Not very solid on this folks, maybe 50/50, but I think we’re awfully close to a “price restoration” in Speedway States to maybe $1.999. Like I said, I don’t feel as confident on calling this hike as I have on others, but I think that some stations dropped prices following the markets closing price on Monday. However a poor DOE report reversed any loss in wholesale prices.
We’re also barely clinging to a “Chicago Discount”, which is just over a penny per gallon. Gasoline coming out of Chicago is actually the most expensive gasoline in the nation east of the Rockies at the moment, likely due to refinery issues here. We should see gasoline being diverted out of the South and East because of the conditions here. Refiners and wholesalers can fetch a few cents more per gallon here because of those conditions so I expect the Midwest to soon have higher supplies as everyone rushes to send us gasoline (and take advantage of a few extra pennies profit per gallon).
So- a hike tomorrow to $1.99? Not completely sure, but what’s better- gasoline for $1.88 or $1.99? I know gasoline won’t get much cheaper in the next few days… I took the risk and filled up tonight for $1.83 after discount. If I were you, I would too!
After a wild week last week, we should settle down. Markets were down overnight on renewed fears that the economy won’t heat up for years and that the DOW will drop below 7,000 for the first time in over a decade. These fears are causing oil and gasoline contracts to trade lower this morning, leading to lower wholesale prices.
Speedway finally reset this past weekend to $1.99, but it definitely wasn’t very uniform.
I see a quiet start to this week with prices remaining steady (at most falling a penny or two).
Today’s DOE report definitely wasn’t so hot- showing a large loss in gasoline stockpiles when an increase was expected. Traders polled were expecting a small 500,000 barrel increase in gasoline stockpiles and the DOE reported a loss of 2.6 million barrels.
In an interesting twist, supplies in storage in the Midwest region actually rose over a million barrels, which may cause the Midwest to see prices staying under the national average for some time.
Refining continues to be a poor money maker, but with this news, I expect wholesale gasoline prices to climb, causing refiners to slowly increase production due to increasing margins.
Speedway has been all over the map in the Midwest lately, with a hike last week in Minneapolis, and a hike yesterday in the Great Lakes area. While most of the nation should see slowly increasing wholesale prices, the Midwest should feature either flat wholesale prices or rising disproportionately slow compared to the rest of the country.
On another note, Diesel should slowly become cheaper than gasoline in many areas of the country over the next few months as driving season approaches.
States that have recently seen Speedway price hikes (this week) should be stable without a huge price hike (barring some large news maker), but areas outside the Midwest will continue to see prices climb.
Comment on the January 14 posting: Prices hiked to $1.99 the next day, so the prediction was CORRECT.
January 28, 2009, 7:20 AM: I haven’t been posting the past two weeks because I’ve been struggling with the head cold that has been going around and doing a lot at work, and the wholesale prices have been pretty stable and calm. As of this morning, we have the same wholesale prices we were looking at on January 9. There are concerns about a refinery strike, but those concerns haven’t affected NYMEX or AXXIS prices yet. Given where wholesale prices are, and with prices dipping below $1.80 in the area, it would not be surprising if we got a reset back to $1.99 by the end of the week, but it would also not be surprising if prices continued to drop slowly. Yes, that’s quite a non-prediction, but what it means is I have no edge in "The Game" this morning.
January 10, 2009, 12:00 PM: I was in Washington, DC much of the week, but no one wanted to talk to me about gas prices. Actually, I was there for the annual mathematics meeting. Yes, we actually have annual meetings. Prices over $2 were standard in the DC area, and I watched the hike to $1.99 in Michigan via the Internet. The three recent hikes, starting 12/29, reflect a stunning rally in NYMEX, from 80 cents a gallon on Christmas Eve to $1.20 or so on January 5.
The three recent hikes provide a chance to re-calibrate my Excel spreadsheet. It looks like the AXXIS price is a pretty good proxy for wholesale prices in west Michigan right now, using a margin in my formula in the range of 21 to 25 cents. If that is the case, the 0-cent margin price is in the low $1.80’s, as fmcman reports on GrandRapidsGasPrices.com. And, lo and behold, retail prices in the area are from the low $1.80’s to $1.99. So, I expect prices to drop slowly over the next several days, which would set us up for a price re-set on Thursday. This feels like weather forecasting, though, looking five days ahead, because we don’t know what is going to happen in trading on Monday and Tuesday.
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.