Bob van der Valk

An Abundance of Gasoline: A Thanksgiving Day Tradition

Shaggieman:

Crude oil prices are being driven by ICE and CME and are controlled by giant investment firms with Goldman Sachs leading the pack and being their cheerleader. Refineries on the other hand have to rely on a steady supply of crude oil related to the price those products will fetch on the open market. The short answer to the question you ask is: "Hell, yes!"


On Nov 11 10:06 AM Shaggieman wrote:

> Hey Bob, guess we don't get the big drop in WTI crude price this
> year? Are you still convinced we're going lower again?

An Abundance of Gasoline: A Thanksgiving Day Tradition

This government web site does not explain the restrictions about any environmental affects from producing gasoline in the foreign countries in which the refineries are located. The quality of gasoline does meet current standards. The Indian and Chinese refineries produce high 13 lb RVP conventional gasoline year- around. Therefor they do not have to go through expensive turn-a-rounds in order to meet the 7 lb RVP oxygenated blend component gasoline required during the summer in states like California.


On Nov 10 11:29 AM ryanclarke wrote:

> The author's article wrote, "Those refineries do not have the same
> environmental concerns as their U.S. counter parts and are able to
> produce the winter grade high Reid Vapor Pressure gasoline at very
> economical prices." I DISAGREE WITH THIS STATEMENT. To find out for
> yourself where foreign gasoline comes from go to U.S. IMPORTS BY
> COUNTRY OF ORIGIN at tonto.eia.doe.gov/dnav...

Don't Believe Long-Term Oil Forecasts

And they will!


On Nov 09 08:32 AM John Eickholt wrote:

> I hope these oil traders will have to drink the oil for their New
> Years EVE drink.

Tiber Oilfield Spells Major Upside for Prices

The Americian oil companies are happy sitting on their crude oil reserves while importing most of the raw materials to run their refineries from abroad. The Petrobas and BP (stands for British Petroleum not Beyond Petroleum) are foreign owned oil companies investing capital into exploring and producing new oil fields.

Another hugh factor will be the fact that the Alberta Canada oil sands companies are gearing up to increase pipeline capacity to pump more crude oil to the US Gulf oil company refineries.

Good information in this article just the wrong headline. Crude oil prices will continue to fluctuate and follow the price of gasoline at the pump instead of in reverse. That is not the case with distillates with prices in lockstep with the price of crude oil. Diesel and jet fuel will move 2.5 cents per gallon for every $1 a barrel of crude oil.

BP's former chairman Sir John Browne divulged during an interview for 60 Minutes in November 2006 that the crude oil in deepest part of the Gulf of Mexico could be brought in for $40 a barrel. Any price they fetch over that will be pure profit.

Are Gasoline Prices Really Declining?

Jimbo and JeffDB thanks for your kind comments. Jeff - I will follow up on your suggestion and start posting all of my articles on the gasbuddy.com web site. Jimbo - I have already been invited to speak to the Energy Club at the University of Alberta via Skype. I will entertain any other speaking engagement from similar organizations using this method.

It's amazing that between Twitter, Facebook and LinkedIn I have been able to stay in touch from almost anywhere with what is happening in the world including the remote areas here in Montana. It's too bad that my iPhone cannot access G3 when I travel into the Badlands of Montana or North Dakota. It seems like we are still in the Pony Express days in this area when it comes to pulling my email or use Twitter while riding around in the back country.

Are Gasoline Prices Really Declining?

JeffDB - As a matter of fact I do have a gasbuddy.com account but have not had to use it since moving to Terry in Eastern Montana. We only have the Four Corners gas station here in town so there are no other choices for buying gas other than driving to either Glendive or Miles City. Both of those towns are about 45 minutes drive and it would take about 4 gallons in my car to save a couple of pennies.

Back to the Future for U.S. Oil Refiners

Seeking Truth is correct in his statement about the U.S. petroleum industry being an oligopoly and that they send out smoke signals to each other. First they have Energy Information Agency publishing their inventory statistics through the weekly Department of Energy stock report. Second their wholesale prices are posted to media providers of energy infomation i.e. Platts and Oil Price Information Service. Third, and this the one in most quoted and hardly understood, is The Lundberg Survey publishes its every Sunday update on the average price of gasoline in the U.S to the media. The latter is also the one the major oil companies are using to track each other's Dealer Tank Wagon (DTW) prices. By subcribing to the Lundberg Survey as a third party intermediary they are able to determine each other's DTW prices on a daily basis. Those are prices charged by their competitors in each locality down to the corner gas station. And in turn allows them to control pump prices for gasoline to what the market will bear. It's called zone pricing and I have written on extensively in my previous articles.

Back to the Future for U.S. Oil Refiners

Crude oil prices would have gone below $40 a barrel if the oil workers strike had come off as planned. With wet barrels already backing up in the pipeline to the refinery system the price would have been further depressed with any interruption at the refinery level. My theory explained in the above article, that crude oil prices will be driven by gasoline prices, uses average costs to determine the possible price crude oil by June 1, 2009. For instance the current Los Angeles Basin refining crack spread is a staggering $32.50 a barrel or 77 cents per gallon. That cost is shown as being shown as a typical 35 cents per gallon average in my graph. Crude oil producers will not allow that kind of profit at the refining level and that in turn will firm up the price of crude oil. Other factors such as demand levels and geo-political events will continue to have an affect as well. What is missing? Answer: The paper barrel crude oil traders dealing in the staggering volumes as they have in the past few years. Crudomania is over! Please see my previous article on that subject.

Crudomania Is Over

What I found interesting that the CBS' 60 Minutes segment entitled "Did Speculation Fuel Oil Price Swings" basically agreed with my premise outlined in the "Crudomania" article. For the record I consider myself an insider of the petroleum industry and have worked in the refining and marketing end of our business for over 49 years.

Crudomania Is Over

Searcher - The complete quote I chose not to use for my article was: "Crude oil forecasting is like trying to drive a car blindfolded and following directions given by a person who is looking out of the back window."

I used the tulip bulb bubble reference due to my Dutch heritage. if the Dutch have learned anything is that history tends to repeat itself. The question is which commodity or investment will be the next darling of the investment community on which to create an specalutive bubble, which is defined by Wikipedia as: "Trade in high volumes at prices that are considerably at variance with intrinsic values”.

Crudomania Is Over

To respond to the comments by the readers of my article I only projected crude oil prices to "float" between $40 and $75 per barrel for the year 2009, which for petroleum industry purposes does not qualify for long term planning.

Also in doing the research for my "Crudomania" article I found the following item in "Off the sauce -Gas prices plunge but driving habits stay curbed"written by Jennifer Waters, on MarketWatch dated 12-31-08:

"Even though prices at the pump are now about 45% lower than they were a year ago and significantly below $2 a gallon, 52% of Americans told Gallup that they have not gone back to their old gas-guzzling ways.
Gallup found that middle- to lower-income consumers -- those who earn less than $75,000 a year -- were most likely to consolidate trips and drive less overall, primarily because gas prices at the pump eat up a larger percentage of their incomes.

Of those who made less than $30,000 a year, 69% said they changed their habits while 68% of those in the $30,000 to $74,000 annual income range did. Fifty-six percent of those whose annual paychecks exceeded $75,000 did.

There is not much difference in behaviors among age groups when it comes to young adults and those who are older. Sixty-one percent of consumers 18 years old to 34 years old shifted their driving habits, while 62% of those 55 years and older did.

Of those who are 35 years old to 54 years old, 67% altered how often they got behind the wheel. "Of course, this seems logical because at this stage of the life cycle, as these Americans are more likely to have to commute and to have children involved in many after-school activities," Gallup Chief Economist Dennis Jacobe said."

This was the most elaborate outline I could find explaining the reasons why a majority of American consumers have now permanently changed their driving habits.