Gas Prices Will Go Up with a Fury

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

1. 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.
2. The massive BP/Arco refinery in Carson has had one of their Fluid Catalytic Cracker units down for the last two weeks.
3. Valero (VLO) cut back production at their California refineries in December.
4. China has been buying "cheap" crude oil to fill its own strategic reserve.
5. 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.
6. Los Angeles wholesale unbranded gasoline jumped a whopping 16 cents per gallon New Year’s Eve.
7. 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.

Comments

[mrpitchfork:]

Oil needs to go to the all time low of "free" as far as I'm concerned. It's time we got off of oil. High energy costs will do nothing but hurt the economy. After 100 yrs of automobiles, you would think that the industry would have learned something about fuel economy and we would have cars/trucks getting 100+ mpg. It amazes me how we can send a frickin' probe to Mars AND control it from earth, but for some unknown reason we can't make a car get 100 mpg. I think the real reason is that the oil companies and automobile makers are in bed with each other. The ex CEO of Shell said that America alone has enough oil to last us another 250 yrs but you dont hear about that in the news. Instead we get the ol' "Oh we're running out of oil... and the price of gas has hit a new all time high..blah blah blah.." The truth is, it's all about money and the extortionist ways of getting it out of the consumer who DOESN'T have an alternative choice for driving a gasoline engine vehicle.. The extortion has to stop..

Jan 05 11:29 AM

[Jimbo:]

I have been investing in energy for more than thirty years. I would welcome a viable set of alternatives to petroleum but it seems to me to be somewhere between 10 and 30 years away from happening. I am appalled at the head in the sand attitude in Congress regarding the securing of domestic sources of petroleum supplies.

Jan 05 12:03 PM

[blu:]

Well, how 'bout that?
The left coast is going to be paying even higher prices.
Going green is what they wanted, and they are simply having to pay for it.
Of course, now they want to complain about it.
How 'bout letting us get some drilling rigs out there off the coast to help out on the price??? Naw, they are so "green" to consider that... Guess we'll see if their attitude changes at five or six dollars per gallon.

Jan 05 12:44 PM

[lipa:]

My Artificial Intelligence Wavelet system MWWM predicts OIL with Predictability (~ average correlation) P 0.69
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On Jan 05 11:29 AM mrpitchfork wrote:

> Oil needs to go to the all time low of "free" as far as I'm concerned.
> It's time we got off of oil. High energy costs will do nothing but
> hurt the economy. After 100 yrs of automobiles, you would think that
> the industry would have learned something about fuel economy and
> we would have cars/trucks getting 100+ mpg. It amazes me how we can
> send a frickin' probe to Mars AND control it from earth, but for
> some unknown reason we can't make a car get 100 mpg. I think the
> real reason is that the oil companies and automobile makers are in
> bed with each other. The ex CEO of Shell said that America alone
> has enough oil to last us another 250 yrs but you dont hear about
> that in the news. Instead we get the ol' "Oh we're running out of
> oil... and the price of gas has hit a new all time high..blah blah
> blah.." The truth is, it's all about money and the extortionist ways
> of getting it out of the consumer who DOESN'T have an alternative
> choice for driving a gasoline engine vehicle.. The extortion has
> to stop..

Jan 05 02:59 PM

[notsosmart:]

its always been,will always be the bottom line.thats the capitalistic weakness.no im not a socialist(although i seem to be living in a more & more socialist country) nor a communist.wall st is just gambling or ponzi or both.merdoff is a piker compared to the govt.the lack of regulation & oversight combined with greed & lack of transparency has killed the goose that laid all kinds of great eggs.

Jan 05 03:55 PM

[Old Trader:]

mrpitchfork,

Just a couple of points...first, re: 100 mpg cars/trucks. You can't repeal the laws of physics. More weight mean more energy to push it down the road. Of course, we COULD stop adding things like 5 mph bumpers, side impact door beams, etc. to cars to get them lighter, but do you REALLY want to go there?

Regarding 250 years of oil in the US...maybe, but at what price? "Alternative" oil/gas is expensive to produce....the days of poking a hole in the ground, and hooking up the pipe are gone (not just here, but globally).

I could go on, but won't..

Jan 05 11:31 PM

[User 309754:]

Mr Pitchfork, I would have to agree with you. The stealth bomber,an incredible pice of technology was designed in the early 80's. If this was designed in the 80's why are we stuck with making 6 cyclinder and 8 cyclinder vehicles? Technologically we have answers but it seems there are powers not allowing the advancement of these technologies. The reason is because these technologies would be cheaper and more effient. Good for us bad for them.

Jan 06 12:53 AM

[ReallyFedUp:]

It's just ridiculous that these oil companies can come up with artificial situations to justify increasing the price of gas at the pumps. They were making a profit before when pump prices were at this level. They were making record profits when the prices jumped up to about $3 then $4. All these profits inspite of their claim of needing to make expensive repairs, shutdowns, etc. They were making record profits when the public was trying to make ends meet. When the public got a little break, these oil companies are now "sticking it" to us again. They cannot use the reason that prices of of things are now higher. They, the oil companies, are one of the reasons why prices are higher. Businesses had to raise their prices because of the high gas prices. I understand we have a capitalist economy but isn't there such a thing as ethical way of dong businesses? These oil companies are no different than drug dealers who are selling drugs to addicts who do not have any money. They do not care where we get the money. They just know that we have to have it.

Jan 21 09:28 PM

[Jet Pilot:]

I know this article is somewhat dated, but here iare my comments anyway.
You said,"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. "

The wholesale price of gasoline (RBOB) has moved from $1.06 to $1.24 in the last 60 days. Yet in Redding, California in the last sixty days, pump prices have gone from $1.49 to $2.15. WHY? Are we running out of gas? All the refinery problems are caused by the refiners themselves, so they should pay the difference, even if it means lower profits. THEY ARE GOUGING plain and simple. I am only willing to pay $1.50 per gallon. I have to drive to work, pick up kids from school etc. So I am forced to adhere to the oil companies extortion. They should be fined.

Feb 10 04:28 AM

[Boopsy boo:]

My comment, Let me just some it up in one word, the world "SUCKS!!!"

Jun 14 01:04 AM