Tag: futures

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.

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!


CFTC investigating Big Oil for false oil inventory reports

News this noon from WSJ that oil companies may have reported false oil inventory levels to benefit their positions:

The U.S. futures market regulator is investigating whether companies are reporting false oil inventory levels to benefit their trading positions, The Wall Street Journal reported on Thursday.

The paper, quoting people familiar with the probe, said the Commodity Futures Trading Commission is taking testimony on periods when there have been big moves on the oil futures market, including July 2007.

The commission is concerned that companies may have tried to manipulate short-term pricing on oil markets through physical oil sales and purchases, the Journal reported.

According to the report, companies could also theoretically push prices higher by under-reporting oil inventory and then sell their oil at a premium.

The commission is also seeking data about what companies report to the Energy Information Administration, which reports oil inventories each week, the Journal reported.

The paper said this CFTC probe is a part of the larger investigation the commission launched last December into possible manipulation of the market.

Wow, can’t say I’m surprised. I had a feeling this could have been happening for some time, yet no one can really know who is fixing the numbers submitted to the DOE.

Go get em. This could been have greatly effecting prices in a negative way.

Keep track of wholesale oil and gasoline prices at TheGasGame.com!

With one simple visit to TheGasGame.com, consumers can now see delayed trades of oil and gasoline futures!

TheGasGame.com is your complete source for beating high gas prices, and adding this information on the website will give consumers one less place to find the information. Wholesale oil and gasoline futures are traded on the NYMEX exchange and directly influence local prices.

The information can be found on the sidebar (the left of the screen) under the search area. Look for the “OIL/GASOLINE FUTURES” headline. Since futures are traded by month, you’ll see the soonest month’s contract. PRICES ARE IN U.S. Dollars (3.22= $3.22, etc)

We’ve also made some changes to our design for those running Internet Explorer. Hopefully you notice the changes.


I want to buy gas for less than $4

Comment on the June 26 prediction:  Prices rose on June 27 to a record $4.19, so the prediction was CORRECT.  Retail prices have slowly slipped since then.

Wednesday, July 9, 2008, 3:30 PM:  I’ve been slow to post recently due to general family and holiday business, and that nasty storm last week, combined with mixed signals in the futures market.  As the writers on the GasBuddy site point out, there are price hikes here but not there, and the cost to retailers in the area isn’t lining up well with NYMEX or AXXIS.  It makes it hard to predict when we will get a hike.  I have three estimates of the 0-margin price this afternoon:  $3.93 from ‘fncman’, $3.99 based on NYMEX, and about $4.06 based on AXXIS, which has been the least reliable this summer.  So, with prices in the $4.08-$4.19 range in Grand Rapids, we have room to drop.  The prediction is no price hike the rest of the week, and someone locally is going to offer gas for less than $4 this weekend.

Huge selloff, risk of collapse?

Afternoon update:

I’m closely monitoring a huge selloff in gasoline and oil markets at this hour. Gasoline futures are down nearly 20 cents per gallon (7%+!) and oil futures are negative as well.

This could be a significant turnaround for oil and gasoline as MANY now fear the economy may be more damaged than previously thought after news of Bear Stearns being bought by Chase rattles traders.

There could be a hike that is already in the pipes for Grand Rapids (meaning it was decided before today) so that might still come to pass, but look for local prices to nosedive soon, pending the final numbers today.

This could be a sign that the oil market’s momentum has turned negative, especially since the dollar hit new lows with nearly all world currencies today.

I’ll keep an eye on it.

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