Gasoline at $4 Coming to a Pump Near You, Unfazed by Rising Tab

[Donger]

http://www.bloomberg.com/apps/news?p...d=afOlUzd30YOo

Pretty alarmist, IMO, but possible.

Spoiler!

April 23 (Bloomberg) -- Whether it's $50 to fill up your Prius or $130 for the Ford Expedition, $4-a-gallon gasoline is coming to a pump near you.

Fuel prices are rising at a pace not seen since Hurricanes Katrina and Rita knocked out a third of the U.S. oil refining industry in 2005. Gasoline consumption is climbing twice as fast as last year and will accelerate when summer travel begins late next month.

``What we're surprised by is the increased demand,'' said James Mulva, chief executive officer at ConocoPhillips, whose refineries from California to New Jersey produce 56 million gallons of gas a day, enough to meet 14 percent of the country's needs. ``Even though the price of gasoline is up, the demand is up,'' he said in an April 12 interview in Houston.

Population gains and U.S. economic growth are causing an increase in fuel purchases, according to Orlando, Florida-based AAA, the nation's largest organization for motorists. The U.S. economy will expand at a 2.4 percent annual pace in the second quarter, up from 1.8 percent in the first three months, according to the median estimate of 74 economists surveyed by Bloomberg. Gasoline use is rising almost 5 percent above the five-year average.

Americans are resigned to higher prices, says David Pursell, a principal with Pickering Energy Partners, a consulting firm in Houston.

``Last year, we had pump prices well over $3 for the summer and gasoline demand was up,'' Pursell said in an interview. ``Would $4 gasoline cause demand contraction? I think it will, but I also thought $3 gasoline would.''

Pump Prices

Gasoline inventories, measured by the days of demand they will cover, are at the lowest level in two decades for this time of year because of refinery fires, power failures and maintenance work oil companies failed to complete in 2006. No new U.S. refinery has been built in three decades, increasing the strain on existing plants.

Pump prices in the U.S. may increase to $4 a gallon from a nationwide average of $2.87 today, especially if hurricanes threaten Gulf of Mexico refineries, says Peter Beutel, an analyst at Cameron Hanover Inc. in Stamford, Connecticut, who helps industrial consumers manage energy costs.

``Hurricanes are always the huge wild card,'' said Beutel. ``We're all praying for a year like 2006 rather than 2005.''

The June-to-November Atlantic Ocean hurricane season may produce 17 tropical storms, with nine reaching hurricane force and four becoming major hurricanes whose winds exceed 111 miles per hour (179 kilometers per hour), London-based forecasters at Tropical Storm Risk said. Some of the storms will strike the Gulf Coast this year after a benign 2006, AccuWeather.com predicted.

Inflation Risk

Higher pump prices will make winners of refinery owners such as ConocoPhillips, San Antonio-based Valero Energy Corp. and Royal Dutch Shell Plc of The Hague. Shares of Valero and Sunoco Inc., whose only business is refining, are rebounding after a decline at the end of last summer.

The increase in fuel costs threatens to quicken inflation and restrain consumer spending in the U.S. An appreciation to $4 a gallon would add more than $10 for a driver who fills the 12- gallon tank of a Toyota Motor Corp. Prius. The owner of an Expedition, a Ford Motor Co. sport-utility vehicle with a 34- gallon capacity, faces an increase of almost $40.

Many Americans have no choice but to drive more, says Christopher Knittel, an economist who studies fuel consumption at the University of California in Davis.

More Commuters

``We live farther from our jobs than we did in the 1970s, and with the rise of dual-income households, we now have two people who drive those distances every day,'' Knittel said.

Consumers also do more driving for things such as taking children to soccer practice, which they are unlikely to quit, he said. The U.S. population has increased 1 percent a year in the past decade to 301 million in 2007, adding to demand for gasoline, economists said.

Rising fuel prices make it less likely that Federal Reserve policy makers, who have cited inflation risks for the past year, will cut interest rates to spur economic growth. Before the hurricane-induced peak in 2005, U.S. gasoline topped out at $1.42 a gallon in March 1981, or $3.21 when adjusted for inflation, according to the Energy Department.

Economies in Europe and Asia are less likely to be hurt by gasoline prices because fuel already is subject to high taxes designed to encourage conservation. A gallon of unleaded costs about 3.25 pounds a gallon ($6.49) in the U.K., and in Japan it's 130.3 yen per liter ($4.16 a gallon).

$4 Barrier

U.S. consumers will get little relief on gasoline prices from Europe this year, unlike 2005, when oil companies shipped more across the Atlantic after the hurricanes. Europe's gasoline inventories in February were 114.2 million barrels, down 11 percent from two years earlier, according to the International Energy Agency in Paris. The drop in Europe was almost twice the 5.7 percent decline in U.S. supplies in that time.

``Just as we used to think $3 a gallon was an impenetrable barrier, now it's $4,'' said Peter Morici, a professor at the University of Maryland School of Business in College Park and former chief economist for the U.S. International Trade Commission. Gasoline at $3.50 is likely, Morici said, and a conflict with Iran or any event that disrupts crude supplies may push it to $4.

Pump prices rose 33 percent in the past 11 weeks, the fastest rate of gain since a six-week, 34 percent rally to the record $3.069 in September 2005, Energy Department data show.

Bodman's `Worry'

U.S. Energy Secretary Samuel Bodman in an interview last week said the national average pump price could break the record this summer. While his agency's official forecast is for gasoline to peak next month at about where it is today, hurricanes, refinery closures or crude oil supply cuts may send prices higher, he said.

Higher prices are ``a legitimate worry,'' Bodman said. ``We have trouble spots all over the world'' that could boost crude oil prices. ``We're in a very tight situation.''

Spending on fuel in the U.S. consumes half as much household income as in the early 1980s, which means gasoline would need to reach almost $6 a gallon to have the same effect on the economy as in 1981, according to the Federal Reserve Bank of Dallas.

Storage tanks at U.S. refineries, terminals and ports hold enough gasoline to cover almost 22 days of domestic demand, 8.2 percent less than the five-year average and the lowest for this time of year since the 1980s, Energy Department figures show.

Shortages

Valero-owned filling stations in Denver and Colorado Springs, Colorado, ran dry after a Feb. 16 explosion and fire shut the company's McKee refinery in Sunray, Texas. A day earlier, a blaze at an Exxon Mobil Corp. plant in Nanticoke, Ontario, slashed output, resulting in shortages and higher prices across eastern Canada.

The McKee shutdown strained supplies so much that ConocoPhillips postponed maintenance at its Borger, Texas, refinery north of Amarillo to prevent shortages in the region.

``Refineries are becoming more complex,'' Mulva said in the Houston interview. ``What we're finding is it's more difficult keeping reliability up with more sophisticated pieces of equipment that are highly integrated.''

Tesoro Corp. of San Antonio, the second-largest refiner in the western U.S., said first-quarter refinery use dropped because oil companies delayed until this year maintenance that could have been done in 2006. The portion of U.S. refining capacity that was in operation in the first quarter declined to 87.3 percent from 88.9 percent a year earlier, according to Energy Department data.

`Refineries Blow Up'

``Prices will depend entirely on whether we have a couple of refineries blow up,'' said Philip K. Verleger, an economist who runs a consulting firm in Newport Beach, California. ``It's almost impossible we'll get to $4 a gallon if all the refineries run well this summer. But if something happens and there are problems, then anything's possible.''

The average share gain for Valero, Tesoro and six other oil-refining companies is 26 percent this year, outperforming the 4.1 percent gain for Exxon Mobil and a 4.7 percent increase for the Standard & Poor's 500 index.

The shares will continue to rally, said Paul Carlson, who helps manage $3 billion at HGK Asset Management in Jersey City, New Jersey.

``Refiners are doing very well these days,'' said Carlson, whose holdings include ConocoPhillips, the second-biggest U.S. refiner. ``There will be lots of demand for any new refining stocks.''

`Back in Favor'

As recently as August, investors were selling oil refiners on concern an economic slowdown would slash fuel demand in the U.S., the world's largest energy market. During seven weeks last August and September, Valero shares fell 29 percent, wiping out $12 billion in market value.

``Refining is very much back in favor,'' said Douglas Ober, who helps oversee $2.3 billion at Baltimore-based Adams Express Co. ``Even with higher prices, we haven't seen any substantial cutback in demand. They're cranking out as much of this stuff as they can, and we're throwing it in our tanks as fast as we can.''

The margin earned from processing crude oil into fuels rose to $24.68 a barrel on April 11, the highest since right after the hurricanes in September 2005. The margin has since retreated to $22.12 a barrel, still about double the five-year average.

``It'll be a fairly tight gasoline market all through the summer,'' said Robert Hinckley, an analyst at Rochdale Securities in New York.

[cadmonkey]

Originally Posted by boogblaster

If elected, I'll bring back free-love..nickel-beer..and $1.00 a gallon gas...Your vote will be appreciated....

whats the catch? there has to be a catch. i'm not giving you a hand job or nothing.........

[HonestChieffan]

Lest we forget, the Coffeyville refinery was out of business, dead broke, and helped bring Farmland Industries to financial ruin.

Now it has a bad week and the price of fuel is dependent on the good people of SE Kansas.

Americans will pay anything to have thier cars so I say tax em.

[Abba-Dabba]

Originally Posted by HonestChieffan

Lest we forget, the Coffeyville refinery was out of business, dead broke, and helped bring Farmland Industries to financial ruin.

Now it has a bad week and the price of fuel is dependent on the good people of SE Kansas.

Americans will pay anything to have thier cars so I say tax em.

I heard a interesting tidbit a couple months ago from a petroleum engineer...

At todays price for a barrel of oil, you know what the difference is between 2.50 gas and 1.75 gas? A oil company making 20b in profit vs. 30b in profit.

[Donger]

Americans would hit brakes if gas hits $3.50

NEW YORK (Reuters) - Some 40 percent of Americans would curb their driving habits if retail gasoline prices shot up to $3.50 a gallon, according to a Reuters/Zogby poll released on Wednesday.

Surging energy costs have already forced many Americans to consider cutting back on travel, retail, and entertainment spending to ease sticker shock at the pump, according to the poll of 524 people across the country.

Gasoline prices in the United States, the world's largest energy consumer, hit a record average in late May of $3.23 a gallon but have since slipped back to just above $3 a gallon, according to auto and travel association AAA.

"It's so hard to read what consumer behavior is going to be at higher price points -- be that $3.50 per gallon or $4 per gallon -- because we're all in uncharted territory," said Geoff Sundstrom, a spokesperson for AAA.

Price thresholds for cutting time on the road varied, with about 19 percent of participants responding they would cut back at $4 per gallon. Another 9 percent said it would take $4.50, while 7 percent said prices would have to reach $5 a gallon before they would scale back.

Some 19 percent indicated that they could not cut their road travel no matter how high prices climb.

The only time AAA has observed flagging consumer demand for gasoline was after prices soared to $3.07 a gallon after Hurricane Katrina in August 2005, Sundstrom said.

Prices hit a fresh record this year due to a spate of refinery problems that cut fuel production during the spring and as geopolitical tensions raised the cost of crude -- the main feedstock for gasoline.

"With each passing year, we're experiencing new highs," said Sundstrom. But he added, "We've not had a climate where large numbers of Americans are fearing for their economic future."

As energy costs rise, 39 percent of the people in the poll said they would compensate by limiting their energy use, while 22 percent said they would cut entertainment spending and 12 percent said they would cut retail spending.

Economists have been concerned that high energy costs could have a knock-on effect on the U.S. retail sector.

In some parts of the United States, gasoline prices are already near or above $3.50 per gallon. Motorists in Juneau, Alaska, are paying $3.47 while in Wailuku, Hawaii, they are paying $3.59 a gallon, AAA said.

The Reuters/Zogby poll also reflected the increasing popularity of gasoline-electric hybrids, with 45 percent of people polled saying they expected to own a hybrid in 10 years, compared with 20 percent who said they expected to own a gasoline-only car.

Hybrid car sales have grown by more than 50 percent during the last year, according to HybridCars.com, while the overall car market shrank by 3 percent. Sales of the Toyota Prius, the most popular hybrid in the United States, rose 83 percent.

The findings are the result of questions asked between July 12 and 14 of 524 U.S. voters who identified themselves as members of an "investor class." The poll has a margin of error of plus or minus 4.4 percentage points.

The respondents were a subset of a broader survey of 1,012 likely voters who were asked about topics ranging from President George W. Bush's performance to whether they shopped at Wal-Mart Stores Inc.

[HonestChieffan]

the system works! we demand a lot of oil based fuel...they produce almost enough....thus supply is just near demand but price is the allocation tool. Ohh yea? you men economics works without some jackleg congressman involved? Hoorayyyyy

Next?

[Donger]

$2.949 national average.

[Calcountry]

Originally Posted by Saggysack

Not only that, but, don't they produce heating oil in the summer months and gasoline in winter months?

So if they were producing heating oil, why is the price of fuel, that has already been refined, now costing us more when it didn't cost them more?

A supplier sells his inventory for whatever the market will bear at that given time, and he/she does so in a totally self serving interest, attempting to make as much as possible without driving away business to a competitor.

Don't they teach econ in High School where you are at?

[HonestChieffan]

We Americans deserve the prices and will untill we decide to be a country that doent need a 500 HP Viper engine in half ton pickups and $WD SUVs to get a quart of grape juice at the store.

[chasedude]

Originally Posted by HonestChieffan

We Americans deserve the prices and will untill we decide to be a country that doent need a 500 HP Viper engine in half ton pickups and $WD SUVs to get a quart of grape juice at the store.

I've been taming down my short trips. No more driving a couple blocks to get a gallon of milk. I walk it now.

[Donger]

$2.922 national average.

[Donger]

$2.893

[dirk digler]

$6.23

[Donger]

$2.859 national average.

[Donger]

N.Y. Oil Rises to a Record Close on Signs Supply Is Inadequate

By Mark Shenk

July 31 (Bloomberg) -- Crude oil rose to a record close of $78.21 a barrel in New York on speculation demand will outpace supply as refiners increase fuel production.

Bets on rising prices by hedge funds and other speculators rose to a record earlier this month, according to U.S. Commodity Futures Trading Commission data. Global demand will climb 1.7 percent in 2008, showing no sign of slowing because of high prices, a Deutsche Bank AG report showed. A government report tomorrow may show U.S. oil supplies fell for a fourth week.

``There's significant growth in global energy demand and production isn't keeping up,'' said Peter Schiff, an investment adviser and president of Euro Pacific Capital Inc., in Darien, Connecticut. ``Prices have to rise because of this imbalance. I'm sure we are going to pull above $100 a barrel in 2008.''

Crude oil for September delivery rose $1.38, or 1.8 percent, to settle at $78.21 a barrel at 2:57 p.m. on the New York Mercantile Exchange, the highest close since trading began in 1983. Futures touched $78.28, the highest intraday price since reaching a record $78.40 a barrel on July 14, 2006.

Oil in New York rose to a record last year on concern fighting in Lebanon between Israel and Islamic militia Hezbollah would spread through the Middle East.

A U.S. pullout from Iraq may be the event that pushes oil to $100 a barrel this year, according to Boone Pickens, the Dallas hedge fund manager who has joined Forbes Magazine's list of billionaires because of his bullish bets on energy prices.

Brent crude oil for September settlement rose $1.31, or 1.7 percent, to close at $77.05 a barrel on the London-based ICE Futures exchange. Brent oil touched a record $78.64 on Aug. 7, 2006, after BP Plc closed Alaska's Prudhoe Bay oil field.

Lost Premium

Brent, which is produced in the North Sea, lost its premium over West Texas Intermediate blend, the U.S. benchmark, last week. Brent had been higher than New York-traded WTI for most of this year, as crude-oil supplies rose at Cushing, Oklahoma, the delivery point for Nymex futures. The U.S. grade traded at a record $6.54 a barrel discount to Brent on May 24, based on closing futures prices.

``There's a lot of speculative money in the market and it's all weighed toward higher prices,'' said Brad Samples, commodity analyst for Summit Energy Services Inc. in Louisville, Kentucky. ``They are latching on to anything that's bullish, which at the moment is the prospect that crude stocks fell last week.''

Net-long positions in crude-oil futures held by speculators reached a record of 112,287 contracts in the week ended July 10 on the Nymex, according to U.S. Commodity Futures Trading Commission data. Long positions are bets that prices will rise. Net-long positions slipped to 108,782 contracts in the week ended July 24, according to the CFTC.

`Plenty of Oil'

``It's hard to justify $78 oil right now,'' said Eugene X. Hodge, a managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. ``You have to look at the speculators. The fundamentals don't support these prices because there's still plenty of oil out there.''

Crude-oil supplies dropped 1.13 million barrels in the week ended July 27, according to the median of responses by 14 analysts surveyed by Bloomberg News before tomorrow's report.

``The path of least resistance is up,'' said Tom Bentz, a broker at BNP Paribas in New York. ``Earlier this year the products led us higher but that's no longer the case. Crude is now taking the lead as the crack has come in sharply.''

The profit margin, or crack spread, for turning crude oil into fuels is up 43 percent this year. It rose to $30.479 on May 17, the highest since at least 1989, based on closing futures prices in New York. The margin tumbled to $10.43 yesterday, the lowest since Feb. 16.

Record profit margins on gasoline and diesel pushed Valero Energy Corp. net income 19 percent higher during the second quarter, the company said. Profit climbed to a record $2.25 billion, San Antonio-based Valero said today in a statement.

Rising Demand

Oil demand in China may increase 5.6 percent in 2008 with the potential for further gains because of additional energy use prompted by the Beijing Olympic Games, Deutsche Bank analyst Adam Sieminski wrote in a report dated July 27. China's daily oil use will grow by 430,000 barrels a day to 8 million barrels next year, Sieminski wrote.

The International Monetary Fund on July 25 raised its forecast for world economic growth to 5.2 percent for this year and next.

``Given IMF projections and the very slow ramp-up in production, higher prices are inevitable,'' said Stephen Leeb, president of Leeb Capital Management, which oversees $170 million in New York. ``The high price in dollars isn't that great for OPEC because of the strength of the euro.''

The dollar has traded at a discount to the euro this year, making dollar-priced oil imports cheaper for the 13 nations that share the euro. In U.S. dollars, West Texas Intermediate, the New York-traded crude benchmark, is up 5.1 percent in the past 12 months. Oil has dropped 2 percent in euros, 3.6 percent in British pounds and has risen 9.3 percent in yen.

[Donger]

$2.825