What we predict: West Coast gasoline prices are on the verge of shooting up like a rocket and will be going above $2 per gallon by January 9, 2009. The WTI crude oil price will be gyrating up and down but stay around $50 per barrel.
What we predicted last two weeks ago: Crude oil will stay somewhere between the low of $25 and the high of $50 per barrel by year’s end. Gasoline prices will remain below $2 per gallon. Gasoline and diesel prices will be firming up again the week before Christmas.
What happened? WTI crude oil price bottomed out at $32.40 and ended the year at $44.60 per barrel. Gasoline prices on the West Coast ended up at $1.75 per gallon on Christmas day.
Factors Affecting Higher Gas Prices on the West Coast
- The Tesoro (TSO) refinery has stopped supplying gasoline to stations in the Southern California area and their Anacortes, Washington refinery is shut down for earlier than scheduled maintenance.
- The massive BP/Arco refinery in Carson has had one of their Fluid Catalytic Cracker units down for the last two weeks.
- Valero (VLO) cut back production at their California refineries in December.
- China has been buying "cheap" crude oil to fill its own strategic reserve.
- Fears about ongoing violence in the Gaza strip along with Russia’s Gazprom (OGZPY.PK) cutting off natural gas shipments to the Ukraine and Western Europe are throwing uncertainty into shipments of crude oil from the Middle East.
- Los Angeles wholesale unbranded gasoline jumped a whopping 16 cents per gallon New Year’s Eve.
- Flying J advised their main crude oil supplier to the Big West refinery in Bakersfield that they would be unable to take its crude oil production after declaring bankruptcy last week. They are also in the midst of “unscheduled” maintenance on their hydro cracker at that refinery.
An anomaly currently exists on the West Coast with unbranded independent prices for gasoline being inverted by about 20 cents per gallons over branded product. In simpler terms, branded major oil company stations, paying Dealer Tank Wagon prices fro gasoline to their major oil companies, are 20 cents per gallon below what their unbranded independent neighbors are purchasing their product for from independent rack jobbers.
Therefore, either the unbranded independent stations will have to lower their gas prices to stay competitive or the major branded stations will be increasing their pump prices.
My bet is on the latter. Exploring, producing, refining and marketing oil is a business, although many people in the U.S. seem to be under the delusion that we have some form of inalienable right to cheap gasoline. Independent and major oil companies will not allow themselves to run a deficit in order to make gasoline more affordable for all of us. Instead they will make whatever adjustments necessary until they can get a fair price for their products and maximize profits for the benefit of their stockholders.
More uncertainties are looming on the gasoline price horizon with the new administration taking over in less than three weeks from now.
Disclosure: The author holds no positions in the stocks or companies mentioned.
