Crude Oil Contango: West Coast Has No Relief from Gas Prices

CAN YOU TANGO THE CONTANGO?

The crude oil market is currently contangoed. Wikipedia defines that as the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot market price. In other words, if you knew that the price of flour is going up by May you would stock up on bread today. The oil companies and traders are doing exactly that with crude oil, and created the contango in price.

The March WTI crude oil price was down $1 to around $42.50 a barrel Friday morning. This could be considered the midway point between the $32.40 and $50.47 a barrel price in the market since December 5, 2008. The spread between front-month contracts and later months declined last week, snuffing out the incentive to hoard crude oil. This will put some more downward pressure on the immediate price of crude oil.

For the West Coast gasoline consumers, pump prices have continued to increase since they bottomed out back in early December. This flies in the face of the Department of Energy report that showed that fuel consumption in the U.S., the world's biggest oil consumer, during the four weeks ended January 16, 2009 averaged 19.4 million barrels a day, is down 4.7 percent from a year earlier.

The reason gasoline prices will stay firm on the West Coast regardless of all the crude oil price gyrations is that oil refiners have either cut back production, are having unscheduled maintenance problems or have brought their units down earlier than normal for the switchover to producing summer gasoline.

The BP/Arco refinery in Carson, CA has a major problem with one of their gasoline producing units and is down for the eight count. Added to that, we currently have the ExxonMobil (XOM) refinery in Torrance, CA completely down, a glitch at the ChevronTexaco (CVX) refinery in El Segundo, CA has some gasoline production down for unknown duration, the Big West refinery in Bakersfield, CA is now dead in the water and the Tesoro (TSO) refinery in Anacortes, WA down for an earlier than normally scheduled Spring turn-a-round. This weekend, the Tesoro refinery in Wilmington, CA is flaring off controlled emissions with permission from the California Air Resources Board in order to take care of some unknown problems.

The rest of the country may see just the opposite, as fire sales of stocks of winter gasoline will have to be depleted to make room for the lower vapor pressure summer gasoline. In the oil refinery business those dates come sooner than the normal calendar shows when the summer season starts. In California the switchover in the pipeline will start on February 15 with terminals to be stocked with the 5.7 RVP gasoline by March 15. Gas stations and other retailers are required to have the product changed over in their tanks by April 15.

The price of retail gasoline on the West Coast is disjointed from the rest of the country and usually fetches a higher price. The pump prices on the West Coast continue to suffer with gas prices at $2.10 per gallon. But the rest of the country should be dancing in the streets because of lower prices at the pump. This is a problem that will continue to perplex gas consumers from East to the West.

There is no way that even dance partners Cloris Leachman and Corky Ballas from "Dancing with the Stars" will be able to tango their way out of this contango!

Disclosure: The writer holds no positions in any of the commodities or equities mentioned in the above article.

Comments

[Atypical:]

Another example of the glories of unfettered capitalism. In the service of laissez-faire, the idealogues that champion "the market is always self-correcting and "supply and demand" is what moves prices are allowing powerful companies to steal from consumers without fear.
What is needed is fair and diligent regulation and antitrust law enforcement. The past administrations for thirty years have allowed this situation to develop. Read The Tyranny of Oil by Antonia Juhasz.

Jan 25 01:20 PM

[Darth Trader:]

Better a "idealogue" than Government owned and/or managed industries.
Capitalism leaves people behind, but it is the best economic system available. The biggest lie ever is,: "Hi, I am from the Government and I am here to help you.

Antonia Juhasz also wrote "The Bush Agenda".
Apparently he suffers from "Confirmation Bias"

Jan 25 01:53 PM

[Atypical:]

Are you able to say anything that isn't a repub talking point ala Reagan's comment. Don't like govt owned or managed; What about what is going on now, the worst financial problem since the depression. BCCI, Chrysler bailout, auto makers problems now, etc. Taxpayers paying for this okay with you? Just don't call it socialism though, right?
Capitalism leaves people behind. Okay as long as it is not you, right? Oh and don't criticize a repub. They never make a mistake. The author stinks because she is critical of your favorite. Read something the opposite of what you believe. It will open your mind (unlikely).


On Jan 25 01:53 PM Darth Trader wrote:

> Better a "idealogue" than Government owned and/or managed industries.
>
> Capitalism leaves people behind, but it is the best economic system
> available. The biggest lie ever is,: "Hi, I am from the Government
> and I am here to help you.
>
> Antonia Juhasz also wrote "The Bush Agenda".
> Apparently he suffers from "Confirmation Bias"
>
>
>
>
>

Jan 25 02:14 PM

[Crude Oil T...:]

Cantango has thinned dramatically since we started trading the March contract, it may not be the profitable play some traders and oil companies had hoped.




crudeoiltrader.blogspo...

Jan 25 03:15 PM

[Atypical:]

Okaaay!


On Jan 25 03:17 PM azoz wrote:

> free music download on azoz.com
>
> azoz where downloading is not a crime
>
>

Jan 25 03:27 PM

[REX in Florida:]

I hate to say this but I only love one "big Oil" and that is BP, 8% yield is totally safe and pays me to wait!!! Pays me a lot to wait

Jan 25 08:42 PM

[william:]

don't worry so much-- BO will save us all from life itself!--great newsletter with free email service--saadvisory.com and review the email alert--I hear that a new email will be out within a week! this letter has been around for 25 years

Jan 25 10:15 PM

[The Greates...:]

This oil scam is bogus and should be investigate all the way to the top. The whole war we are in are the beginning of the energy wars. Greed is ugly!

Jan 25 11:27 PM

[The Greates...:]

Even when the oil was going for $147 a barrel, the world had never had as much oil in reserves as it did in the summer of 08. There was no shortage, just a bunch of greedy speculators who got caught with their pants down when the bottom fell out, Being backed by the same people who got the $700 billion in the bail out in NY. 85 % of the American public did not want the bail out, but your government did it anyway. You know where they had their $$$ now.

Jan 25 11:33 PM

[The Greates...:]

And of course they are having the timely break down at the refineries, just one more excuse to cut back on gas refining to cause another bogus man made shortage to run the price back up. They are rediculous and oh so very greedy.

Jan 25 11:36 PM

[The Greates...:]

We have way too much oil $$$ in our government, we need term limits to keep our congress from being the monopoly that it is today. Just like the oil companies are, a monopoly that is breaking every single law on the anti trust books. The Sherman Act should be imposed on these oil companies.

Jan 25 11:38 PM

[The Greates...:]

And Why are we still on oil anyway? Too much $$$ in it, and too much greed!

Jan 25 11:40 PM

[The Greates...:]

476 Billion over the last 6 years in net profit, you would think that would be more then enough $$$ for these companies.

Jan 25 11:46 PM

[PeteK:]

Like the old saying " Itis easier to remove a mountain than to change a person's behavior."
Americans want Big cars & Trucks, but hate to pay more for gas.
The government never encourages public transportation.
That's why you can bet that oil will be controlling this country for the next 100 years. For OIL & GAS stocks : BUY BUY BUY !!

Jan 26 01:34 AM

[john s. gordon:]

this 'timely breakdown @ the refineries' sounds too much like enron's timely taking generating units off line to kill the lights in CA & impose predatory pricing to get the lights back on.
> jack

Jan 26 08:36 AM

[Darth Trader:]

Reagan Conservatism would not have us in this mess that the Democratics started, Chris Dood, and Barney Frank are hugely responsible. Yes, what we are getting more Socialized thanks to them, and a liberal President Bush.

You accuse me of confirmation bias! HA


On Jan 25 02:14 PM Atypical wrote:

> Are you able to say anything that isn't a repub talking point ala
> Reagan's comment. Don't like govt owned or managed; What about what
> is going on now, the worst financial problem since the depression.
> BCCI, Chrysler bailout, auto makers problems now, etc. Taxpayers
> paying for this okay with you? Just don't call it socialism though,
> right?
> Capitalism leaves people behind. Okay as long as it is not you, right?
> Oh and don't criticize a repub. They never make a mistake. The author
> stinks because she is critical of your favorite. Read something the
> opposite of what you believe. It will open your mind (unlikely).

>
>
>
> On Jan 25 01:53 PM Darth Trader wrote:

Jan 26 09:02 AM

[notsosmart:]

its not oil.its refineries playing the game as they should in capitalism.im not a socialist or communist,but realist.the capital play is make as much as you can & screw them all.if you want to be part of the screwer buy the stock or else just be the quiet screwie.its far from a perfect system but the the best so far(even though it may be turning socialist for the rich).

Jan 26 11:35 AM

[Lamont B Du...:]

"Reagan Conservatism" is an oxymoron. Reagan was the father of the faux conservatism that started us down the road to where we are today. Deficits DO matter, and Big Government is Big Government, whether it serves the poor & the middle class or large corporations and the ultra rich. (Actually, Big Government that serves the middle class can be a functional economic model, as long as it hews to reality. That is in contrast to the Reagan-Bush-Bush version, which was just a massive re-distribution scheme that created little or no wealth while concentrating as much of it as possible among people who already had quite a bit to begin with.)

As for laissez-faire systems, we'll know if that model works as soon as someone tries it. There's been plenty of talk about them, but I've never seen one up close in real life. I consider laissez-faire systems to be the economic version of Sasquatch, lots of believers, but no hard evidence for their existence.

"Why are we still on oil?" Because it's the only place we can get the dynes we need to run this place. Alternative sources are not just more expensive, they are less available in practical terms. Why is that? because you haven't done anything to increase their practicality. New Rule - you aren't allow to ask why we don't use alternatives unless you're working on increasing their yield and/or reducing the cost. You never hear those people asking that question because they already know the answer.

"Timely beakdowns at refineries"? I've yet to hear a refinery engineer say "Yippee, we burned a furnace tube!" or "Hooray, that cat unit hopelessly poisoned!". They spend a lot of time/money keeping those units up and running until the scheduled turnarounds. Yes, if a refinery goes down, that can result in reduced supply and locally increased prices. The part you're not considering is that the refinery that helped drive prices up DOESN'T GET TO SHARE THE HIGHER PRICES BECAUSE THEY ARE NOT MAKING FUEL! And don't give me any foolishness about how their parent company makes out because they have other refineries.
A - Is the extra profit going to cover the cost of the repairs?
B - If I work at the refinery that is down, that's not helping my career, even if my company is making more money.

Jan 26 05:26 PM