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.

[jjchieffan]

Meltdown 101: Why gas prices rise while oil drops

By JOHN PORRETTO – 18 hours ago

HOUSTON (AP) — You may do a double-take as you pass your local gas station. Chances are, the price you pay at the pump has jumped markedly in the past couple of weeks, even as crude prices have fallen.

The average national price for a gallon of unleaded gasoline rose seven-tenths of a cent overnight to $1.799 — well below the $3.05 average of a year ago but up nearly 14 cents in the past month, according to the auto club AAA, the Oil Price Information Service and Wright Express, a company that tracks transportation data.

At the same time, the price of crude — which accounts for about 60 percent of gasoline's cost — has been on a steep decline. Oil futures tumbled below $34 a barrel Thursday after trading as high as $50 a barrel just 10 days ago.

So what gives? When oil made its extraordinary fall in recent months from a record high above $147 a barrel in July, gasoline followed suit. Why not now?

Here are some questions and answers about the connections between oil and gasoline prices.

Q: Why aren't gas prices falling at my local service station right now?

A: While oil and gasoline prices very often move in the same direction, there's usually a lag between crude's decline (or rise) and that of gasoline. Analysts say the ongoing uptick is gasoline prices is likely tied to oil's sharp rise at the end of last year, when fighting between Israel and Palestinian militants raised concerns about supply disruptions in the oil-rich Middle East.

Q: If that's the case, now that oil has retreated to below $40, shouldn't gasoline get cheaper?

A: It should — and it might — but other factors are at play.

For one, the companies that process crude into products such as gasoline are sharply cutting production, in part because demand has fallen off so much. Less production means less supply, which tends to push prices up.

The gasoline producers are trying to make some money in the wake of a dismal 2008. When crude prices were so high in the first half of last year, refining margins — the difference between what refiners pay for crude and what they get for products they make from oil — were dismal. In the latter half of the year, margins improved as oil prices receded, but refiners continued to struggle because people were simply driving less and buying less gasoline.

Companies that refine oil are publicly traded. If they don't turn a profit, they won't be around long.

"Refiners are not going to continue to sell gasoline at a discount to crude oil," said Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service. "It simply hasn't paid to produce gasoline."

Q: But doesn't that mean they're simply inflating the price of gasoline?

A: That's the opinion of the nonprofit group Consumer Watchdog, which tracks the industry closely and has consistently called for greater regulation of refineries.

Consumer Watchdog says production cuts at refineries in California, for example, have far exceeded the state's drop in consumption.

"The refinery cutbacks are for purely financial reasons," said Judy Dugan, the organization's research director. "Now is the time for government to insert sharper oversight and regulatory controls of the refining industry."

Q: How does my local station set gas prices? Does it follow orders from corporate headquarters to keep prices as high as possible?

A: One thing many people don't realize is that major oil companies own fewer than 5 percent of gas stations. Exxon Mobil Corp., for example, said last June it was getting out of the retail gasoline business, following other major oil companies who've been selling the low-margin businesses to gasoline distributors.

Most stations are owned by small retailers — and many say they took a beating last year when crude prices spiked because they were unable to raise pump prices fast enough to keep pace.

That's exactly why some stations raised prices quickly after oil futures jumped late last year: Not because the more expensive oil had made its way through the production process, but because they saw an opportunity to make some money after struggling with paltry profits for months. So the usual lag between oil and gas prices may not have occurred this time around at some stations — they wanted to raise prices, and they didn't feel like waiting.

Gas station owners face a balancing act: They must try to maintain a price that allows them to afford the next shipment of gasoline, but they're also trying not to give the competition an edge.

Quinn Cassidy, an independent gasoline retailer in Slidell, La., said his profit margin on a gallon of gasoline has improved significantly since the summer, when he and others sometimes made pennies per gallon. Now, because of crude's descent, he says he can make 25 cents to 30 cents a gallon — and he makes no apologies for trying to keep the price as high as possible while remaining competitive.

"Why isn't it OK for me to make money?" Cassidy said.

Q: Are gas prices going to go up even more this summer?

A: Probably, but how much depends on whose forecast you use. Remember that summer is driving season, and gasoline prices always climb when thousands of people begin to take sun-inspired road trips.

Tom Kloza, chief oil analyst at the Oil Price Information Service, predicts prices will move sideways over the next few weeks before they begin to climb in the spring, reaching $2 to $2.50 a gallon. He said he doubts prices can get much higher than that given how weak the economy is.

In another forecast, the U.S Energy Department has said gasoline prices will likely average $2.37 a gallon through 2009.

http://www.google.com/hostednews/ap/...KmpkAD95NRJUO0

[Donger]

Originally Posted by jjchieffan

Gas station owners face a balancing act: They must try to maintain a price that allows them to afford the next shipment of gasoline, but they're also trying not to give the competition an edge.

This is the key part of explaining retail gasoline prices.

[chasedude]

Amazing. Oil closed @ 36.51 Friday. I didn't think it'd break the $40 mark

[BigMeatballDave]

Originally Posted by chasedude

Amazing. Oil closed @ 36.51 Friday. I didn't think it'd break the $40 mark

Actually, it dropped to around 32 before Christmas.

[boogblaster]

Open your hearts and pockets .. them poor oil companies need a bailout ...

[InChiefsHeaven]

Kinda ironic, since people are using less gas, the gas prices went down...so to compensate they refine less gas so that there is less quantities, and the price will go up. So the solution...when oil prices are low, we should all drive our asses off...or something...

[chasedude]

Originally Posted by boogblaster

Open your hearts and pockets .. them poor oil companies need a bailout ...

Did you see the porn industry was asking for a bailout??

[chasedude]

Originally Posted by BigChiefDave

Actually, it dropped to around 32 before Christmas.

Wow, I didn't realize it was that low. I'm sure we'll never see that again.

[Gonzo]

Despite sliding profits in 4th quarter, Exxon sets record for 2008
By Jad Mouawad Published: January 30, 2009


NEW YORK: Exxon Mobil, the largest publicly traded oil company in the world, said Friday that its profit fell 33 percent in the fourth quarter of 2008 as the price of oil declined.

But in a year where oil rose to a record price before having its steepest-ever collapse, Exxon still managed to set a record as the most-profitable U.S. corporation. It earned $45.2 billion in 2008, up from $40.6 billion in 2007.

After riding a tide of swelling earnings in recent years, the once highflying oil sector is beginning to scramble to adjust to a sharp downturn. Oil prices have dropped more than 70 percent since peaking at $147.27 a barrel in July. After averaging $100 a barrel in 2008, oil prices this year are set to decline for the first time since 2001.

Because of its close attention to cost reduction and efficiency, Exxon is weathering the drop in oil prices better than most of its rivals. This past week, both Royal Dutch Shell and ConocoPhillips reported large quarterly losses as asset values dropped because of the fall in oil prices. Chevron on Friday posted a small rise in profit.

In the fourth quarter, Exxon said it earned $7.8 billion, less than expected by analysts and in contrast to $11.66 billion a year earlier. That was Exxon's weakest quarterly performance since the second quarter of 2005, and the first time since 2001 that its performance in the period, typically its strongest quarter, has declined.



U.S. shares slide after GDP report
"Weaker crude oil prices, higher operating expenses, lower chemical volumes and the impact of the Gulf Coast hurricanes were partly offset by higher downstream margins," it said. Exxon said that repairs and lower production because of Hurricanes Gustav and Ike lowered earnings by $570 million.

Exxon said that it gave back $40.1 billion to its shareholders in 2008, up 12 percent from 2007, as either dividends or share buybacks. Its spending on exploration, the heart of its business, rose 25 percent, to $26.1 billion, last year.

Exxon pumped about 2.47 million barrels a day of oil in the fourth quarter and produced 9.8 billion cubic feet, or 278 million cubic meters, of natural gas a day. Over all, oil and gas production decreased 3 percent in the fourth-quarter from a year earlier. In some countries, Exxon is entitled to fewer barrels of oil when prices rise.

Chevron said Friday that its net income rose 1 percent, to $4.9 billion, in the quarter. For the year, the company's earnings rose 28 percent, to $24 billion.

Faced with the sharpest downturn in 25 years, most oil companies are trimming investments and cutting costs. In recent months, projects have been canceled or deferred in Australia, Canada and Saudi Arabia.

In some cases, companies are waiting for costs to fall. In others, they are deferring expensive projects that have become unprofitable at today's lower oil prices. The collapse of the financial sector has made it much harder, and far more expensive, for companies to finance multibillion-dollar projects. In many cases, financing has simply dried up. Energy executives have warned in recent days that oil prices have fallen too fast, and too low, to pay for new and more expensive projects.

Tony Hayward, the chief executive of BP, said Thursday at the World Economic Forum, in Davos, Switzerland, that prices of $60 to $80 a barrel were "appropriate" to sustain investments, especially for producers from the Organization of Petroleum Exporting Countries.

Oil was trading Friday afternoon at $41.75 a barrel in New York. Many experts have warned that there could be a sharp rise in prices when consumption eventually picks up. Fatih Birol, the chief economist at the International Energy Agency, estimates that around $100 billion in projects, mostly outside of OPEC, have been delayed or canceled over the past year because of weaker oil prices.

The Exxon chief executive, Rex Tillerson, has signaled that the company may actually increase its investments by 20 percent this year. It is sitting on nearly $40 billion in cash that could provide it with a strategic war chest to make acquisitions, according to analysts.

[Baby Lee]

With Bush out of office, and oil revenues in free-fall, looks like the Jews are back in the crosshairs.

http://www.huffingtonpost.com/daniel..._b_163202.html

[beavis]

Check out "A Crude Awakening: The Oil Crash". Watched it over the weekend. Interesting and scary stuff.

[Donger]

Crude closed down 6.88% at $34.93 today. The next few months are going to be fun to watch.

[DeezNutz]

Originally Posted by Donger

Crude closed down 6.88% at $34.93 today. The next few months are going to be fun to watch.

What are the continued expectations?

Trending up? Down? Who the blank knows?

[jiveturkey]

Originally Posted by Donger

Crude closed down 6.88% at $34.93 today. The next few months are going to be fun to watch.

It seems like gas prices have been steadily going up for the last month or so though.

[Donger]

Originally Posted by DeezNutz

What are the continued expectations?

Trending up? Down? Who the blank knows?

Historically, demand increases when spring rolls around and crude (and gasoline) rises in unison. I would be surprised if demand doesn't increase. However, I would guess that compared to previous years' increases, this year will be less.