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.

[CaliforniaAlbanach]

Tex

Here is a good site

last weeks US Average was $3.09
last weeks UK average was $7.68

http://www.eia.doe.gov/emeu/international/gas1.html

[kcirnamffoh]

Originally Posted by InChiefsHell

Interesting that the current price is still about what it was in 1980, adjusted for inflation.

Yeah, your right. It's hard for me to hear that truth. You know a gallon of milk is up over $4? I don't remember what milk was in 1990 but gas was about $1.85, if I remember correctly.

I'll never forget a college professor (quantum mechanics, no less) I was talking to in 1990 was kind of bragging about his perceived knowledge on all things economical and he predicted $3 gas prices within a year. Well, he was only 15 years off and on top of that we've been bombing the S**T out of the Middle East since then.

I just suspect that this is more the-sky-is-falling kind of attention getting.

[TEX]

Originally Posted by CaliforniaAlbanach

Tex

Here is a good site

last weeks US Average was $3.09
last weeks UK average was $7.68

http://www.eia.doe.gov/emeu/international/gas1.html

Thanks. Wow - we don't have it "that" bad...

[CaliforniaAlbanach]

see what I mean TEX, even living in an expensive state like CA, I am still much better off!

[Cntrygal]

Nice to know that western SD is 30 - 40 cents higher than the national average. ****ERS!

[CaliforniaAlbanach]

we filled up tonight and was 3.19

[sd4chiefs]

In case you were wondering what the people who are making all that money off the price of oil are doing with it.

http://gizmodo.com/gadgets/rich-dude...380-321620.php

[Donger]

Originally Posted by sd4chiefs

In case you were wondering what the people who are making all that money off the price of oil are doing with it.

http://gizmodo.com/gadgets/rich-dude...380-321620.php

Heh. Excellent.

The mystery baron who's dropping $475 million on an Airbus A380, the biggest commercial aircraft in existence, has been revealed. It's none other than everyone's favorite member of the Saudi royal family, Prince Alwaleed bin Talal bin Abdulaziz Al-Saud. Oh Alwaleed, you were always the crazy one in the family! He already owns a 747, so I guess the A380 is what he'll take when he wants to fly somewhere and really make an impression. Oh, and in case you were curious, the average income in Saudi Arabia is $17,000, making this purchase equal to the yearly salaries of 27,941 Saudis. [FlightGlobal (Thanks Jason!)]

[xbarretx]

Originally Posted by Donger

So, what are you doing to combat the prices, if that's what you are pissed about?

car pooling, spending a whole hell of a lot less, driving less, combining trips, avoiding any SHELL OR BP station as they ALWAYS charge 10 cents more!

they can have there prices as high as they want. i will continue to buy only the bare minimum and once i get out of college (MBA) soon i will be able to drive EVEN less.

their is no shortage.....its all speculative.......i don’t see how demand is rising....let the economy go down the tubes as long as the oil tycoons get there fat injected with more gluttony

its funny overly watched the oil industry is. anything....ANYTHING sends the prices skyrocketing...

"an oil refinery worker had a case of pink eye and took a sick day" = OMG SHORTAGE!!!!!!! BUY BUY BUY

"a board member at Valero had a dream that his oil refinery needed more maintenence" = OMG BUY BUY BUY

"its Monday" = OMG $$$$$$$$$$$$$$$$$$$$$$$$$$$ oil Bull rides again!

while i know that the above items are comical its sad that any news no matter how small sends the roaches who buy this stuff scurrying to buy the price higher.

Recession.....here we come

Originally Posted by kcirnamffoh

I just suspect that this is more the-sky-is-falling kind of attention getting.

indeed

[Donger]

Originally Posted by xbarretx

i don’t see how demand is rising.

And you're in the process of earning an MBA?

[xbarretx]

Originally Posted by Donger

And you're in the process of earning an MBA?

let me rephrase, im at the upper cusp of the middle class. my wife has MBA and im getting mine.

#1 college costs continually rise therefore putting the kibosh to many for their college hopes and dreams. interest rates are horrible, costs continue to grow exponentially. we simply cant afford to waste money buy driving unnecessarily

#2 as the gap between the haves and have not’s grow during the assault on the middle class....the amount of debt carried skyrockets. thus the big deal with the possible credit crunch. once the bottom drops out and we have a credit crunch....the US consumers will no longer have the easy flowing lines of credit to waste. Which will then bring us to a long pit stop in "recession-ville USA"

with prices being so high.. how can demand be growing? baby boomers are driving less and will continue to do so as they exit the workplace.

wages aren’t expanding anywhere near the REAL rate of inflation.

the public is pissed about oil and the price of gas.

while some driving is necessary due to we all cant work from home...people should be driving less.

based on all that i simply cannot fathom how ignorance is fueling this oil bubble.

in my economics class they say demand for oil is inflexible...i say that’s correct but only to a point. its not a straight vertical line...it may be steep but its not running north and south.

in the end im not saying it CANT be growing.....im just saying it makes no logical sense as to why anyone wants to shoot there foot off

[Donger]

Originally Posted by xbarretx

how can demand be growing?

Do you mean in the United States or globally?

[xbarretx]

Originally Posted by Donger

Do you mean in the United States or globally?

U.S. but i know that its not just here... its the rest of the world (china India, etc...) that causes it. economic growth demands ..demand growth due to lack of alt energies. feasible ones anyways.....

even the rest of the world i would think would be tired of overly inflated prices. but with the dollar plunging faster the Damon Huard stock....i can see how its not as bad to them.


edit: so yes i know im answering my own questions.......its just mind-bottling...

Chazz: Mind-bottling, isn't it?
Jimmy: Did you just say mind-bottling?
Chazz: Yeah, mind-bottling. You know, when things are so crazy it gets your thoughts all trapped, like in a bottle?

[Donger]

Originally Posted by xbarretx

U.S. but i know that its not just here... its the rest of the world (china India, etc...) that causes it. economic growth demands ..demand growth due to lack of alt energies. feasible ones anyways.....

even the rest of the world i would think would be tired of overly inflated prices. but with the dollar plunging faster the Damon Huard stock....i can see how its not as bad to them.

Our economy is still growing, albeit slower than before. And, our population continues to increase. That's why we see on average 1% increase in crude demand per year. Americans consume 20+ MILLION barrels of oil every DAY.

[xbarretx]

Originally Posted by Donger

Our economy is still growing, albeit slower than before. And, our population continues to increase. That's why we see on average 1% increase in crude demand per year. Americans consume 20+ MILLION barrels of oil every DAY.

yes my friend, if all else fails i hope this lets the spec buyers of oil realize (once there bubble pops) that monies could be made by investing in energy alternatives.

especially once the resession hits

good conversation by the way