Tag: profit

What I never thought possible again may come true…

First off, let me address the differences in opinion between Ed and I. I’ve heard from some users (and rightfully so) that it seems Ed and I have opinions that recently have varied quite a bit. Let me address that. First off, we’re both obviously trying to adapt to this new market, and secondly- we’re two different people. Just like anyone else, our opinions aren’t always 100% identical. I think that will help us look at each others point-of-view and may help us learn more from each other. I don’t wish to contradict what Ed says, I simply offer another way of thinking about things.

Having said that, I’m sure you’re intrigued by my subject line of this post. Last year I would have guaranteed you that we’d never see gasoline <$2, just like I guaranteed that we wouldn’t see $5 gas in 2008. It was getting close, but I wasn’t exactly sweating either- just look at the damage $4 gas caused! Even in 2007, I never could have expected for new record highs in gasoline. It is my firm belief that we are rewriting history books. There is no good answer here for what lies ahead as there has never been a "perfect storm" that has rapidly changed the oil markets since mid-2008.

The last few days I’ve been doing more and more research about this new market, and I’ve come to a few conclusions. First, my "predictions" of gasoline price hikes will not have the consistency they had just months ago as a result of this changing market. I’m trying to adapt quickly, but in a period of sustained price drops, it is VERY difficult to predict the first "major" price hike. Secondly, it is my belief that we may not see a rapid increase in gasoline prices like we have in years past. I’ve not come to this conclusion until lately. The Spring run-up in prices may temporarily end as we know it, replaced by a very odd and difficult to predict pattern of falling and rising gas prices, just like the stock market has been- unpredictable. Third, this period will change record books and be noted years from now as the spectacular oil crash of 2008. We’ve hit an ALL-TIME high in oil and a 4+ year low. Crude has lost over $105/bbl of value in places.

Bottom line is this- I’m not sure where things will go, but I have a few opinions. First, I would say that we will not see a spring run up in prices like we have in years past. Second, I believe odds are greatly increasing that we may see gasoline under $1 in the next few months. I don’t think the economy has gotten as bad as it will, and I think gasoline will follow it lower on its way to a level not seen in many years. Third- demand destruction is rampant. Oil companies will begin canceling refinery projects, stop finding new oil, and halt other infrastructure upgrades until oil prices climb- which may not happen until 2010.

I will work hard at bringing you realistic information and opinion. I’m not here to profit off what I say, the bottom line is the consumer, and to us I say "It’s about time".

I look forward to the day that I see this sign back at Speedway:

Also, public congratulations to Bill Steffen for NAILING his West Michigan early-Winter forecast. I have the fortune of knowing exactly how it feels (referring to a likely collapse of oil prices in 2008, Nov. 2007). Way to go Bill!

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
 

 

 

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

BP “answers” complaint about “grade gap”, too little too late?

A couple weeks ago, I blogged about how I typically fuel up at BP and recently became frustrated with their new mark-up scheme on mid-grade and premium gasoline. Their “grade gap” (also known as the difference in price between grades) HAD been nine cents (3.90/3.99/4.08) for as long as I could remember. About a month ago, I noticed it jumped to eleven cents (IE 3.90/4.01/4.12). Since I pump premium in one of my cars, this became frustrating, especially with no other large chain pulling this kind of crap behavior with pump prices FALLING.

A week ago I noticed that most the BP stations I mentioned had dropped their grade gap back down to ten cents (3.90/4.00/4.10). What I don’t understand is why they must target those who require midgrade and premium fuels. Midgrade and premium typically are a small source of additional profit for a gas station, so why did some BP stations target select consumers to rake in more money? I don’t think what they did is right- tack on a few more cents (four) to pay for their losses or whatnot.

While BP did a mediocre job listening, they still didn’t want to give in to their pricing they used a few months ago. As the market has fallen they’ve been enjoying profiting some days even off regular gas. I guess I simply don’t understand their timing for raising their grade gap.

I’ll be purchasing fuel somewhere else until the stations I previously mentioned go back to their “normal” nine cent grade gap. I would encourage everyone who needs premium and midgrade to shop at a station that doesn’t play with their margins like some BP’s did.

PS- I did some research about cars, and found that more and more cars require premium than ever before, contrary to some believing otherwise. According to Autoblog, 166 vehicle models required premium in 2002. This year that number is up to 282.

Patrick

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

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