In light of the fact that Speedway has *not* yet hiked (amazing), we should see a jump in prices come Monday. Make sure you’re full Sunday night just in case.
I am surprised that with the additional refinery shutdowns announced late yesterday and the 10 cent gain on the wholesale market that we haven’t seen the hike (Not that I’m complaining 🙂 )
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From Bloomberg:
Gasoline futures jumped 4.3 percent yesterday after Sunoco Inc. shut a 36,000 barrel-a-day gasoline pipeline supplying Buffalo, New York and ConocoPhillips shut a unit at its Borger, Texas, refinery for five weeks of maintenance. BP Plc will shut a 115,000 barrel-a-day gasoline unit at its Texas City plant for 11 days, Reuters reported, citing a trader it didn’t name.
ARE YOU KIDDING ME?!
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Folks. I don’t get concerned much about gasoline stockpiles or gas prices, but since I made my summer “prediction” many weeks ago (saying we’d see closer to 2.70 gas on average), several big issues have come up that have me a bit concerned about the situation we’re in.
Don’t get all hot and heavy here- let me explain how and why we’re in this predicament and how we can get out of it faster. Make sure to read it twice if you need to.
Background:
In mid-March a TV station interviewed me and asked for a summer prediction. I told them 2.50-2.75 (per gallon) once we get through the “rough spring start”. I might need to change that prediction. Back in March when I made that prediction, refinery runs were good; maintenance was underway and we started seeing draws in stockpiles. Analysts figured that the refineries would start coming out of maintenance and start all-out producing summer gas. Well in that process there were some problems with… drumroll… the same company that seems to have refinery issues EVERY year. Can you guess? Yes- its BP. The same company famous for problems at Baytown, TX, Prudhoe Bay, AK, and more recently Whiting, IN AND Toledo, OH. Someone at BP does NOT know how to run refineries. If you remember, Baytown had a huge explosion that killed many and shut in production. Prudhoe Bay had to shut two oil pipelines due to corrosion, which was found to be due to a lack of maintenance.
Today:
Its May 10, and BP is still having refinery issues. The BP refinery in Whiting, Indiana, as my subscribers have hear me talk about, went down in late-March. Its one of the biggest refineries in the U.S. with a capacity of over 410,000 barrels of refining per day. It suffered a cracking-unit problem (refines oil into gasoline) which cut production roughly in HALF… to 200,000 barrels. While attempting to fix it, a crane smashed into power wires which caused an immediate emergency shutdown of 410,000 barrels per day (which in turn is about 11 million gallons of gasoline). BP has restarted the refinery but says it won’t be back to near 410,000 barrels of capacity until late-June at BEST. It is currently at about 220,000 barrels per day. BP also had a complete shutdown of its Toledo, OH refinery which can refine 160,000 barrels per day (roughly 4.5 million barrels per day of gasoline) due to a loss of steam pressure- there is no official word if that refinery is up yet.
Now- due to those refineries not producing near 100%, our local stockpiles of gasoline are starting to fall… rapidly. Back in February we were sitting on 56 million barrels of gasoline. Yesterday, that number had dwindled to 46 million barrels.
We have a problem- demand is up, and stockpiles are down. What happens when supply drops like this when we haven’t even hit summer driving season? Prices rise. We’re seeing stockpiles fall and its not even summer yet! This has traders and myself worried. You might say 46 million barrels is a lot of gasoline in storage… but think about this… if the entire U.S. were to use the Midwest’s 46 million barrels, it’d only last 4.7 days. Then it’d be gone.
Whats going to happen from now until the refineries are fixed?
Well, we will continue to suffer. $3.50 in Grand Rapids is in the realm of possibility if people don’t cut down their driving. Is $4? No I’d put odds of $4 gas here at 1/50. However, if another Katrina were to hit today… in the same spot… (I noticed a storm had already formed!) I’m willing to bet we’d see gas spike to $4 or more. Highly unlikely, but within the realm of possibility.
When will gas prices come down?
Barring ANY refinery problems in the next month, we should see prices calm down toward mid-June or early-July. There is a lot that can go wrong- a hurricane can threaten production, a refinery could explode… the CEO of ExxonMobil could decide that their profit isn’t enough and “accidentally” have a refinery fire. For the next month, the pain at the pump will continue with $3 commonplace. Come Summer, we’ll slowly relax prices if things go as they should, and we might come to rest around the old prediction of $2.50-$2.75.
Is there anything you can do to make prices fall sooner?
Yes. Don’t drive as aggressively. Just today I saw an SUV fly past me like it was a race to the red-light. If every driver in the U.S. would drive more conservatively, demand would drop and prices would be at $2.70 instead of $3.29. Don’t take the boat out- save your money on insurance and gasoline. Take it out later in the summer once prices relax. Don’t take that road trip Memorial Day weekend- save the money for later in the summer and add on an extra day to that August trip. Make trips only when necessary- don’t drive out to the mall just to look. Add errands up and do them all at once.
We can all do our share. Be one of the people that not just complain about gas prices but DO SOMETHING about it. I said to myself that I’m going to drive slower. Less acceleration. Hopefully you can do something similar.
Having said that, wholesale prices were up today to their highest since August. $3.29 is commonplace tonight, but we MIGHT see a re-hike tomorrow (or Monday) to $3.35-$3.39.
Make sure you don’t get caught on an empty tank when prices hike.
~Patrick
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Here’s the current distribution of gas prices in the United States, according to Grand Rapids Gas Buddy. Prices are high on the West Coast. What is also striking is that in the five states that are the homes of most of the Big 10 schools (Michigan, Wisconsin, Illinois, Indiana, Ohio), prices are noticeably higher than in the surrounding states. Is the big BP refinery shutdown to blame? Hmm, which big gasoline retailer is located primarily in those five states?
Click to enlarge.
OUCH! Well, I stumbled upon the reason the Midwest PADD is down so much… and it does NOT bode well for us. (This is the refinery that I frequently talk about in Whiting, Indiana, near Gary)
Quote from Bloomberg
BP Plc, Europe’s second-largest oil company, said its Whiting, Indiana, refinery has cut production to about half its capacity, or 200,000 barrels, after the plant’s hydrotreating unit failed in March. The problems at BP’s fluid catalytic cracking unit have forced the plant to process more expensive grades of crude. The plant will keep refining at the current rate “until we complete the necessary repairs,” the company said in a statement distributed by the Regulatory News Service today.
Problems at the plant were exacerbated when a crane hit a power line and cut off its power on April 4. That caused an emergency shutdown and a small fire that was quickly extinguished, said Wendy Silcock, a spokeswoman with BP in London.
Look for Grand Rapids and the Midwest to suffer until this mess is resolved. Expect to be paying more than average until at least May, when hopefully the problem will be solved. If it isn’t solved until May, we might see higher summer prices than I previously thought.
Just to see how much this refinery puts out and how much it might effect us, here are the readings from the DOE weekly PADD report. Notice the start in big drops after Whiting production drops:
2/23/07: 55,488 (Whiting running normal)
3/02/07: 54,696 (Whiting reports problem)
3/09/07: 53,508
3/16/07: 52,483
3/23/07: 52,769
3/30/07: 50,664
4/06/07: 48,027
4/13/07: 47,636
Anyway, doesn’t look to get better around here until May, so we may see $3 for a few days until Whiting is back up and running normal.
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BP’s announcement is fairly important, but not the biggest deal in
the world. Over the next WEEK, BP will be shutting down 400,000
barrels of oil supply per DAY. While this may seem big, think about
this. Last year when Hurricane Katrina shut, she destroyed MILLIONS
of barrels of oil production PER DAY, some of which are STILL OFFLINE
almost a year later. This also is not that big of a deal for this
reason: we have ample amounts of crude oil. As of a few weeks ago,
the nation’s inventories contained the most crude oil since MAY 1999.
At 335 million barrels, we’re sitting very well off, and as the Dept
of Energy says, we are MUCH ABOVE AVERAGE when it comes to oil
stockpiles, compared to the 5 year average.
If this had been a gasoline refinery with 400,000barrels of refining
capacity per day, then YES, I’d be very worried and wholesale
gasoline prices would skyrocket- however, this is just oil. Saudi
Arabia’s state run oil company has already raised its prices to U.S.
customers- however, it may take a month or two for oil companies to
receive this more expensive oil, and by that time, the BP pipelines
should be done.
I see no reason for a price hike- gasoline prices traded near their
Friday levels- about 2.25 per gallon. Today there was no change.
I got a kick when I logged onto GrandRapidsGasPrices.com at 10pm and
saw a user post a price of $4.50 and say “GAS HIKE IMMINENT”. No way.
$4.50? I started laughing. Not this year. The economy would tank
before we saw $4.50.
You ask why oil went up $2 per barrel and yet wholesale gasoline
prices didn’t rise?
Just why I explained- crude oil is traded on the commodities market
seperate from gasoline. It is done this way because gasoline and
crude oil are completely different. Yes, gasoline DOES contain crude
oil, however, it makes up only about 50% of what is in gasoline. We
have LOTS of crude oil right now, and gasoline inventories could be
better- thus we’re paying more than last year at this time.
HOWEVER, if we now see a Hurricane that wipes out much of the LOOP
(Gulf offshore oil unloading platform) this shutdown could come into
play, and worse case scenario, we could see $3.75. Unlikely.
There are MANY things going into gasoline prices these days- fear of
terrorism, fear of shortage, etc. The media really does no favor by
scaring the American public into thinking that this is some sort of
crisis, which it most DEFINITELY isn’t.
There will be plenty of gasoline today and for the next weeks.
I see no reason for a price hike at this time.
If you have ANY questions about oil or gas prices, feel free to post
on WOODTV8’s Gas Price forum.
~Patrick