Gasoline and Diesel Fuel Prices: Scaring Investors in Time for Halloween

Don’t be scared when you look at the prices you are paying at the pump right now for gasoline and diesel. This winter fuel prices both gasoline and diesel will reach the same low price levels as last year.

In Montana and in the rest of the U.S., we are now already paying about 45 cents per gallon less for fuel than we did last year. Gasoline in Montana is currently averaging $2.59 with the price last year at $3.04 per gallon.

The bulls are charging on the New York Mercantile Exchange again today and crude closed at $79.44 a barrel and RBOB - the gasoline base stock at $1.98 per gallon. As a reminder the price of gasoline dropped to almost $1.65 per gallon in the U.S. by Christmas 2008 when the WTI crude oil price tanked to below $34 a barrel.

The following chart from zFacts.com shows gasoline prices from 1972 through September 2009:

Meanwhile, diesel inventories in the U.S. are at an all time 25 year high level. Two refineries on the East Coast, including the Valero (VLO) and Sunoco (SUN) ones, are being mothballed due to lack of demand for diesel fuel for on-road use as well as heating oil.

That should be good news for Montana, Wyoming and North Dakota refineries with abundant crude oil supplies now becoming available.

The current price for crude oil is being driven by Wall Street investment firms i.e. Goldman Sachs and Morgan Stanley once again talking up the price for crude oil. Investors are using crude oil as a hedge against inflation betting that the dollar will continue to weaken as the U.S. is continuing to "print" money to cover the increasing budget deficit looming over us.

Barron’s published an article over the weekend imploring the Fed to raise the federal funds target interest rate from zero to a “more normal” two percent. The article by Andrew Bary goes on to say that with the economy recovering, the dollar falling, and commodities on the rise, keeping rates near zero will only fuel speculation and anger America's economic partners and foreign creditors - and potentially stoke inflation.

Gasoline and diesel prices will fall again by Thanksgiving to around into the $2 per gallon range with further decreases down to $1.75 to $1.50 per gallon possible by Christmas 2009. Oil companies typically try to empty their storage tanks by that time each year causing drastic fuel price decreases. They are forced to do in order to reduce their overall profits for the year since they use the last in/first out method of accounting.

Then the cycle starts all over again after January 1, 2010 when refineries, switching back to producing gasoline and diesel, attempt to replenish low inventory levels. It typically causes fuel prices to spike by spring time and we are off to the races in trying to have supply catch up with demand.

Enjoy it while you can but be sure to save your pennies for the summer next year when the price of gasoline and diesel will be reaching back up to the $3 per gallon mark at your favorite gas station.

Disclosure: The writer does not have any investment in the equity or commodity markets.

Comments

[ryanclarke:]

If the dollar continues to weaken and gasoline continues NOT to be imported from oversees into the United States, the U.S. should experinece a rerun of the Fall of 2007. My prediction is the following: increasing gasoline consumption in the U.S. ( +9 MBPD ) should produce low levels of gasoline in U.S. storage within the next two months which should induce oil to at least $100/drum by next spring.

Oct 20 01:27 PM

[G. L. Turner:]

Once again the name gov sachs jumps up in an article as the "culprit" behind a sinister group that is 'messing with the markets', moving them away form fundamentals and controlling them for personal gain.

What Bob is citing above is "the way it is suppose to work" - you know, natural industry (inventory tax) and seasonal cycles.

The problem ow is this...GS, JPM and MS and seen how they can corral as little as $9BN and situated it in the energy futures market and then sit back and move the price up or down...have you noticed how the Oil and Gas has moved smoothly in cycles of $10 - $63 to $74, and RBOB between $165 and $2.07, in 2 to 4 week swing directions since March..all the time the fundamentals not changing, but with 'excuses' derived form any and all upticks in economic news or mild swings in the currency? See, this alows for them to 'push' up the prices based on these tidbits for two weeks, and then short back the prices after others have flowed in, leaning back on the s/d funda argument for a couple of weeks...only to do it all over again the next month...Just like paying a sweet violin.

How do you like the concert America, just when you are struggling to get back on your feet and the price of gasoline is the fastest and best way to either help or hurt 95% of all Americans, Government and Small to Mid-size business...
Time for this sad song/concert and now new business style to go away!

Where is our CFTC regs we were promised by Obama?....Getting short on patience with that dude too, now.

Oct 21 10:17 AM

[Ron2008:]

Yes there will be decreasing imports, but there are zero signs of increasing demand. And today's jump up in prices will not help demand at all.

I fail to see how a report that said gasoline demand decreased was bullish for prices. But that is where the specs want it to go.


On Oct 20 01:27 PM ryanclarke wrote:

> If the dollar continues to weaken and gasoline continues NOT to be
> imported from oversees into the United States, the U.S. should experinece
> a rerun of the Fall of 2007. My prediction is the following: increasing
> gasoline consumption in the U.S. ( +9 MBPD ) should produce low levels
> of gasoline in U.S. storage within the next two months which should
> induce oil to at least $100/drum by next spring.

Oct 21 04:05 PM

[Bob van der...:]

On Oct 21 10:17 AM G. L. Turner wrote:

Once again the name gov sachs jumps up in an article as the "culprit" behind a sinister group that is 'messing with the markets', moving them away form fundamentals and controlling them for personal gain.
Where is our CFTC regs we were promised byObama?....Getting short on patience with that dude too, now.

Bob van der Valk response - Goldman Sachs paid $14 million in taxes worldwide for 2008 compared with $6 billion in 2007. The company’s effective income tax rate dropped to 1 percent from 34.1 percent. According to Robert Willens, president and chief executive officer of tax and accounting advisory firm Robert Willens LLC: “Clearly they have taken steps to ensure that a lot of their income is earned in lower tax-jurisdictions”

Oct 22 06:00 AM