As I said earlier today, gasoline prices are likely to jump across all Speedway States as soon as tomorrow to $1.99 or even higher.
I’ll follow up and let you know what’s going on.
As you may know, Midwest prices have been seen as low as $1.59, much lower than the national average today of $1.891 according to AAA’s Fuel Gauge Report. A large reason of lower Midwest pricing as of late is that PADD 2 storage levels have reached high levels, untypical for this time of year. I have said that we’ve recently benefited from this, what I call a "Chicago Discount". The "Chicago Discount" is due to a regional condition causing Chicago "Spot" Pricing to be lower than other areas.
Now onto the bad news.
Yesterday, ExxonMobil reported shutting down a unit at its 238,000 bpd plant just outside Chicago, IL (Joliet), which would cause a large drop in output at Midwest refineries. This, coupled with news from the DOE that regional stockpiles fell last week, as well as a huge nationwide drop in gasoline stockpiles, will cause a large price spike.
Any Chicago Discount will likely "dry up", and with the changeover to the April gasoline contract also adding to a hike. The gasoline contract for March, expiring today, was 8-cents lower than the new April contract, which takes effect tomorrow, causing a "triple whammy": More expensive April contract begins tomorrow, Refinery outage regionally, and a loss in gasoline stockpiles will definitely cause higher prices.
I would be *shocked* if prices don’t rise tomorrow and stations that purchase new fuel tomorrow would lose money if they do not raise prices.
I am unsure about the amount of the hike, but it may be over $2/gal, as soon as tomorrow morning.
Be sure to fuel ASAP.
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.
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.
That’s right… Port Arthur’s major refineries have finally been restored power and all four of them have announced they are at the beginning stages of restarting their facilities. This is excellent news for everyone as these refiners mark the last facilities to come back online after Gustav and Ike battered the Gulf.
Prices nationwide should continue their fall, however, I’m still expecting another record low to occur this week in the DOE’s inventory numbers. We’ll likely see stockpiles of gasoline fall another 3+ million barrels while we should see a large gain in crude oil stockpiles. Imports of both crude and gasoline should have skyrocketed as ports re-open and tankers full of gasoline arrive at U.S. ports. We’re still seeing shortages in parts of the country, but those issues should resolve themselves in the next week or two as all facilities restart and electricity is restored to energy infrastructure.
In Grand Rapids, prices should continue their fall, we may get as low as $3.49, but be careful not to hang on to “E” too long…!
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.
Ouch! What a terrible DOE report today, looks like large losses in gasoline stockpiles is becoming the norm. I’ll keep this short today so that I can enjoy just a little bit of vacation.
The DOE report as said was pretty rough for gasoline consumers. While oil inventories rose an amazing 9.6 million barrels, gasoline dropped by 2/3 that amount, falling under 200million barrels for the first time in recent memory. Midwest PADD lost a marginal 1 million barrels, which could have been worse, but look for wholesale prices to trade higher today. It may also lead to a price hike as the Grand Rapids area has nearly stalled on additional price drops.
Gasoline demand is also coming off its weakest numbers, demand seems to be making a comeback as prices fall under $3.
I’d look for a price hike to $3.89-$3.95 soon, but keep in mind how difficult price prediction seems to be this August.
If you can get gas under $3.80, I would strongly suggest you do so today.