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.

[Calcountry]

Originally Posted by Saulbadguy

The price is pretty artificial at this point. It's gotta crash sometime.

It is real, if you pay it.

[Stewie]

Here's a color coded map of gas prices across the nation. Handy if you'll be traveling this summer. Illinois is getting fooked and I heard the Chicago area has 20% tax on gasoline. Sheesh!

http://www.kcgasprices.com/Price_By_...state=MO&c=usa

[Redrum_69]

Originally Posted by bunnytrdr

Your mom is like a garage sale.........

Your mom is like a flea market...she'll peddle her wares to anyone out of her house or in a broken down drive in theatre, you can haggle her if the price is too high, and even though the she'll charge a cover by the end you'll be sweaty and spend all your dough on stuff you could live without...

[Calcountry]

Originally Posted by Redrum_69

Your mom is like a flea market...she'll peddle her wares to anyone out of her house or in a broken down drive in theatre, you can haggle her if the price is too high, and even though the she'll charge a cover by the end you'll be sweaty and spend all your dough on stuff you could live without...

There you go!

[StcChief]

Originally Posted by Skip Towne

I'll bet locking gas caps are good sellers about now.

already have one

[Bowser]

fuck this shit.

[Donger]

Originally Posted by Bowser

fuck this shit.

What are you going to do about it?

[Discuss Thrower]

Originally Posted by Donger

What are you going to do about it?

My thought is he's about to join the posse of Chiefsplanet members who are about to launch an assault against your household as some sort of measure of revenge over the gas prices. Once they're done, they'll proceed to pull up some tacky-ass plastic fold-up chairs in a neighbor's garage and bitch about the gas prices over a cold Keystone.

[Donger]

Originally Posted by J-Town Fan 1988

My thought is he's about to join the posse of Chiefsplanet members who are about to launch an assault against your household as some sort of measure of revenge over the gas prices. Once they're done, they'll proceed to pull up some tacky-ass plastic fold-up chairs in a neighbor's garage and bitch about the gas prices over a cold Keystone.

Ironically, I probably have less to do with the price of gasoline than 99% of the people here.

[Ugly Duck]

Originally Posted by Deberg_1990

Ive asked this question before, but what is the breaking point?

$5 a gallon?

$6?

$8?

Ive seen a few dire predictions out there of $10-12 by 2010 Yikes!!!

Just paid $4.34 today

I figure it'll settle out around $6

[Discuss Thrower]

Originally Posted by Donger

Ironically, I probably have less to do with the price of gasoline than 99% of the people here.

Are you part of the 1% of people capable of teleportation?
...

Or, you are 1% of the people who are Saudi royalty.

[jidar]

Well here I go again. I don't know how many times I've been through this cycle, but every time I read this thread or talk to certain circles of people I find myself doubting my supply demand concerns so I go and do more research, but then I always end up right back where I started. This has to be supply, it absolutely has to be.

1: It's not going to be coincidental that world production levels off and prices rise.

2: There is plenty of evidence that Saudi production is in decline.

This is pretty thorough.
http://www.theoildrum.com/node/2429

The thing I think average joe wonders is "Okay if the Saudis are lying about their oil reserves, why? Why do they say they have more than they do?" Well I think the answer to that is historical. Opec members in 1988 agreed that oil production would be based on each countries oil reserves, so the more you had the more you were allowed to sell on the world market. Mysteriously every Opec member nations reported reserves had massive increases that year. Wow, that's funny!
Saudi in 1987 said they had 165Gb of reserves, but in 1988 right after Opec established their new guidelines Saudi claimed to have 255Gb with no major new discoveries! How convenient of them.

Anyway, ass you can see in the above link every known Saudi field has appeared to be in decline for awhile now, or at least it's production has been, the Saudis say they're doing it on purpose though and it's not a real peak. Well oddly enough if you decide to peg their 'peak' at the beginning of their production decline in 2006 and assume at that point they were at 50% depletion, then that would put their figure of exploitable reserves in 1987 very close to the 165Gb they claimed to have that year, lending further support to the idea that the Saudis peaked in 2006-2007 and are in a rate of decline right now, which further means the planet is probably also in a decline.

[jidar]

Originally Posted by Donger

It's pretty simple. Do you see any gas stations that have no gas for sale?

I've given this more and more thought and the answer I think is simple although not entirely obvious. The key to this is speculation. Speculation on the prices of oil by investors raises the price and curtails demand in advance of supply side shortage, in effect the speculators jumpstart the price and profit off of it before it gets to the point of a real shortage.

I think if you mull that over for awhile you will see that this is not only likely, but in todays economic world it's almost inevitable. I believe it would be difficult to have a true shortage of anything today unless it somehow caught us by complete surprise such as a natural disaster drastically changing a commodity market. Speculation will always get their first if there are any real indicators to lead off of, and in this case there were tons and tons.

[BIG K]

Originally Posted by Ugly Duck

Just paid $4.34 today

I figure it'll settle out around $6

I paid $5.31 today for Diesel. I was paying $4.54 last week...Almost 80 cents in about 5 days. I had been saying for some time that I expect gas to be $5.00 a gallon by summer....guess I was wrong. I am not sure if even $7.00 would be a settling point here in CA....

[Cntrygal]

3.76 for the cheap stuff yesterday