Tag: utilization

80 million barrels of oil floating in the ocean, owners betting and hoping for higher prices

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Just to warn you, this post will be a bit lengthy, but may be incredibly insightful for some. First off, it looks like Ed has predicted a hike to $1.99. We’ll see if he’s right on… if you can get gas for around $1.80, fill up like I did tonight just in case. I’m not completely sold on a price hike, but we will see what happens.

Now to explain my post title. Was there a ship leak or some accident? No. There ARE 80 million barrels of oil floating on the sea protected by a thin layer of steel, sitting in huge supertankers. According to Bloomberg, Frontline Ltd., the world’s biggest owner of said tankers has made this claim. It would be the most oil stored at sea in 20 years, as traders seek to cash in on higher prices later in the year.

This is an idea that carries a good amount of risk if you ask me… but you don’t make money without risk. Oil prices haven’t really started a good climb yet this year, and prices have largely given up most of their gains they made the last two weeks. These supertankers are huge ships that cost large amounts of money to lease but some can hold well over a million barrels of oil. If prices jump $10/bbl, there’s a large amount to be gained. However, with oil supplies in Cushing, Oklahoma nearly at capacity (the delivery point for contracts traded on the NYMEX), what’s going to happen? We’re already awash in oil, sitting nearly 40 million barrels above where we were JUST LAST YEAR! Crude oil in storage this week, as reported by the DOE, was 326.6 million barrels. Like I said, storage in Cushing, OK, was at 33 million barrels, with capacity of 34 million barrels. This represents a 20% GAIN in oil inventories there in just 4 WEEKS! How are these traders betting on higher prices in a few months when we’re lush with oil in a recession?

Figuring those 80 million barrels could go anywhere in the world, let’s figure half goes to the U.S., the world’s leading consumer of oil. If that 40 million barrels (which is doing nothing) would eventually end up at U.S. ports in a few weeks, we could have the most oil in storage since September 21, 1990!
Even WITHOUT the 40 million barrels, we’re already at our highest level of storage for a January since 1999, when demand was strong and the economy was surging ahead… remember the .com era? So many startup companies… and to see us at the same level of oil now with a much different outlook?

Let’s throw a name out here… a banking company that used to actively trade oil contracts (and bet on higher prices). Remember Goldman Sachs? The company whose analysts predicted $150 oil? What ever happened to them? They seem to have gotten out of the oil trading business. Goldman is now forecasting oil prices in the $30’s for quite some time. Do they have any obvious interests in oil now? Not that I can see- and crazy enough they’re actually making some sense with their seemingly non-biased oil price forecasts!

What’s this all got to do with gas prices?

Lets think it over. I’ll even format it so it’s easy to read:

  • U.S. January oil inventories highest since 1999 and economic outlook is much worse than that of 1999
  • 80 million barrels of crude oil haven’t even hit the market, owners betting on higher prices
  • Gasoline inventories healthy
  • Excluding 2006 and two weeks in 2007, oil inventories (including SPR) are at their highest levels EVER
  • Gasoline demand down 3-4%
  • Diesel demand down 4-5%
  • Jet fuel demand down 12-15%
  • OPEC countries need to pump more to generate revenues
  • Refinery utilization at just 85% and we’re still putting plenty of gasoline into storage

Point is-with such great news on the shape of oil inventories, how can oil and/or gasoline make a spring run-up in prices? Ed’s bet that we’d see $2 gas before we saw $1 gas is nearly the OFFICIAL winner, but I still think prices have more room to fall.

My short-term bet on oil (the next two months) is that prices fluctuate between $30-$45, but we may briefly break the $30 barrier. A gasoline prediction? I’ve already had that bet with Ed. Once he wins, MAYBE I’ll make another prediction.

Patrick

DON’T FILL THAT TANK TO “F”! Read why…

Predictions
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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

Wholesale gasoline market opens 10-cents higher approaches

Predictions
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UPDATE 4:50pm EDT: LOOP (Louisiana OffShore Oil Port) has been closed. Gustav is forecast to hit it directly. Any damage to LOOP would be catastrophic to the county and could raise oil prices $10 or more per barrel. This port provides over 1-million barrels of oil per DAY to the United States (via Middle East ships)

The wholesale market opened at 2:30pm EDT, as it always does Sunday afternoons for overseas trading. Gasoline has taken a large jump higher, currently holding at a 10-cent gain. Crude oil is up a marginal $2.50/bbl at this hour as well.

When Katrina hit, wholesale gasoline prices had easily seen swings of 50+cents/gallon. Today, SO FAR, its just 10-cents. Hopefully it will stay there.

I just crunched the numbers- with 2.2mb of refinery utilization shut (as of 3pm Sunday), the *remaining* refiners must ALL boost their utilization to 99.5% to cover for the refineries that have shut. That seems unlikely, but it IS possible. This should LIMIT any large hike in wholesale prices.

Keep an eye here today as I continue to monitor Gustav and refinery, rig, and industry news that could cause a prices to rise to over $4/gal again.

Currently, I would plan on filling up TONIGHT for $3.75 or less if possible, and brace for a price hike pending what happens on the market.

If we see a hike, it could be to $3.89, but again, that depends on the next few hours.

This situation reminds me of the night before Katrina hit and I filled up the night before prices took a huge jump. That COULD happen again. If you hear rumors, be sure to check here or feel free to comment and let us know what you’ve heard.

Patrick

Gustav, Hannah, and Tropical formations, oh my!

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Note: I decided I had better take a quick break from vacation. I was away hiking in Yellowstone, please forgive me for not posting.

When my phone got service yesterday, I had received numerous voice-mails informing me that a Hurricane “Gustav” had formed and could be effecting gas prices. Unfortunately I’ve been out of the loop- until now.

Gustav looks like it will be a dangerous category three or four when it hits Louisiana later this week. What’s this going to do to gas prices? Well, for the time being, the market is calm. One must realize that after Katrina, refineries and rigs have been much improved when it comes to large hurricanes. Also, refiners haven’t been producing as much gasoline as before Katrina.

With refinery utilization continuing to be much below 90%, any negative impact on Gulf refiners could be offset by all other refiners raising their utilization to 95%+. When Katrina hit in 2005, refinery utilization had been at 97.1%. With utilization THAT high and Katrina flooding refiners, there was no way that other refiners could up their production much. Last week, utilization was a measly 87.3%. Any capacity that goes offline could be offset by other refiners raising production runs.

Also, those refiners in the Gulf area have poured money into making their rigs and refineries better prepared for massive hurricanes. They didn’t just repair their facilities… they made them better.

The market may jump to its senses, but if we don’t see more than a 10-cent gain, you’ll see traders viewing that as a weakness in the market. We’re also helped by a continued gain in the U.S. dollar against the Euro.

It’ll be interesting to see what oil and gas does when trading opens Sunday.

I would definitely stay tuned here… I’ll be home early this week with more information as I receive it. We could see prices rise, but things are calm… for now! I see prices in GR falling to $3.70. Prices may continue their fall until Gustav gets closer to making landfall.

Patrick

Another lousy DOE report, Speedway hikes to $3.95

Predictions
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Edit: Speedway has just hiked to $3.95 in Michigan; while not totally shocking, this is something that might have been expected. The Gas Game gets quite difficult to predict at times like this!

Another disappointing report from the Dept. of Energy this week, we can look for gasoline to trade higher today.

Perhaps due to the Hurricane/Tropical Storms last week, the DOE reported refinery utilization at just 85.9%, with crude oil inventories falling 400,000 barrels (LOOP was closed [Louisiana Offshore Oil Platform] last week) which likely altered crude import numbers, but gasoline… OUCH! Gasoline inventories fell a massive 6.4 million barrels last week, putting us now in the lower part of the average range, and putting us almost exactly at the same amount of gasoline in inventories as this week in 2007.

In a month we’ve consumed 14.3 million barrels (600.6 million gallons) of gasoline more than were refined. Amazing! Look for that stat to perhaps spook traders as they see some bullish numbers coming in. I definitely expect gasoline to trade higher today, perhaps triggering a hike in the Grand Rapids area… more on that later today IF necessary.

Also, the SPR is STILL adding barrels to its massive storage?! Didn’t the Dept. of Energy state that with oil prices so high they were going to delay deliveries to the SPR in mid-to-late July? It hasn’t happened! This week the SPR sits at 707.2mb, last week 706.8mb and last year at 690.3mb. Just more empty promises from government to do something positive for the market.

Look for gasoline to pull oil higher as traders get some bullish news.

Patrick

PS- Midwest PADD storage fell to 48mb this past week, look for the Chicago Premium to start hurting soon!

The 2008 Driving Season Begins. What’s in store?

Predictions
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The long awaited 2008 Summer Driving season is now upon us, after a mostly gloomy and cool Memorial Day weekend here in Mid-Michigan. With gasoline prices approaching and surpassing $4, many are asking what’s in store for this Summer… what can I expect, when should I vacation?

This post may be one of my longer posts. Just sit back and read it, you may find some information you didn’t know. I’ll try to cover everything that’s on my mind at this point.

First glance this morning the market was up… but now we’re seeing a good size pullback in the oil and gasoline markets, with crude falling over $3bbl at this writing. Why? I’ll explain.

If you haven’t noticed, we’ve had a significant run-up in prices this past Spring. I suspect the main reasons were the weaker U.S. dollar, higher global demand, and speculation. It’s anyone’s guess what percentage each one of those played in the higher prices, but I’m sure there are a couple factors that I haven’t included that have helped push prices up as well.

$4.19 was the price this weekend if you hadn’t noticed, and many are wondering if this is the highest we’ll see this year. It’d be easy for me to say yes based on past years. In 2006 and 2007 prices for the year peaked in mid-to-late May. However, this year hasn’t been anywhere close to resembling ’06 and ’07. In those years prices climbed more due to actual issues and problems- refinery maintenance, etc. This year, we’ve really not had as much bad news, but the economy has been more the indicator. The worse the economy seems to get, the more oil and gasoline prices rise. You’d think the two would be hand-in-hand, but that’s not the case.

I’m *thinking* that now we’re in driving season, we may see traders pull out as they realize we’re sitting on record high oil prices without a real reason. Supply is remaining constant, Saudi Arabia says they’ll try to pump more oil, and we haven’t really had any refinery issues. Is it time for the market to go back to realizing the fundamentals instead of buying based on speculation?

Refineries have and are in the midst of a huge number of expansions and upgrades. Many older refineries are adding and replacing older equipment that isn’t as efficient. They’re tightening their belts [refineries] to get every penny out of every gallon of gasoline. Since oil companies have been enjoying record profits, they’ve also been spending billions on refinery expansions. Shell is well underway to renovate an existing refinery to near DOUBLE its output. While we won’t see it online for the next couple years, the market should be looking down the road and realizing that output will grow as record profits continue.

Let’s not forget about the Goldman Sachs analysts, Murti and Currie- they’ve predicted record territory for oil the last few years and have been amazingly accurate. Just a week or so ago, they raised their forecast to say the average price of oil in 2008 would be $141 and oil have a “super spike” to $150-$200/bbl. The day they released that forecast, oil prices took a sharp jump, and have continued their climb… not because of OPEC lowering output, or because a refinery shut, but because two men predicted higher oil prices. This is where I’m talking about a return to fundamentals instead of speculation! Anyway, these two men forecasted in 2005 that oil prices would rise to $50-$105 over six to 24 months and were pretty accurate. They then boosted their forecast to $80-$135 in September 2007, even during a seemingly non-existent hurricane season. Still, they re-raised themselves last December, and just weeks ago re-raised again. Just keep in mind WHY Goldman analysts may be doing this… that is, making seemingly high forecasts. They are in the business of selling oil, I consider them an oil broker. They run huge commodity funds, give advice, and trade oil. Wouldn’t you think that to be a HUGE conflict of interest? Almost like going against the Terms of Service of eBay and bidding up your own online auction.

The interesting part of this is that while Goldman analysts have raised their own forecasts, which would provide HUGE profit to oil companies (ExxonMobil, BP, Shell, etc), Goldman has NOT raised their stock outlook for these companies, and they’ve kept their rating on ExxonMobil at “neutral”. Would one think that Goldman might put its money where its mouth is and raise their outlook on these oil companies stocks? Quite interesting. Perhaps Goldman knows that while they enjoy making tons of money off trading oil, one day the bubble will pop. I can’t think of any other reason why Goldman would not raise their outlook on XOM stock [ExxonMobil].

Point here is that this latest rally is pretty much only supported by Goldman, which is like the oil trading god. Perhaps Goldman has been the one fueling the latest rises, buying more oil to push prices up so its analysts are correct. Nothing like using fear to make a profit, which may be what they’re trying to do.

Back to my office chair- I stare at the $3.98’s and $4.19’s that are out in the Midwest.

I’d love to predict lower prices, but the way I see it, any prediction I make will have odds that are worse than buying a Big Game lottery ticket.

However, I’ll do it anyway, and maybe the odds will be much better than a Big Game ticket, but still, I wouldn’t put more than a $20 bet on it.

Summer 2008 outlook:
Gasoline:
Late May prices peak to $4+, slowly decline into early-to-mid June, perhaps as low as $3. 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 or higher hurricane strikes West of the Mississippi in the Gulf, expect gasoline to jump right back to Spring highs or even higher. If the 2008 hurricane season is a non-event, 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.

Diesel:
Prices won’t really pause much as global supplies remain well-below average. Prices may flirt with $5 in the Midwest while nationwide prices rise to near $4.75. Don’t expect high diesel prices to cause a huge demand slowdown, especially with farmers raking in profits growing their fields, feeding their equipment. The U.S. has been exporting a lot of diesel to Europe as well, so our own stockpiles aren’t as cushy as possible. Diesel may fall back to $4.35 as the summer continues, but it won’t last long. Expect diesel to rise substantially if hurricane season is active.

The huge wildcard will continue to be the 2008 Hurricane Season. If it’s more active than usual, be prepared to cancel vacations. If not, it may help push prices lower come late Summer and early Fall.

Obviously things can and will change rapidly, but Ed and I will continue to monitor prices throughout the Summer. We will both need some time off and may miss a prediction here and there, but overall TheGasGame.com will continue to be active!

Patrick

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