strength is likely.”

Gulf Coast gasoline differentials were also expected to be supported by a number of refinery upsets from last week.

Lyondell’s gasoline-making fluid catalytic cracking unit at it’s Houston, Texas refinery had an upset last week, and a company spokesman said the unit was still running, but did not specify if it is currently at full rates.

The restart of Citgo’s Corpus Christi, Texas refinery after a power outage last week is expected to last through Wednesday of this week, according to a filing with state regulators.

Gulf Coast gasoline differentials are expected to be further supported by sinking inventories of the motor fuel due to lower imports.

In the New York Harbor, values for conventional gasoline are generally seen tracking the Gulf. But the upside for reformulated gasoline may be capped due to higher inventories of the fuel due to weak blending economics.

After reading that, I found another news story dated more recently, September 5:

NEW YORK (Dow Jones)–U.S. refiners pushed gasoline output to record highs in the days before Hurricane Gustav shuttered operations along the key Gulf Coast.

Many plants are beginning to ramp up operations, but pre-storm oil
inventory data point to several areas of potential supply tightness far
from the Gulf region.

Late Friday, the federal Environmental Protection Agency issued waivers from clean fuel requirements for parts of Georgia, Alabama and North Carolina, and extended waivers in Louisiana until Sept. 15 to “allow for greater flexibility for the fuel distribution system to support an adequate supply of gasoline.” Lost refinery output last week alone could be on the order of 20 million barrels of gasoline and other products.

Power outages to plants and pipelines complicate the matter and spread the problem beyond the region. Midwest refiners – notwithstanding a surge to record-high gasoline output last week -face a supply shortfall as the Capline pipeline, the 1.2 million barrel-a-day main artery for crude supplies from the Gulf to the heartland, is only just resuming partial operations. The Colonial Pipeline from the Gulf to New Jersey, a crucial link for Northeast U.S. supplies, is running at reduced levels.

During September, shipments of gasoline on the vital carrier averaged 1.2 million barrels a day in the past five years, with distillate flows at around 625,000 barrels a day. At best,
refiners are likely to take at least a week to bring operations back, while offshore output will likely take twice as long to return to pre-storm levels, government officials estimate.

The big loss of refining capacity, relative to shut-in crude output, has helped sharp the steep falloff in prices begun when Hurricane Gustav was shown to be less destructive than Hurricane Katrina in August 2005.

Imports, especially of gasoline, are expected to flow heavily from Europe, where the fuel remains in surplus and the usual seasonal decline in demand may blunt the impact of supply losses. The end of August brings an end to the peak summer gasoline demand season, which was battered by high prices this year.

Michael McNamara, who compiles the SpendingPulse survey for MasterCard Advisors LLC, said U.S. gasoline sales between the end-May Memorial Day and Labor Day dropped 3.9% to around 9.4 million barrels a day, after a year-to-year rise in the peak period in
2007 of 2.4%.

Demand Down For 13th Month

EIA data for the four weeks to Aug. 29 show total U.S. oil demand down 733,000 barrels a day, or 3.5%, from a year ago, at 20.292 million barrels a day. That would be the lowest August demand since 2003 and mark the 13th straight year-to-year drop in monthly oil demand.

Preliminary data show January-August U.S. oil demand is down 847,000 barrels a day from a year ago, the biggest decline in the first eight months since 1981. At 19.9 million barrels a day, demand is the lowest in the period since 2001.

A pre-storm surge in gasoline output in the Midwest of 12.3% pushed regional output to a record 2.55 million barrels a day, and pushed nationwide output to a highest-ever weekly level of 9.422 million barrels a day. In an indicator that says more about sluggish demand than about refining capabilities, domestic output of gasoline
topped demand at the end of August for the first time on records dating back to 1991.

The last time domestic output topped demand in any week was in mid-January. Production exceeded demand by a slim 22,000 barrels a day in the latest week, while a year ago, demand outpaced production by 420,000 barrels a day in the last week in August.

Still, while margins favor a counter-season shift to gasoline output over distillate output, and refiners outside the Gulf Coast have some spare capacity, reliability of crude supplies from the region is vital.

Marathon wants to borrow crude oil from the Strategic Petroleum Reserve for running at two Midwest refineries, but the oil must be shipped through the still-limited Capline, which Shell said it hopes to have fully operational in the coming weekend. Valero said it cut runs at its Tennessee refinery.

Talks EIA warns that some local markets may face supply tightness and potential price jumps. But they won’t likely be enough to reverse the slide in prices in recent days, provided there isn’t any lasting damage to facilities.

Front-month crude has been the cheapest of all listed Nymex contracts in the past 10 days, a price curve that suggests weak near-term demand for crude and potential for a significant stock build, as refiners are rewarded for building inventories at relatively cheap prices now. But, at least in the U.S., Gustav is overriding, at least temporarily, those traditional moves.

So basically, on the 11th of August, a refinery went down due to a pipeline rupture. That pipeline may have well carried crude from the Gulf to the Midwest, so naturally when a pipeline goes out of service, oil delivery is effected. With less oil available to refine, supply takes over. Less supply means higher prices. Now we’re suffering from Gustav, which has also closed delivery of oil to some Midwest refiners. Can’t refine products means less supply, means higher prices. Since places outside the Midwest have alternative ways to get crude, their prices are lower because getting oil isn’t an issue like it is here.

A few words from Tom Kloza’s blog:

As I write this, the price of gasoline in the biggest global bulk market (the U.S. Gulf Coast) is trading for some 60cts gal or more above gasoline futures, or about $3.30 gal late Wednesday afternoon. It appears as though Ike has put some of the largest clusters of U.S. refining in jeopardy.

The last time we saw crude oil prices this cheap, the national average price for gasoline was about $3.25 gal. It’s about 40cts gal higher than that now, and I suspect we’ll see more increases in some markets by the weekend, even if Ike fizzles and cuts a path through rural less populated counties. Chicago is many states removed from Hurricane landfall, but even there, we’ve seen the impact of Gustav as well as the threat from Ike. Refiners have had less crude to run, and wholesale prices there have also moved into the $3.25 gal or higher neighborhood. This explains why some Midwestern towns saw some large retail increases even as network talking heads discussed plunging crude prices.

Most of the upwelling we’ve seen in fuel prices in September is related to Hurricane Gustav. It did not significantly damage refinery infrastructure but it did result in a drop in refinery output of nearly 2-million bbl per day last week (as measured by the Energy Information Administration or EIA today). Those kinks of lost daily output are now being felt in places like Kentucky, Tennessee, Illinois, and especially in states like Florida. Even California isn’t exempt — the state gets some of its very clean gasoline from refineries in the Canadian Maritimes and a key plant in the Virgin Islands. Fuel produced at those plants will probably be diverted to coastal states in the U.S. this month.

Even if Ike misses Texas refinery infrastructure, more kinks are coming, and Americans will inaccurately assume that they are being hosed. Capitalism is at work here – supply is threatened—and buyers outnumber sellers, for the moment.

Basically prices are higher because we’re battling other states to buy the same gasoline. The highest bidder wins because this is supply and demand!

Patrick

OPEC reneges, agrees to cut 530,000bpd of production

OPEC dismissed from their meeting late Tuesday night Eastern time and promptly said they had decided to cut production by over 500,000bpd.

I’m not sure how to react- first and foremost I feel that OPEC is unaware of global economic worries based on the high cost of oil. Secondly, I think they fail to realize that cutting production now will mean more demand destruction for oil (based on continued higher prices as global stockpiles fall). Are they shortsighted because oil has fallen from an all-time high? Or are their budgets getting so large they can’t afford to sell oil any cheaper?

I’ve maintained in my mind that OPEC seemingly ALWAYS makes the wrong decision at their “meetings”.

Chalk it up to another day long victory for OPEC countries… followed by continued losses in oil. OPEC is signaling that demand is dropping by cutting production- its like they’re recognizing the problem. Could this help oil’s selloff accelerate?

Pfft- so much for them being concerned that high oil prices are hurting the economy.

OPEC’s decision again makes absolutely no sense.

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