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.

[Bowser]

Originally Posted by Donger

Okay, that's certainly possible. I've answered that question multiple times in many threads. I think I answered it in this thread, too.

* EDIT - Post 104

Correct. There two reasons why the oil companies haven't built one: profit and red tape. A new refinery would be a huge capital expense. Sure, they presently have the cash, but realizing a profit from a new refinery would take years. Also, our government has made building (let alone getting one approved) a refinery an extremely painful process. Environmental regulations, politics, etc. Instead, they have chosen to expand existing refineries to meet demand (and import refined gasoline).

Sorry, for some reason I thought you had asked it before.

Thank you for checking, and thanks for the answer.

After giving it some thought, here's what I think -

I really do understand Economics 101, and I can't blame a single person for wanting to make money. If I were in a similar position, I'd want as much as I could get as well. The thing I'm hung up on is the fact that there is no viable mass produced energy alternative to gasoline. Knowing this, I think that the petroleum business needs some sort of regulation and oversight. Gasoline has become a necessity to modern day life much like electricity, and should be somehow regulated. But certainly, we can and should all try to adjust our lives accordingly to ease the stress of higher prices at the pump. There are few other products we know of that can have such a ripple effect on our economy and daily lives than gasoline and its cost. As it stands now, it seems petroleum companies have carte blanche to do as they wish with the prices when they want.

[Donger]

Originally Posted by Bowser

As it stands now, it seems petroleum companies have carte blanche to do as they wish with the prices when they want.

Thanks for your response.

However, I disagree about regulation. It was tried once before, and it was a VERY bad idea. Think about it: let's regulate pricing in the US on a product that is derived from a globally-traded commodity that we import a lot of... Don't forget that utilities generate their power mostly from coal, which we have plenty of. Besides, I'd rather there be no regulation of utilities either. But that's another discussion.

As to there not being an economically-viable alternative to gasoline, yes, that's true. There isn't. Gasoline is still, BY FAR, the most energy efficient and inexpensive method of powering our cars. Until that changes, I fear that the impetus to find the alternative will not happen.

And, to a certain extent, the oil companies ARE already regulated. Look at how many times the FTC has investigated (and I mean THOROUGHLY) them and found NO evidence of gouging or price fixing. None. They don't just pull a number out of their asses and "stick it to us." That's why I always bring up their profit margin. It varies between 8% and 10% That's not "excessive," IMO. The fact that their PM stays relatively constant tells me that aren't just raising prices "because they can."

I understand your frustration, but I'm still enough of a capitalist to accept that the oil companies are going to make profits when they can.

I'm just glad diesel is 30 cents cheaper per gallon than regular. I may be keeping my big truck afterall.

[Sure-Oz]

3.11 here in nkc, i dont remember it being this high...

[go bo]

Originally Posted by dirk digler

If I was a terrorist that would be the first place I would attempt to strike

i dunno...

just off the top of my head i would think that a nuclear power plant would make the best target...

even if the terrorists don't succeed in their attack, they still will have demonstrated that they can reach that kind of target and have the capacity to attack other nuclear plants as well...

forcing us to spend more billions "hardening" all the nuke plants...

just like we spent billions on airport security after we were attacked with our own planes on 9/11...

[Donger]

Originally Posted by go bo

i dunno...

just off the top of my head i would think that a nuclear power plant would make the best target...

even if the terrorists don't succeed in their attack, they still will have demonstrated that they can reach that kind of target and have the capacity to attack other nuclear plants as well...

forcing us to spend more billions "hardening" all the nuke plants...

just like we spent billions on airport security after we were attacked with our own planes on 9/11...

Gasoline and diesel refineries are much softer targets. Containment vessels at our nuclear plants are, well, rather strong.

[go bo]

you're right about refineries being softer targets and attacks on them would no doubt have a significant impact on our whole economy...

i guess i was referring to the "terror" part of terrorists' activities...

even though there might be neglible effect on a nuclear plant (because of the containment vessel), the mere fact that the terrrorists can reach those targets would cause us ordinary people a lot of worry about a potental release of radiation from damaged nuclear plants...

other targets make cause greater damage to the ecomony, but the fear of radiation contamination on a widespread scale causes a lot more, well terror, if you will...

[Donger]

Originally Posted by go bo

you're right about refineries being softer targets and attacks on them would no doubt have a significant impact on our whole economy...

i guess i was referring to the "terror" part of terrorists' activities...

even though there might be neglible effect on a nuclear plant (because of the containment vessel), the mere fact that the terrrorists can reach those targets would cause us ordinary people a lot of worry about a potental release of radiation from damaged nuclear plants...

other targets make cause greater damage to the ecomony, but the fear of radiation contamination on a widespread scale causes a lot more, well terror, if you will...

Dumb, panicky animal syndrome?

It's virtually impossible to create a Chernobyl-like disaster in the United States, even intentionally. Our plants are vastly superior with regards to design and engineering.

[Abba-Dabba]

Originally Posted by Donger

I only mention their profit margin when someone brings up oil company profits. It's just a fact. Sure, when they make a profit, it's huge because of the size of the market (you and me and everyone else that buys gasoline). But, there are plenty of other industries out there that make vastly higher PM.

I realize that high gasoline prices have an effect on most prices, thanks. Should the oil companies be selling gasoline below cost?

I don't care about other industries profit margin, mmmkay?. Maybe you didn't understand that in my previous post. No other industry has such a negative effect on the economy than the oil industry with rising prices.

They have a long ways to go before they sell it below cost. About 125B worth before they hit that point from last year alone.

[Simplex3]

Originally Posted by morphius

I think it is different when it is a utility company, and oil companies fit into that IMO.

I would also say that they have no real competition, because obviously the price in one company isn't holding down the price in the others, like what happened to long distance telephone companies in the 90's.

Really, because you only have a Conoco gas pipe running to your house? Congress would love nothing more than to prove the oil companies are colluding but they just can't seem to find any evidence.

[Simplex3]

Originally Posted by Saggysack

I don't care about other industries profit margin, mmmkay?. Maybe you didn't understand that in my previous post. No other industry has such a negative effect on the economy than the oil industry with rising prices.

Put a couple of the oil companies out of business and see what happens to the price, dumbass.

[Abba-Dabba]

Originally Posted by Simplex3

Put a couple of the oil companies out of business and see what happens to the price, dumbass.

Last I looked, 125 Billion in profits doesn't put anybody out of business, dumbass.

[Simplex3]

Originally Posted by Saggysack

Last I looked, 125 Billion in profits doesn't put anybody out of business, dumbass.

Have you bothered to calculate their EXPENSES there Mr. "Oh their profits are high"? Yes, their profits are high, but at 10% margin their risk is astronomical.

Nobody else moves nearly as much product. Nobody else has so many eggs in one high risk basket. With incredibly slim margins like that all it takes is one bad day and they're in the red for months.

Once again, if this is such a lucrative deal and you're being f**ked so hardcore, go buy some stock and quit bitching.

[Donger]

Originally Posted by Saggysack

I don't care about other industries profit margin, mmmkay?. Maybe you didn't understand that in my previous post. No other industry has such a negative effect on the economy than the oil industry with rising prices.

They have a long ways to go before they sell it below cost. About 125B worth before they hit that point from last year alone.

Well, you should. How else can you judge the oil companies relative to other industries?

And, if you cared about profit margin, you'd know that, no, they don't have a long ways to go before they sell it below cost. Only about 10%

[007]

What drives me nuts is the inconsistency in prices throughout a city. Topeka is not very large and yet we will see $3.09 in one part of town and $3.39 just a few miles away for the same grade. If this were LA or NY or even KC I wouldn't say much about it but TOPEKA? I would think all the stations would be able to stay within say 10 cents of each other.