Expecting Branded Oil to Increase Pump Prices

The February WTI crude oil price was already back up $1 to over $38.50 a barrel yesterday. Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries, announced over the weekend that it would cut crude oil output by another 300,000 barrels per day over its recently agreed upon OPEC quota.

Russia's gas giant Gazprom (OGZPY.PK) said that Ukraine is blocking Russian gas supplies to the rest of Europe by keeping a transit pipeline closed. This throws the deal to resolve the energy dispute in doubt and cut off natural gas pipeline shipments to Western Europe at a time they are enduring record freezing winter temperatures.

Heating oil futures, which directly affect diesel prices, are riding higher this morning helped by a forecast that could deliver some of the coldest temperatures in a decade.

The Big West refinery in Bakersfield has been left stranded high and dry for obtaining crude oil at an economically feasible price. Their parent company Flying J declared bankruptcy last month and crude oil shipments have been halted by Shell into their Bakersfield refinery. They provide about 2% of the gasoline in the California market. The refinery is "officially" down for maintenance and the immediate outlook to get it back up and running looks pretty bleak.

Meanwhile West Coast spot market prices have reacted in sympathy and both gasoline and diesel are up 4-5 cents per gallon this morning.

Billings, Montana has the best price for gasoline in the country today with a $1.34 with Juneau, Alaska showing about a $1 higher per gallon.

My prediction is that gas prices will inch up another 2 - 5 cents per gallon by the end of this week. The price spread between branded and unbranded stations has been narrowed from 25 cents last week to 10 cents per gallon this week.

In simpler terms, branded major oil company stations, paying Dealer Tank Wagon prices for gasoline to their major oil companies, are paying 10 cents per gallon below the price paid by their unbranded independent neighbors.

Therefore either the unbranded independent stations will lower their gas prices to remain competitive or the major branded stations will be increasing their pump prices. My bet is on the latter.

Disclosure: Bob van der Valk holds no positions in any of the commodities or equities mentioned in this article

Comments

[Larry House:]

Gas prices in my town went up 16 cents today!

Jan 14 03:46 PM