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.

[Donger]

Year-to-date, American consumers have bought 1.4 percent less gasoline than they did last year

[Deberg_1990]

Originally Posted by Donger

Year-to-date, American consumers have bought 1.4 percent less gasoline than they did last year

OK, lets just assume that Americans continue this trend of using less gas. Lets assume gas drops below $3 a gallon again. How long would that last? Wouldnt Americans just return to old habits once the gas price becomes reasonable again, in turn driving gas prices right back up?

[chasedude]

Interesting article I just read from CNN, it helped explain it to me a bit better.

Who's to blame for $4 gas?


http://money.cnn.com/2008/05/20/news...ion=2008052010

NEW YORK (CNNMoney.com) -- It's hard to imagine now, but in 1999 gasoline sold for 90 cents a gallon. How'd we get from there to $4 a gallon?
There is no short answer - many things happened, and together they formed a chain of events from cheap gas to $100 tankfuls.

2004: Demand pressure
One of the most common reasons cited for the price jump is supply and demand - we are using more oil, which accounts for 70% of the price of gas, and finding less of it.
Why we are finding less oil and using more of it is partly a result of the low prices during the 1990s. Those low prices - partly caused by low gas taxes in the U.S. compared to other developed nations - both encouraged rapid consumption domestically (think SUVs) and underinvestment in new production by the world's oil companies.
By the time 2004 rolled around - and developing economies around the globe roared to life - the world was left in a pinch.
"Our demand has skyrocketed, but our ability to supply that demand has stagnated," said Stephen Schork, publisher of the industry newsletter The Schork Report. Gasoline prices topped $2 a gallon for the first time ever in May of 2004, "and we've been off to the races since then," said Schork.
As demand grew and the supply of oil remained relatively flat, the difference between the amount of oil the world could produce and the amount it consumed narrowed. That meant a supply disruption from one place in the world could not be easily covered with spare oil from another part.

2005: The storm
This was illustrated in September 2005, when Hurricane Katrina knocked out a significant chunk of U.S. refining and gasoline prices spiked above $3 a gallon for the first time ever.
"It exposed how little surplus refining capacity we have in the U.S.," said James Crandell, an energy analyst at Lehman Brothers.
A new refinery hasn't been built in the United States in three decades, although capacity at existing refineries has been expanded.

2006: Hot tempers
The lack of spare supply has kept other geopolitical events in the forefront for the last few years. Iran and the spat over its nuclear program dominated the news in early 2006, and combined with Israel's invasion of Lebanon in the summer of that year to cause another spike in gas prices to over $3 a gallon.
Geopolitical events need not be shooting wars to attract attention. Analysts say general resource nationalism since 2004 is partly responsible for high oil prices.
In the past few years, Iran's Mahmoud Ahmadinejad, Russia's Vladimir Putin and Venezuela's Hugo Chavez have all become more bellicose on the world stage - in some cases, seeking a bigger share of the profit from foreign oil firms or threatening to cut off oil supplies if attacked.
Some say the Bush administration's provocation of Iran and Venezuela, coupled with a botched occupation of oil-exporting Iraq, has contributed to the geopolitical tension. But defenders say that, in the long run, the administration's actions will eventually lead to a more democratic - and thus stable - global supply.

2007: Tight supplies
New supplies of oil from non-OPEC countries were supposed to come online in 2007 and ease some of these supply bottlenecks. But problems in Kazakhstan and Russia - as well as sweeping drilling bans in the United States - mean global consumption is growing twice as fast as non-OPEC production.
Analysts say OPEC, which hold two-thirds of the world's oil reserves but sees a global economy humming along despite $130 oil, has little incentive to increase production.

2008: Speculators swarm
Strong demand, tight supplies and a volatile marketplace have attracted the interest of investors - the last main contributor to high prices.
"The speculator has seized upon this opportunity," said Schork. "They have recognized there is something fundamentally flawed in this market."
Since 2003, the number of oil contracts exchanged on the NYMEX has more than doubled, said Schork.
Money flowing into oil - and commodities in general - has been especially sharp over the last 6 months as investors look for good returns amid falling stock prices and an inflation hedge against a falling dollar.
That's helped push oil prices to nearly $130 a barrel and gasoline to an average of nearly $3.80 a gallon - smashing previous records even when adjusting for inflation.
Why do you think gas prices are so high? Post a comment.
Whether this investor influx into the oil market is justified is matter of debate. Some see high oil prices as necessary to boost supply and limit demand.
"You can't just point the finger at speculators," Michael Haigh, head of U.S. commodities research at the investment bank Société Générale, recently told CNNMoney.com "Fundamentally, the markets are where they are supposed to be."
Others are less certain.
"The fundamental picture to us doesn't justify the price," said Lehman's Crandell. "It's kind of suggestive of a bubble."

I've seen Donger mention this "bubble" too, I hope they're both right!!!

[Donger]

Originally Posted by Deberg_1990

OK, lets just assume that Americans continue this trend of using less gas. Lets assume gas drops below $3 a gallon again. How long would that last? Wouldnt Americans just return to old habits once the gas price becomes reasonable again, in turn driving gas prices right back up?

Most likely.

[Donger]

Neat story:

http://www.cnn.com/2008/LIVING/wayof...tro/index.html

(CNN) -- It's a 12-year-old oft-mocked clunker of an automobile.
art.brenton.netz.geo.jpg

Brenton Netz has made a side business out of fixing up Geo Metros and selling them locally and on eBay.

But Marci Solomon is hoping she'll be the one laughing -- all the way to the bank -- when her Geo Metro saves her from skyrocketing gas prices.

Solomon, like many others, was taking a huge hit when it came to gas prices. With her 100-mile commute to and from work each day, she saw no end in sight. Then she rediscovered the Geo Metro.

"I used to be a car snob, and I used to be too vain to drive anything that doesn't shine," said Solomon, an electrician. "But now it's about, do I want to eat, or do I want to make it to work? I want to do both."

The Metro has been making a huge comeback, especially on eBay, where Solomon bought the car, because of its extremely high gas mileage.

The 1996 Metro's average of 40 miles per gallon nears that of the hybrid 2008 Toyota Prius -- priced at $21,000 for the cheapest model -- and bests most current cars by a long shot, according to government ratings. Older models of the Geo Metro, specifically cars from 1991 and the XFi edition, have the same average as the hybrid. See how the Geo Metro stacks up with the Toyota Prius »

Solomon toyed with the idea of purchasing a Prius but decided that for a price of $7,300, the Metro was the more economical option.

For the most part, Solomon plans on using the car for commuting from her home in Rochester, Washington, to her job. The vehicle she has now, a Honda Element, was getting 28 mpg, and she was filling up twice a week, costing her nearly $100. Stations were charging $3.97 a gallon in her area Tuesday, she said. iReport: Tell us how high gas prices are affecting you

The Metro is an investment in the future, Solomon said, even if she did pay more than five times the Blue Book value of the car.

"It was all about saving money," she said. "I don't think gas is ever going to go down, and these are going to be the types of solutions we have to turn to. I wanted to beat the rush."

The rush may have begun.

The 1996 2-door 3-cylinder Metro Solomon now owns opened on eBay May 7 with a bid of $200. A week later, Solomon won the car auction with a bid of $7,300. In 1995, a new Metro hatchback sold for about $9,000, according to Auto Mall USA.

In May alone, 43 Metros of various years and models were sold on eBay, ranging in price from $221.50 to Solomon's bid of $7,300. The cars have been hot items, drawing upwards of 49 bids on certain vehicles, with many of the auctions coming down to last-second bidding wars. On Tuesday morning, 34 Metros were still up for grabs.

Since her eBay purchase, Solomon has acquired another Metro, which she is considering flipping on eBay for profit. She has her eye on a third at a local car lot.

"To be honest, I'm thinking of scarfing up any Geo Metro I can find," she said.

Solomon isn't alone in trying to profit off of a gas-saving craze. Brenton Netz has been selling fixed-up Metros and Ford Festivas for two years now.

After buying a Metro on Craigslist in Montana and driving it back to his home in St. Cloud, Minnesota, Netz realized how rarely he was making trips to the pump.

"I thought the gas gauge was broken," Netz said. "I couldn't believe the gas mileage I was getting."

He realized that he had stumbled upon a possible side business and began buying one-way tickets to states in the West to purchase as many of the cars as he could. Netz said he has sold about a dozen cars and has eight more sitting in his backyard.

His cars go up for sale only one at a time because he knows that putting up a couple at a time would drive down the value and cut into his profit.

Netz says consumers don't seem to mind paying more than the retail value, and if they do, they generally stop feeling that way after they pick up the cars. He's gotten phone calls and e-mails from customers saying how thrilled they are with the mileage.

It seems, Netz said, people are beginning to realize that their car choices need to be focused more on practicality than status and appearance.

"Gas prices are definitely driving increased popularity in the Metro, which at times wasn't cool," he said. "Now the coolness factor is stemming from the fact that you're getting 50 miles per gallon and never having to fill up."

[InChiefsHeaven]

Paying 7300.00 for a 12 year old Geo Metro is insane...wait till it breaks...

[InChiefsHeaven]

...you would think GM would just re-release the Metro if it's so popular...the could sell it new for like 12K and make a ton...

[Fairplay]

Supply and demand

Simple economics.

[Deberg_1990]

Originally Posted by InChiefsHell

...you would think GM would just re-release the Metro if it's so popular...the could sell it new for like 12K and make a ton...

I would think these are going to sell pretty well:

http://www.smartusa.com/

[Wa-Z]

So if last year the price per barrel was around $60 or so and the gas prices were around $2.50, and today the price per barrel has more than doubled and the oil prices have gone up over a $1.30 then think about how much gas prices have been marked up...kind of puts into perspective how much money they are making.

[Donger]

Heh. I see the congresscritters are once again asking oil company executives the same questions they've answered dozens of times before.

[Fairplay]

All you can do is play the game.

Get a 4 cylinder car and put money into the oil company stock(s), you might as well make some money in this as well.

[jiveturkey]

Originally Posted by Deberg_1990

I would think these are going to sell pretty well:

http://www.smartusa.com/

The MPG on those is pretty disappointing. I can't remember the exact number on the window but I do remember thinking that my Camry was comparable.

They had one sitting outside of Nebraska Furniture Mart.

[HemiEd]

I just talked to one of our suppliers, who has a division in Sweden. He said Diesel Fuel is $12.90 a gallon over there.

[Deberg_1990]

Originally Posted by Donger

Heh. I see the congresscritters are once again asking oil company executives the same questions they've answered dozens of times before.

J. Stephen Simon, executive vice president of Exxon Mobil Corp., said profits have been huge "in absolute terms" but must be viewed in the context of the massive scale of the industry." He also said high earnings are needed "in the current up cycle" to pay for investments in the long term when profits will be down


http://www.breitbart.com/article.php...show_article=1