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.

[KC native]

Originally Posted by Buehler445

Heh.

Is that owning the contracts or buying a call option? $100 won't buy a contract of anydamnthing. How many barrels is a contract?

EDIT: could be an investment in an index fund. There will be some huge slippage in that bitch though.

I was keeping it extremely simple. Discuss isn't familiar with futures markets.

[KC native]

Originally Posted by Discuss Thrower

But if I invested $100,000?

Would have gone 0 to 100 real ****in' quick.

Then you would still have your 22.7% return (again assuming no transaction costs). Your 100k turns into $122,700.

This is an extremely simple example and would only work if you were buying an etf. Futures would be a different ball game.

[Discuss Thrower]

Originally Posted by KC native

Then you would still have your 22.7% return (again assuming no transaction costs). Your 100k turns into $122,700.

This is an extremely simple example and would only work if you were buying an etf. Futures would be a different ball game.

Right. And even if I had 100k on hand, I don't think I'd actually have the sack to put it all on oil without some sort of hedging.

[Buehler445]

Originally Posted by Discuss Thrower

Right. And even if I had 100k on hand, I don't think I'd actually have the sack to put it all on oil without some sort of hedging.

Options would give you much less return.

Owning the contract would be the best dollars because you can buy on leverage. But you butt**** yourself if it goes against you and you have to make margin calls.

[Donger]

Crude up $1.53 (3.03%) at $52.01

[scho63]

Oil and gas prices have decoupled. Gasoline under pricing pressure due to strikes and refinery fire. Should be $1.85-$2.05 a gallon not $2.25-$2.40

Oil is in a serious glut and they are running out of places to store all the excess. Highest supply in almost 50 years

Can make another push down to $40

[Donger]

I thought you people might enjoy the following map of gasoline taxes:

[Donger]

Here's an interactive map:

http://www.api.org/oil-and-natural-g...s/gasoline-tax

[jspchief]

Originally Posted by Donger

I thought you people might enjoy the following map of gasoline taxes:

Iowa just passed a .10 increase.

[scho63]

There is an incredible event that is close to taking place shortly; the US is going to run out of room to store all the oil being produced! So many tankers are filled and floating out at sea internationally because they are also full.

Most producers are still cranking out large amounts of oil and the worst offenders are Russia, Iran, and Venezuela.

Oil will make a big push down to $35-40 or worse, than it is time to buy, buy, buy!!!!

==============

US running out of room to store oil; price collapse next?

http://finance.yahoo.com/news/us-run...171025359.html

NEW YORK (AP) -- The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.

For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country's main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.

If this keeps up, storage tanks could approach their operational limits, known in the industry as "tank tops," by mid-April and send the price of crude — and probably gasoline, too — plummeting.

"The fact of the matter is we are running out of storage capacity in the U.S.," Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.

Morse has suggested oil could fall all the way to $20 a barrel from the current $50. At that rock-bottom price, oil companies, faced with mounting losses, would stop pumping oil until the glut eased. Gasoline prices would fall along with crude, though lower refinery production, because of seasonal factors and unexpected outages, could prevent a sharp decline.

The national average price of gasoline is $2.44 a gallon. That's $1.02 cheaper than last year at this time, but up 37 cents over the past month.

Other analysts agree that crude is poised to fall sharply — if not all the way to $20 — because it continues to flood into storage for a number of reasons:

— U.S. oil production continues to rise. Companies are cutting back on new drilling, but that won't reduce supplies until later this year.

— The new oil being produced is light, sweet crude, which is a type many U.S. refineries are not designed to process. Oil companies can't just get rid of it by sending it abroad, because crude exports are restricted by federal law.

— Foreign oil continues to flow into the U.S., both because of economic weakness in other countries and to feed refineries designed to process heavy, sour crude.

— This is the slowest time of year for gasoline demand, so refiners typically reduce or stop production to perform maintenance. As refiners process less crude, supplies build up.

— Oil investors are making money buying and storing oil because of the difference between the current price of oil and the price for delivery in far-off months. An investor can buy oil at $50 today and enter into a contract to sell it for $59 in December, locking in a profit even after paying for storage during those months.

The delivery point for most of the oil traded in the U.S. is Cushing, a city of about 8,000 people halfway between Oklahoma City and Tulsa at an intersection of several pipelines. The city is dotted with tanks that can, in theory, hold 85 million barrels of oil, according to the Energy Department, though some of those tanks are used for blending or feeding pipelines, not for storing oil.

The market data provider Genscape, which flies helicopters equipped with infrared cameras and other technology over Cushing twice a week to measure storage levels, estimates Cushing is two-thirds full.

Hillary Stevenson, who manages storage, pipeline and refinery monitoring for Genscape, says Cushing could be full by mid-April. Supplies are increasing at "the highest rate we have ever seen at Cushing," she says.

Full tanks — or super-low prices — are not a sure thing. New storage is under construction at Cushing, and there are large storage terminals near Houston, in St. James, Louisiana, and elsewhere around the country that will probably begin to take in more oil as prices fall far enough to cover the cost of transporting the oil.

Also, drillers are cutting back fast because oil prices have plummeted from $107 a barrel in June. And demand is showing signs of rising.

While the Energy Department reported another enormous rise in crude stocks last week, up 8.4 million barrels from the week earlier, it also reported that diesel and gasoline supplies fell more than expected. That leads some to conclude that demand for crude will soon pick up, easing the surplus somewhat.

But many analysts believe oil prices will fall through the spring, before summer drivers start to relieve the glut.

[BigMeatballDave]

It's up over 50 cents in the last month in my area.

Price gouging bastards.

[KC native]

Originally Posted by BigMeatballDave

It's up over 50 cents in the last month in my area.

Price gouging bastards.

The strike at refiners has driven that.

[scho63]

Originally Posted by BigMeatballDave

It's up over 50 cents in the last month in my area.

Price gouging bastards.

Gasoline is up-oil is not

[BigMeatballDave]

Originally Posted by KC native

The strike at refiners has driven that.

That makes sense. Hadn't considered that.

[Mr. Flopnuts]

Originally Posted by KC native

The strike at refiners has driven that.

Seems convenient, though I know little about it. It just seems something always happen to negatively affect pump prices.