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.

[xbarretx]

Originally Posted by oldandslow

We'll agree to disagree then. I would argue that supply is much tighter than you indicate. Further, even if crude production is ongoing, we are talking about using trillions of barrels in a little over 150 years. It ain't being made at nowhere near that rate.

BTW just for giggles...

Year Cost (gas) Jan 1

1918 $0.25

1928 $0.21

1938 $0.19

1948 $0.27

1958 $0.31

1968 $0.35

1978 $0.84

1988 $1.02

1998 $1.17

2008 $3.06

Obviously the greatest leap in nearly 100 years was between 98 and 08 - The great depression only impacted gas by 2 cents (demand destruction). The 70's crisis more than doubled it. That caused a major recession (the Carter years) Now we are talking about tripling it. Ugh.

thus bring on the recession so all the speculators can lose oodles of money to write off in there taxes (assuming there subject to U.S. taxes) for the next few years. then life can return to normal

[oldandslow]

Originally Posted by xbarretx

thus bring on the recession so all the speculators can lose oodles of money to write off in there taxes (assuming there subject to U.S. taxes) for the next few years.

You are giving far too much heed to speculators. China, India, and our ever-increasing demand are the culprits behind this particular moment in time.

[xbarretx]

Originally Posted by oldandslow

You are giving far too much heed to speculators. China, India, and our ever-increasing demand are the culprits behind this particular moment in time.

I agree and understand fully that those are developing thus consumption is increasing exponentially. What I do not agree with is the notion about supplies. Yeah the 70's doubled prices and there was gas lines actually shortages.....last time I checked there no lines at any gas station. that’s what i mean by speculation, the demand in other countries is rising, but there enough oil to go around for now at least. Gas and oil should be rising with demand but for the exponential raises were seeing, there should be mass shortages. its funny, people keep talking about shut downs and lack of refining capacity. Which I belief is true however, unless it gets to a point to where there isn’t enough product to sell the speculation is worthless as there obviously enough gas.

Yes I know I am crazy, but does that explain my POV?
And with all of this going on I would like to belief our country would be doing more to get us out of this mess. But as always, let’s wait till gas is 8+ before anything’s done and the economy comes to a screeching halt. Why? Because it’s a fact that Oil has long arms and that people in high places have deep pockets needing to be filled.

What people are betting on is that there will be shortages....however I got to side with the Donger, and again throw the BS card. That wont happen for quite some time and when it does we should of transitioned into a new form of energy (hopefully renewable)

[Donger]

Originally Posted by oldandslow

We'll agree to disagree then. I would argue that supply is much tighter than you indicate. Further, even if crude production is ongoing, we are talking about using trillions of barrels in a little over 150 years. It ain't being made at nowhere near that rate.

BTW just for giggles...

Year Cost (gas) Jan 1

1918 $0.25

1928 $0.21

1938 $0.19

1948 $0.27

1958 $0.31

1968 $0.35

1978 $0.84

1988 $1.02

1998 $1.17

2008 $3.06

Obviously the greatest leap in nearly 100 years was between 98 and 08 - The great depression only impacted gas by 2 cents (demand destruction). The 70's crisis more than doubled it. That caused a major recession (the Carter years) Now we are talking about tripling it. Ugh.

I don't dispute that PRESENT supply and demand are tight. I dispute the notion that it is tight because actual crude in the ground is running out. It isn't. As you point out, there is plenty left out there, but it becomes harder and more expensive to produce. If the economics make sense, it will be drilled and in the case of shale, "mined."

[penguinz]

Originally Posted by xbarretx

i agree and understand fully that those are developing thus consumption is increasing exponentally. what i do not agree with is the notion about supplies.

yeah the 70's doubled prices and there was gas lines actualy shortages.....last time i checked there no lines at any gas station. thats what i mean by speculation, the demand in other countries is rising, but there enough oil to go around for now at least. gas and oil should be rising with demand but for the exponental raises were seeing, there should be mass shortages. its funny, people keep talking about shut downs and lack of refining compacity. which i belief is true however, unless it gets to a point to where there isnt enough product to sell the speculation is worthless as there obviously enough gas.

yes i know im crazy, but does that explain my POV ?

and with all of this going on i would like to belief our country would be doing more to get us out of this mess. but as always, lets wait till gas is 8+ before anythings done and the economy comes to a screeching hault. why? b/c its a fact that Oil has long arms and that people in high places have deep pockets needing to be filled.

If you are going to debate a topic at least know how to spell, type and use proper grammar. I am pretty sure that I lost IQ points reading what you just posted.

[xbarretx]

Originally Posted by penguinz

If you are going to debate a topic at least know how to spell, type and use proper grammar. I am pretty sure that I lost IQ points reading what you just posted.

The typo's are due to typing fast in attempt not to lose my train of random thoughts.


EDITED (proof reading is not my Forté)
I agree and understand fully that those are developing thus consumption is increasing exponentially. What I do not agree with is the notion about supplies. Yeah the 70's doubled prices and there was gas lines actually shortages.....last time I checked there no lines at any gas station. that’s what i mean by speculation, the demand in other countries is rising, but there enough oil to go around for now at least. Gas and oil should be rising with demand but for the exponential raises were seeing, there should be mass shortages. its funny, people keep talking about shut downs and lack of refining capacity. Which I belief is true however, unless it gets to a point to where there isn’t enough product to sell the speculation is worthless as there obviously enough gas.

Yes I know I am crazy, but does that explain my POV? With all of this going on I would like to belief our country would be doing more to get us out of this mess. But as always, let’s wait till gas is 8+ before anything’s done and the economy comes to a screeching halt. Why? Because it’s a fact that Oil has long arms and that people in high places have deep pockets needing to be filled.

[Chiefmanwillcatch]

Make all cars run on ethanol or biodiesel.

Make it law.

[xbarretx]

Originally Posted by Chiefmanwillgetyou

Make all cars run on ethanol or biodiesel.

Make it law.

While ethanol is renewable its not the most efficient fuel sub. it takes more energy to make a unit of energy from ethanol than gas. (i.e. farming the corn, transportation, logistical issues, etc.) If the U.S. wanted to be serious we would emulate Venezuela and make sugar ethanol.

as for bio diesel, that’s good right now but there will come a point when you cant get free used oil b/c there will be a large market for it.
im waiting for the fuel cell to be mainstream. That’s our real long term answer to kicking the oil addiction.

Personally i feel that strict laws are needed to get the ball rolling on this serious issue. However, opponents will say that its not economically viable to force such items. i disagree because a perfect example is Japanese car manufactures and U.S. manufactures. im sure (sorry to bring it up) Toyota spent a boat load on R & D for the Prius but that technology is paying dividends and thus U.S. is playing catch up b/c there responses are pathetic. Look, I made a hybrid SUV that get 20 something miles to the gallon and its priced thousands more than the regular model thus guaranteeing at least 7 years to recoup the cost in fuel savings. The technology is out there and laws need to be put into place

[Donger]

Originally Posted by xbarretx

If the U.S. wanted to be serious we would emulate Venezuela and make sugar ethanol.

I think you are referring to Brazil. And, no, we don't have the requisite climate for growing massive amounts of sugar that would be needed to replace gasoline. In fact, even if we switched all of our corn production to provide ethanol, it still wouldn't be enough.

Ethanol is a good supplement, nothing more.

[xbarretx]

Originally Posted by Donger

I think you are referring to Brazil. And, no, we don't have the requisite climate for growing massive amounts of sugar that would be needed to replace gasoline. In fact, even if we switched all of our corn production to provide ethanol, it still wouldn't be enough.

Ethanol is a good supplement, nothing more.

....Brazil? probably right, glad your keeping me honest Donger

and i agree, ethanol isnt the answer. im sick of paying for it at the grocery store. Thus fuel cell is the answer.

p.s., i think you missed my post when i called out your sig quote.

all you need is to have a picture of him wearing bunny slippers at the end of the movie "its a moral imperative"

[Donger]

Originally Posted by xbarretx

p.s., i think you missed my post when i called out your sig quote.

all you need is to have a picture of him wearing bunny slippers at the end of the movie "its a moral imperative"

No, I didn't miss it.

[xbarretx]

Originally Posted by Donger

No, I didn't miss it.

i bet only a handfull got that quote and i dont mean to toot my own horn but, TOOT TOOT

[Donger]

Originally Posted by xbarretx

i bet only a handfull got that quote and i dont mean to toot my own horn but, TOOT TOOT

I believe you may be confused. The words in my sig were uttered by Severn Darden, who played Dr. Meredith in Real Genius, not Val Kilmer's character, Chris Knight.

However, both characters were shown wearing bunny slippers near the end of the film.

[xbarretx]

Originally Posted by Donger

I believe you may be confused. The words in my sig were uttered by Severn Darden, who played Dr. Meredith in Real Genius, not Val Kilmer's character, Chris Knight.

However, both characters were shown wearing bunny slippers near the end of the film.

correct, the short bearded guy, the moral imperative was given by Val and the young kid (remember when there on the roof?) i was saying the moral imperative to toss another quote from the movie

regardless, its one of my favorite movies

[Donger]

National average price is $3.13 per gallon. $0.74/gallon higher than last year at this time.

The good news: gasoline inventories are 12 million barrels higher than this time last year and almost 8% above the 5-year average.

The bad news: crude is $40/barrel higher right now than last year at this time.

Expect national retail averages in the $3.50 to $3.75 range, with spot prices well above $4.00 in the usual locations, by March/April, IMO, unless crude drops significantly.

On the plus side, we dropped gasoline demand by 1.1% over the last four week period. That doesn't sound like much, but it is.